CIO

Peer Pressure

Define: A Six Sigma project team identifies a project suitable for Six Sigma efforts based on business objectives as well as customer needs and feedback. As part of the definition phase, the team identifies those attributes, called CTQs (critical to quality characteristics), that the customer considers to have the most impact on quality.

Measure: The team identifies the key internal processes that influence CTQs and measures the defects currently generated relative to those processes.

Analyse: The team discovers why defects are generated by identifying the key variables that are most likely to create process variation.

Improve: The team confirms the key variables and quantifies their effects on the CTQs. It also identifies the maximum acceptable ranges of the key variables and validates a system for measuring deviations of the variables. The team modifies the process to stay within the acceptable range.

Control: Tools are put in place to ensure that under the modified process the key variables remain within the maximum acceptable ranges over time.

Source: General Elextric Compan

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What identifies a business as sufficiently well tuned to withstand and prosper from e-business initiatives is still being determined, Wilton says, but he suggests a few likely indicators of readiness. One is a corporation where 60 to 70 per cent of customers "believe that your value proposition to customers is superior, which is the case with Southwest and many of GE's business units".

Companies with a history of generating superior returns to shareholders are also probably better prepared to turbo-charge the business with e-business techniques, as are those that have finely managed underlying business processes. "This is crucial," says Wilton. "If your underlying processes - manufacturing, customer service, order placement, order fulfilment, logistics are at less than Six Sigma, then to e-enable the business would be the equivalent of turbo-charging a car that's ill-tuned."

Wilton notes that it is sometimes possible to bootstrap one of the underlying processes toward Six Sigma efficiency using online techniques. He offers as an example Dell which has made its order placement system high quality by moving it online. Nevertheless, he believes that before embarking on a holistic e-business campaign a company needs to ensure its underlying processes work at maximum efficiency. And that is a task best served by the CIO, the person most likely responsible for fitting the corporate turbo-charger.

"The CIO needs to be a business-oriented person," Wilton says. "You must have information technologists who are extremely business savvy, who are able to engage in a dialogue with their counterparts in the business; who will tell them that it would not be a good investment to do this unless [the business has] the underlying processes at Six Sigma; and to understand which processes affect the business value.

"Companies that are good at this, well they know what the value-driving processes are. They e-enable those processes that can have a huge positive impact on profit. Now if those processes are not at Six Sigma and they try and e-enable everything, it's the equivalent of steroids for a poor-performing athlete."

Wilton admits that, as yet, the science or discipline of e-enabling a business effectively is not particularly well understood and lingering CEO scepticism over e-business is being propped up by the mountain of media coverage about the tech wreck. "CEOs are seeing all the talk about failures and they're not prepared to look for the silent achievers that are making these great strides," he says.

Wilton does expect it will take time to overcome the lingering scepticism, but some CEOs might get lucky and understand the advantages earlier than others. Again this is where the smart CIO can play a role. "You could say it was generational, but then in reality look at Jack Welch; he is not a young man. He is part of the retiring generation and he underwent a transformation - up until two and a half years ago he hadn't even sent an e-mail."

Wilton says that a chance meeting on the golf course between Sun Microsystems' CEO Scott McNealy and Welch delivered the legendary GE chairman and CEO's e-business epiphany. But not every CEO can expect or hope for exposure to that level of golf course chat, so it's often up to the corporate CIO to act the evangelist.

Wilton, however, worries that too few CIOs are able to explain the potential benefits of e-business enablement at a strategic level to their CEOs because they remain focused on the technology rather than the strategy.

"Practically there is a lot of research being done examining the conditions that support successful e-enablement. There is a lot being written up about it - but it's in the business journals rather than the technology journals and you do need to be aware of that."

"I think you need to be as a CIO committed towards understanding the real strategic drivers of the business first, and then you can perhaps better understand where to e-enable and where not to e-enable. So CIOs need to become more business strategic," Wilton says. "Many of them seem to think that that's a role someone else should take on, but that is basically short-changing their own role. The question is really who should guide the organisation in terms of its e-business potential. If you look around, that mantle is very likely to fall to the CIO, and if it doesn't it will fall to the business units.

"Now the business units equally need to be technology savvy. You've got a lot of business units that drive e-business, and that's the way it is in General Electric, but the reason it's working there is that the business unit managers are IT savvy. So it's a two way street. That's one of the conditions we think is necessary to get a great return on e-business in a traditional corporation: have business unit managers who are IT savvy so that they can envision what is possible.

"So it's getting closer alignment between IT and business units' strategy, but someone's got to lead that charge and it's certainly possible for the IT managers to lead. Some already do and for those guys perhaps we're talking about raising the level of intensity and of integration [to maximise the benefits]. For those CIOs who aren't doing it, they need to start ramping up their strategic skills and their business strategy skills, and there are many ways they can do that," he says.

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Applied well, e-business techniques and infrastructure implemented in successful established businesses can dramatically improve their ability to exchange knowledge globally, delivering better customer solutions while ratchetting up corporate profits, Wilton says. For CIOs this offers a real opportunity to deliver benefits to the corporation and assume the hero's mantle.

"But they probably won't see it as that," laments Wilton. "They'll see it as anarchy." The it in question being the peer-to-peer networking necessary to allow informal knowledge transfer in a global e-trading corporation, which Wilton believes is critical to ensure that the company delivers to the customer what is required rather than shoehorning the customer into what is easy to supply.

If all corporation information is stored centrally maintaining control is easier, but Wilton believes the information will be less frequently used and less often updated. By encouraging peer-to-peer information sharing, it is more likely that virtual communities will form - for example among salespeople who sell to small retail businesses in Sydney, London and Chicago - and people will informally communicate information about the solutions that work for this breed of customer.

It's a bit like the gardener's dilemma. For total control of the environment a gardener rakes the jacaranda's petals from the lawn and paths as they fall. Imposing order means there is less chance of a mishap (no one slipping on decaying petals), but it also means that everyone misses one of the real benefits of the tree. Analogously, CIOs might like the control they win with a client/server architecture, but the company misses out on the benefits of peer-to-peer networks. Some organisations, though, are experimenting and leaving the petals scattered.

GlaxoSmithKline, for example, has recently taken out a 10,000-seat licence for a peer-to-peer network, Wilton says. For global corporations Wilton believes these sort of informal information networks will be essential as forward-thinking companies realise that the real benefit of e-commerce is the ability to meet the needs of individual customers wherever they are based and however large or small they are; these organisations will shed the shackles of a management matrix ruled by territory and product managers.

Wilton offers the example of a large multinational company that wants to buy three large servers - one for its London office, one for Hong Kong and one for Chile. At present most corporations' management matrix demands that this customer conducts three sets of negotiations, is offered three prices and three sets of delivery terms. In a more customer-centric organisation both the supplier and the buyer are able to take advantage of the economies of scale and the ability to do business online. The supplier also builds up a broader information profile of the client and, over time, grows the value of business from that customer.

Smaller customers will benefit from a customer-centred information approach as well. By allowing informal exchange of information it should be possible for the supplier to segment customers by need, regardless of where they are based in the world, and profit from knowing that a solution sold to a tyre maker in Slough might be equally applicable to a tyre maker in Cincinnati. For CIOs, this means abandoning the regional information silo mentality and embracing a more dynamic (although still robust) information infrastructure.

To achieve this, Wilton believes that CIOs must develop a more strategic approach. They first need to delve into the business they support to find the real drivers of value in the corporation. Once they understand what those are, they must identify the processes that support them and measure their effectiveness. It may be that some of the underpinning processes need to be improved, and technology can be an ally to help achieve that, he says. Once those processes are working well (Wilton says at Six Sigma level, or 99.999 per cent efficiency) e-business techniques and technology designed to catapult the business ahead can be introduced.

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Wilton scathingly dismisses the suggestion that the tech wreck should make business advance more cautiously.

"The disappearance of the dotcoms was a normal event. Even before the Internet the failure rate for a new business venture was somewhere between 70 and 90 per cent, so you're just seeing a manifestation of that. The reason it was so massive is that so many new businesses started during the dotcom era," Wilton says. "The reasons for many of the failures was different. Quite simply most of the dotcoms that failed had only fleeting business propositions, based on low price and giving things away."

Still, the tech wreck was highly visible and, because the cost of entry was so low, the companies affected were huge in number. The crash was spectacular and it and its aftershocks still secure quite savage coverage in the media. In part, this negative press is keeping investment in new e-business strategies down, Wilton says. But he thinks the canny business should shed its reservations and spend heavily now in order to leapfrog more hesitant competitors.

"What is interesting is that a number of companies are making substantial returns from their investment in e-business. Jack Welch, before he retired earlier this year, gave a speech to the analysts announcing that General Electric this year is going to make $US1.6 billion in additional earnings from its e-business investments. That's a lot of money," Wilton says.

"Southwest Airlines is going to make $US100 million additional earnings this year from its reservations systems being online. It is getting 30 per cent of its revenue out of the online system. So what is happening is that there are a lot of old traditional businesses making extraordinary amounts from their e-business investments."

Why do some established businesses apparently do so well with e-business while others flounder, watching cash burn rates escalate in their online ventures? Why does Jack Welch believe that now is the time to speed up e-business investment and widen the gap between GE and its less nimble competition?

"Let's agree that some people know how to make good returns from e-business investments," Wilton says. "If that is true, then why should they pull back? They shouldn't." In fact, he says, this explains why tech wreck's effects have been largely quarantined to a certain type of organisation: the type that didn't have decent business fundamentals, had poor processes and management control and did not fully grasp how to implement e-business techniques and infrastructure.

"The ones that are pulling back [from e-enablement] are the ones that don't know the rules for how to get the returns from e-business. In other words, the ones that are confused," he says. And so they should pull back, he says, because if you don't know the rules, e-business can be very scary territory.

"The theory about why some firms have done so well and others haven't is like putting a turbo-charger on a car, or giving steroids to an athlete. If the car is finely tuned these additional elements will create dramatic performance; it will go like a rocket. If you're an athlete in top condition and taking steroids it will help you win the race. If you're an athlete who is in average or poor condition when you take steroids you'll have a heart attack. If you have a car that's not well tuned and you put a turbo-charger on it then it will explode."

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Besides learning how e-business will apply to their own corporations internally and its relationships with customers, CIOs must also stay mindful of its implications for their relationships with their own suppliers.

In the e-business era, competition is no longer between discrete corporate entities, but between networks of companies. This means, as Wilton says, that there is no longer a single IT vendor able to supply a total solution. CIOs need to purchase from a network of suppliers, often through a systems integrator. Although this might provide access to best of breed products, it raises other formidable issues. "The real fundamental problem with these alliances," Wilton says, "is the accountability. This is a very big problem both on the supply and demand side, meaning the vendors of IT and the buyers of IT are both concerned about this.

"The problem is that there is no one throat to choke," Wilton says. "Many of those systems sold to enterprises today are driving mission-critical applications such as billing and accounting, but increasingly they are managing life-critical applications using an e-business infrastructure.

"Hospitals, emergency services and airlines - if the underlying infrastructure fails then it's lives that are at risk now. As the risk increases, the owner of that system wants one throat to choke and the challenge for the IT vendors is to stand up and say: ‘Look this is a bundled solution - with hardware and software from different vendors - but if something goes wrong then I'm the throat to choke. I will not blame someone else'. Now at the moment in the IT world there are very, very, very few suppliers who will accept that responsibility - IBM GSA is one of them and this has become one of its points of differentiation.

"As a value proposition it's huge because, given that most users are pushing the edge of the envelope and pushing the hardware and software, there is no doubt that there will be breakdowns." Wilton says that only a few suppliers have yet recognised that managing this risk is the value proposition for IT suppliers going forward. "I can see a lot of vendors that refuse to take on that sort of responsibility will fall out of the picture," he says.

Those that do take on that role however, who boost their value proposition, who fine-tune their underlying processes and then fit the turbo-charger of e-business technology and techniques, will stand a better chance of becoming the old money in the new economy. vSix Sigma: A statistical term that refers to 3.4 defects per million opportunities (or 99.99966 per cent accuracy), which is as close as anyone is likely to get to perfect. A defect can be anything from a faulty part to an incorrect customer bill. Six Sigma teams use extremely rigorous data collection and statistical analysis to ferret out sources of errors and to find ways to eliminate them.

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Old money and the new economy is a recipe for growth.

It's one of those jacaranda days that Sydney does so well: the sky an intense blue barely pausing at the horizon to meet the sea. Renowned marketing and business strategy expert Dr Peter Wilton, matching the day's mood in a jacaranda hued T-shirt, is holed up in a cliff-top eyrie perched high above one of the city's northern beaches.

It's a suburb built on old money (that is, established corporate money), a mecca of bleached blond floorboards and glazing, far from the urban grunge landscape of the dotcoms. Yet the savvier inhabitants of this privileged postcode are equally in thrall to the Internet and e-business strategies as are their urban, new-economy counterparts. Even more so perhaps, because it is the old successful companies which are presently reaping most reward from the new business paradigm that is e-commerce.

Wilton, a faculty member of the Haas School of Business at the University of California, Berkeley and a member of the marketing faculty at the Graduate School of Business at Stanford University, believes that in these older corporations the fundamental business premise has been refined and proven, and the business processes that support that premise well established. For these corporations, the application of e-business techniques can dramatically improve profitability and reach; it's the equivalent of a turbocharger. [CIO last spoke with Dr Wilton two years ago. See "Customer-Coloured Glasses", CIO August 1999. - Ed]Wilton expects the task of applying e-business techniques and technology in these established corporations will continue to fall to CIOs rather than imported e-commerce "specialists". But he swiftly warns that CIOs can only promise a return on their corporations' investment in e-commerce technologies and techniques if they have a solid grasp of the fundamental business strategy and the processes that add value to the business. If not, a business would be better offloading e-business responsibility to technology-savvy business unit managers, Wilton says.

Wilton fears that in spite of the opportunities to deliver significant benefits, too few CIOs will accept the e-challenge that lies ahead for established corporations and, when faced with infrastructure requirements demanding peer-to-peer solutions, that they will bunker down, try to maintain control over all the information resources and hence fail to fully exploit the e-business opportunity.