Business Transformation

I was on the train heading into London. It was outside of the rush hour which gave me a chance to have a cup of coffee and read the FT without any distractions or having to demonstrate the usual Origami skills any broadsheet reader needs to turn a page of a paper this size on a packed train!

I read a great article in the analysis section on business transformation. It stated that over the past few years we have seen businesses create strategies around shareholder value with ever increasing demands for higher profits and dividends each quarter. All this was probably summed up by Alfred Rappaport in 1986 in his seminal book, Creating Shareholder Value: “The ultimate test of corporate strategy, the only reliable measure, is whether it creates economic value for shareholders”. It became an epidemic that swept across our corporations, fund managers and banks and catalysed each to focus on a quarterly shareholder ROI above all else.

Having spent a number of years in the banking sector I’m very familiar with the underlying premise that the whole industry is trust based. I trust my local clearing bank to take my money and return it when I want it, preferably with some interest. Banks then assume that we’re not all going to ask for it back at the same time. Unfortunately we humans tend to exhibit a degree of herd behaviour under stress and all it takes to bring most banks to their knees is a run of customers/investors demanding their money back. Those banks will then react by not lending and recalling money that they have lent out which creates a domino effect across multiple market sectors.

Government initiatives to reverse the pattern highlight just how key trust is as it doesn’t matter how much money you pour in if people do not feel confident to take a degree of risk (i.e. invest or borrow). Amongst all the doom and gloom, however, are a few encouraging signs that we will build a very different business landscape going forward. It’s certainly encouraging to hear respected leadership gurus like Jack Welch comment that focusing solely on quarterly profit increases was “the dumbest idea in the world”. “Shareholder value is a result, not a strategy”. “Your main constituencies are your employees, your customers and your products”

Jack’s comment reminded me of the Jim Collins book Good To Great. Jim and a whole bunch of research students spent 15,000 hours looking for companies that had not only achieved greatness but had sustained it for at least 15 years. The idea was to identify businesses that had something special in their corporate DNA that allowed them to excel across economic cycles and not just during a boom or under a specific leader. For those of you who don’t want to read the entire book Jim neatly summarises the findings on page 13:

• First who...then what . It all comes down to the right people doing the right jobs
• Confront the brutal facts. Have absolute faith in your ability to succeed and be a realist
• Hedgehog concept. You have to be best in the world in your core competency
• Culture of discipline. Disciplined people + entrepreneurship = great performance
• Technology accelerators. Select the right technology tools for your business
• The flywheel. Change has to start small and build momentum

If you take a close look at the businesses that are making headway in the midst of this recession I bet most if not all have these characteristics. Wal Marts, McDonalds, P&G and Novartis could hardly be labelled as fast movers but they have focused on putting in a great set of foundations and incrementally improving their business models and profits. D&H is a privately owned distributer that is reporting steady growth and has tackled an issue that has constrained most of its competitors businesses, it has actually increased credit lines to its resellers. D&H argues that it sees this as an investment for the future.

The first early shoots of a real business transformation can already be seen. Those companies that focused on shareholder value and accelerated past their competitors in the boom years are now seeing slower moving but more strategic organizations pass them in the downturn. As Jeffrey Immelt at GE stated “Anybody could run a business in the 1990’s. A dog could have run a business.”

IT Coming of Age

We’re on the brink of the most exciting change in IT since the advent of the first PC and its taking place right in the middle of one of the most turbulent periods in corporate history. The companies that are best prepared to exploit this change will be the ones that will thrive in the coming years.

For many years we have had to slice up our infrastructure into office and mobile solutions. The former comprised desktop systems running standard application suites with fixed wire connectivity to corporate information systems. Out in the field we had laptops and mobile phones. Anyone who has had to lug a laptop around will probably question just how portable these systems are and practicable without a serious amount of desk space (e.g. try using one on a busy train!).

A number of key technology innovations are starting to open up a new model for information technology based around a horizontal set of layers comprised:

• Device
• Operating system
• Network
• Application.

As anyone who has read ‘Crossing the Chasm’ will appreciate, large businesses rarely lead change but will adopt it when it has sufficiently matured. It will come as quite a surprise to most to understand just how far down this new road we are already!

Devices

80% of corporate spend on personal computers is still focused on desktops and laptops but 20% now includes what have been called ‘Netbooks’. These are much smaller than notebooks, much lighter and much cheaper. They are also designed to boot up fast and run on batteries for extended periods of time between charges. The initial driver was from the consumer marketplace, where sales are now running at 30% of portable purchases in Europe, the Middle-East, and Africa, for a device that helped you to stay up to date with your social networks and that was usable for basic computing requirements. Telco providers in EMEA have also recognised their positive impact on the uptake of mobile broadband and several now supply netbooks as part of a contract in much the same way as mobile phones.

Mobile phones are also going through a rapid evolution from a basic device to make and receive calls to a true handheld computer system. These new Smartphones still only account for around 15% of handsets sold but the numbers are growing rapidly as existing customers move to the newer devices. Apple came to market late but completely upset the status quo by selling 17M devices and provided 500M application downloads from its Apple Store by the end of 2008. Microsoft, Nokia and Research In Motion (RIM) announced their own application stores in recent months having seen where the market was going.

Operating Systems

We have all become used to each new release of Microsoft requiring more computing power, space and longer boot cycles. Apple in comparison ran a reasonably lean OS with a fast boot time. Both however have been caught out by the changes here. Netbooks, with one exception, use either XP or Linux based OS. They don’t need the additional features in Vista or the Apple OS and certainly don’t want the additional computing power or battery requirements. It certainly means an extended lease of life for XP and Apple will be bringing a netbook to the market later this year.

On the mobile side there is a big shake out of OS variants and it’s likely that we will be left with Microsoft, Symbian, Apple, RIM and Android when all the dust settles. Android is perhaps the one to watch here as Google developed it and then gave up the Source Code for developers to continue to refine and build on. Nokia recently opened up Symbian and this might indicate the direction the rest get forced to follow in the future.

Networks

The role of networks in accelerating these changes cannot be underestimated. Mobile computing devices are wholly dependant on fast and secure data transfers, try working on Facebook across a 2G connection and you will appreciate the importance of 3G and wireless hotspots! We are still lagging behind a lot of countries like France, South Korea and the USA re networks speeds but a lot of money is going to be invested in the next few years to increase UK bandwidth.

I expect to be able to sit in a cafe, and any public area, and be able to access broadband and plug my mobile device into a power socket without paying extra for the privilege. I certainly spend a lot longer in a cafe and buy a lot more products if I do have network and a power supply! I have a Wifi hotspot detector application on my iPhone and it always amazes me how many places offer free network access these days.

I also expect the connection to be secure. This is where the network vendors like Cisco play a critical role in ensuring that I am ok to access information and that no-one is able to watch what I’m doing. These are the services that will help businesses to embrace these technologies and create more efficient workforces.

Applications

Traditionally we either have the application we need on our computer or log-in to a corporate system via a highly secure connection inside the firewall. This is great for control and security but creates an overhead to manage the application services including business continuity. Large corporations tend to have large IT departments but for smaller businesses this is a large cost to absorb hence more and more are turning to ‘Cloud Computing’ models. Essentially all this means is that the application is managed externally and accessed via the Internet.

It’s great for small businesses as the costs are utility based and you only pay for what you use. The applications are fully maintained with business continuity arrangements in place. You can create a large business presence with little upfront investment. It’s also great for the larger corporations with large IT overheads and compliance requirements. Why not push all these non-core activities to a third party to manage on your behalf?

In Conclusion...

Improvements in network bandwidth and security are helping to create the foundations for a very different model of IT with consumers leading the move and a few far sighted businesses starting to embrace some of these changes. As the network becomes broader and more secure we are also seeing new advances in portable computing and associated work patterns.