THE STRATEGIC RESOURCE

CONFERENCE BOARD OF CANADA. MAY 11, 1993

The title of my talk is “Information: An Ever-Changing Strategic Resource”.

In fact, when I was reviewing some examples of information technology in use, I found that the most interesting story was not the technology at all. The most interesting story was what the technology allowed the business to do — or rather, to become.

It is easy to say that information technology or “IT” is the most liberating force that has ever been handed to an organization. It allows businesses to re-define their missions, re-invent their products, slash their prices, and reach around the world. But it only allows people to do that. Actually grasping the power of IT and using it takes courage, imagination and discipline. And the stories I’m going to tell today show these human proactive qualities to be the key to dramatic change in performance through information technology.

To illustrate my remarks I will use a few examples from my own company, but I will also take advantage of my position as Chairman-Elect of the Information Technology Association of Canada (ITAC) to pull in relevant cases for you from other companies.

Before going into cases, though, let me set the stage. I made some pretty sweeping statements about the revolutionary potential of information technology. What measurable effect is it really having on us?

For starters, more than 90 per cent of new economic growth is coming from the information technology economy. Tremendous increases in computer power and communications capabilities are shifting the basis of global competition. We are seeing a dramatic shift to knowledge-based competition. Knowledge is the raw material of a new age. It is becoming the most sought-after ingredient for competitive success. There are signs of its surging importance everywhere:

• World trade is growing two- to five-times faster in knowledge intensive goods and services like engineering or robotic devices, than in resource intensive goods and services.

• This trend will only accelerate. Today, scientific knowledge is doubling every five years. Let’s make that visual. We know in principle that we can make an optical memory device out of polymer that could store all human knowledge in a one centimetre cube. The contents of all the major libraries in the world, in the space of a sugar cube. By the time your children retire in year 2050, everything humankind has learned up to 1993 will amount to only one per cent of the knowledge available to them. In the working careers of our children, humankind’s knowledge will grow in volume from a sugar-cube to an encyclopedia.

• Information technology is also causing a big change in our organizational structures. It is flattening these structures. Pre-IT companies were organized with one leader or strategic manager at the top, and a steadily widening base of order-takers. It’s a classic pyramid. In the information economy, the organization chart looks more like the serrated edge of a saw-blade. It has hundreds of decision-makers at the tips of hundreds of information-enabled opportunity centres. This kind of organization gives a company immensely more flexibility; immensely more speed.

• Another big change we are seeing is a surge in networking. The flow of ideas and information is now a flood. In the past 20 years, the volume of phone traffic in North America has increased 30 times.

• This is causing a huge growth in the IT industry itself. In fact, the fastest-growing business of all is information technology. Infotech is now a trillion dollar industry, and it will double again within ten years. Last year, it overtook automotive to become the world’s largest industry.

• Information technology is causing a shift in employee capabilities. Companies now depend on employees with knowledge skills: professionals, technical people and senior management. In a survey of some of the largest American companies, it was found that the higher they rated in human resource development, the better their long-term performance. This isn’t just something that is “nice to do”. This is an imperative if we are to grow. In Richard Crawford’s book “In The Era of Human Capital” it predicts that in the next ten to fifteen years, virtually all employment growth will occur in “knowledge economy” areas.

• Finally, “no country is an island”. IT’s networks are dissolving borders and creating a global knowledge-based marketplace, where international corporations operate through knowledge networks. Companies and capital are able to leap borders. This means that national governments are less able than in the past to shelter inefficient industries from international competition. As IT increasingly squeezes the world’s national economies into a single unit, national protectionism will increasingly fail. Yet, ironically, national governments now have tremendous leverage in their ability to create the preconditions for growth. They can set the stage for all the factors that make success possible in a knowledge economy: people, education, and innovation catalysts.

These are the general effects that the new information technologies are having on our businesses. What have Canadian companies done with these trends?

As I’ve indicated, this is a human story. It is a story about people grasping an incredible power and using it to invent new ways of doing things. This is a very difficult art. In fact, the political genius Machiavelli said that “nothing is more difficult to accomplish than to change the present order of things”. Here are some companies that re-engineered their businesses to make good use of the new power.

Most of these cases are contained in an ITAC study called “Things Change. Economies Evolve”.

Canada Post was faced with stiffer competition from IT-based electronic products offered by other carriers. President Don Landers turned to IT for a solution. His charge to the organization was to run the post office as a profitable business while increasing the added-value service for customers.

Canada Post’s solution was to develop a new system for registered mail. “Trace Mail” uses bar codes to track mail through the stages of the mail processing cycle. Canada Post can now monitor a single piece of mail at all points in the distribution, processing and delivery operations. “Trace Mail” technology made possible a spin-of service: Automated Voice Response. Customers can call an inquiry line and key in a few telephone numbers to find out where their packages are in the mail flow. Not only did Canada Post get a 50% reduction in handling costs, but the public has perceived the organization in a very favourable light, as a more response and caring company.

Don Landers told ITAC, though, that the greatest challenge was not implementing the hardware or software, but changing the attitudes of the employees. This was accomplished through education and training programs for their workers. The employees responded when they saw real-world benefits flowing to them. “Trace Mail” took the drudgery out of handling Registered Mail. It also gave management the tools to make better strategic judgements. A centralized data base is able to display routing patterns to managers, who can then make real-time adjustments to the system.

Gilbert Lacasse told ITAC how Le Droit faced bankruptcy in 1987 with a deficit of $1-million, despite significant staff reductions. The decision was made in 1989 to fully automate production. The editorial, advertising, design, layout, circulation, and accounting functions were integrated into one system. This system was designed and implemented in eight months. Staff numbers went from 250 to 125 employees. All remaining employees underwent training to make the new technology work.

The resulting empowerment of the work force increased momentum within the company. In a sense, it accelerated Le Droit’s “information metabolism”. It now offers additional versions of its paper, for example, that would not have been feasible before. Further, it redefined newspaper publishing, resulting in a new operating vision for the company. By taking the IT risk and making the changes, they dramatically cut costs, improved labour relations, led to new products, and improved management within the company.

In the health field, Pierre Laverdiere of SIDOCI described how information problems and increasing budgetary constraints caused five Quebec hospitals to band together to find a way to maintain quality patient care. The solution was a new paradigm for health care in Canada: a fully-integrated, paperless patient care system, available on-line at the patient’s bedside. In essence, it replaces the traditional patient chart and has resulted in increased accountability as well as improved resource allocation and information accuracy.

Again, though, the most significant impact of the technology has been an improvement and empowerment in the “people balance sheet”. Now all the health care professionals involved with a patient can have a focused and structured dialogue using a consistent, shared database. The main benefit is improved internal communications, especially between doctors and nurses. This has resulted in enrichment of the nursing job. It also leads to greater and more direct patient involvement in their own treatment by allowing nurses to spend more time at the bedside.

Financial services are undergoing change with IT. Craigg Ballance related how Canada’s largest financial institution, the Royal Bank of Canada, saw the potential in electronic data interchange to create revenue generating products. Another case of being driven primarily by competitive pressures, the bank is transforming the banking business from supplying financial transactions into supplying information based products. Using Electronic Data Interchange, the automated teller machines of the Royal Bank are able to communicate with other banks, including those in the U.S. & Europe.

EDI has enabled both internal and external communications to become more efficient and effective. Using the customer data as a management tool, the bank’s employees can see previously invisible inefficiencies. Client management can be much more pro-active. IT is helping people find new ways to serve other people. Craigg predicts that the “Bank of the Future” will be a “value-added” financial information service company. This is changing the very nature of the company’s business, opening up new fields of competitive opportunity.

In manufacturing, David Monteith of EDS Canada provided a classic case of how IT investment made for one purpose, can address unexpected changes in corporate priorities. EDS, with responsibility for information processing capabilities for General Motors Canada, developed sales and marketing lap-top computers. Loaded with dealer information like market outlooks and sales forecasts, the laptops enabled field representatives to work interactively with a network of 1000 car dealers. It was developed by EDS for the strategic purpose of getting direct orders inputs from dealers in an electronic format. The system is much faster, and errors have been dramatically reduced.

But it has been in a larger “people sense” that the main impacts have been felt. The system has allowed the field reps to come up with longer term plans that the dealers understand and support. At the customer end the system is faster in meeting consumer needs. It could even lead, in the long run, to “virtual dealerships”. The laptops could provide a direct conduit from the customer’s orders to the production lines. This would be business transformation with a vengeance! It would combine high levels of customer satisfaction with a unique competitive edge. There have already been immediate tactical advantages from the system, however. When the current recession hit the automotive industry, GM was able to respond with shorter term and more flexible market plans.

It was partly a search for flexibility that led Pratt & Whitney to create a “state-of-the-art manufacturing facility” in Halifax. This new computer-integrated manufacturing plant combines IT with socio-technology concepts. The facility combines an advanced technological environment with a radically different management philosophy and organizational culture. The system provides real-time feedback to the shop-floor staff, who operate in a Japanese-style team manner. Staff are multi-skilled, morale is high, and turnover is almost nil.

From the beginning, Pratt & Whitney recognized that the commitment to IT would lead to higher skill requirements. The company therefore developed special training programs in conjunction with local community colleges. The result is a flexible manufacturing system. It has quick turn around, and builds a wide range of products. The setup time for new parts declined from ten hours to two hours and parts that previously took 4-6 months to manufacture can now be produced in two weeks. Again, the key is the impact of the technology in empowering the people: a culture became collaborative.

Eugene Polistuk of IBM provided another example of automated manufacturing. In contrast to the Pratt & Whitney case, IT was applied to an existing IBM plant in Toronto. It was rescued from imminent closure by adopting a computer integrated manufacturing system. Communication technology was the key IT enabler. The shop floor systems were linked to an office automation system which, in turn, was connected to the IBM world-wide network. This resulted in a de-layering of management, empowerment of the work-force, substantially strengthened overall management. Another significant impact was a strengthening of supplier relations through the communications system. EDI allowed IBM to enter into closer partnerships with suppliers, and get ‘buy-in’ for the company’s philosophy of product quality.

The thread running through these stories is the message that when IT is applied to people in innovative ways, the result is a transformation of the business itself. And as new kinds of IT emerge, new opportunities and freedoms exist for this transformation process.

At Rogers Communications, of course, we are responsible for putting in place one of those lovely new IT services that really challenges companies to come up with people-empowering uses. Mobile phones have taken off in Canada. We have had a love affair with them. There has been a fantastic growth rate: more than a million units sold in only seven years. The forecasts are even more dazzling. We expect that three or even four million units will be sold by the year 2000 when one in five Canadians will have some form of wireless connection. Yet with this new technology, we are faced with a new dilemma: how do we use the new power to really transform our businesses? I don’t mean just using mobile phone to do the same old jobs faster, but really rethinking the new opportunities opened up by the technology.

Today, I suggest that we are still using mobile communications in very traditional ways. We are doing what we could do on an office phone, but simply doing it more often. This has obvious efficiency gains, but it is not a transforming activity — where the real money lies.

I’d like to offer, instead, the view that we should be using mobility as part of a larger IT business strategy to control space and time.

An organization should be able to reach its people regardless of geography or hour-of-day. I don’t mean instant communication at all times. I mean something more decisive: control over communications.

In the current highly competitive and global business climate, it is reasonable to assume that at any time many of an organization’s best people will be in the air, on a highway, or in a foreign country. I was reminded the other day that we used to think of business strategy as a chess game in which you planned out all future moves. Now businesses operate more like a video game, where you either zap or are zapped in real time.

In this environment, you can’t afford to ask the question: “where is she?” Now, with mobility, we only need to know “where can she be reached?” You are controlling space. And in a 24-hour world, technology like voicemail allows you to pass along information regardless of the hour or the disposition of the other person. You can control time. Let me go back to IBM as an example. At IBM here in Toronto almost 1,000 of the 6,000 employees have no offices. They are sales or service personnel who work out of their cars. A limited number of desks are available for use on a temporary basis. The only thing IBM management needs to know about where their employees are is that they’re with the customer!

Other examples: Pitney Bowes has reoriented its entire service organization to operate with mobile data, so they rarely come back to the office. Federal Express uses mobile data to keep track of each parcel or letter an entire business being built around mobility. And we are only scratching the surface of the applications.

The only certainty about a new technology like mobile telephony is that, once you give it to people to use, they will astound you with the sheer variety of clever and radical uses. Let me emphasize again that it is when the technology meets the people that the big changes happen. All the organizations that I have described today started off by trying to be traditional. They used information technology to control costs and improve the quality of products and services. They found, however, that IT was capable of giving them more. I call this the “George Fierheller Law of Unexpected Results” As soon as they used IT to lever their employees’ capabilities, they found they were in a new business: they created new products, enhanced their management and uncovered new operational models for their industries.

Information technology by itself is not the salvation of an organization. Its impact depends on its role as part of an overall re-thinking of current practices – people practices. When the Ottawa newspaper Le Droit automated its printing processes, for example, it also changed its work environment. It used its new flexibility to bring out two more editions of its paper, with more locally-relevant news in each edition. The Quebec hospitals involved in SIDOCI created a fully-integrated health care system by making information available instantly to the people concerned. As a result, patient care improved dramatically. Typically, too, IT leads to higher workplace skill requirements and richer working environments. General Motors’ laptop computers improved market data, sped the processing of orders, and allowed the field rep to enter the computer age interactively with the dealers.

The potential for new business capabilities is growing each day, with each new information technology product or service. My advice is to look beyond the immediate cost savings of a new application. Try to figure out how your business particularly the activities of your people can be re-directed. What new powers does it give you? What are you able to do today that you couldn’t yesterday? Is there a new “green field” opening up right in front of you?

The strategic use of information technology is really just the strategic empowerment of people. If we can all figure out how to apply this maxim, I’m sure that Canada will have no prosperity problems in the Twenty-First Century.