By Peter Whitehead , Extract from the Financial Times
I don’t read many books, but one I did get through last year was about how a manufacturer was transforming itself into a provider of expertise and services.
The book* used a fictional company that made power generators to illustrate how high-speed connectivity and collaboration enabled it to overcome a challenge from low-cost rival manufacturers by creating a network, or mesh, of its entire “eco-system” – suppliers, customers, experts, critics and others.
The authors’ conclusions were far-reaching, claiming businesses would shift from the vertical model of “make, sell and maintain” to a horizontal business model based, in this case, on advising clients about reducing energy costs, maintaining reliable supplies, and more.
Some people ‘get’ IT – such as US President Barack Obama, who used it during his election campaign
But I was sceptical. The theory might hold for a fictional company – but in the real world?
Then, at the turn of the year, I asked a relative how his engineering business was faring. Things were tough, he said, but one sideline was doing well.
His description of how he had created interactive websites in order to engage with customers and use their experiences, along with the wider knowledge of the market and his own expertise, could have come straight from the pages of the book.
He was not concerned with making these particular machines – they were made by someone else – but instead, he was servicing them, making them more efficient, building accessories, advising on best practice, helping customers choose the right machinery and generally adding value to the process.
Others struggle, such as UK prime minister Gordon Brown, much derided for his attempts to reach people using YouTube
With fiction seemingly confirmed as fact, I next spoke to Steve Prentice of Gartner, an IT consultancy, in search of the bigger picture. In his view, the picture is big indeed – and very worrying: he believes most businesses no longer understand IT at all.
“Company boards don’t recognise what IT is or does any more,” he says. “It used to be a thing that you used to increase productivity or automate processes, but that’s been done. Even chief information officers, who thoroughly understand enterprise IT, have been left behind by social IT – which they can’t control.”
Today’s technology is all about communities, he maintains. IT and the internet are now affordable to all, providing universal and easy-to-use communications. Most is trivial and may appear to be of no interest to business. But it is increasingly crucial, as peer respect now comes from online social networking communities, such as Facebook, in which people swap feedback and recommendations.
With every business now being a digital business – even a side-street hairdresser will have its customers comparing notes about it online – they have to engage. Yet many banks, for example, still refuse to let customers post comments online because they fear what will be said.
I began to see that a successful organisation today needs to operate in a much more refined and subtle way, which for some could mean fundamental changes to business models. It involves more listening, watching, being in tune and in touch, engaging with every interested party, being responsive to communities.
This gathering storm is changing the environment in which businesses operate. It will affect them in different ways: the US car industry, for example, might have suffered less if it had tapped into online social networks discussing motoring trends; perhaps the banking sector could regain some public trust by engaging with interested digital communities.
Other industries have fought to hold back the tide: music companies, for example, are only now coming to terms with a market that pioneered ideas of connectivity and community.
“Information is everywhere and readily accessible, yet business seems to think this has nothing to do with them,” Mr Prentice continued. “The boardroom doesn’t get it. They see IT as a tool. But IT has escaped the toolbox and is affecting their business, in terms of work expectations, channel to market, feedback, and others.
“The secret is communities – work out how they work and tap into them. But CIOs are focusing on outsourcing, virtualisation, the cloud, which are all aimed at keeping the organisation the same and avoiding transformation.”
Does this equate to companies not understanding IT? They clearly understand IT infrastructure – or digital efficiency – and have created organisations to maximise it. Most clearly understand the competitive edge that creative use of technology can bring through digital innovation.
But this third strand of corporate IT – social technology – does seem to fall outside established structures, practices and thinking. This places the emphasis for understanding these changes on enlightened individuals within organisations.
I asked Anne Berkowitch, chief executive of Selectminds, a provider of corporate social network software, whether there was a big variation in the way companies were responding to social IT: “Absolutely. There are individuals who get it and if it’s someone senior, they will launch a social networking initiative and show success and then it tends to grow organically.” (Hear her views in our latest podcast at http://www.ft.com/dbpodcast.)
Ian Campbell, chief information officer at Cambridge Assessment (an arm of Cambridge University) and chairman of the UK’s Corporate IT Forum, agreed that understanding is patchy: “You could have two organisations in the same sector, one fully embracing this phenomenon and one saying ‘I don’t get that – what’s the point of it?’
“It’s down to attitude – and it goes all the way to the board. They either see it and get it and embrace it or they will resist it – and then they will have difficulties.”
Ms Berkowitch is not surprised at this mixed response: “It’s still pretty early in the adoption of these technologies. It’s a convergence of new technology with fundamental behavioural shifts in the business world around openness and collaboration – moving away from command and control into almost serendipitous encounters, with the power base shifting from senior management to individuals.
“Technology can make this happen more quickly than managements are comfortable with. They want to be current but their behavioural and cultural evolution is much slower.”
Rudy Puryear, a partner with Bain & Company, the consultancy, agrees that change is more likely to spread virally through an organisation rather than from the top down because this is the steep part of the learning curve: awareness is low, business risk can be high, and some of the technology is unproven: “It might be fine for a text message on a Saturday afternoon but not something we want to build a mission-critical business application around.”
He says he recently made a presentation to a company’s executive committee. When he mentioned social networking at least three people asked what it was. “As I began to describe it they said: ‘Yes that’s something my grandchildren use – why are we talking about that in an executive meeting?’.
“In another 15 minutes it was obvious there were some emerging business applications. A lot of these connection and collaboration techniques are going to be useful to business in a variety of settings.”
He says 90 per cent of the conversation in the average boardroom was about getting more bang for the bucks from IT spending.
“Most executive committees have an over-simplistic view of IT – they just think it costs too much and takes too long.”
But while the board is taking a simplistic view, the technology itself is becoming more complex. As David Elton, an IT specialist with PA Consulting, points out: “The scope of IT now is enormous – from solid processing to deep cultural initiatives at the edge of both technology and organisational thinking. No wonder businesses don’t understand IT any more.
“The traditional idea of IT as a box with an application running on it does not reflect the reality of IT today – yet most boards still think about it like that. In fact, you’re talking about a much bigger phenomenon – about how the market now looks and how open the boundaries are between your organisation and the market.
“Most organisations still think of their boundaries as very fixed – they don’t see the outside world as part of their organisation. They think it’s far too risky to break down their borders – but there is opportunity in blurring the boundary.”
He says research with the London School of Economics had uncovered two banks now using blogs to communicate in a much “softer” way than traditional marketing. “That is blurring the boundary a bit – saying ‘here’s what we’re really like inside’.
“Does that help sell the product? It’s hard to say. But does it build a relationship of trust? It probably does.”
Could this change the nature of a business?
Mr Elton says it could: some quite large companies were already using a “leaky interface” between their organisation and the market to inject innovation into product and service design – engaging people that they did not necessarily know but who were potentially part of their market.
Matt Glotzbach, product management director for Google Enterprise, says it is vital for companies to recognise that they can no longer control everything: “You can’t control the message any more.
“The ones that get it ask: ‘How can I facilitate the dialogue with my customers’ – not to control it but to be responsive and be viewed as listening and as working with customers.”
He believes new applications and collaborative ways of working will have a profound long-term impact on the structure of businesses and the way they think about a product’s lifecycle, supply chain, etc.
“You’ve already seen a number of companies challenged: they’ve had to say ‘hmmm – what’s our value-add now in this new information economy?’.”
But making changes is difficult, especially for large organisations. Mr Puryear of Bain argues that the complexity of IT in large corporations acts like reinforced concrete, solidifying old ways of doing business: “The average business looks at blogs, wikis, Twitters etc and isn’t quite sure what to make of it. They are intrigued, fascinated and a bit excited – but they’re a long way from sorting out which have true business value.”
Should businesses therefore allow staff the latitude to try out new things and experiment?
“Yes, as long as it does not involve excessive cost or business risk – so look for a safe way of doing it. Some are using laboratories to test things.”
So how does the board get to understand social IT?
In his blog, George Colony, chief executive of Forrester, the research company, says the only way is to use it: “Social technology is like sex. It’s fun to talk about and read about, but you can’t truly comprehend it unless you do it.”
But this is not easy when the scene is changing so rapidly. As Peter Matthews, a partner at Ernst & Young, points out: “Many executives have chosen to demonstrate their awareness of the new world by joining Facebook, but are then bewildered when their clients, people or teams start talking about new, different communities.”
He says the solution is to include a member of the business’s target group (clients, for example) as a board advisor to report on what people are thinking and doing – and be prepared to follow their advice.
Or they could follow the example of the many speakers at IT conferences who learn from their teenage children. This generation, dubbed “digital natives” are now entering the workplace, and could force businesses to operate differently and more openly.
Gary Curtis, of Accenture, warns business against moving too slowly to accommodate the digital natives. He says: “They have little interest and time for things that aren’t working for them and will quickly leave for jobs elsewhere.”
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Elliott King is a Director of MintTwist Limited. MintTwist help businesses to manage reputations and increase sales leads at http://www.minttwist.com