IT: Servant Becomes A Master

Dec. 21, 2004
Given that technology permeates the economy, what are the implications for captains of industry?

It has been called the Digital Revolution. Others refer to it as the Network Economy. Whatever you call it, there's no denying that a veritable tidal wave of information technology (IT) is rolling across the business landscape. Caught up in the undertow, the competitive terrain is being reshaped, with new companies arising, market leaders capsizing, and whole new industries being uncovered. By now, most top executives are aware that a business-as-usual tack in steering the corporate ship against this wall of change is a futile, if not disastrous, approach. Still, that begs the question: How should executives lead and manage their enterprises in a technology-driven world? Are there any special skills they need? Exactly how much knowledge of technology must they have? Should the technology component of the business continue to be delegated as in the past? Or is a more hands-on approach by the CEO warranted? Only a few years ago IT was treated by many in the boardroom as a mere servant that helped companies automate tasks too routine to be handled manually with any efficiency. No more. "Not too long ago IS was viewed as a support system to business," observes Doug Duncan, vice president of sales and marketing at Viking Freight System Inc., San Jose. "Today it's an essential tool. It's no longer a support function. It's a fundamental part of business." In the energy industry, for example, IT has had a revolutionary impact on exploration. "The oil industry has been transformed into a knowledge-based industry" through such practices as the use of supercomputers to find oil, observed Lester Thurow, professor of management and economics and coordinator of the Asia-Pacific Initiative at the Massachusetts Institute of Technology, speaking at IW's Global Leadership Forum in October. And technology often replaces older ways of doing things, in some cases putting large companies on the skids. "It is very difficult for a big company to deal with a breakthrough technology [in its industry] because it makes things obsolete," he added. Viking's Duncan believes the influx of IT necessitates greater discipline on the part of executives, who must have a clear understanding of the role information can play in their business. "Top executives have to be more disciplined in the way they manage, because technology gives you so much information--you can easily get swamped by it." At Viking, executives no longer receive printed reports. Instead, the information is made available to them via the corporate intranet. "Management has to go out and get the information," Duncan says. "It just doesn't automatically appear. But if I am at a freight terminal, I can still get the information I need." An extra measure of discipline is required, he explains, because now executives must take the time to get the information themselves. At the same time, the potential for information overload must be held at bay. Duncan thinks management needs to use technology and information, but not let it get in the way of traditional management essentials. "There is so much information today," he says. "I can look at screen after computer screen of information, analyzing customer data, and think I know the business. But if you do that, you miss the people aspect of the business. There's a whole other side of the business, a whole human side to the customer that's important. Data is a great tool, but it's not a replacement for face-to-face management." Indeed, in a recent survey, building strong customer relationships was cited by executives at leading high-tech firms as the No. 1 factor for gaining competitive advantage. Of course, even in this area, technology such as the Internet can be helpful for manufacturers to get closer to their customers. In fact, the role of IT is perceived by executives at many firms as being integral to their products, their customer service, even the very strategy on which the business functions. At Viking, Duncan says, the information aspect of the business is every bit as important as the transportation part. "With the prevalence of just-in-time and the lack of safety stock reserves for inventory at many manufacturers, the critical nature of the shipments we haul is greater every day," he says. "The information about each shipment is almost as important as the shipment itself." Some experts think industry executives will increasingly seek to gain a stride on the competition by using technology in new and different ways. "Manufacturers need to build processes that competitors don't have and that are significantly technology-enabled," says Steven Sprinkle, managing director in charge of consulting services at Deloitte & Touche Consulting Group in Atlanta. Often this will require CEOs to believe in a new concept or technology without proof of its ultimate payoff. "In many instances these are things for which it is very hard to predict the return on investment," Sprinkle says. "You have to believe in the concept." Sprinkle says the new breed of executive, rather than being merely a manager, must be a leader capable of "transforming" the business. "The real question is, What is the collection of knowledge and experience [a CEO needs] to be a leader to pull off an enterprise transformation?'" And he questions whether "even the best M.B.A. schools have a curriculum deep enough to train these enterprise-transformation leaders." The reason this capability is crucial for executives, Sprinkle believes, is that "the world is changing so fast, it's difficult to be a successful leader of a company today. Most managers are good at a defensive competitive posture, but organizations are being forced to change. You may be forced to change your firm internally more often, because you can't predict the future as well as you could in the past. "That requires a whole different kind of leader," Sprinkle continues. To succeed in today's world, the executive must not only be a visionary; he or she must also be able to generate enthusiasm among employees. Finally, the executive must be a coach who encourages and facilitates change. All these are characteristics, he says, of someone who can successfully lead the transformation of a company. "Either you purposely transform yourself, or you will be negatively transformed by others," he adds. "I think these leaders are starting to emerge." Such transformations often involve new products, product enhancements, or new services that are information-enabled. Many manufacturers are building technology into their products. At Cummins Engine Co. Inc., for example, computers are being embedded into various engine models to provide customers with information about the vehicle's performance. Others are adding information-based services to their basic product or service. The transportation industry offers a good example. Viking offers several technology-based services for its freight customers. The company's Web site provides shipment tracing, rate and document request functions, monthly sailing schedules, and links to specific departments in the company. Viking also has a computerized freight-management information system. Drivers scan shipping details into a handheld computer; the company augments shipment tracing information by providing customers timely access to shipping documents via its Viking Image Processing System. In the high-tech industry itself, such as electronics, the idea of long-term strategic planning often is eschewed in favor of the need to move swiftly to exploit new technology or other sources of competitive advantage. "Forget traditional, long-term strategic planning," says Russell Craig, a partner at Andersen Consulting in charge of a recent study of high-tech-industry business practices. "Forget traditional organizational structures. They do not work well in the competitive, fast-moving electronics industry." Craig says the best-performing companies in high tech are those that are nimble enough "to exploit all sources of competitive advantage available to them. To do this, they change the basis of competition with high frequency and organize to take advantage of new opportunities much faster than their competitors who, by the way, are continually right behind them in exploiting the same opportunities." The unpredictability of technology is one reason traditional strategic planning lacks effectiveness for high-tech manufacturers. "There are a number of reasons traditional strategic planning does not work in this industry," adds Craig. "But the major factor is the unpredictable future of technology due to the sheer number of technology developments and high rate of change. "Think about how many leaders missed the Internet trend despite the fact that it was making the front pages of major newspapers," he continues, calling forecasting "a hit-or-miss proposition. Rather than build a strategy around a predicted future, best-performing companies plan for multiple scenarios and make sure they can recover quickly from any missteps." Just how much should an executive know about the various technologies available today, such as the Internet, enterprise-resource-planning (ERP) systems, manufacturing-execution systems, or customer-management systems, to name a few? Obviously, no CEO or CFO needs to be an expert on all these. But it helps to know what each does and how they could speed, expand, or enhance the business. "Executives absolutely need to understand enough about where technology is going so they can leverage it to be more strategically successful," says Tim Ramos, senior vice president and director of the newly opened Center for ERP Excellence, a San Ramon, Calif.-based unit of Cambridge Technology Partners Inc., a consulting and systems-integration firm. "It's important to know what [technology] can do," Duncan agrees, "but you also need some basic understanding of the technology itself. Without a fundamental understanding of the Internet, you can't fully appreciate what the technology can do. It's not a faster box--it's a new form of communicating with the customer." Deloitte's Sprinkle suggests that the CEO seek a close connection with others in the know. "Get people close to you to act as advisers on the topic," he says. "This may be the CIO, but it could also be a consultant. And get the competitive posture--learn how your competitors are using IT, and do this on a regular basis," he says. Perhaps more important from an executive point of view is the ability to understand the technology sufficiently so that you can weigh its potential benefit to the company. "You have to be very good at measuring the investment versus the return," Duncan says. "The potential projects a company can undertake with information technology are exploding. Executives need to be skilled at choosing which to pursue and which to pass on." In the end, though, if there's a single drumbeat to listen to most closely, it's the customer's. Sprinkle sums it up this way: "You have to be constantly looking at how your products can be made more valuable to your customers or to the people who influence your customers."

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