| ||||
How will the Internet transform your company over the next twenty-five years? Subtly, but profoundly, argues Frances Cairncross in this excerpt from The Company of the Future.
Most people overestimate the effects of change in the short term, underestimate them in the long term and fail to spot where change will be greatest. Nowhere is this judgement truer than with new technologies. The Internet stock-market bubble, like the bubble in railway stocks in the nineteenth century, reflected overestimates and misjudgments of the potential impact of new communications. And as with railways, the bubble burst, leaving lots of empty hands but an infrastructure that survived—and changed the world. There will be evolution, rather than revolution and it will take many years to work through. Recall that even though the telephone was first used commercially in the 1870s, telephone banking did not spring up until the 1980s. Consider that the Internet had been in commercial use for a mere seven years by the time recession struck. Profound change rarely comes fast.
Over the next quarter century, though, the Internet will help to transform companies, although the transformation may be too subtle for people to notice much while it happens. It will be most striking, at least in the medium term, in companies providing services: financial, travel, medical, educational, consultancy. Many manufacturing businesses will grow more like service industries: They will cater to the individual customer's tastes, for instance, and create a continuing relationship to ensure they get repeat purchases.
These changes will occur in established companies as they build the Internet into their existing processes. Largely gone is the view of the late 1990s, which saw the Internet as a free-standing technology and a basis for free-standing businesses; so has the thought that the Internet, in and of itself, may be a technology that generates lavish profits. Some pure Internet plays will survive as viable businesses, but they will not be where the impact of Internet technologies is greatest. The main revolution will involve enabling established companies to do familiar tasks in new ways, and then to do new tasks in increasingly familiar ways. These changes may or may not prove profitable—they will certainly raise productivity and sharpen competition—but companies will have no more choice over whether to deploy the Internet than they had over whether to deploy the telephone. Internet technologies will offer managers much more scope to define their company in the most efficient way; they will not, however, undertake that job on managers' behalf.
The biggest changes will inevitably be those that go with the grain of what is already happening. Internet technologies will thus reinforce outsourcing, a trend that has been in progress for at least two decades. They will further reduce inventory, a move that began long ago with just-in-time lean production. They will bolster globalization, allowing companies to manage overseas operations and connect with foreign suppliers in more intricate ways. They will highlight the emphasis on the customer that so many companies strive to achieve. They will accentuate the need for talented and inventive people, who will have an even sharper idea of their financial worth on the world market for human capital. They will enable the flat structures of modern businesses to operate more effectively and make them even less hierarchical.
Indeed, one of the truly remarkable things about these technologies is the extent to which they reinforce trends already under way. This reflects the fact that many of the things they do are not entirely new: Proprietary electronic networks have long allowed large companies to do what smaller firms can now emulate. But such networks, and packaged software applications such as ERP, tend to be cumbersome and expensive, forcing companies to accommodate them. By comparison, the Internet is flexible, accessible, inexpensive, and ubiquitous.
And there is more to come. Some Internet technologies that promise profound changes are only in the early stages of application. They include peer-to-peer applications (variants of Napster); applications that rate the relevance of information by the frequency with which others use it (as Google, the search engine, does); or, indeed, XML and its variations, which allow seamless document exchange. All these clearly have great potential to change the way companies work, yet we may not see those changes until well into the first decade of the twenty-first century—or even later.
Sometimes an accumulation of modest differences adds up to an immensity.
As this book has argued, the astonishing fall in the cost of communicating knowledge and information has the power to transform knowledge management. So has the development of new tools for collaboration, giving people new ways to share ideas and information. However, not only must access to knowledge be as free and open as possible but senior managers must decide how to filter and structure that knowledge. Only then will they be able to apply it to take good decisions, a task that grow harder as the flow of new information becomes ever more relentless. If the center does not first impose structure, the true benefits of an open culture will be lost. Here, as in many other applications of Internet technologies, the center's power to set standards and structure grows more important, not less: The Internet may be a tool of democracy, but in knowledge management, effective democracy requires self-restraint.
| Over the next quarter century, though, the Internet will help to transform companies, although the transformation may be too subtle for people to notice much while it happens. |
| — Frances Cairncross, The Company of the Future |
In the future, Internet technologies will give companies new control over their relations with their customers. The Internet will not just widen reach, allowing companies to reach new markets; more important, it will provide ways to deepen existing relationships. Here, as in many other areas, the development of a culture of trust will do the most to deepen the relationship. In addition, companies will develop more sophisticated tools to identify their most profitable customers, to retain them, and to sell them extra products. They will find subtle ways to price discriminate, for example, through developing two familiar concepts, loyalty schemes and clubs.
Given the importance of creativity and new ideas to corporate success, companies must work harder than ever to recruit and retain the right staff and to create a corporate culture that encourages loyalty and effective collaboration. With recruitment, as with customer management, identifying those people likely to contribute most to corporate profitability and concentrate on retaining and developing them will be critical. With staff, as with customers, acquisition costs will encourage companies to care about retention because profits per worker take time to accrue.
One of the earliest and most visible effects of Internet technologies is on purchasing. Here, a genuinely new business model has arisen: the electronic exchange, which will take several different forms, but will be built around a single standard that will allow different industries and different companies within an industry to transact freely with one another. In networks and in marketplaces, applying determined standards is one of the keys to realizing value. In purchasing within individual companies, central discipline will also be essential if companies are to benefit from savings and from new suppliers.
| Leaders must be able to cope not only with change, disruptive and continuous, but also with the pressures on decision-makers to digest a ceaseless torrent of new data ... |
| — Frances Cairncross, The Company of the Future |
More far-reaching will be the impact on the management of supplier networks. Here, the key will be the power of Internet technologies to make information available simultaneously to many different points in a system. The transformation of the supply chain into an ecosystem will bring the biggest rewards when the whole production process can become more modular, so that different stages that once took place sequentially can now occur simultaneously. That change will speed production, reduce output, and increase the flexibility with which companies can respond to changing customer tastes.
In the past, the costs of transferring information have been one of the main factors determining the structure of the company. Now, that is far less true, and the consequence is that companies can make decisions about whether or not to outsource some process or to decentralize some authority in terms of the business case alone. The pressure to outsource will grow, partly because it will leave companies free to concentrate on what they do best rather than on what they merely do well. It will grow, too, because talent is scarce: Some of the brightest and best may choose to be free agents rather than wage slaves. However, when business is slack, employees may be less enthusiastic about going it alone; and outsourcing will have drawbacks when companies are keen to keep direct control over their quality of service and the reputation of their brands.
The benefits of Internet technologies depend not on their wizardry alone (which in coming years will seem remarkably ordinary and natural just as the phone does now). Companies will reap the full benefits only if they have appropriate structures and cultures. Creating those calls for skillful leadership. Leaders must be able to cope not only with change, disruptive and continuous, but also with the pressures on decision makers to digest a ceaseless torrent of new data—a task that the next generation of managers will be better able to do. Leaders must be good at communicating both with the outside world and with their own people, and able to withstand the sense of managing in a fishbowl, visible to all. They must be as adept at making business decisions as at managing public opinion and issues, such as the environment and corporate social responsibility. Running a big company will remain one of the world's most complex and demanding tasks.
· · · ·
Six Questions for Frances Cairncross
| ||||
The author of The Company of the Future discusses how today's managers can prepare for the future, in this e-mail interview, from London, with HBS Working Knowledge editor Sean Silverthorne.
Silverthorne: The company of the future you detail in your book is a different animal than today's corporation. What can company leaders do today to prepare for the next century?
Cairncross: Tomorrow's leaders need superb communications skills: They will need the ability to interact not only with all the different outside groups that claim a stake in the business, including government and non-governmental groups, but also with their own employees and those who work indirectly for the business. They need to be able to harness the enthusiasm of intelligent, independent people, giving them a sense of common purpose. Good education is important preparation, but so is observation: If the value of a business lies increasingly in the ability of its people, then leaders must acquire the ability to select and motivate. No book or course can fully teach that.
Q: What will the manager of the future look like? What skills will be needed to run a company of the future?
A: Future managers will have many skills that are important today—although sometimes in different quantities. Given the onslaught of information, managers need to be able to prioritise and to take good decisions quickly when that is needed. They also need team-building skills, because corporate structure will become even more fragmented. Getting the best out of a joint venture or an alliance partner, like getting the best out of a team of employees, calls for more collegiate skills than the old command-and-control management ethos.
Q: We understand in some ways how Internet technologies are changing everyday corporate life, such as enabling vendors and suppliers to deal electronically with each other. What unforeseen changes may the Internet bring to the corporation?
A: True surprises are—by definition—hard to predict. But corporate structure will change more often. Companies will sometimes outsource an activity and then, five years on, reintegrate it, with policy driven by changing markets, costs, and technological opportunities. Individuals, too, will move in and out of companies, sometimes working as free agents on a particular project, sometimes on the staff. Companies will try even harder than universities to keep in touch electronically with their best "alumni." Indeed, many companies will feel more like universities: The joint-stock model may be less popular in knowledge-driven business, and individuals working in geographically scattered teams will cooperate to create intellectual property, to teach, and to spread ideas.
Q: In the future corporation, how does life change for the rank-and-file, or non-management employee?
A: Employment will be ever more varied. In some companies, people will rarely come into the office: They will work on the move, using their car as their desk, and come to the office to brainstorm, to meet customers, and to exchange ideas—and gossip—with colleagues. These offices may feel like clubs. Other offices will be like factories: People will perform process jobs, repetitive and of standard quality, in call centres and data warehouses. In the first kind of job, the people will generally be worth more than the equipment they use; in the second, the reverse will be true.Q: How does the concept of career and business education change in the future? Will we all have multiple careers? And what does that mean for how we teach business in schools?
A: Education will increasingly be one of the perks of a job. To reward an employee, a company may choose to make him or her more employable—to raise the person's market value—by offering education and training. Instead of paying more, the employer will thus increase the capital value, as it were, of the employee. As for business schools, most will continue to diversify, their courses becoming ever more closely integrated into a company's training and educational needs. But, given the importance of innovation to companies, some schools will specialise in teaching employees to think imaginatively. Business schools will become the most international part of the education industry: As companies want people who understand different cultures, the best business schools will increasingly devise ways to produce global managers.
Q: What is the main message you want to leave with readers, especially those who manage in companies?
A: The key message is that technological change can transform corporate structure—and that appropriate corporate structure is essential to make the most of technological change. The full power of the Internet and the technologies associated with it will be on the inner workings of businesses, and the way they collaborate; and the companies that make the most of that power will be those with intelligent, empowered, innovative employees.