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Executive brief by: George Kadifa 27Mar2006 Industry: Cross-industry
In the last few years, we have seen it all: terrorism, natural disasters, stock market meltdowns, bankruptcies, scandals, and corporate lay-offs. And, in the background, worries running high that costly oil could disrupt the global economy. Today’s CEOs are navigating in rough water and must turn new external realities into opportunities for their organization. Information Technology (IT), the growth engine and productivity producer of the 1990s, is at the center of the change we face. A set of enabling and constraining drivers will guide CEOs and CIOs as they focus IT investments on building competitive differentiation, rather than maintaining existing systems. A new organizational construct, the On Demand Business, is emerging to help us address this change. Characteristics of the On Demand Business include abilities to: • • • • • Flexibly respond and deliver to spot demand levels with no long-term commitments, Dynamically grow or shrink based on the variability of demand for products and services, Operate anytime, anywhere, under any condition, Dynamically minimize asset and labor content per unit of production, Provide real-time transparency of operations both for external and internal visibility.
Economics in the On Demand World This paper, despite the global uncertainties, comes at a time of growing optimism. The United States continues to lead other developed countries in economic growth, technological innovation, productivity, research and development, and the ability to cultivate human talent. Despite serious problems such as swelling trade and fiscal deficits, illegal immigration, inadequate health care, major income disparities and a deeply divided electorate, the U.S. economy is healthy. Last year, the U.S. GNP grew an estimated 4.4 percent, and this year the growth rate is expected to be 3.5 percent. Indicators seem to point towards economic stability and recovery. It is essential to understand what has happened over the last few years, what we have learned, what the new drivers of economic prosperity will be, and how best to structure an enterprise for maximum performance.
The past few years, we have seen it all: huge stock market fluctuations, costly oil, bankruptcies, scandals, prosecutions, layoffs, terrorism in our homeland and abroad, wars, natural disasters and nuclear rogue states. Such events were totally unexpected. “Even before the hurricane hit, rising energy prices were having a dampening effect on the economy” said Nariman Behravesh, chief economist of
Global Insight . Going back to the 1999-2001 period, we believed that the New Economy would always produce growth and prosperity. So what happened? To understand the extent of these changes, one has to take a broader perspective. The early 90's: Stability and growth In the early 1990s, we entered an era with tremendous expectations for global growth. Market economies won. And freedom won. The Soviet Union and communism collapsed, and the threat of global nuclear holocaust disappeared overnight. Instead, people were celebrating on the fractured Berlin Wall and dancing to the music of Pink Floyd. Yes, there were some crises to face: Saddam’s adventure in Kuwait Noriega’s revolt in Panama, Ceausescu’s misrule in Romania and Milosovich’s massacres in Yugoslavia. But these crises were handled in a fast and effective manner. A ‘New World Order’ was created. The United States ensured world peace as the only super power. Economically, Germany and Japan were in full expansion and ignited the world's economy with growth prospects. The U.S. was coming back from a short recession to lead the world in an unprecedented 10-year expansion. Other nations abandoned “command and control” economic policies and adopted market-based economies as the sole solution for growth and prosperity. Wealth creation was driven by IT. Massive investments were made in this area, especially after Alan Greenspan announced the unequivocal relationship between higher IT spending and higher corporate productivity growth. New technologies proliferated, changing the IT landscape permanently. Just a few include: client-server computing, COTS, ERP, CRM, SCM, PLM, HTTP, HTML, XML, Java, LAN, Ethernet, the Internet, and SOAP. Moore's Law kept producing more computing power at less cost, and the multiplicative wealth of Metcalff's Law drove the bandwidth investments in copper and fiber. The Y2K phenomenon caused even more investments, and “ebusiness or out of business” became an axiom. A “techie” from Seattle became the richest man on the planet and another “techie” from Illinois emerged to challenge him by leveraging a new technology called the Internet. And corporations were spending close to 50 percent of their capital investments solely on information technology. The new economy emerged, but the new economy did not last. 2001 to the present: Uncertainty brings challenges As we experienced starting in 2001, massive changes happened politically, economically, and technologically. On the political front, global peace and stability have been shattered. After 9/11 we face the threat of terrorism from an unconventional foe hiding in caves and entrenched in major cities in Western and Third-World countries. Such a foe is not easily identifiable, has extremism and fanaticism as allies, and executes with asymmetric threat methods. Although the war in Iraq was swiftly won, we are still facing continued challenges in Iraq, and such challenges will continue for the foreseeable future. North Korea’s nuclear weapons program is progressing in a region of the world where several powers intersect in influence and
presence. America has embarked on a global war on terror, but several of our allies are not supporting us and openly disagree with our strategy. Instead of the threat of a global nuclear holocaust, we are faced with a constant, continuous, and invisible threat to our daily lives. In 2005, we proceed at alert code Orange. Second, our belief in market economies has been shaken. A $7 trillion meltdown in the capital markets was followed by major scandals, significantly affecting the integrity of our markets. The demise of Arthur Andersen, Enron, Tyco, and WorldCom as well as the issues raised at Putnam, NYSE, and Parmalat have shaken our confidence. While the Sarbanes-Oxley Act of 2002 is a necessary step to restore our faith in corporate governance, much more still needs to be done. Third, global growth has disappeared. Japan has been in deflation mode for several years, and Germany's engine has stalled. The U.S. economy is growing again, but its engine of growth remains the U.S. consumer. And this engine is threatened by huge and growing deficits and an anemic growth in U.S. employment. Our fiscal budget and trade deficits are at record highs and will have major long-term impacts. In the short term, the U.S. dollar is at its lowest level compared to the Euro. Over the last four years, we have lost more than three million jobs. So far, we have been slow to rebound from these losses. Worse, there is concern that the current off-shoring trend will cause many more job losses and create an even greater need for worker retraining. This time, we are exporting white collar, high tech jobs, and we do not have an attractive sector with significant labor needs to absorb these losses. We are all looking for the next Japan and the next Germany, and the focus now is on China and India. China has shown tremendous potential and growth performance. Forbes this month indicates that China exports are expected to grow 26 percent and imports to add 14 percent on a yearly basis. In the first half of 2005, China exports grew 32.7 percent. Third quarter 2005, China’s GDP growth is estimated to reach 9.3 percent, a lower rate than the first half of the year. One of the main problems being excessive production capacity. In 2004, it has surpassed France and Japan to become the world’s third largest export trading nation after the U.S, and Germany. But the realized growth numbers are not very large in absolute terms, especially relative to the larger economies of the G7 countries. In 2004, the GDP of China was $7.2 trillion, second only to the U.S. Although in per capita terms, the country is still poor. Similarly, India’s GDP is about $650 billion, which is less than 70% of the GDP of Spain. Although China and India are growing at faster rates than the G7 countries, their immediate impact on the world economy can only be realized in the long term. In the short term, their internal markets will have limited capability to rejuvenate the world economy. Fourth, technology is suffering from the Concorde syndrome. The massive investments in IT enabled organizations and corporations to fly at the equivalent of Mach 2. However, getting to such a level of performance also requires massive organizational changes, new and re-engineered business processes, new market creation, major shifts in existing markets, and employees receptive to changing their skills, job functions, incentives, and responsibilities. All of that did not happen for obvious reasons. Hence, the technology sector has seen massive rationalization and downsizing. Large built-up capacity remains unused as witnessed by the glut in telecommunications, applications software, and data center infrastructure. The withdrawals of Sprint and Cable & Wireless from the web hosting business are just the latest examples of the rationalization that is still being undertaken in IT. Worse,
the excesses of the 1990s have resulted in broad skepticism about the business value of IT, as illustrated by an article in the Harvard Business Review1. Such a backlash against IT is unhealthy. Corporations will manage IT as another line of business. They will not invest in IT for technology’s sake anymore. With 80% of IT budgets still being consumed by ongoing maintenance of current systems, there will be serious focus on unlocking such resources and re-deploying them for building new systems that drive business. Corporations will have to carefully balance resources and priorities. If they err too much on just managing IT as a cost center, they will miss adopting and deploying several enabling technologies critical for their business success. However, they will need to be careful about how best to invest and where to get the resources to generate clear and unequivocal business returns. One constant will be the direction of IT budgets: they will continue to shrink as a percentage of company revenues.
What are the new drivers?
Over the last four years, the events that happened have produced a totally new business environment with daunting challenges as well as new and untapped opportunities. In planning the corporation’s priorities, direction, and structure, CEOs are faced with a set of Constraining Drivers, predominantly external in nature, that are counterbalanced by a set of Enabling Drivers, that provide new opportunities for increased performance. The conflicting pressures applied by these two sets of drivers will transform the structure of the corporation, as we know it today, towards an On Demand Business. The On Demand Business will also revolutionize supply chains within and across industries and transform economies. As covered above, the Constraining Drivers for today’s enterprise result from the current security and economic volatility, the new requirements for more transparency as outlined by Sarbanes-Oxley, and an economic climate where low growth, low inflation, and low employment levels will prevail throughout this decade.
The constraining drivers
Unpredictable threats The main reason volatility will remain prevalent is that we are facing asymmetrical threats that we cannot conclusively resolve. This is not the Cold War when we knew who the enemy was and what to do about it through clear doctrines. Today, our foes are individuals, bands, movements, or rogue states. They are unpredictable and difficult to track. They have access to means of destruction that can cause major damages to our societies and economies. In August, TechNewsWorld reports that there is a wealth of information out there for “hackers”. “The arrest recently of alleged Zotob writer Farid Essebar, 18, has shed some light on the thriving underground culture.” “Experts believe that Essebar may have created as many as 20 variants of the bot worm that infected Windows systems. He, and others, learn their tricks the same way everyone else does: through a network of informational Web sites, magazines, conventions and advice from peers.” Increasing fears of hacker attacks have caused security appliance and software sales to rise to $1 billion for the first half of this year, according to Data News. The new threats we are facing are unpredictable, and they can cause high levels of damage with low levels of skills
and resources. We are still learning how to counter such threats effectively and conclusively. Increased regulatory controls The requirement for corporate transparency is a direct response to the recent corporate and investment scandals. Investors need to have their confidence restored. Hence, corporations have to provide the public with more operational and financial information in a real-time manner. And they have to implement enhanced governance structures to improve management and board supervision. SabanesOxley (SOX) is helping to bring confidence back to investors. However, the objectives and implications of SOX are still misunderstood. In a survey of senior executives of publicly traded companies conducted by BSI Global Research, 42% of respondents considered SOX a well-meaning attempt that will impose unnecessary cost. We need to recognize that the implementation of the SOX controls opens a tremendous opportunity to improve corporate performance, both in visibility and agility. Instead of considering SOX as a cost of doing business and conforming to regulations, the requirements and resulting tools can be used to greatly improve corporate operations and visibility across functions, geographies, customers, partners, and suppliers. SOX will have major implications on corporations -- much larger than anyone is predicting today. It will force companies to make more information visible to more people, integrate cross-functional reporting into a coherent framework, and improve the management of corporate assets. It will provide fast response not just to regulation reporting, but also to any kind of corporate change, such as new product introductions, on-going operational improvements, new customer and supplier management, as well as M&A integration. Low growth and low inflation The low growth and low inflation projections will compel organizations to improve the bottom line, since the opportunity to raise the top line will be limited. The massive business process re-engineering (BPR) projects undertaken in the 1990s produced positive results that streamlined supply chains, increased corporate productivity, flattened organizational hierarchies, and improved customer service. In a lowrevenue growth period, corporations will look at new ways to increase performance, primarily focused internally instead of externally. Off-shoring and outsourcing are two mechanisms that have replaced BPR. They have a larger impact with a high risk/reward structure. Although off-shoring and outsourcing have had some success, they have generated a significant backlash in terms of job loss and job exports. Instead, we are seeing a much larger opportunity for the corporation, which will produce a 10-fold performance improvement through its transformation to On Demand Business.
The enabling drivers
There are several new and promising Enabling Drivers that can be leveraged to great advantage and that enable the On Demand Business. They include: • Globalization of knowledge work
• • • •
Emergence of network-based service providers Leveraging current IT systems Portable, self-service computing Use of the Internet as the global technology infrastructure
Such drivers are new, significant, and relatively easy to implement. They deliver enough payback to produce an inflection point in performance through the On Demand Business. Globalization of knowledge The globalization of knowledge work is well underway. Remote call centers, business process outsourcing, and offshoring are manifestations of a trend to place knowledge work at the most optimal point on the planet. Driving this are a relatively cheap global communications infrastructure, the spread of English as the de facto business language worldwide, the availability of skilled and low-wage talent in a variety of countries, and the maturity of the majority of the core business processes inside an organization. The globalization of white-collar work is progressing much like the globalization of blue-collar work 25 years ago. However, such movement has wider implications since it touches about two-thirds of the U.S. workforce, and there is no “new thing” that people can directly point to that can absorb the short-term job losses resulting from such a shift. Such challenges will weigh heavily on the speed of progress of this movement, however, the benefits being generated by such globalization are substantial. The New York Times quoting a study just published by the McKinsey Global Institute, indicates both Germany and France have suffered, compared with the U.S., by trying to put up walls against outsourcing and offshoring. “A new competitive dynamic is emerging: early movers in offshoring improve their cost position and boost their market share, creating new jobs in the process.” Network-based service providers The emergence of network-based service providers is a second enabling driver that can create economies of skill, scope, and scale. Also known as XSPs, these providers deliver services that perform specific organizational functions, business processes, software functionalities, or hardware assets in a utility-like consumption model. Corporations buy what they want, when they want it, for how long they need it, and have a predictable cost in using such services. This is not outsourcing. This is leveraging someone else’s capabilities for your own advantage, while maintaining control and visibility. So, if you want a new HR organization, you engage Exult. If you want a new payroll process, you subscribe to ADP. And if you just want the IT infrastructure fully operational for your HR function, you can hire IBM or AT&T. Corporations obtain economies of skill by being able to access the best expertise in specific areas, be it R&D talent, software development resources, deep process expertise or just low-cost labor capacity. They should be able to access the best talent that exists anywhere, and such skills can be obtained indirectly through service providers. Economies of skill will significantly increase the revenue per employee. Use of Internet technology is a primary reason why the Cisco workforce is the most productive in the networking industry as measured by revenue per employee. Among the technologies that have helped Cisco boost productivity and cut
costs are wireless LANs, IP virtual private networks (VPNs), multimedia e-learning, IP telephony, e-sales, e-support, and workforce optimization applications. This metric should reach $1 million in revenues per employee, and several corporations, such as Cisco Systems, are already close to this number. Economies of scope are generated through a total focus on core competence. In the extreme case, corporations can be built by totally leveraging other providers, from selling to manufacturing to administration. If you have a new product idea, build the core competence around the product or idea and utilize providers for distribution channels, marketing communications, manufacturing, logistics, and all administrative functions. Economies of scope will de-leverage the enterprise and significantly increase the equity-to-debt ratio, the return-on-assets ratio, and the market-valueto-book-value ratio. More important, the enterprise will gain major operational agility, since it will eliminate much of its fixed cost structure and be able to tune its structure to expand or shrink based on market demand. This is the opposite of an LBO strategy, where debt is expanded on balance sheets to better control cash cow companies. Economies of scope enhance any corporation regardless of its life cycle and success prospects and without the need for financial engineering. Economies of scale are obtained by leveraging the larger scale of service providers. An enterprise of any size, even a Fortune 100 company, will always find another enterprise that will have higher operational scale in certain areas or functions and will gain from utilizing such scale. As an example, Flextronics has manufacturing scale larger than any electronics manufacturer, although Flextronics has just $15.9 billion in annual revenues and is not a Fortune 100 company – not yet. Leveraging existing IT systems A third enabling driver is existing IT systems. During the 1990s, more than $3 trillion was invested in IT, excluding the dotcoms. An inconclusive debate has been raging about the business returns realized from such investments. Regardless of such debate, enterprises today have a sophisticated IT infrastructure to leverage and fully utilize. Practically every enterprise has now moved its IT infrastructure from a closed, mainframe, or client-server architecture to web-based systems where customers, employees, and suppliers can access their software applications seamlessly. Consolidation, rationalization, and upgrades have occurred throughout the last three years, making such IT infrastructure modern and available for supporting more automation of functions and processes. Instead of maintaining a strict focus on cost reduction for IT, the leading companies have started to look at their portfolio of systems to unlock value by lowering the ongoing maintenance expenses of current systems and utilizing the freed resources to deploy new systems that can show tangible and short-term benefits. The business user community is requesting new applications in analytics, partner connectivity, further automation of core functions, and revenue-supporting systems. IT is starting to free fixed resources from ongoing maintenance tasks to maximize user benefits. This is resulting in a major increase in throughput for the IT organization along with higher staff utilization and lower asset requirements The rise of portable, self-service computing The fourth enabling driver is portable, self-service computing. The convergence of the technologies of portable computing and web services is allowing a new dimension
of deploying and utilizing business functionality, without the need for human interaction. Portable devices such as PDAs and laptops have increased their computing, bandwidth, and connectivity capabilities as well as expanded their functionalities, hence allowing e-mail and Internet access anywhere. In addition, web services are providing a new set of business functionalities available in a self-service mode at any time. This convergence is offering new opportunities. In the same way as consumer banking has been revolutionized by the ATM machines and on-line banking, all aspects of interacting with an enterprise will be driven through self-service and will be available any time, anywhere, and under any condition. Laptops and PDAs are the perfect portable platforms to accomplish more functions than the ATM or home computing models. And Web services are moving beyond integration platforms to fully automated business functions. This leads to a new gamut of capabilities available to people. Employees can execute the majority of their HR functions in a fully automated manner. Sales people can manage leads, contacts, forecasts, and orders without staff support. Prospects can peruse company web sites, check availability and pricing of products and services, place orders, get delivery commitments, and obtain the ordered goods without talking to a single human being. Customers can enter requests automatically, track progress, get status updates, and obtain response statistics without placing one phone call to a call center. Suppliers can have full visibility of customer operational requirements, input pricing, and bid information online. Suppliers also get immediate notifications of awards or orders without engaging the procurement department. These activities will be available 7x24, accessed from any location, and at your service under any circumstance, even extreme security conditions.
The On Demand Enterprise: Attributes and Performance Achievement
Based on these enabling and constraining drivers, the corporation as we know it will be transformed in the coming years into a much more productive institution. A new organizational construct is beginning to take shape. It is unclear if massive restructuring and consolidations will happen, or if such changes can be managed in a gradual and low-impact manner. But, when the smoke clears, a new form of enterprise will dominate, the On Demand Business. An On Demand Business will, through the integration of business processes: • • • • • flexibly respond and deliver to spot demand levels with no long-term commitments, dynamically grow or shrink based on the variability of demand for products and services, operate anytime, anywhere, under any condition and be resilient to any disturbance, dramatically minimize asset and labor content per unit of production, provide real-time transparency of operations both for external and internal visibility.
First, an On Demand Business needs to fulfill demand with orders that are small in size and short in time duration, that is, small lot sizes. Today, companies resist making large commitments spanning multiple years. Instead, they commit for the minimum required to run their operations. But they also want suppliers who can offer them the same advantageous terms as they would for large, multi-year
commitments. They see the environment as very dynamic and very uncertain. For them, it is far more prudent to operate within these small commitment levels. Also, in a low inflation climate, there is an expectation that prices will not increase. Hence, locking current pricing over larger periods of time has limited value. If corporations start changing their product/service offerings to adapt to such new demands, then any demand inertia will be broken and new activities will pick up. This can eliminate some of the stagnation that still exists in the marketplace. Second, an On Demand Business should be able to adapt to 30% up or down swings in demand with no required structural changes. Its fixed-cost structure should be resized to the minimum required to fulfill the above dynamics. An extreme focus on core competence is required. Anything else should be built using other service providers. The On Demand Business will be a very specialized entity, excelling in its competencies only and using the excellence of other organizations to run non-core parts of its business. Partners need to achieve On Demand Business, responding in a dynamic fashion, enabling them to deliver to low demand levels with short time commitments. Third, an On Demand Business must always be stable and available to its customers and suppliers, any time, any day, and under any conditions. At the same time, it should show permanence, resilience and stability in an uncertain world. Its customers, suppliers, and partners should be able to transact with it when they want to and on their own terms - assuming a stable environment. This will be accomplished by automating many of its processes and offering an "ATM-like" model to its partners. Fourth, an On Demand Business should do much more with much less. The business should target every employee to produce more than $1 million in annual revenues. Gross margins should surpass 70%. Asset depreciation expenses should be minimized year after year to eventually reach negligible levels in the cost structure. Fifth, an On Demand Busines should have operational and financial metrics available in real-time to track organizational performance. These metrics should be able to drill down to the unit level of work or asset, that is, at the employee level, the customer level, the deal level, the asset level, and the supplier level.
We have no choice
There will be plenty of debate regarding the adoption of the On Demand Enterprise. Much of it will focus on the need and timing for such a change. However, in the near future, imagine yourself competing with an On Demand Business. You can anticipate a rival that is operationally and financially much stronger and one who can offer a superior value proposition to your customer base. You have no choice but to plan your change -- immediately. As we have seen in recent years, the demand shocks the Telcos and the airlines have experienced have shown the fragility of their corporate structures. Whether it was through unnecessarily high investments or after 9/11, Telcos and airlines are perfect examples of enterprises that need massive restructuring to survive the current world order (or lack of it). These are organizations with a heavy asset base and high fixed costs. To react to a demand shock will require them to reduce out their fixed-cost
and asset base and to move towards a variable low-asset cost model. This is very difficult, so going into bankruptcy has been their only path to survival. For example, imagine how the airline and telco industries would have responded to the shocks that they experienced if they were On Demand Enterprises. They would have had the potential to absorb such challenges and thrive by beating their fossilized competitors.
How do we achieve the capabilities for an On Demand Business? The methods, approaches, processes, and systems to make this work are not commonly available today. IBM has successfully developed various solutions, techniques and strategies to help clients develop capabilities for On Demand Business. This methodology is based on a framework of ongoing improvements and needs to be applied at least once every fiscal year. It is composed of the following five components: scope, production, projects, analytics, and incentives. These five components are used to transform a current organization into an On Demand Enterprise. Scope consists of a continuous process of identifying areas of work as candidates for generating the highest levels of business contributions with the lowest levels of risk. Projects cover the gamut from large complicated programs such as new product introductions, new systems implementations, and new business expansions, to short-term activities such as additional reporting development, new incentives package introduction, and the addition of new suppliers. Ongoing production covers all repetitive and process-based work. This is not just confined to manufacturing or operational processes but also to administrative processes in areas such as finance, HR, IT, and procurement. Analytics is the work involved in analyzing, interpreting, and supporting decisions for the continuous improvement of the performance of the enterprise. And incentives focus on best motivating management and the workforce to execute the change to an On Demand Enterprise. The methodology concentrates on understanding the output levels of an enterprise, on identifying the resources (assets and labor) required to deliver such outputs, and on utilizing techniques of automation, self-service, knowledge re-use, asset optimization and workforce global deployment to reach the five organizational attributes of the On Demand Enterprise. It also captures a set of metrics that should demonstrate the 10-fold improvement in corporate performance.
If we fast-forward to the end of this decade, and corporations achieve On Demand Business, the landscape of the economy will change dramatically, especially along the management of supply chains. What we will see is the 90-degree rotation of supply chains from a vertical to a horizontal structure. From vertical to horizontal The supply chains as we know them today are usually centered around vertical industries and consists of several groups of companies organized around “tiers” and building products from raw materials all the way to final assembly to the consumers.
A classic supply chain is what we see in the automotive industry where OEMs are on one end of the supply chain designing, assembling, and delivering automotive products to the end consumers through dealer networks. Typical OEMs are General Motors, Ford, DaimlerChrysler, and Toyota. Behind the OEMs are three tiers of providers. Tier 1 providers deliver assembled systems to the OEMs, such as engines, interiors, electronics, and axles. Tier 2 providers are typically suppliers to the Tier 1s and provide components. Finally, Tier 3 providers start with raw materials to deliver sub-components to the Tier 2s. Similar supply chain models are found in product industries such as semiconductors, oil & gas, aerospace, chemicals, and electronics, as well as in services industries such as telecommunications, health care, and transportation. A corporation participates in one of these supply chains by delivering value through its own value chain. This is the set of activities and deliverables that produce its final product or service. It consists of processes such as sales and marketing, manufacturing, logistics, product development, and administration (such as finance, HR, or procurement). When a corporation transforms into an On Demand Business, every process in its value chain is a candidate for being serviced by an external service provider. As we have seen before, such service can be at an organizational layer, a process layer, a system layer, or an infrastructure layer. The service providers can service every tier in a vertical industry supply chain, as well as other industry supply chains. These service providers are ‘horizontal” in nature but can be built as On Demand Businesses, have their own supply chains, and offer economies of skills, scope, and scale. The On Demand Business will manage these horizontal supply chain providers in a way similar to how they now manage their vertical supply chain partners. Creating new opportunities The next opportunity for employees in traditional enterprises is to ride this 90-degree rotational movement from vertical to horizontal service provider supply chains. The careers of a lot of employees who are in “context” functions will become “core” within a service provider organization. For example, the role of the Chief Information Officer (CIO) in a corporation has always been under pressure. Although we live in an Information Age, it is very difficult to find a CIO who rose to become the CEO of his/her company. A CIO’s career seems to be limited, unless the core business of his/her corporation is providing IT products or services. This 90-degree rotation presents a perfect opportunity for the CIO to move to a service provider and to lead such an enterprise as its most senior executive. The same career opportunities exist not just at the CIO level, but also for all members of the IT organization in any enterprise. Similar opportunities are available for other functions in a corporation’s value chain, such as manufacturing, HR, or procurement. The next “new thing” for the employees under outsourcing or offshore pressure is building an On Demand Business and to grow into the new businesses that will thrive in this new economy.
Despite the current economic optimism characterized by the Dow exceeding 10,000 and Nasdaq topping 2,000, the political and economic events we have recently experienced have challenged fundamental assumptions of our political, economic,
and social structures. These events will permanently affect the ongoing tasks of designing, improving, and managing enterprises. A new set of challenges has resulted, but new enabling opportunities can be leveraged with the potential to produce a 10-fold improvement in performance. The On Demand Business is the new structure to adopt to achieve such gains. It will have a profound impact on competitors with their own tiers in vertical industry supply chains. It will also cause a massive transformation of supply chains by creating new horizontal chains of service providers that offer economies of skills, scope, and scale. Such transformation is the next “new thing” that will create jobs, and create economic value to enable the U.S. to continue to lead the world economy.
1. "IT Does Not Matter", Nicholas G. Carr, Harvard Business Review, May 2003.
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