The New Economy.
There really is no "New Economy" or "Old Economy." There are just companies that are able to incorporate change, to reinvent themselves, to take advantage of technological improvements, and those that can't. Those that can't will not be able to compete, and those that can will be successful.
What makes it feel like it's so new is the pace of the change. Every technology cycle we go through seems to happen more quickly than the last. The compression of those change cycles makes it feel like you've got an Old Economy and a New Economy, but really what you have is companies rapidly moving to new technologies to give themselves competitive advantage in some way, whether through cost reduction or better access to markets through the Internet. We're already beginning to see it with big companies forming purchasing consortiums--they're starting to take control of the use of that new technology. Companies are reinventing themselves, or they're becoming prey to companies that develop a new formula for doing what they do, using this technology and threatening their existence.
One of the biggest changes is that the Internet gives any company global reach. How should CEOs grapple with the challenges of globalization?
They need to recognize that they're in a globally competitive market. That means they are now at risk of having their business taken away from them by a competitor from another country. How do you deal with that? You begin by thinking of ways that, if you were starting a competing business today, you could put your own company out of business. Then you do it before somebody else can. You quickly make the transition from being the old company to the new company that is a better competitor, more efficient and more productive.
My best counsel to CEOs is not to kid themselves. They may believe that there's no other way to do business in their particular niche than the way they do it now, but somewhere there's a 25-year-old in a garage who doesn't understand that, and they'd better be aware of the risk of complacency in this marketplace.
Many companies have been conducting business internationally for years. Do they have an advantage, or does a preexisting structure slow change?
Both. There are experiences that are invaluable in doing business globally, and the advantages of scale are still there. Nothing has changed the fundamental economics of business. It's still good to have a lot of capital. It's still good to be big. The problem is when you let your bigness also make you slow, or when you let your experience lead you to believe there's no other way to do something, or that it can't be done in a better way. The established companies that will prosper are those that have that experience but don't let it make them hidebound in the way they do things, and have scale but don't let that lull them to sleep in terms of their need for nimbleness and quickness in the marketplace. I'd rather be big and quick than small and quick.
Globalization creates complexity, and complexity invariably slows process. How do you stay nimble while getting larger?
I think that is probably the single biggest challenge in this economy. Change is happening so rapidly that if you're bound and determined to be in a command and control structure, you're just not going to be able to move quickly enough. The marketplace and the opportunities reshape themselves in a matter of months. You have to he responsive to that, and you can't do that if you're insisting on a bottom-up decision-making process where you have loads of research done around each issue and you're absolutely sure of the right thing to do when you pull the trigger. That's a model that just won't work in this economy. You have to be quicker than that.
What you can do is control the plan, the broad strokes of what you're trying to get done, and he sure that the planning process is dynamic and variable. Control the culture of the organization--the critical shared values, the things you don't want to change, that you want to anchor the organization with in periods of big change--and then let people in that environment be empowered to do things, to make things happen and take risk. When your people do things really well, it reflects well on you. When they do things that turn out to be mistakes, you have to be willing to stand up and say, "It's my responsibility." If you can accept that, you can operate in this environment.
It does require you to carefully pick those things that you are going to focus your attention on, and those things that you are largely going to delegate. Th choice of how you will be spending your time is extraordinarily important. You need to really be confident that you're spending your time on the right things.
Deloitte Touche Tohmatsu is engaged in its own globalization efforts. Are there elements of your transformation that have been easier, or more difficult, to implement than you expected?
We have a great leadership team working on this, but I think all of us are surprised by how difficult it is physically. It's all the travel involved, despite the marvelous advances in telecommunications. A global restructuring isn't the kind of thing you can do over the phone or through a video conference or through the Internet. It's something that has to be negotiated face to face so people can gauge the trustworthiness of the other person across the table.
The surprisingly easy part has been the multicultural approach to globalization. I had always assumed that taking such an approach would be extraordinarily difficult. It has been a great relief to me to find out how much we have in common in terms of our aspirations for our organization, our shared beliefs. It certainly has required some time to communicate and thoroughly understand each other, but in terms of the degree of difficulty in reaching agreement on important issues, it has been easier than I expected.
As business moves from factory floor to cyberspace, how do CEOs assess what the revolution means for their industry in general and their company in particular?
Again, sometimes this Internet technology gets talked about as if it were something other than a tool or a means to an end. There's no Internet substitute for a factory, for example. When you put cars together, you need a physical facility. What's different is that the connection between that factory and the customer can be almost instantaneous. What happens is you collapse the whole value chain between the customer and the manufacturer, or between the manufacturer and the suppliers. It's a massive compression in terms of investment and time.
How does the New Economy drive change in a company's culture?
From my standpoint, the principal change there has to do with the value people place on intellectual capital. The reason is that the Internet and other technologies allow intellectual capital to be leveraged into the marketplace more quickly, more ubiquitously than previously. It can be brought to bear more easily and more fully and therefore is enabled to create more value.
What that says is that a company that is not strategically valuing its intellectual capital is, I believe, headed for a fall. So that's the real challenge: How do you keep smart people in your organization? How do you attract smart people? How do you use that intellectual capital that they bring to the table to create value for your shareholders and your stakeholders?
What are the answers to those questions?
You have to demonstrate that your business is capable of creating very high value in today's economy so that you can compensate your employees well. Everybody has to feel that they have an opportunity for personal value creation, and that absolutely includes money. It also includes the opportunities they have to do exciting things that enhance and increase their own intellectual capital. Finally, you have to convince the people who work with you and those whom you are trying to attract that it is a desirable place to work, from an environmental standpoint. By that I mean that they work with people they can trust, that the company is really committed to being the best at what it does and that the environment nurtures its colleagues and employees.
What is the role of the CEO in a company's New Economy strategy?
I think a CEO has to be able to create and sell to his or her colleagues within the organization a great vision of what your business is going to be, and you have to be able to communicate that vision to the people around you. Then you have to convince them that you have a good plan or a good strategy for getting there. Then you also have to recognize that there are certain values in an organization that constitute the anchor in a period of change, and you have to be sure that those are protected and that they don't change.
We talked about the importance of people and intellectual capital. Historically, we thought of people as a cost element, and today you have to change that mindset and value them as revenue sources and as intellectual capital. Then you have to turn loose the reins and let your people perform. And again, very carefully pick those areas where you are going to be involved. They need to be chosen very carefully and related to risk, because just as there is an opportunity to create wealth quickly in this environment, there is also an opportunity to destroy it quickly. You have to be sensitive to risk management.
How can long-term CEOs adapt quickly to a new set of leadership rules that is very different from those they grew up with?
To some extent it depends on the nature of the person. I think, however, that people who are in CEO roles for a long period of time tend to be very adaptable people, because they have worked through different technology cycles and big changes, and they have come to embrace change rather than fear it Look at someone like Jack Welch at General Electric. As the Internet becomes a major force in the economy, he's right in the forefront, embracing it and saying that GE can be a better company because of it. Look at the way Microsoft has reinvented itself dozens of times over that same time period under Bill Gates' leadership. And look at how Jim Kelly has transformed UPS--a business people would think of as an "Old Economy" business--which suddenly is emerging as the enabler for the electronic economy.
Does it come down to adaptability?
It's what I call a kind of "constructive discontent"--that you're never very happy with things being good enough. So you're constantly trying to make things better. At least that's my observation of really long-term CEOs: they're restless, they're not easily satisfied, and they have a constant desire for improvement. That leads you to look for new ways to do things. At the end of the day, that's what sustains great CEOs over a long period of time--a constant willingness to reinvent a very successful business, making it even more successful.
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|Publication:||Chief Executive (U.S.)|
|Date:||Aug 1, 2000|
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