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The list of technologies that could offer companies big-time benefits, or lead to big-time disasters, is daunting. So daunting, in fact, that top management might be tempted to throw up their hands and let lower-level managers referee the debate over information technology.
But that is exactly what they shouldn't do.
In a digital economy, IT is the foundation for doing business. This is easy to see at born-digital companies like Amazon.com and Google. But companies of all types are discovering that how they manage IT is crucial to their competitiveness. It determines whether the company's dealings with customers and suppliers are efficient, scalable and timely; whether employees have the information they need to do their jobs; and whether employees throughout the company see technology as a tool to move forward, or an anchor that keeps them running in place.
This doesn't mean that top executives should review every IT investment proposal and decision. But it does mean that senior management must define how the company as a whole will do business in a digital economy. It means they must lead the IT initiatives that cut across all business lines. And it means they must resolve issues that local interests cannot resolve—like what data and processes will be standardized companywide.
Unfortunately, too many CEOs and other top executives often don't even know where to begin when it comes to managing IT. To that end, we offer the four IT questions that every CEO needs to think about—and answer.
Question No. 1
Are we using technology to transform our business, or are we just adding bells and whistles to existing processes?
There are all sorts of possibilities for, say, inserting new technologies into existing processes. But most of these improvements are incremental. They are worth doing; in fact, they may be necessary for survival. No self-respecting airline, for instance, could do without an application that lets you download your boarding pass to your mobile telephone. It saves paper, can't get lost and customers want it.
But while it's essential to offer applications like the electronic boarding pass, those will not distinguish a company. Electronic boarding passes have already been replicated by nearly every airline. In fact, we've already forgotten who was first.
What is far more lasting—and much more difficult—is for companies to rethink how they deliver core customer services. The starting point for such a rethinking isn't asking, "How do I use technology strategically?" It's, "What would be the ideal way to interact with and serve my customers?"
When you ask what you can do with technology, you get the electronic boarding pass or the email notice about a change in a flight. Nice, but not differentiating. When you rethink your business, you get a new kind of airline. You make even those customers traveling economy class feel important; you optimize schedules to effectively use equipment and help the most customers get to where they want to go with the least amount of hassle; you develop pricing mechanisms that take the stress out of buying a ticket; you help your customers know when to leave their house to get to the airport in time; you tell them the fastest and the cheapest ways to get to the airport; you tell them before they get on a plane exactly what kind of food is available; you make flying a pleasant experience.
Doing this means you'll have to change existing systems, processes, roles and technology. In other words, you'll have to change everything—and you'll have to do it in stages over several years. But companies get better each step of the way. And over time they can build a huge advantage over companies that are simply inserting technology into the way they've been doing business for years.
USAA has been through this kind of transformation. Like most financial-services companies, the San Antonio, Texas-based USAA traditionally served customers through distinct businesses that specialized in a particular set of services. USAA customers had to decide whether they needed banking, insurance or financial advice. The choice was not always obvious to a customer. For example, the bank and the advisory-services group were both happy to sell a customer an IRA.
Rethinking its business for the digital economy, management decided to provide services according to customers' life events (a new baby, say, or a job transfer) rather than according to USAA's internal structure. This meant redesigning processes, integrating old systems, building new ones and sharing data across business units. As a result, customers don't have to figure out how USAA works before they ask for service.
Nearly everyone at USAA has been affected by this digital transformation. Recently, 12,000 call-center employees were centralized in a new organization so they could look across the business units to meet customer needs. This was just the most recent change in a transformation that started nearly 10 years ago.
Question No. 2
Are you ignoring important business differences as you standardize processes
across the company?
One tenet of the digital economy is that standardizing business processes is a no-brainer: It allows a company to operate the same way, everywhere, and creates a reliable, consistent experience for the customer.
For example, an insurance company could standardize how its life-insurance products are sold, processed, managed for returns, accounted for and so on. Every time a new product is introduced, the company doesn't have to reinvent the wheel—it simply reuses the process and the underlying system. It saves the company time and money, and makes interactions easier for customers who have other policies with the company.
The problem, though, is that at some companies, senior management believes that if some standardization is good, more is always better. And it isn't.
So, for instance, say a manufacturing company comes up with sales processes that require reliable communications and transportation systems. That's fine when the manufacturing company is operating in developed countries. But in a developing country, those standardized processes could wreak havoc.
Or consider a consumer-product company that has created a digital system for its biggest customer—Wal-Mart. What happens when those processes are forced on the company's distribution centers that service local convenience stores? Here global standardization is a naive impediment to local business effectiveness.
In other words, senior management can't just evangelize about the desirability of standardized processes. They need to first define what should and shouldn't be standardized.
Campbell Soup Co. offers a telling example. From 2006 to 2008, the company implemented three standardized processes that redesigned customer service, accounting, reporting and supply-chain processes across 25 North American facilities. But then management found that one of its businesses, Pepperidge Farm, had unique requirements because baked goods are more perishable than canned soups.
So some standards were relaxed and some systems were changed for Pepperidge Farm. Similarly, when Campbell started to implement these processes in Australia and New Zealand, unique business conditions in those countries demanded changes in the standards. Selective standardization allowed Campbell to reap significant cost savings without tying the hands of local managers.
Question No. 3
Who is making sure the company's digital strategy is being implemented?
If a telecommunications company wanted to become more competitive by improving customer service, top managers might bring together the heads of the company's regions, product lines and functions and ask them to identify how their individual units could work together to improve service for global business customers.
These leaders might identify new companywide technology systems that could make the company more efficient and better serve key customers. Good idea.
But senior management might then be inclined to rely on that committee to implement those enterprise processes. Bad idea.
Many managers assume that a good technology can ensure effective execution. It can't. That's because most managers work within a business unit, function, region or product line. Companywide systems, by definition, are executed across organizational units. Local managers can't take responsibility for the design or improvement of such enterprise processes.
Somebody needs to own this responsibility. Thus, top executives must name an executive who will be accountable for every enterprise process, and who has the political clout to overcome resistance. A committee is not capable of such oversight.
Say that managers from a telecommunications company agreed that they could better serve large business customers if they could track the customers' orders from the salespeople or website through fulfillment, delivery, invoicing and payment. The company then needs to assign one person—call him or her the process owner—who would interact with people all along the line to design the process and underlying systems.
The process owner will also design initial training on the system. After implementation, the process owner would monitor performance and work with people executing the process to identify opportunities to improve it.
Tetra Pak International SA, a Swiss-based packaging and processing company, has a business-transformation department, which consists of executives responsible for each of its seven core processes, including customer management, product creation and supplier management. These process owners at Tetra Pak take responsibility for developing process and data standards, establishing metrics and ensuring continuous improvement. They then work with local business managers to execute the standardized processes and maintain data integrity. The head of the business-transformation department reports to the chief financial officer.
Question No. 4
Is electronic data empowering your people or controlling them?
For most companies, the great advantage of the digital revolution is the data they can now collect. They know the minute-by-minute electricity usage and the names and buying patterns of shoppers who buy diapers; they know how much more soup gets sold if they drop the price by 10 cents, or what arguments work best when a life-insurance agent cold-calls a prospective customer.
All that data can lead companies down two very different paths. First, it can help push decision making down to front-line employees. Alternatively, it can be used to centralize decision making and monitor employee performance.
Evidence indicates that the former approach offers benefits for both companies and employees.
When companies use data to control people, the assumption is that all the good thinking happens at the top of the organization. By contrast, relying more on operating-level people to make fact-based decisions creates smarter, more innovative organizations.
Seven-Eleven Japan Co., which runs 7-Eleven convenience stores in Japan and the U.S., centralizes the purchasing and logistics to gain efficiencies. But it pushes buying decisions down to the salesclerks at its 13,000 Japanese stores. That's more than 200,000 salesclerks. They all receive data on what's been selling in their store for the categories they manage, along with information on weather conditions and new products.
Each salesclerk then makes "hypotheses" about what kinds of products will sell on a given day. Salesclerks place orders each morning according to their hypotheses, and starting that evening receive feedback on their business results. Counselors visit each store twice a week to help salesclerks interpret the results and improve their hypotheses going forward.
By placing ordering decisions in the hands of individual store clerks, Seven-Eleven Japan ensures that the inventory in each store will be customized to the demands of that store's clientele. The result is constant innovation in local customer offerings and, more important, extraordinarily rapid inventory turnover, the single most important metric at the company. It also results in highly motivated employees.