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Manning the new Economy

Manning the new Economy

Deloitte Touche Tohmatsu e-business head Peter Williams has a young lad sitting in his office who not only works for him but runs an e-business on the side. A couple of shakes ago, the 24-year-old might have been labelled a moonlighter, had his extracurricular activities exposed to the closest scrutiny, and perhaps even been threatened with dismissal.

Now the deal is embraced as a win-win situation. The young man is setting himself up in a realm where millionaires get created overnight while simultaneously gaining exposure to some of the world's larger e-business projects. Williams gets the benefit of next-generation e-business experience and the chance to bounce ideas off someone who is already making his own way in the new economy.

Meanwhile, Deloitte Consulting's global operation intends introducing an equity-based profit-sharing scheme to try to keep employees from leaving to join dotcom start-ups, after losing 200 of the best of its 7000 strong US workforce in January alone. When the local arm recently acquired 20 per cent of the Eclipse Group, one of the fastest growing e-content providers in Australia, partners and staff were offered a 10 per cent interest for similar reasons.

Williams is in no doubt the battle between dotcoms and old-economy companies for Internet talent is set to just keep getting fiercer. "The biggest challenge on the people side is that given the amount of Internet-related work there is at the moment there won't be enough people on the planet to be able to effectively implement it all," he says.

Williams says he talks to dotcom staff every day who have come out of IT consulting firms, more traditional IT shops or marketing departments. GoCorp, he says, seems to be almost entirely peopled by ex-employees of SAP. "These guys are all good people, and they're just walking out of everywhere," Williams says.

The Gap Widens

Year after year, says Cambridge Technology Partners in its "New Economy Primer", the gap in value creation is growing between companies that employ intellectual capital and those with an asset-based business model. "As more of the world's business migrates from asset-based economies - tonnes of iron ore, barrels of oil, acres of bananas - to fundamentals of creativity and innovation, intellectual capital will become the dominant source of value creation for both customers and shareholders alike."

And while asset-based businesses will continue to be players in the new economy, the work that takes place in these companies will rely less on physical labour and more on the knowledge-based engines of productivity that ultimately shape their business models and dictate their economic viability.

People matter in the new economy. They matter a lot. The only thing is, there just is not enough of the right kind to go around. "If you don't invest in recruiting and rewarding the bright sparks who'll fuel the innovation engine that inflates your margin, your competitors will. And if you don't connect all that intelligence, you're wasting it," Cambridge says. Companies at the fiercest focus of the skills battle - like Cap Gemini, SAP, and Cisco - have already learned to listen more to employee aspirations, deliver more of the rewards and benefits they seek, and empower individuals to meet their own professional goals and skills development.

Sadly, too few Australian organisations are doing the same. Andersen Consulting associate partner financial, Paul Lewis, says long after US firms have moved on from such issues, Australian businesses seem to be focusing far too much on processes and technology, and far too little on people and culture. "It is the application of the human performance element that's going to enable our clients to live in this new e-environment," Lewis says. "I think probably the most important thing CIOs have to bear in mind is that while certain elements of culture, leadership, employee performance, reward and so on, have all been nice to have previously, the e-economy environment is going to drive these as critical elements."

Jamie Rintel, manager, financial service industry with Andersen Consulting, agrees, saying the biggest mistake a traditional business can make is to carry over too much of the legacy baggage, such as policies and culture, from the traditional business. "In reality this means only [taking across] existing employees into the e-commerce venture who demonstrate the desired mindset," he says. "Technology and processes will get an organisation into the e-world, but human performance is what will make them succeed there. Addressing the human performance issues will be an order of magnitude more difficult than anyone who hasn't created an e-business from a traditional business could imagine."

Prepare to Change

Rintel says successful Internet companies share a number of key elements, including a high capacity to change, ability to deal with ambiguity, a level of creativity, acceptance of risk and a heavy emphasis on customer focus. They are also willing to think outside the traditional boundaries - being prepared to view competitors as potential partners and as opportunities, for instance.

But both Rintel and Lewis point out that making such a cultural change is incredibly difficult, and a far greater challenge for bricks-and-mortar companies than for start-ups. It's one of the main reasons why many companies start up the dotcom as a separate entity. "You can then start to populate it with people with the right attributes," Rintel says. "Your reward structures, your leadership style and your policies can all be set up to reinforce risk taking, decentralised decision-making. If you try to do it within an ordinary organisation you find the command and control policies, structures and limits of authority don't allow you to have that risk-taking innovation, that creativity, that you need."

The partners agree that winning the war for talent starts with a recognition that in the existing sellers market, recruitment should be used as an aggressive marketing campaign, selling the company as the place to work. They also advise companies to:

* Offer attractive base salaries in combination with benefits matched to the values of e-workers. E-workers are savvy and are looking for a piece of the economic action - hence the prevalence of stock option packages.

* Create a desirable work environment and a reputation as a "cool" place to work, while not forgetting that money isn't everything. To many of these workers what is far more important is the work environment and the type of work - like the opportunity to build unique skills, to work on leading edge projects, to have flexible work arrangements.

* Continuously recruit for talent rather than hiring for specific positions. The quality and quantity of the people in the business are the biggest drivers of success. Hardware, software and business models can easily be copied - the workforce cannot. With a shortage of talent in the marketplace successful companies recruit whomever they find is good and worry about finding a position for them later.

* Develop Internet-based marketing campaigns aimed at the most desired workers. These people are Internet-savvy - use the medium to find and attract them.

Ken Love, a senior manager with Deloitte Consulting, also says employee expectations will demand more flexibility and new forms of remuneration:

* Internet-savvy employees are non-hierarchical, enjoy experimentation and a high degree of autonomy - large bureaucratic organisations with complex processes frustrate them.

* Incentives and reward practices will need to change and considerable emphasis will be placed on instilling shared values as a way of binding together a complex and fast-moving organisation.

Attracting and retaining top talent will require new HR processes and policies.

Rules Shmules

Commonwealth Bank general manager e-commerce Stephen Coulter says the bank has an online vision "in chosen markets, to be the leading global provider of online information services related to financial services in a profitable manner". And the bank knows full well that the right people will be crucial to its success. In pursuit of its goal the bank plans to have its entire business run using online infrastructure and technologies within five years, and has established an e-commerce Centre of Excellence across the bank to drive the changes.

"In one sense we're a separate, self-contained unit; but on the other hand, being a centre of excellence we touch all parts of the organisation and work with them," Coulter says. Choosing the right people has been essential to its e-commerce success. Coulter says the organisation has consciously striven to people the Centre of Excellence with staff comfortable with change and ambiguous environments.

"At the end of the day our advantage comes from our people and nothing else. The technology is a commodity - it's how you apply that technology to your customer's benefit that separates the winners from the losers. To achieve that, you've got to have business people that are passionate and intelligent and innovative to drive that through," he says. "And you've got to communicate that to the rest of the organisation. You've got to challenge the conventional and not be bound by rule books. That means doing the right thing, rather than following rules if they don't make sense, because an awful lot of business rules and business generally is constructed around the traditional business models, which simply don't work online."

Kids Rule

The Tile Factory Group imports, wholesales and sells tiles, and provides advisory services to customers. Its comprehensive Internet Web site and expanded market reach has led it to develop new service products and online applications to fill the specific needs of rural and remote customers in northern Australia and Pacific island countries. Three years down the e-commerce track, says managing director David Peel, the company is still developing ideas on how to make e-commerce pay.

One thing it has learned - it matters considerably where the e-commerce group sits. "Like so many businesses we dumped the e-commerce business into the finance and accounting department," Peel says. "Why would you do that? That would be like giving your child into the protection of a cannibal. Accountants are by nature not creative or innovative - it's just not their style of operation." At least the company has learned what doesn't work. To overcome the mistake the company engaged the services of an external consultant to help drive and modernise its Web page, and put e-commerce in the hands of a young IT systems administrator.

Peel gives himself some credit for the e-commerce venture's success, saying he has driven the e-commerce initiative from the top because he's in love with the capacity of technology to grow the business. "And I'll tell you what the biggest challenge is - you've got to trust kids," Peel says. "You try and get an IT specialist of 40 - it's an oxymoron. If they're over 25 they're half past it. We've got this young fellow here and he's great. He doesn't know much about business, but I want him to blue sky and paint what we can do and help us develop the exciting future we can have with it."

Structural Change

Such innovative structures are far from unusual in the e-economy.

"In a successful e-organisation, fluid project-based organisation structures are common, in which cross-functional teams come together to achieve a particular objective, then disband and reassemble in another configuration to address a different issue," Andersen's Lewis says. "At the individual level, roles need to be defined with high levels of decision-making authority and autonomy to encourage fast decision making and to respond to motivational needs of the e-workforce."

Survival of the Fastest

To survive in the new online economy, organisations need to become "kinetic" - that is, capable of rapidly adapting to shifts in customer and market behaviour. At the same time managing core competencies means managing intellectual capital and knowledge generation, capture and application, Deloitte's Love says.

He says in order to leverage knowledge and the power of partnering with customers, suppliers and others, organisations will have to account for three things in an organisation's design:

1. The source of the value-adding knowledge2. Where the knowledge is modified for customer use, structures must enable customer-centric innovation3. The direction of the flow of this knowledge from point to point.

"As organisational boundaries become ill-defined - a blend of customers, suppliers, employees, contractors, specialist associates, and so on - leadership will be founded more and more on building voluntary commitment to a shared vision, appealing to shared values and interests. This will require considerable skill as power, ownership and authority become less relevant," Love says.

Increased information sharing among business partners will demand a greater degree of trust based on a shared set of business ethics. Other changes will also be apparent.

Love says Internet technology will intensify the pressure on corporations to account for their impact on the communities within which they operate. Buying behaviour will change as consumer consciousness grows regarding issues of environmental sustainability and social impact.

Inter- and intra-enterprise governance and decision-making processes will also be revised. And intermediaries will need to find new ways of adding value. "In the traditional organisation, managers are intermediaries in many instances," Love says. "Many of their tasks will disappear, because software provides the discipline in the system that interaction with managers used to provide: transmission of rules and information from experts in the centre of the organisation to the point of contact with the customer.

"So managers will have to deal with other issues like communicating values, implementing strategy and creating the environment for the knowledge worker."

Managers will also need to be able to lead in a decentralised environment - ensuring lateral collaboration across organisation units and between communities of practice.

At the same time they will have less ability to control the innovation and delivery processes as these are pushed out closer to the customer. Maintaining quality will be a challenge as process controls loosen.

Take Me to Your E-leader

When global management consulting and executive search firm AT Kearney surveyed more than 100 Australian companies recently they found that "e-leaders" were more likely to share personality traits than university degrees. The results show good e-leaders as having the following characteristics:

Customer obsessed: preoccupied with how the company can better serve the customer. Talks and communicates with customers on a daily basis - asks questions and listens without judgingParanoid: challenges the status quo. Continually trying to outsmart and second think competitors and anticipate customers' needs. Strives to understand how new technology can better serve customersRisk-taker: comfortable making decisions without all the information. The online world is changing too fast to procrastinate.

Suffers "bandwidth separation" anxiety: cannot be more than five minutes away from a telephone, pager or Internet connectionAdmits mistakes: shares bad news quickly and encourages others to do the sameEvangelising: can't help but spread the word. Selling what isn't there to employees, customers, shareholders and the board. Must be able to visualise a future very different to current reality and be passionate about itThrives on ambiguity: always has the helicopter view and is very comfortable with fluidity. If you don't have a restructure every second week these people get nervous.

Brutally frank: to themselves and others. Realises own skill shortcomings and compensates by teaming with the right people. Outstanding project managerResults oriented: always looking for faster ways to achieve desired outcomes. "I want it now, I want it perfect, and I want it for free"Credible: is respected in all business divisions and functions- S BushellConsciousness-raisingAustralian companies have been undertaking some distinctive methods to improve their leaders' understanding of e-business, according to a survey of more than 100 Australian companies. Methods include:

* Creating new e-business divisions often reporting directly to the CEO to formulate strategy and educate other divisional leaders* Appointing young e-mentors to help older "non-connected" leaders understand the implications of the digital economy. General Electric has instituted this globally* Insisting leaders buy items or services regularly over the Internet* Creating an e-business vision for the leadership team* Offering study tours to the US for leadership teams* Linking annual bonus to achieving e-business milestones* Appointing a human resources person 100 per cent dedicated to anticipating skills required from one to three years out and plan how to acquire them- S BushellMeaty IssuesThe Australian Quarantine and Inspection Service (AQIS) uses e-commerce in its inspection procedures to reduce costs and increase productivity, as well as to meet its regulatory export requirements to improve shipments and issue certification. AQIS uses electronic export documentation, ExDoc, to demonstrate export products have been subject to its inspection. ExDoc has been operated since August 1992 for meat inspections and the new ExDoc, redeveloped in 1996, is being extended to other export sectors.

According to manager, electronic documentation and registration system John Christian, AQIS set the ball rolling on e-commerce with an EDI in conjunction with the Australian Customs Service in 1987. "Over a rather rough, bumpy road we've got there and now all our shipments to Japan from Australia are cleared electronically, so far as government is concerned. (Data is never repeated, there's a single conduit to government, and it's seamless," Christian says.

Since the initial implementation there have been many enhancements. For instance, in 1998 AQIS converted ExDoc to operate under a three-tier architecture, which reduces by 33 per cent the time spent on maintenance when enhancements are coded. Eventually AQIS plans a totally paper-free export certification system. However, Christian says the implementation would never have been achieved unless there had been a proven win/win for all parties involved, unless the CEO had been on side and the business managers committed.

He says crucial to the project's success has been the adoption of the Thomsett critical path methodology. "You ought to be organised like this. IT costs too much today to be fiddle-fart-arsing up wrong alleys or having to wait because you haven't planned properly," he says. "You must focus on the issues, and the issues are having the appropriate expertise and the appropriate funds in the right place at the right time."

Christian says while it is normal to hand such projects to the IT group, it is essential that the chief executive is on board to drive the initiative from the top. The organisation must also follow the principle of decent, solid user analysis, and, ideally, business managers should manage all projects. "The IT group also has to apply rigour in their processes too, but it is essential that you know exactly business-wise what you are trying to do," he says.

- S Bushell

The Role of the CIO

Forget about laying down a robust e-business infrastructure or developing e-business strategies that align IT with the business just for the moment. If CIOs really want to help boost their organisation's e-business efforts in Australia they should be donning their lobbyist caps and heading to Canberra, Quik International president Jack Reynolds says.

Quik International is the parent company to Quik Internet in Australia and has franchised more than 160 Quik Internet locations throughout the US and 17 foreign countries. On a recent visit to Australia Reynolds told CIO he felt Australian CIOs were doing a poor job of letting the government know what they need to move the information industry forward.

"One of the things I find shocking is that the cost of phone calls here, the cost of international data transfer, is just outrageous compared to the rest of the world. And I think this is very, very damaging for IT in Australia," says Reynolds. "The price of Internet bandwidth here is 20 times what it costs in the US. So if I want to buy 1.5Mbits here it's going to cost me maybe $15,000 a month, whereas if I buy the same thing in California it's going to cost me about $430 a month."

After reading extensively on the subject Reynolds has concluded that the Australian government is deliberately keeping phone prices and the toll on international data prices far too high so they can extract tariffs in taxes and still make a profit. "So when you're making a phone call here, you're not really making a phone call, you're paying taxes. And I think it's very, very short-sighted to be taxing the information industry so heavily, because I think it's the future of commerce in Australia and so it doesn't make any sense to choke it off," he says.

Reynolds also claims the Australian government's new Internet censorship issues are causing havoc. "Australia is not known as an Internet-friendly country; it's not a place where you would want to host, because you've got the government running around looking at sites, being able to take sites down without any notice. There's no reason to host here if the government is going to be hostile, and if the data transmission prices are so high. Now countries like Ireland have made fantastic steps in terms of lowering bandwidth costs, in terms of putting laws in place to protect people's data and information; these are the steps to take."

"I think the CIOs have not really done the right job of moving things forward. I think they helped the status quo and got run over," he says.

* A new report released by The Centre for Independent Studies, entitled "Shooting the Messenger: A Critique of Australia's Internet Content Regulation Regime" has concluded compliance with new Australian Internet censorship laws could cost as much as $150 million.

- S Bushell

Culture Club

According to Andersen Consulting associate partner financial Paul Lewis, most of the traits that are a necessity for a successful e-business are those same traits that established businesses have recognised as a goal for the last few years. The difference is that what was a "nice to have" before the e-world is now a "must have for survival".

There are six main elements in the culture of a successful e-business. The first four are recognised as desirable for most companies - traditional or e-business.

High capacity for change. In a fast moving world the ability to sense the need for change and then rapidly execute is critical. Over the last few years a lot has been written on what it takes to have a high capacity for change. These characteristics include the ability to deal with ambiguity, willingness to take risks and suffer the occasional failure, high levels of autonomy, and staff with high levels of personal resilience.

Creativity. The ability to think out of the box and a set of control systems that don't quash the ideas.

Customer focus. An organisation focused around the customer. Often a fanatical obsession in which the impact on the customer is at the centre of every decision made.

Empowered knowledge worker. Flat organisation structure, decentralised decision making, high interconnected workforce. This high level of autonomy is both attractive to the new generation of workers and also makes the organisation nimble, with decisions made closest to the point of need.

The remaining two are less familiar, but nonetheless important because of the networked business models and the war for talent.

Willingness to work openly with other companies/vendors. According to Lewis, an e-business is most often a network of interconnected ventures working cooperatively together. Furthermore, in many cases these networks are reconfiguring themselves with new members joining regularly. Outsourcing of activities is common and the level of merger and alliance activity in e-commerce is legendary. All these features require a level of tolerance and willingness to work with different styles and cultures as a characteristic for success.

Hipness. Minimal constraints, acceptance of diverse (and non-traditional) appearance, background and opinionFor a start-up, the culture can be established from day one with a set of role models, rules and norms that reinforce the traits, and perhaps most importantly, the start-up can recruit people who show these traits.

For an established business the culture challenge is far greater. An existing command and control management style needs loosening, reward systems need to reinforce creativity, customer focus and cooperation. There is a significant number of case studies of companies that have tried to change a culture that attests to how difficult it is.

- S Bushell

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