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A FastTrack for Success
Sure, it's a simplistic analogy, but it is also a useful one when considering what's at stake for multinational enterprises. In this postindustrial age with potential markets everywhere and potential competitors anywhere, companies that are embracing the transforming and organizing power of the Internet will compete most effectively in a global economy, asserts Peter Brews, a UNC Kenan-Flagler international management and information technology professor. "The 20th-century model of industrial organization is fast becoming obsolete," he says. "A superior model that organizes work around deeply networked communities is emerging, and the race is on to convert existing business operations to more efficient Web-based infrastructures." Brews has a name for those enterprises that have started this transition and are triggering profound changes in the ways of trade globally: It is Internet Generation Companies or IGCs, companies that utilize Internet-based solutions to solve problems and streamline operations. The beauty of the technological virtuosity demonstrated by IGCs isn't "a matter of technology for technology's sake," insists Brews. "Rather, it is an issue of technology that enables humans to perform higher, value-added creative work." And the "window of opportunity" to become an exemplar IGC will "probably not last longer than the next five years," he predicts. "Those who move too slowly will find it hard to reach the levels of efficiency attained by competitors … and will be swallowed by IGCs who offer products and services better, faster and cheaper." More than a decade ago, Brews recognized that the technology was changing organizations as well as humans' role in them (think automatic teller machines). The Internet "supercharged" the evolution, he says. Excepting the dot.coms - notable for their stratospheric rise and equally quick demise - it is the "old economy" businesses that stand to gain the most from becoming IGCs. In short, to Brews the new economy is the old economy upgraded. The benefits for companies making creative use of Internet technology are compelling: sizable cost savings, more agile manufacturing processes and more efficient supply chains, better customer service and more effective communications, both internally and externally. A classic example of IGC innovation is Federal Express providing its customers with a Web-based tool for easy package tracking 24-7. And the number and type of such applications are increasing exponentially, forever altering the landscape of entire industries, including:
Established, well-resourced organizations will initially derive the largest share of the Internet's economic benefits, says Brews, because they have the "deep pockets and slack resources" necessary to convert to the Internet-based infrastructures that will help them operate faster, more flexibly, with greater precision and control and at lower costs. "Size is still the single most significant predictor of Internet competence there is," says Brews. A successful conversion to IGC status means, though, that size will be about all that's recognizable of those rigid, 20th-century hierarchies that paid fixed salaries for repetitive, mechanistic work. The IGCs of the 21st century, led by - and this is key - executives who value and themselves use technology, are creating "an entrepreneurial Web-enabled world that unites communities interactively around mutually beneficial and often automated productivity exchanges." A Company Out in Front To understand how effectively a business can harness the power of technology and the Internet to address the globalization of products, markets, consumers and competition, look no further than Cisco Systems Inc. Brews wrote a pioneering case study of this archetypal IGC in 2000. In 1994, the world's largest network equipment company faced a crisis. Explosive external growth and internal expansion had caused its systems to fail, almost bringing the company to a standstill. Senior managers feared that unless the organization was redesigned to allow its operations to be scaled up or down, the company's advance might end early and abruptly. With the blessing and active encouragement of Cisco Chief Executive John Chambers, management found answers to their dilemma in the network technology the company had pioneered. "We make and sell the infrastructure that intelligently routes about 80 percent of the world's Internet traffic. At a certain point, we realized we should be e-enabling the process for ourselves as well," explains Joe Freddoso, Cisco's Research Triangle Park site operations director. What resulted was an Internet network that all but eliminated paperwork and emphasized increased efficiency, enhanced service capabilities and empowered employees. Of Cisco's 35,000 or so employees, about 5,000 are part of its internal Information Technology organization. This group created three online systems known as Cisco Connection Online (CCO), Manufacturing Connection Online (MCO) and Cisco Employee Connection (CEC). Each of these three Web-based portals provides interactive access to its users anywhere at any time. The systems automate activity that was once labor-intensive and provide global, multilingual access to information around the clock that was once limited to the business hours of the individual facilities involved. For example:
Leading Strategic Use of Technology Every day of his life, whether in the office, on the road or telecommuting from home, Ivan Oakley experiences the advantages of "Internetworking," as Brews calls it. As director of engineering for the Cisco mobile wireless group, Oakley is responsible for 82 people in locations as far from one another as India and Korea. He estimates he spends 60 percent of his time at work online, where he simultaneously meets with group members and outside partners no matter the time zone, participates in companywide meetings, analyzes products, examines spreadsheets, tracks equipment orders as well as the status of customer assistance requests and completes myriad other tasks. Employing technology in this way helps meet a strategic objective - operational efficiency. Furthering this kind of productivity is a company priority, and that's why several years ago Cisco higher-ups encouraged a number of core managers to attend a class led by Brews. Oakley, who was a participant, listened to presentations from UNC Kenan-Flagler faculty members, analyzed case studies of other companies and examined tasks facing IGCs, in general, and Cisco Systems, in particular. Even now that the economy and the company have entered a "transitional period," says Oakley, it is useful "to recall the discussions about the challenges and the use of technology in our own environment." As the company's chief information officer, Brad Boston guides the IT department. In a depressed economy, he thinks it's helpful for IGCs to rethink their strategies by focusing more closely on those processes that may have been overlooked during boom times. But always remember, he says, "It's not about the neat new technology so much as it is about how those neat new technologies can really help … the business." And help they have. In his case study, Brews reported that by 1997 Cisco's network structure had increased the speed and accuracy of orders, shipping and deployment, and supply-chain efficiency. Selling and administrative costs also fell significantly. And while sales quadrupled, call center staff grew only 10 percent, and customer satisfaction increased from 3.4 to 4.2 on a five point scale. Freddoso says that last year Cisco's net profit totalled $3.8 billion. Of that, $1.9 billion was recognized as a result of savings or increased efficiency due to e-applications. Making the Change at Old Economy Companies OK, Cisco tamed the gorilla. But some would argue the company had the raw technological resources and bold leadership necessary for the conversion to IGC status. What about classic old economy companies? Brews has found emerging IGC enterprises in a surprising variety of sectors and locales. Consider just two cases. Cemex is a commodity business closely linked to the construction industry - about as old school as it gets. Established in 1906 and headquartered in Monterrey, Mexico, Cemex, a maker of cement, began its transition to IGC status in 1985. That's when the newly appointed CEO created a telecommunications infrastructure to connect all the company's plants. Next, data was included to develop an executive information system. Factory and office operations were automated, and trucks in the Cemex fleet were outfitted with computers linked by a global positioning system in order to address the vagaries of weather and roadwork that can affect the delivery of fast-drying concrete. Cemex, whose operations were once primarily limited to Mexico, now operates globally and is the world's third largest cement maker. In Birmingham, Ala., Siemens Medical Solutions, a division of global electrical engineering and electronics conglomerate Siemens AG of Germany, is involved in construction of a different sort. With HealthSouth Corporation as a partner, Siemens is developing the world's first digitally automated hospital. It's expected to be safer and more efficient than existing hospitals. For example, every patient will wear a wireless "wellness monitor" that signals where they're physically located and when problems arise. And forget the shuffling of bulky paper files. Hospital administrators and all health care providers will be able to access computerized patient records, including vital signs, images, test results and treatment plans. Information technology will allow drug interactions to be automatically highlighted, thus averting medication errors that every year cost money and, most importantly, lives. And through the process, Siemens Medical is transitioning from being a manufacturer of medical equipment to a provider of integrated healthcare solutions. Somehting for everyone Data collected by Brews indicates that both manufacturing and service companies are adopting and adapting networking technology at an ever-increasing pace. General Motors, GE and Caterpillar (Cat) are all examples of firms that have achieved impressive gains as a result of becoming technology innovators. At Caterpillar, a manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, competitiveness is largely derived from its parts supply capability. Its speedy and precise delivery of spare parts to stranded machines is possible because of its extensive global IT system. And Internetworking is raising that system to unheard of heights. Under development at Cat is a "just before failure" process. Microchips imbedded in key working parts of earthmovers will signal local dealers via satellite when a breakdown is imminent. The system will then immediately initiate a search for the place closest to the work zone that has the necessary part and dispatch it, obviating the need for lengthy downtime. Jose "Pepe" Brousset (Executive MBA '00), who manages the general construction, rental and used operations for Cat in Europe, Africa and the Middle East, is delighted with the corporation's use of the Internet. "We are a company that has been in the international arena for over 50 years," he says. "The Internet, e-business as we call it, helps us immensely to bring our Cat world much closer together, not only within the company but with our suppliers on the manufacturing side as well as with our partners (the dealers) who distribute our products throughout the world." Of late, and similar to Siemens Medical strategy, Brousset has devoted much time to a new Internetworking strategy dubbed "end-to-end solutions." This initiative, directed at customers for small machines, allows an entire transaction process - from order to factory scheduling to payment to follow-up - to be handled electronically. There's no question, he adds, that "Electronic business will allow us to continue to reduce our costs, become more competitive and, just as important, position Caterpillar for the next generation of business models." The work of Laura Streeter, another Kenan-Flagler Executive MBA ('00) with Cat in Geneva, demonstrates the company's steady march toward Web-based integration of all facets of its business. As a marketing consultant for the general construction division, she is directly responsible for promotion strategy and implementation in 14 European countries. This means she devotes her time to encouraging Cat's brand and positioning and sales objectives among an extensive dealer network while also supporting the dealers' brand and market goals. It's a delicate balancing act made easier by Cat's use of the Internet to organize information and keep data fresh. An extranet called FlashNet, available to dealers in Europe, Africa and the Middle East, allows her team "to share everything from advertising materials, product announcements, sales presentations, product photos and other materials needed to promote, sell and support our products in more than 70 countries. In some cases, a single file is translated into a dozen languages, from Czech to Danish, all available online. This reduces the volume of e-mail processed as well network traffic." There's more. Cat also has developed a tool called Dealer Storefront, which offers an optional dealer Web site "template" that reflects an image consistent with Cat's brand but allows customization of content by each dealer. This "has allowed many dealers to have strong Web presence with a smaller investment than creating one on their own while accurately projecting the Cat," says Streeter. "By using our template, their customers have access to a PartStore for 24-7 ordering of spare parts and can review preventative maintenance schedules for their machines. Clearly in this market, some countries are ahead of the curve, and many of our customers who are owner operators or who run small businesses do not use the Internet for business purposes. But be sure that when they are ready to explore their Cat dealer online, they'll be surprised by the services and information available." Unsurprisingly, Cat operates off a Cisco-powered network and relies on partners like Federal Express to keep its parts supply capability one of the best in the world. Peter Stroud, managing director of Central Canada Operations for FedEx, points out that the Internet plays a "huge role" in the day-to-day operations of the company, which ships to over 200 countries. Two and a half million customers are connected through Federal Express' global information network, and on average the Web site receives 32 million hits a month. "The more we can drive customers to www.fedex.ca for shipping or to inquire about a package, the more we can reduce staffing and infrastructure costs," says Stroud, (OneMBA® student '04), who uses the company's Web-based information management system to monitor in real time the needs of the 17 facilities in his district. "There are also significant savings on the internal front as employee information on HR issues, corporate news, etc. can be accessed through the intranet," he continues. "In an organization as large as FedEx, competing in a market where the pace of business and the pace of change are significant, it is critical that we can quickly and effectively gather and disseminate information." "There is probably no industry - public or private, big or small, manufacturing or services, even government - that can't benefit from Internetworking," concludes Brews. Still, structural change on this order doesn't happen quickly or uniformly. He admits, "We don't fully understand how long this transformation will take. What we do know is that there's so much value in using the Internet to enable business operations that it becomes not a question of whether but when." |
icture Internet technology as a 600-pound gorilla sitting in your office. You have two choices: Ignore it, or put it to work. If yours is a company seeking to
capitalize on the global marketplace, the choice is patently clear. Neglect the
gorilla, and place your business in a state of peril; or avail yourself of its might, and position your company anywhere you want.