International Council for Small Business 47th World Conference San Juan, Puerto Rico June 16-19, 2002

icsb 2002-072

It. Accelerating the Demise of Our Current Business Structures? Logan Muller Absract One wonders with all the technological advances in the last ten years, why so many businesses have been failing. It seems now that even our leading economies of the last century are beginning to show stress cracks in their infrastructures and old fix-it budgets just are not cutting it anymore. Technology has fulfilled all those reasons we were given 15 years ago why business was becoming harder and harder.Yet failures and inefficiencies are rife. With the obsession on technology, automation, integration, alignment, online, 24/7 … it seems we have been avoiding asking the real question at hand. Are our business structures out of date? Have they passed their use by date? Are we doomed to become another fallen empire because of arrogantly clinging to a dying commercial infrastructure? IT has accelerated the inevitable by empowering the customers in our consumer economies. Businesses are faced with the change or become extinct. The environments within which they operate are also under threat. This paper examines the connection between IT and the need to re-engineer our commercial and organisational structures. It is the precursor to a research project long overdue in the author’s opinion.

Introduction Visiting the Roman ruins and the Greek ruins one realises that in their day these were the epitome of a successful paradigm. As they proliferated so too did the processes that brought them down. Are we approaching this point in our post industrialisation commercial environments now? At what point will we realise that the inefficiencies of inventing new ways of selling pre-made, throw away products to a finite market are accelerating our demise. Druckers research dates the formalisation of today’s corporate structure to 1870. Examination of the market forces of that time show the appropriateness of a manufacturing, product focussed mindset selling to a needy market. Logistics were such that the supply of products to various geographical locations was a viable and profitable exercise if the company had an appropriate infrastructure. That infrastructure is still prevalent today 131 years later except we perform its processes “more efficiently”. Our economies are built around consumerism. Consumerism has shifted from a needs to a wants basis in the last 100 years. Companies and organizations still use a structure that was developed around product driven manufacturing/ sales/ delivery paradigm. It is this paradigm that has remained unchallenged for the past 130 years and more. Functions within it have certainly been examined and modified. If we look at the history of our corporate model and its protégées some milestones become evident. Outside of the technological advancements that focus on manufacturing efficiency, the major shift has been the need for companies to sell, market and brand their product to gain or retain market share and indeed their very existence. As markets became more competitive the growth and intensity of marketing has grown to be the major effort of many corporations. The game is no longer what is produced but how to sell it. Technology has reached the point where the efficiency of production is no longer a challenge but the management and dominance of the marketplace is. Stepping back we realise that the whole sales, marketing and branding rut we have become to accept as normal, is merely a reaction to

perpetuate an outdated product driven manufacturing mindset of western economies. Tell a craftsman at the turn of the last century that they would need to spend ten times the cost of manufacturing their product in order to sell it, and they would immediately turn to a more “productive” livelihood. Technological and operational advancements after the two world wars saw the start of automation of production/manufacturing processes. Yet it was also another milestone in the closing history of our current economic paradigm. Technology was revolutionising many manufacturing processes and the established economies of the day were the ones developing and researching these momentous advancements. The ensuing half-century saw the wholesale transferal of manufacturing and production away from the established economies to the emerging entity of the day. Trace it; Transport to Japan, electronics to Taiwan and Japan, plastics to Brazil, small-goods to China, leaving the US and UK retaining a heavily subsidised grain and coal production respectively along with unchanged business infrastructures of production based empires. The resulting consumerism bloom in the western economies shielded the corporates as they clipped the ticket passing the goods to the end user. They focussed their efforts on maintaining market dominance. Why should they change their business model, it has worked and flourished until the very technology developed in the established economies passed another major milestone. Internet technologies. Internet technologies spell the demise of all businesses that are not prepared to move on from their 130 year old business model. The last 5 years have seen the start of a major shift in power from the producer to the consumer. The comfort of 130 years of successful paradigm will no longer be spared the reality of the newly empowered consumer sword. The product driven mentality will only benefit the $2 dollar shops that will have an everincreasing supply of liquidated stock to fill their shelves. Customer led business requires a very different infrastructure to that of the product driven model. Western economies need to be very aware that the days of supercharging the dinosaur with the latest technology will only inevitably lead it to hitting the wall at fatal

speed. By this time our emerging economies of today: Brazil, Mexico, Chile, Peru, Eastern Europe, will have mastered the technology and paradigm of the day and have left behind the inefficiencies of the product driven model we are clinging so feverishly to.

It ‘s Role?

The IT professional has been totally absorbed in the last decade in giving the product driven paradigm everything it wants. It was only 1998 when we were saying in our MBA’s “align IT with Business goals”. Only now after the Dot.com failure and the saturation of the net with ineffective websites replicating other failed advertising media, are we questioning “are we doing things right or are we doing the right things”. In IT we are certainly doing things right, albeit applied in an outdated business framework. When else in history has any industry been so dynamic, progressive and nimble as the IT industry over the last 10 years. When we examine the reasons why we realise that the very reasons for the success of the IT industry are the very reasons why our business models in which we are applying our technologies are failing.

Out with the Old

Methodologies used in the development of new interactive online business applications bare no resemblance whatsoever to those used ten or even 5 years ago. We have been brave, traditionalists may say silly, in throwing caution to the wind and letting loose enthusiastic novices passionate about a new found interactivity, on the development and use of technology today. Enter the inflexible mindset of the product driven business modelist who then channel this flair and developmental quantumage into automating a model that has been around for 130 years in geological terms, 2 millenium in societal development terms. The result is the acceleration toward the point of realising that it is our business models that need to be re-engineered not our IT solutions that need to be advanced.

Business process re-engineering had its hay day in the 80s, but recently has seen resurgence in the Internet era. Enterprises continue to look to IT to streamline business processes, create new markets and to provide market edge. IT is integrated into our business structures and now is actively used in all business divisions. In the last 2-3 years we have retorted in our learning institutions that IT must break through the silo structure of our corporate models and integrate horizontally the standalone repetitive autonomous infrastructural clones inherent in our modern business frameworks. Yet still despite what has been major automation of our business processes, vertical shortening, horizontal integration and IT –business alignment, we are still seeing abysmal failures and reducing profit margins in most sectors. Economies continue to struggle, governments continue to make the rhetoric moves of cutting social services to balance the books with the justification that ‘private does it better’. The net result being that western societies are splitting or polarising in ever increasing numbers into the have and have-nots. (however one likes to measure this) Have we spent the last decade just supercharging the dinosaur? Has automating business processes actually accelerated the decline of many businesses? If something is fundamentally flawed, doing it faster and with fewer overheads actually obscures the real issue and removes it from prominence.

Customer Led and Technology

Those businesses that accept that the structural nature of a customer led business is radically different in appearance, attitude, approach and ownership than that of a product driven business now suddenly realise that current technologies provide a plethora of opportunity. A technology that allows consumers to define and design their needs, and indeed pay for them, prior to the products being manufactured should be every business’s dream. The challenge is that this approach does not fit with the infrastructure of the product driven business paradigms. For this reason very few businesses exist that fully capitalise on the ability to exploit the customer led model. Those that do are doing

extremely well. Dell is a classic example, not because it uses great IT but because it radically changed its business structure to be able to function efficiently in a customer led environment. Ammas.com provides the mechanism for total customer integration into the business processes, it transfers ownership of tens of thousands of dollars of IP to collaborating entities, it even provides help for could be competitors to niche both parties services. Clients are empowered and actually formulate the very products that earn the business its income. The characteristics of a successful customer led environment include: •

The ability to divulge power to the customer.

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Collaborative

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Relinquish control of product development to the market

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Outward focussed

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Seek solutions openly with the customer

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Envelop the customer in the decision/design/direction process

Lets now look at the characteristics of the current product driven paradigm: •

Power hungry

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Control and dominance obsessed

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Internally focussed

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Competitive

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Secretive with new developments

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Individualistic

In fact we could say that these product driven traits are those that dominate western societal perspectives also. The inefficiencies in the latter model are where the pressure is coming from in economic terms. The open model of customer led environments threaten the very core of existence of a business model that has done well for nearly a century. We must look at and acknowledge the trends though. The Roman Empire failed to acknowledge the trends and where is it today? The dominance philosophies of the British

and Spanish empires ultimately failed and so too is the western business model beginning to fail.

Commerce or Military ?

Let’s go back to the formalisation of our corporate model. It was based on the most successful model of organisational structure of the day. The Prussian Army. Yes our current day commercial model is based on the military. The correlation becomes very clear when we examine the characteristics of our business models in this light: dominance, control, top down, hierarchical, power, conqueristic, competitive, secretive. In fact going the step further one can assume the customer, the one who allows this paradigm to exist, is the enemy! This model has also made its mark on our IT development methodologies. Application developments are thought of as products that perform certain tasks. Accordingly the predominant methodologies such as UML have characters that signify objects that stimulate or initiate the application. In UML terms these are OUTSIDE of the application and are called actors. Actors generally are the people who want a certain result from the application. This development, like our product driven business model, puts the customer outside of the model. Here lies the mismatch. How can a customer led model possible work when the customer doesn’t even feature in most business infrastructures?

Where to it? There are two key aspects that impact the effectiveness of IT in business. One is the business model, the other is the way the application has been designed – user centric or product focussed. The true power of IT in business is the ability to empower the customer to influence and even control the appropriate business processes of which they are ultimately paying to

receive. Power is not in technological wizardry but the ability to provide the customer with what they are willing to pay for. When we examine the IT needed to facilitate a successful customer led environment we find that the technologies are incredibly straightforward. They include the formation of customer communities (discussion boards), customer initiated production processes (or service applications), facilitation of collaboration to provide the desired service or product (Intranets, Extranets and VPNs). Our true savior in our economies is IT. But salvation is not in what is applied, but more so the way it is applied and the structure within which it is operating. By promoting the power of the customer empowering technologies we may in fact help businesses alter their infrastructures to accommodate the ensuing models and success. So the IT industry too has a choice to blindly follow the demands of the commercial sector into another dot.com or to be more proactive in developing true customer led environments.

Research The declining commercial and economic performance despite the most advanced communication, IT and automation technologies in history, is what has inspired research into the impacts of Internet technologies on business structures. I am studying exactly what forms of business structures are making the most of Internet technologies. I would be grateful to anyone that can provide me cases, information or insight into this. Accordingly whilst this paper introduces the rational for my research it could well form the basis of a conference discussion or panel. About the Author: Author: By: Logan Muller Company or Institution: Unitec in New Zealand Country: New Zealand Email: [email protected], [email protected]