The recession is over. The U.S. stock market has rebounded, and productivity (although not hiring) is on the upswing. So how should businesses respond to this apparent run of good economic news?
At the February 27 Wharton Technology Conference, keynote speakers Bill McDermott, CEO of SAP America, and Bruce Harreld, senior vice president of strategy at IBM, agreed that maintaining the status quo is not a good plan. “Good strategists are good microeconomists,” said Harreld. “There are new algorithms and new fertile areas,” including those where the margins may not seem high. “It is in unexplored [areas] that the real opportunities exist,” he noted.
McDermott, while he agreed that companies should stretch their boundaries and look for new opportunities, also suggested that leaders seek out companies – even competitors – to better exploit new markets. He cited SAP’s “symbiotic relationship” with IBM, which four years ago would not have been considered. “With the strengths IBM can give us in certain areas, we can bring integrated solutions to our partners and clients,” McDermott said. “Furthermore, partnerships are integrated in the way you run your company now. You want to make sure what you do is low risk, so it’s about natural alliances … You need to have alliances to succeed in this complicated business environment.”
Harreld’s talk was titled, with some humor, “Why IT Never Did Matter, Now More Than Ever,” although coming from IBM, Harreld is not about to dismiss information technology as a mere sideline to business strategy. He suggested, however, that information technology is often misused, or that business executives get too involved in IT and ignore the company’s broader goals. “IT has always been about the creation of business value,” he said, adding that every CEO he meets claims to be “a victim of the IT infrastructure going around his organization. We have to liberate ourselves. IT matters … but it’s about delivering the long-term business value.”
According to Harreld, a cultural change is occurring at IBM unrelated to information technology. The company’s business has been slowly, but steadily, moving from component and software engineering to business solutions. IBM, he noted, took its own advice to clients and looked into what their clients said their problems were.
In 2002, “The Conference Board asked CEOs, ‘What’s on your mind?’ They had nothing to say about” information technology, said Harreld. When CEOs did mention IT, they came to the conclusion that either it was a problem they could solve or it was ancillary to the real issues. “What they wanted to know was, ‘How do I grow my company and make it more dynamic?’”
If CEOs were asking that question, then IBM decided it had better get more into consulting, applications and strategy, which the company now believes is the fastest-growing component of its business, Harreld said.
McDermott, who held executive positions at Xerox, Gartner and Siebel Systems before joining SAP America , also suggested that now is the time for leaders to focus on growth, not mere stability. “The biggest objective in the next three years is not expense reduction, but growth. The root cause of success comes down to leadership. Leaders are seized with a passion for getting the job done. Leaders determine whether the economy is ready to grow … And it is time to grow.”
Information technology can be useful, said McDermott, in making companies versatile and limber. He cites Dow Corning as an example. In what may have appeared a mere variation on the standard use of IT, the company saved millions of dollars just by being adaptive, he noted.
“They have 20,000 customers in 50 countries, so the Iraq war could have killed them,” he said. Instead, as the Iraq war was approaching, it became apparent to analysts and engineers at Dow Corning that the Suez Canal was not going to be a good place through which to move goods; they would have to re-route ships around the Cape of Good Hope . “It was a 12-day delay in some cases, but it was better than being trapped for months. They tracked their goods on their IT systems, moved them around, and got them there.”
It seemed like such an obvious solution, but many companies wouldn’t have done it or didn’t do it, or at least didn’t trust their IT systems to implement the change, McDermott said. Good businesses use IT resources – or any resources – to move to the next level. “It’s the culture of a company that makes sure it capitalizes on growth potential or doesn’t. It either kills a company or makes it great. Companies must respect the individual. They must make sure their employees will be motivated when they come in the door. They have to invest in the future. Those are the companies that are setting a tempo to be great, to grow in the coming years.”
Harreld is a bit more sanguine about the immediate future. He sees future activity as part of a cycle, one that is going up, but over a longer time period. “I believe we are now in that cycle, and the world wide web started it. We have low utilization of the systems we have created, especially in IT.”
According to Harreld, IBM’s studies have shown that companies use their computer systems at a mere 42% of capacity. They are afraid – or have not found out how – to use them to capacity. His company’s job, he says, is to maximize the use of the computerized operations just the same way businesses have maximized worker productivity.
“Something fundamental will be happening here. We must take the barnacles off the infrastructure to make it more adaptable and dynamic to create business value,” said Harreld. “We automated a lot of plant floors and warehouses, but they are like islands. Rather than run multiple applications on these systems, companies seem to dedicate each server to one application.”
That, he says, is like having a worker make bolts in one room, count up all the bolts, and then send them all to the next room, where workers are making washers. Companies have let themselves become inefficient because they computerized everything and just assumed that would make their businesses work better.
“Virtualizing the corporation was the by-word of the late 1980s, but it never really happened,” Harreld said, adding that companies looking forward to growth will not just have to get leaner and meaner, but also become more aware of streamlining IT-type operations. Tech for tech’s sake causes creates stagnation. It may have caused the last business slowdown because companies ceased to be innovative.
Finally, he said, while the recent scandals, from Enron and Adelphia to WorldCom and Tyco, have not been good news, they have created a new kind of business culture. “The world we come out of has had a few bad people doing bad things. We are living in a world of transparency now and I suggest we embrace it.”