Secrets of Growth
Managing the Digital Firm
I achieved two major benefits after taking this class - Managing the Digital Firm. First, I
got reaffirmed of the basic philosophy I had about business and second it taught me how
organizations are generating revenues by leveraging technologies of different forms. In
this paper, I will try to put together my thoughts about the underneath basics of these
organization with which they achieved so much success. Some of these basics were
tangible in the form of using technology for gauging their positions and performance
against the market and some of them were intangible that had to do with the behaviors
these organizations adopted. Overall, I attribute their successes to the combination of
these explicit and implicit business basics. I’ll also try to make some effort what the
future is holding for these internet enabled business applications and how it going to
impact individuals and future societies in general.
Technology coupled with Business Value
We learned that technology alone does not work as a panacea for business problems.
Neither the same technology that worked for one organization necessarily fits for another
regardless if two organizations exist in the same industry domain. For example, we saw
Mal-Mart’s tremendous growth in recent years that its competitors like K-Mart or Costco
could not achieve. We saw another unprecedented example of Dell, $42.9 billion
Company started in 1983 and left all its competitors like Gateway, Compaq and others
behind and now competing against big giant organizations like HP, Sun and IBM. It turns
out that it is not just a deployment of technology that counts rather it is an extraction of
business value out of IT that plays a vital role in organizations’ efficiencies and
performance as stated by Dr. Marchand in his article “Extracting the business value of IT:
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it is usage not just deployment that counts!”. According to Dr. Marchand, business
managers devote 90% of their time finding a magic technology to solve their business
problems or in hoping to increase their organizations performance through that
technology that actually accounts only 25% to the overall success. It is the pattern and
practice of IT among people of an organization and its contact points (suppliers and
customers) that account the most (75%) to any organization success. It is the information
Orientation of Wal-Mart and Dell that differs how they deploy technology and use
information, people and IT for competitive advantage versus competitive necessity.
Selling Solutions
It was the same information orientation and business driven technologies approach that
turn around organizations strategies. It was the success of IBM selling business solutions
that led other organizations in technology industry like Cisco, Xerox, and Compaq to
move from selling products to selling solutions. However, generally selling solution is
not as simple as it sounds and might not necessarily fit every organization’s profile. As
Kumar Nirmalya stated in Financial Times published on December 6th, 2002; that selling
solution means high customization of products to address customers’ pain points. High
customization means high cost, and that in turn poses a challenge that how many
customers would actually buy those expensive solutions. This led IBM to decide that it
was only economic to serve solutions to large customers. Selecting the valued customer
requires a thorough understanding of the value proposition of a solution. It involves more
than simply bundling together related components and is not just a fancy name for crossselling one's own products and services. A true solution is defined by and designed
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around the customer's needs, not around an attempt to sell more of the supplier's current
products. Solution selling therefore requires a high degree of collaboration between the
supplier and the customer in defining the customer's needs. After that, products and
service components are integrated into a distinctive offering that is better than any
alternative, For example, WW Grainger, the US distributor of maintenance supplies,
established Grainger Integrated Supply Operations in 1995 in response to requests for
materials-management expertise and consulting. GISO was aimed at very large
businesses seeking to outsource their entire indirect materials management process. At
first, GISO was only available to customers who ordered a minimum of $ l million of
product per location per year. It was easier for Grainger to earn an adequate return on
investment on large clients such as AlliedSignal, American Airlines, General Motors and
Universal Studios. Over time, the threshold for participants has been reduced.
With all that said about high cost customized solutions, a key question here to ponder is
what Dell is doing. Is customization of computer parts and associated peripherals
according to customers’ requirements counted as solution? It could be, depends on what
scale and how one is defining a solution though generally this is considered a mass
customization of a product as solutions solve business problems by combing different
products and resources. Though it is commendable on part of Dell how fast they execute
and full-fill customized orders from their portal that hit directly to their centralized
systems and after verifications get routed to appropriate vendor. (Magretta, Joan HBR:
The Power of Virtual Integration: An interview with Dell Computer’s Michael Dell)
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Listen to Customers
An important theme that I learned is that it is not important how superb and innovative
technology one produces rather how superbly and innovatively they addresses problems
through those technologies is more vital to success – be those business problems or
societal problems. It is the value that organizations bring for other businesses and society
that generates revenue and not just pieces of functional hardware, software or application.
If one takes a snapshot of IBM’s array of businesses in 1993 and another in 2002, she
would find very few changes. Ten years ago IBM was in servers, software, services, PCs,
storage, semiconductors, printers, and financing. It is still in those businesses today. That
shows that all of the assets that the company needed to succeed were there but they were
not aligned with what market needed or in other words what customers wanted. There is
no argument that System/360 mainframe business model was brilliant and correct when it
was conceived some forty years ago. But by the late 1980s it had become fatally
outmoded. It has failed to adapt as customers, technology, and competitors changed.
What was needed for IBM to succeed in 1990 was straightforward but difficult and risky
to pull off. They needed to take out their businesses, products, and people out of a selfcontained, self-sustaining world and made them thrive in the real world according to
customers’ preferences. When they did they become once again a successful player. No
doubt, the applause goes to Lou Gerstner’s excellent vision and leadership.
Open Source Movement
Another important factor for organizations to consider as they move from analog to
digital firms is to keep in mind they do not get locked into proprietary solutions. For
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example, one of the stumbling blocks for IBM was that it was not coming out of it own
produced excellent technologies. On a technical level, IBM required to move away from
proprietary strategies and move towards open source architecture to adapt to industry
standards. That means that all of their servers, operating systems, middleware,
programming tools, and chip sets should move from proprietary to open architecture. It is
no doubt not as much risky for organization that are new to adapting technologies but it
was for sure very risky for technology producing firms like IBM since at that time for
employees it meant to give away their inventions and creations and their unique character,
their pride, their expertise, and their fame. It was also meant to step on a more
competitive field that was open to all comers. This change of open source movement with
the obvious resistance of IBM’s employees was the biggest bet that could have killed
them.
Dell – a unique business Model or Execution
I was asked this question in class by my fellow student what did Dell do differently that
its other competitors could not do. I tried to explain him it is the use of efficient
technology through out their firm that has stitched all different pieces together from CRM
to SCM and the integration of these two disparate technologies which is hard to achieve
in big organizations – as I was about to mention my main underlying thought that – I was
interrupted by him saying, “no I don’t mean big organizations I meant other organizations
equal in size like Packard-Bell or Compaq” – no matter what the size of organization is it
is neither just a business model nor the use of technologies that changes the fate of
organizations – part of the game and perhaps big part of the game is the culture of
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organization that matters most. It is the execution of employees from top to bottom that
brings efficiencies and productivity. Competitors can imitate technology and business
model but they cannot imitate culture – Instilling the sprit of execution coupled with the
appropriate supporting technologies is really the critical part of a successful strategy.
Getting it done, getting it done right, getting it done better than the next person is far
more important than dreaming up new vision of the future. All of the great companies in
the world out-execute their competitors in the marketplace, in their manufacturing plants,
in their logistics, in their inventory turns – in just about everything they do. Rarely do
companies like Dell have a business model that insulates them from the constant hand-tohand combat of competition.
Industry’s New Direction
Industry is now moving towards Business Process Outsourcing (BPO), which in IBM is
referred as Business Performance Transformation Services (BPTS). According to IBM’s
own market research the BPTS market opportunity – comprised of enterprise spending on
a wide range of business services – is about $1.4 trillion. It includes areas like logistics
management, engineering services, HR processes, or finance and administration. It is not
about just aligning these processes with technologies and latest trends like Web Services
but it is more about optimizing what firms already possesses. This new market arised as a
result of 1990’s lavish nonstrategic spending of information technology that resulted in
companies having tools and hardware more than their usage and capacity. As stated in the
article Your Next IT Strategy by John Hagel and John Seely Brown, “Unitl now,
companies have viewed their information systems as propreitary. They bought or leased
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their own hardware, wrote or licensed their own applications, and hired big staffs to keep
everything up and running. This aproach has worked, but it has not worked well. After
years of piecemeanl technology purchases, companies have inevitably ended up with a
mishmash of disparate systems spread throughout different units. Over the last decade, in
efforts to merge these “data silos,” many big companies invested large amount of money
– hundreds of millions of dollars, in some cases – in massively complex enterprisesresource-planning systems, which offer suites of interlinked applications that draw on
unified databases. The ERP systems have certainly solved some problems, but they’ve
been no panacea: Most big companies still struggle with a hodgepodge of hundreds of
incompatible systems. And ERP systems have also created new problems. Because they
are relatively inflexible, they tend to lock companies into rigid business processes. It
becomes hard, if not impossible, to adapt quickly to changes in the marketplace, and
strategic restructurings, through acquisitions, divestitures, and partnerships, become
fiendishly difficult to pull off”. Now these firms are asking for how they should
optimize this mess that they have accumulated since 1990 and that is where IBM and
other companies are coming to make money to help them make sense of what they have
to align it with their business processes. So now firms want optimization of what they
have together with latest trends specifically Web Services.
“Web Services are a set of technologies to allow system integration, defined here as
giving one application access to another application’s functionality and data.
Functionality is information processing capability, for example the ability to alphabetize
a list of names, check a set of addresses for duplicates, or convert Celsius to Fahrenheit
temperatures. Data could include, for example, a customer’s previous order history, the
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current price of a stock, or a flight’s arrival and departure times” (Mcafee, Andrew. P –
HBR - Web Services and Systems Integration Supplementary Note). Web Services offers
a totally different architecture of computing. IBM’s OnDemand initiative and Grid
Computing technology are all based on the concept of Web Services.
BPTS is "emerging" only in the sense that now firms are making a fundamental shift in
their spending — converting their internal sales, general and administrative, and research
and development spending into investments with external providers who can do three
things:

Bring deep expertise in an industry, or a specific domain such as HR, logistics,
payroll, or customer service.

Apply advanced technologies to model, restructure and optimize these core activities.

Deliver it all with economies of scale in terms of infrastructure and expertise.
So, this isn’t like the 1980s and the debut of the personal computer. This isn’t a market
for something just invented. It is a market for a new level of expertise and capability.
The main reasons that I see behind this kind of movement is as I mentioned earlier
acquisition of excess tools, softwares and hardware but not their optimal usage, together
with the combination of open standards and ubiquitous internet. Open standards has made
the free flow of information possible across organizations and the internet has helped
reducing the transaction cost for these organization. In the IT Stack that I draw on next
page shows the evolution of profitable businesses overtime with IT Service and
Consulting remained at the top now. Business Performance Transformation Services is
about telling clients how to make use of optimized technology coupled with their
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business processes.
Where are we heading?
There is no doubt that IT has made a tremendous impact on idividuals of 21st century. It
had produced a new mass medium when 50 million people start using the Net after its
The Stack
IT Consulting
Systems Integration
Services
Outsourcing
Training & Education
Financing
Maintenance
Web Sites
Personal Productivity
e-Commerce
Engineering & Design
Supply Chain
Customer Relationship Mgmt
HR
Business Intelligence
Applications
Software
Systems Management
Application & Transaction Servers
Middleware
Software
Collaboration & Messaging
Database
Operating System
Networking
Processor
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Memory
Storage
Systems
Displays
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Secrets of Growth
Managing the Digital Firm
inception. It took thirty years for Radio to get popular among such big population; it took
television thirteen years; it took cable TV ten years. The internet set a new standard. Less
than five years after the birth of the World Wide Web, some 90 million people were
connected. By the summer of 2002 that number exceeded 500 million people. More than
half of them were accesing the Web in languages other than English. According to
Gartner the global B2B e-commerce market would reach to US$8.5 trillion by 2005.
(Gartner 29 Dec 2004). It has become obvioius now that the Net is more than a
communication medium or a marketplce. Its exploitation is, and will be, the single most
important driver of change in business, health care, government, education and society. It
is the transformational technology of our lifetimes, and that transformation is in the very
early stages. However, it is not a secret weapon or panacea. Like other technologies, it is
a tool to make busines more efficient. It has not suspended the basics of marketplace
economics or consumer behavior. The winners will be found among institutions that skip
the shortcuts (those who did not are not even exist now – 1990 dotcom) and understand
that the net commerce is just a new form of business. It is about real, disciplined, serious
work. And for those willing to do the unglamorous labor of transforming a process,
unifying a supply chain, or building a knowledge-base culture, it will deliver tangible and
sustainable benefits. There is a very famous comparison between e-commerce and the
advent of electric power. Before people had the ability to generate electrcity, a lot of what
got transported in the world was moved by mules or horses. Then, over time, the activity
of transporting things was taken over by electric-powered machinery. The industry
didn’t change. The basic activity of pulling and lifting didn’t change. But the people who
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made the swiftest transitions from the old technology (animals) to the new technology
(machines) became the dominant players inside their industries. It was almost the same
propostition with e-business.
Technology and legal Issues
Before we get carried away with what technology has made possible lets not forget that
the societal good is always counterbalanced with societal concern. It’s already clear that a
networked world raises many issues, such as the confidentiality of medical or financial
records, or the freedom of expression v. protections of personal privacy. For example, in
the United States alone, financial institutions are sweating through the process of
complying with the new Gramm-Leach-Bliley Act, which regulates the use of personal
information by banks, securities firms and insurance companies (First Line of Defense;
Chief Privacy Officers Forget Evolving Corporate Rules, New York Times Feb, 12,
2001). Think about the privacy implications of what’s coming. What happens to personal
privacy in a world of Internet-enabled cars that monitor our movements at all times; cell
phones that continuously report their locations; or Net-connected pacemakers and other
medical devices that are gathering real-time data on our heartbeat or blood pressure,
cholesterol level or blood-alcohol content? Who’s going to have access to that most
personal profile of you – your physician alone? Law enforcement agencies? An insurance
provider? Your employer or a potential employer? or companies like ChoicePoint that
has 19 billion personal data files with which they can produce any information about any
Adult American about their medical records, their driving licenses and you name it. And
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guess what anyone can buy such critical information from SAM’s club for just $40.(Perez
and Brooks, WSJ)
Grid Computing
So far the networking technology has enabled the standalone computing systems – be it
PC or data center – to share information and conduct transactions with each other.
Internet revolution has enabled these systems to talk to each other. The next step is that
these systems would not only be talking to each other but actually would be working with
each other (through Services Oriented Architecture) - to combine their processing power,
storage capacities, and other resources to solve common problems. This kind of massive,
secure infrastructure of shared resources is knows as grid computing (broadly speaking).
Like many of the mainstream commercial aspects of information technology, such as the
Internet itself, grids are taking off first in the scientific, engineering, and academic
communities in areas such as high-energy physics, life sciences, and engineering design.
For example, one of IBM’s first rigid projects was done with the University of
Pennsylvania. It’s designed to allow to breast cancer researchers all over the world to
collaborate on applications that will compare mammograms of the same woman over
many years, leading to much more reliable detection and diagnosis.
Our Next Utility Bills
If we put all these technologies together – computing grids, development of autonomic
technologies that will enable systems to heal themselves or get them auto-provision at the
time of peak demand, and the proliferation of these pervasive computing devices - it
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suggests one more major development in the history of information technology industry.
This one will change the way IT companies take their products to market. It will change
who they sell to and who the customer considers its “suppliers”. This development is
what some has called “utility” computing. Essentially it outlines the idea that very soon
enterprises will get their IT in much the same way they get water or electric power. They
don’t now own a waterworks or power plants, and soon they’ll no longer have to buy,
house, and maintain any aspect of a traditional computing environment. The processing,
the storage, the applications, the systems management, and the security will all be
provided over the Net as a service – on demand.
For sure it has great value for customers: fewer assets; converting fixed costs to variable
costs; access to unlimited computing resources on an as-needed basis; and the chance to
shed the headaches of technology cycles, upgrades, maintenance, integration, and
management. In a post 9/11 era where security is the major concern, on demand
computing would provide access to an ultra-secure infrastructure and the ability to draw
on systems that are dispersed – creating a new level of immunity from a natural disaster
or an event that could wipe out a traditional, centralized data center. On demand
computing also addresses one of the most frequent customer questions about how to
utilize fully all of their existing IT investments. Rather than rolling in another piece of
hardware, buying a bigger database or more storage, customers could have a new way to
leverage their existing resources.
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Sources
Kumar, Nirmalya - The Financial Times – Mastering Leadership, December 6, 2002.
Marchand A. Donald – Extracting Business Value - CAPCO Journal Issue# 11, August
2004.
Magretta, Joan – The Power of Virtual Integration: An interview with Dell Computer’s
Michael Dell)
Harvard Business School, Dell Online Rev. March 26, 1999
Hagel III, John and Brown, John Seely – Your Next IT Strategy – HBR October 2001
IBM Global Services, Business Consulting Services
First Line of Defense; Chief Privacy Officers Forget Evolving Corporate Rules, New
York Times Feb, 12, 2001
Perez, Evans and Brooks, Rick - ChoicePoint Struggles to Gauge How Much Information
Fell Into Wrong Hands The Model: 'Small-Town Life' – May 3, 2005 WSJ
Gerstner, Louis - Who Says Elephant Can’t Dance?
Jacob, Bart – Taking advantage of Grid Computing for application enablement
RedBook – e-Business On Demand Operating Environment
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