Part A
Setting the
Context: An
Interdependent
World
Globalization, intense competition (often from unexpected quarters), demanding customers, regulatory changes, the relentless progress of technology – all are factors that recur high on the list of key challenges affecting businesses. How do they respond? Many management books, such as Thriving on Chaos by Tom Peters (1987), The Future 500 by Craig Hickman and Michael Silva (1987) and Competing for the Future by Gary Hamel and C. K. Prahalad (1994) offer prescriptions. A common thread in these is the need for organizations to be flexible, adaptive and to continually reinvent themselves.
The harsh message is – if they don’t they won’t survive. The average life of most sizeable corporations is less than thirty years. My former employer, Digital, for over twenty-five years a paragon of a company that adapted, was innovative and grew rapidly and successfully, lost its way, stagnated and was finally absorbed into Compaq after thirty-eight years. Comparison of today’s Fortune 500 or The Times Top 1000 with those of just ten years ago shows dramatic changes with once strong companies, like Triumph and Barings no more. When I talk to senior executives, the consistent message that comes across is that they are in the process of changing or transforming their business. And today’s change is not like the change management process, described by Kurt Lewin, of ‘unfreeze, change, refreeze’. It is continuous and never ending.
The single most important factor that is driving most of these changes in the business environment, and within organizations, is that of information and communications technology (ICT). It is often said that information and communications technologies are a business enabler, and should support business strategy. In my opinion, this is rather a passive attitude. Progress in ICT and other technologies is so dramatic that it is fundamentally transforming our environment, the way we live, work and the business landscape and society itself. Organizations therefore need to understand and actively embrace new technologies as a core dimension of strategy.
Perhaps the biggest change during the last decade of information technology (IT) is not continual improvement in functionality and performance – incidentally a trend that has been happening continuously since the 1960s – but interconnectedness. Today, communications and computer networks are pervasive. Organizations, governments, individuals are becoming more closely interconnected in ways not hitherto possible or economic.
Networks are not new. In earlier periods of technological development, once separate local power and gas supplies were connected into grids. Local telephone companies built interconnections with others so people could communicate outside their local area. Today many services are interconnected and interdependent, as we know only too often to our cost. A $20 switch fails in an electricity switching unit, and half of Quebec loses its electricity supply. There is a glitch in some communications software and a large proportion of eastern USA cannot communicate by phone for several hours. A snowstorm hits Chicago’s O’Hare international airport and flights from all over the USA are disrupted. Hong Kong’s stock prices plummet and the ripples are felt in stock markets around the world. All are examples of our daily dependency on such systems and also the interdependencies of such systems around the world, either physical systems like electricity grids or information systems, like the stock markets.
Yet when such systems work smoothly individuals, businesses and society in general gain enormous advantages, more so when such systems are global. For example, through a single point of contact, you can book travel tickets, rental cars, accommodation and more besides. Many systems, not just those of your travel agent, but those of many airlines, car rental firms, tour group operators and hotel groups are interconnected. Such networks of collaborating systems help reduce costs, distribute and share resources, and give better customer service. A feature of such a network is that value is being created through information and knowledge. To the hotelier or airline it is not having an aircraft seat or hotel bed that is valuable, but the information about it and the ability to exploit it. Thus it was widely reported that, during the 1980s, American Airlines frequently made more money from its SABRE reservation systems, than it did from flying aircraft!
Such networks, however, are relatively highly structured around a supply chain and well-defined business need. This very structured and high level of IT investment may itself limit their ability to adapt and change as the business environment changes. What is happening today is the growth of more dynamic networks, and a new layer of value on top of information – knowledge. We must also not forget the existence of many informal personal networks, often hailed as the main way that things move forward in business, scientific and other communities. We are creating not national utility grids but global knowledge networks or webs. These connect independent disparate knowledge that when combined and aggregated can lead to new knowledge and new opportunities.
A good example is that of El Niño, that recurring pattern of ocean currents that affect the climate around the world. Originally seen as purely a local unexplained phenomenon by Peruvian fishermen, the sharing of knowledge about apparently isolated unusual weather has identified it as a global phenomenon. Now scientists and economists around the world are collaborating to find out more about it, and to predict its future occurrences and impact.
Businesses likewise collaborate on an increasing scale. As well as collaborating in supply chain networks like those just described, they collaborate with business partners and even competitors in various forms of strategic alliance. To remain adaptive and innovative they need access to resources and expertise that goes beyond their own means. They need to access knowledge that they don’t have and to generate new knowledge and commercialize it more quickly. Link-ups between biotechnology and pharmaceutical companies are one example of such collaboration. Mergers between content providers and Internet infrastructure providers are another. More and more collaboration is taking place globally and over computer networks, such as the Internet. Collaboration over global networks is a major theme running throughout this book.
The other major theme of this book is knowledge. Every few years there is a new strategic focus that promises hitherto unachievable improvements in business performance or a means of competitive advantage. Some initiatives are merely fads that disappear, while others become more established as mainstream business activities, perhaps after some reshaping. Total quality management (TQM) and business process re-engineering (BPR), for example, were two of the most significant management initiatives of recent years. Now another is on the scene – knowledge management. But is this something fundamental to every business or is it merely another consultant’s fad? The faddists cite examples of failed BPR projects and the need for management consultancies to keep reinventing something new to sell to clients. The fundamentalists’ argument is that knowledge is an important contributor to the performance, value and future prosperity of an organization. In order to maximize the benefits it must be properly managed and exploited. Too frequently, companies do not know what they know, thereby reinventing the wheel, or fail to apply best practice because that knowledge has not been shared. Already, as you will read in Chapter 2, there are many examples of companies that harness and exploit knowledge and have achieved significant business benefits. Like any innovative practice that stands the test of time, certain things must happen for it not to become a passing fad. First, the practice itself must be better understood and continuously improved through a process of ongoing learning. Second, as the business environment changes, it must be adapted and even reinvented into something better that fulfils an important need.
At this stage of its evolution, the jury is out as to whether knowledge management, like TQM, will achieve fundamental status. My own expectation is that it will, although perhaps in new configurations. For example, the current mainstream of knowledge management might bifurcate into knowledge sharing and knowledge innovation. Alternatively, knowledge management may become part of a more encompassing intellectual capital management.
What will influence the way that the themes of collaborative networking and knowledge management develop are some fundamental trends in the business and wider socioeconomic environment. This is the topic of Chapter 1.
Each chapter in Part A and Part B ends with some ‘points to ponder’, to set you thinking about how you could benefit from these trends and developments.