InformationWeek
Defining The Business Value Of Technology
February 8, 1999
Information's Competitive Edge
Staying ahead of the competition means using all the information available to your company
By Ralph Szygenda, CIO, General Motors Corp.
s we speed into the 21st century, IT advances continue to change the business environment for everyone. Traditional market balances of power are being upset as real-time information becomes more available to a multitude of people on both sides of the business equation.From the consumer's point of view, we're moving from the age of mass consumerism to the age of individual consumerism. Customers' needs are being filled by custom-tailored services or by product designs that reflect their individual desires more closely than ever before.
A parallel movement is occurring in manufacturing, as we move from mass production to mass customization. The manufacturers that can anticipate their customers' needs and suggest solutions tailored to their buying patterns and socioeconomic and lifestyle backgrounds will be the clear winners in the brutally competitive global business environment.
The more than 80 million consumers in the United States with Internet access today can obtain information quickly about products and services they might want to purchase. In addition, they can often get product and service reviews by independent sources, such as users, that go beyond the traditional Consumer Reports and aficionado magazines. For the first time, many potential consumers also have access to the cost retailers pay for a product.
For example, just a few years ago, a new car buyer had access only to a vehicle's retail price. Negotiation started at the retail price, and the buyer tried to negotiate the vehicle's price down. Many buyers were unaware of discount factors in the dealer's cost equation and were inexperienced in the complicated ways of leasing or financing and insuring a vehicle.
Now vehicle buyers can go toWeb sites to read reviews of the cars they're considering, as well as compare features on the manufacturers' Web sites. They might visit vehicle owner chat rooms. When they're ready to buy, they know the dealer cost of the vehicle and are aware of any additional manufacturers' promotions, dealer holdback percentages, and advertising allowances. Many have studied the leasing or financing tutorials available on the Web and have sought competitive prices on insurance and extended service packages.
Armed with all this information, educated car buyers negotiate up from the dealer's cost figure, rather than down from the vehicle's retail price. They know how low the car dealer can go and have their own idea of how much profit they're willing to let the dealer earn.Things are getting better from the manufacturers' point of view, too. They can use Net-based analyzers to spot consumer buying habits. Manufacturers can build customer-loyalty Web sites that let them learn what their customers like and don't like about their products. They can conduct online focus groups at which potential customers can visually examine prototype products and ask customers what they want in future products.
Customers can work with manufacturers' designers, customer-service people, or with product configuration software programs to configure the products or services they desire. Moreover, customers can take advantage of state-of-the-art manufacturers' real-time supply-chain planning systems to check the availability of the products they want and, in many cases, place their orders. Flexible software-based manufacturing operations coupled with real-time material flow feedback anywhere in the total supply chain help ensure a smooth and dependable flow of product to the ultimate customer.
Supply-Chain Integration
Manufacturers are part of a value-added supply chain that stretches from users and buyers of products and services back through its distribution and production facilities, and then through several tiers of its global supplier base. Today, these supply chains are being integrated--in a process or workflow sense as well as electronically--so they can be managed as an integrated overall process with appropriate end-to-end measures. More important, a manufacturer can configure multiple supply chains to deal with the many supplier, distribution, and customer service channels needed to effectively reach a variety of customers around the globe. Value chains are being made into multiple-path, multiple-node value webs.
Customers searching for the highest product and service value and their urgent desire to reduce the time they waste in their daily routines are driving the value web/supply-chain revolution. At the same time, today's advanced value webs are getting easier to create and operate effectively. Here's why:
- Standards--de facto and de jure--continue to make it easier for disparate information systems to plug and play effectively.
- Data communications capability has undergone astounding advances--from yesterday's 64-Kbps telephone circuit speed to today's 2.5-billion-bps high-speed networks--allowing manufacturers to communicate throughout the value web and accommodate constant changes that occur in today's volatile business environment.
- Computer processing power has gone up by a factor of 100,000 since 1971, and this rate of change shows little sign of abating. Data storage capability has shown equal performance gains.
- Middleware has emerged to knit together communications between disparate systems and databases.
- Object-based software programming in a component-based architecture lets software be more flexible and scalable.
- There's a growing awareness of the power of process thinking as a basis for software design or configuration. Sound, efficient business processes mirror the way customer-focused work is accomplished. These processes must be robust and repeatable to ensure quality, low cost, and customer satisfaction. Common business processes then allow common information systems, which greatly reduce operating, maintenance, and training costs.
- Enterprisewide software application packages, such as those from J.D. Edwards, Oracle, PeopleSoft, and SAP that cover most if not all the traditional functional and process activities core to a business' operations, are pervasive in the majority of large and midsize manufacturing companies.
- The Internet, with its browser-based technology as a global communication medium that can readily communicate with any computing platform, has provided a quick and inexpensive base for E-commerce applications--whether business-to-business or people-to-business--and for interpersonal communication.
- There's a more computer-literate business community at all levels that realizes the power of harnessing IT to leverage a company's knowledge, for real-time access and communication with the rest of the business world, for reaching new customers wherever they may be, and for planning and coordinating their value web operations.
Yet we're still not moving fast enough! Most companies are not sufficiently competitive, and information executives are more pressured than ever to drive or accommodate change in their companies and industries. For instance, in many companies, their ability to quickly accommodate customers' needs and successfully promote and package their products is severely curtailed by their inability to quickly reconfigure their customer billing systems.
What keeps companies from moving faster to meet the increasing pace of change in the world? Many people still don't understand why they have to change--what's wrong with the way they do things today? Management has to voraciously seek and absorb information about the business and technical worlds, and to personally mix with their customers and suppliers around the world to appreciate the intensity of global competition and rate of new knowledge discovery and application today.But even when people know why they have to change, there's still the universal human resistance to doing so. Moving from the familiar and comfortable to the new and uncomfortable--perhaps threatening--is still a challenge for all of us.
Managers typically look within the company when the emphasis needs to be external and forward looking. This means a constant quest for new ideas, customer feedback and suggestions, and best practices from one's own industry and, more important, from other industries. Process-focused, customer-focused, and time-based performance metrics play a key role in pulling a company toward world-class performance.
Many people aren't trained to think from a systems viewpoint--that is, a closed-loop control and feedback mechanism. This way of thinking is essential to understand the interactions between activities and business processes within and external to a company.
Similarly, many people aren't trained in process thinking, in which activities are initially viewed independently of who or what function performs the work and where it gets done geographically. This perspective is critical as we move to intricate, tightly coupled, and real-time business processes across companies and around the world.
People don't appreciate the value of time--or more specifically, real-time response to customers. Real-time information facilitates real-time fact-based decision making and communication to accommodate today's increasingly volatile business environment. If customers have to wait for a reliable answer, they'll go elsewhere.
People don't realize how critical a role real-time electronic communication plays in enabling a team-based business environment in which knowledge can be shared and leveraged to more effectively serve the customer.
Change management and learning--not technology--are still the issues in transforming businesses to satisfy increasingly demanding customers and to attain ever-increasing business performance levels. Perhaps Ray Stata, CEO of Analog Devices, put it best when he said, "The rate at which organizations learn may become the only sustainable source of competitive advantage."
Ralph Szygenda is chairman of this week's InformationWeek Winter Forum on Extending The IT Value Chain.
Read sidebar story, "Benefits Of Linkages Seen."
Illustration by Matsu
Photo of Szygenda by Dwight Cendrowski
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