Working in the World of Now
From Synnovation Issue 6: Making The Connection, EDS Agility Alliance Quarterly Publication.
Where did the iPod come from? How could someone think up such a thing? They're commonplace now, so such questions about their innovativeness have subsided. But with each passing year they get smaller and sleeker, even as they grow more muscular with capability. The iPod is packed with meaning, swelling with symbolism. It's an icon of where we are right now socially, culturally and technologically. It's representative of the rapidly shifting dynamics driving the successful global enterprise.
synnovation Issue 6: Making the Connection
Issue 6 examines the new business network, exploring how mobility, globalization, and virtualization are changing the ways employees, organizations, customers, suppliers, and citizens interact, work, and strategize. Also included is a new opportunity to tell us what you think and share ideas with other readers.
Last century, the most successful companies owned and controlled stuff: workforces, manufacturing plants, raw materials and systems. Henry Ford was the founding father of revolutionary thinking in such industries. His fierce determination to be independent of suppliers drove him to fabricate the largest, most efficient, integrated industrial complex in the world in the late 1920s. Constructed along the Rouge River in Dearborn, Michigan, Ford's River Rouge complex sprawled more than 2,000 acres with 90 miles of railroad track, 120 miles of conveyers, 53,000 machine tools and 75,000 employees. It forged steel, stamped parts and had its own power plant, glass works, cement kilns, and a byproducts plant that produced charcoal as well as petroleum products such as paint and fertilizers.
Armed with a stopwatch and a notebook, Henry Ford stalked the factory floor, eventually slashing assembly times from twelve-and-a-half hours to one-and-a-half hours per vehicle. River Rouge was a breathing monument of 20th century industrial might and the power of size, brute manufacturing force, tight-fisted control of resources and ruthless efficiency. It was the power of “stuff.”
Though it still operates and is Ford's largest factory, River Rouge today is a shadow of what it once was. It has been downsized to a 600-acre footprint with 6,000 workers and many of its operations, such as steel production, have been sold off to other companies. Late last year, Ford pledged its plants and assets – even its Blue Oval trademark – as collateral to secure a credit line of up to $25 billion to bankroll its turnaround.
What happened? “Stuff” has become less relevant. Physical asset complexity has become extremely costly, in terms of time, agility and resources. In the past, the more stuff a company owned, the more processes it controlled, the more powerful it was. But stuff itself doesn't go to the core of the problem. It's how stuff is viewed within the overall system, the network if you will.
Today, everything has flipped. Stuff and physical complexity have become liabilities; rigid centralization is the venom of the 21st-century enterprise. Now, the less stuff an enterprise owns, the more powerful it is because it possesses flexibility and agility – the muscles of modern industry. Attuned companies can quickly adapt via outsourcing, shifting work to suppliers and spinning off capabilities to consumers who often would rather do it themselves. Now power rests with those enterprises that can rapidly change the complexion of their businesses as the world ebbs and flows, incorporating cutting-edge technologies along the way.
Think of the computer. No one had ever heard of a computer before 1964. Hardly anyone ever saw a computer before 1980. The computer was locked up in one room in one building. It was accessed via one terminal in each department that everyone shared. You had to sign up for computer time and wait your turn to utilize its power. Data was spit out in long sheets of pleated paper that had to be scrutinized.
As technology progressed, computers filtered down into different corporate departments before they began a two-decade stampede onto our desktops. But this was only the beginning. The decentralization of computing power accelerated until critical data and business processes seeped down to the individual worker on-the-go. Technologies proliferated in the form of laptop computers, bar codes, personal digital assistants, and, now, web-enabled cell phones, kiosks and radio-frequency identification tags. The individual worker has become an interactive processor of information. An individual widget is now a piece of information, a dynamic data storage device. The customer has been pulled into the enterprise network.
Such processes have utterly transformed the 21st-century enterprise. These “edge technologies” have shaken the entire economy. Formidable 20th-century industries and businesses such as newspapers, phone directories, automobiles, recorded music, motion pictures, photographic film, advertising, airlines, and television broadcasting are undergoing forced evolutionary changes and convergence as these technologies grow in power and capability. Instead of a complex composite of assets and people, the 21st-century enterprise is a virtual ecosystem that is always “on.”
Take the airline industry. Airlines have radically transformed their business models by moving passenger reliance from travel and reservation agents to web sites and self-service kiosks, facilitating mobile check-in via computer or web-enabled phones. This process not only shed thousands of workers from airports and reservations centers, but it also disintermediated the travel agent, significantly cutting expenses. It also empowered the individual passenger by shifting work that was once the sole domain of ticket and reservation agents to the consumer.
The flip side of wringing out these costs is that price transparency came into focus, which fueled the rise of travel discounters such as Priceline and online travel agencies such as Expedia and Travelocity. The result is that people began to shop, which has exerted even more margin pressure on airline ticket prices. There's even a Web site – www.SeatGuru.com – that advises passengers on how best to select their own seats by documenting the vast seating differences among some 40 airlines and 275 airplanes. The site sifts out the most comfortable seats based on flier reviews, aircraft seating maps and information submitted by airline professionals.
All of this rapid shifting has created an environment where not only infrastructure, applications, business processes, and business models have converged, but entertainment, information, and networks have merged, too, and are within reach of the individual. Personal life is converging with business life – as exemplified by Apple's new iPhone, a Web-enabled business communications device that also plays music and videos and shoots high-quality digital photos. Consequently, the professional is always “on,” always connected. It's a global information-at-your-fingertips-with-Blue-Tooth-in-your-car world. It doesn't go away when you leave work. You're still connected. We're fully immersed in the on-demand, self-service era, with all of the risks and rewards it brings.
The trick is navigating these connections and understanding the underlying patterns and how they could affect your business. Once these concepts and processes have been adopted, they must be assimilated through hyper-flexible networks with potent surge capacity. The modern enterprise must have the capacity to connect all points to successfully exploit the edge and facilitate rapid adaptation.
Consider the military. War is not effectively waged with tanks and motorized infantry divisions and battleship or isolated bomber groups anymore. It's not fought with huge fixed bases scattered all over the globe. Today, it's a networked model, with connectivity as the primary weapon. It's a mobile military, with smaller forces that must mobilize rapidly and strike quickly. The need to modernize the military – from intelligence, forces, and weaponry to logistics and deployment operations – with leading-edge connectivity is critical. This process must happen not just within one military unit itself, but also among allies.
Perhaps no industry could benefit more from this new paradigm than healthcare. The United States, for example, has the best healthcare system in the world in terms of innovating solutions to health problems. But the delivery systems aren't effective. The American healthcare industry is among the most decentralized in the world. Patients, providers and payers are largely disconnected. Pockets of critical information are isolated in the hands of doctors, providers, and patients, and each constituency has a different set of information systems and requirements. Thus, little of this information is meaningfully exchanged.
Yet the challenge goes far beyond simply connecting all of these constituencies. The real challenge is recreating intimacy, especially within the cornerstone relationship between doctor and patient. It takes a virtual connection to re-create such intimacy. Intimacy requires patients who are adequately informed and held accountable for their choices; doctors who know the patient's whole history, regardless of their location or specialty; and healthcare payers that can approve procedures at the point-of-sale, just as is done with cars fueled-up via an authorized credit card transaction at the pump.
Think about this: The United States spends 16 percent of its gross domestic product (GDP), or $2.1 trillion, annually on healthcare. This compares with between 8 and 10 percent in most other industrialized nations. Eleven percent of that, or $230 billion, is spent on administration costs with another $35 billion invested in IT. It's impossible to believe these resources are effectively utilized within the current healthcare structure.
The upshot is that while there have been transformative innovations at the provider level, sharing the benefits of these innovations across the whole spectrum of providers while facilitating connections between doctors on a specific patient's level of care is another story – one that demands the standardization and centralization of information. Though it may seem counterintuitive, standardization and centralization actually encourage innovation. Standardization and centralization feed innovation where it matters: at the margins, on the edges.
The opportunity to eliminate medical and prescription errors, reduce administrative time and costs and dramatically improve quality rests on widespread adoption of technology. Yet the most significant barrier to greater deployment of technology is the highly distributed nature of the key healthcare stakeholders. There have been pockets of breakthroughs, which tease us with the potential that technology offers healthcare. The actual technology itself is straightforward – needing not too much more than the functionality required by large, multibranded credit card processors.
Go back to the airlines again. A recent challenge for the airlines was that they used myriad systems – reservations, baggage handling, flight maintenance, crew calling, flight operations – that were each dependent on different technologies that in reality had little value in isolation. Workflows generated by these systems weren't harmonized and centralized. The baggage handling system didn't know where the planes were, the planes didn't know where the passengers were, the flight crews didn't know where the maintenance crews were. To drive value into these systems, many airlines have built an abstraction layer that made connection points among all of these systems. With cross-system communication, everyone and everything knows where everyone and everything else is at all times – always “on”.
Every enterprise in every industry is striving to become more agile, to develop more seamless networked systems and to connect directly with customers and suppliers. Systems and networks must be modernized to survive in this environment. Companies, partners, suppliers and customers must be able to talk to each other. Applications, infrastructure and security must all be linked end-to-end. Such systems entail huge transformative processes. Innovation at the “edge” – in the form of mobile intelligent devices, embedded smart chips and radio frequency technology – will accelerate and alter the competitive landscape in nearly every industry.
This is where end-to-end becomes crucial. Back in the mainframe era, the focus was not only on the build cost of systems, but it also zeroed in on run costs, because run costs were expensive. If systems were not designed for run™, you ended up purchasing another $5 million to $7 million mainframe in short order. After the client-server environment evolved, the thinking was that such costs were not a worry. Servers are cheap. True, unless you have 10,000 of them running at 15 to 20 percent capacity with teams scrambling around the globe to maintain them.
If the new messaging components or service oriented architectures are implemented poorly, the enterprise cost structure will be prohibitive. Surge capacity must be muscular because of the tremendous pressure on these networks due to the volume of instantaneous information flowing back and forth from far-flung connection points. These networks simply can't go down. They must be engineered correctly and designed for run because the entire business depends on them. Faulty engineering could stop an airline, shut down a bank, or throttle a consumer goods company as older systems are replaced by networks and connection points. And, while innovation occurs at the margins, it's essential that industrial strength platforms be implemented to support it.
Yet this may not even be the source of the most profound innovations we're likely to witness over the next few years and decades. These innovations will occur at the intersections between disciplines, the white spaces where technology, music, art, and travel converge. Explored by former software executive Frans Johansson in his book The Medici Effect, these intersections or connections present fertile opportunities to combine existing concepts into a large number of extraordinary new ideas, resulting in technologies that have never before existed and seem to have no antecedents. By breaking down the associative barriers and stepping into the intersections between fields, the number of available idea combinations multiplies well beyond anything that can be achieved in a single area.
Hence, the birth of the iPod – a convergence of technology, communications, music, cinema and television and travel. We live in exciting times. But these are also dangerous times. Firms that embrace this new era and revitalize their systems and networks by recognizing and assimilating their impact on strategic agendas, business models and individuals will thrive. Those enterprises that insist on working in seclusion and struggle to adapt legacy systems to this new era may not survive.
Power has shifted. Henry Ford is watching.
About the Author
Charlie Feld is senior executive vice president of Applications Services for EDS.