The Electronic Market
Dalla società dell’informazione a quella delle idee, Rivista della Fondazione IBM Italia,vol. 6, no 3, 1998
1 The IT Revolution
Machine technology was powerful enough to rid Europe of farmers in less than 150 years. In the middle of the 19th century, more than 80% of the population in Europe were farmers. Today, in a country like Italy only 5% are farmers. Machines invaded the farms and made people superfluous, offering them jobs in the factories in the cities. So rapid was this change that we call it a revolution: the Industrial Revolution.
Now, a new revolution is upon us. It began rather innocently, in the 1960s, with crude industrial robots and rigid information systems for administrative control. At first, computer technology seemed to support rather than change the ways of living and working in industrial societies. When computers were introduced in the factories, they helped speed up automation, and in the offices they made automatic what used to be manual data processing.
Eventually, we began to understand that we had misconceived the nature of this new technology. We thought that it would automate office work, when instead it was the major force in expanding such work. When the robots emptied the factories of people, they found new work tasks with information systems, personal computers, Xerox machines, laser printers, and client-server networks.
We also had great difficulties in appreciating the way this new technology kept changing its focus of use. In the 1940s and 50s, people made gross misjudgments about the future of this technology based on its early use as calculating machines. And in the 1970s, very few saw the fast approaching personal computer revolution. Internet took us all by surprise, and in many big telecom companies, its importance was seriously underestimated.
With Internet the use of information technology began to focus on media and communication. Information technology today is a mobile phone in a global network.
When the focus of IT use shifts from administrative information systems and personal computers to Internet and mobile phones, then the focus of work shifts from office work to customer relations, from document management to sales. And this is where we are right now in the IT revolution. We have moved from a business life focusing on industrial production to document dominated office work to customer interaction on a global market. Welcome to Talk Society.
2 From Factories to Offices
When office work began to expand in the 1960s, engineers moved from the factory floor to the offices and quickly built the same sort of factory organization – a functionally organized production machine. But what was the office factory to produce? Documents.
From the late 1960s to the late 1990s, the number of office workers in Europe was doubled. Today, more than 80% of the working population in Europe are engaged in office work. How can one explain this enormous expansion? The power of technology. When information technology began to be used more extensively in the factories, less people were needed there. At the same time information technology provided work in the offices. And the technology helped shape the nature of office work.
Since the early days of office building, efforts have been spent on organizing and automating document production. Office automation, TQM, ISO 9000, business process reengineering, quality assurance, process thinking, learning organizations, maturity levels – the recipes have been numerous for how to best achieve more productive document processing and production.
Some thought that Mike Hammer’s revival of ”scientific management” was radical, while in reality ”business process reengineering” was a slight ruffle on the surface of the old factory companies. To engage in defining and straightening processes is to stick to the idea of production as the core company activity. Hammer would have been really radical if he had dared to suggest that the old factories had to be reorganized with the sale situation and its dimensions as its focus.
3 IT is a Mobile Phone
What does an industrial company have to do? Produce and sell. When focus is on production then the customer must adapt. When sales is in focus then production must adapt. Product development then has to be done close to the customer, together with the customer, in alliance with customer close service providers, far away from the factory. Product development, marketing, sales, and services are integrated. They are no longer departments, functions, or processes in a factory organization. They are dimensions in a sale situation.
The companies in industrial society were production companies. The companies in talk society are sales companies. The old company produced goods, the new company provides services. The old company was built in a place where there were natural resources, energy, good transport, and labor. The new company is where the customers are. The old company was a factory. The new company is a loosely connected, distributed and mobile, network of sales persons.
What is the core competence of an industrial company. What is it you know what to do, when you successfully run a company in bearings, buildings, textiles, automobiles, or paper? You know how to produce all those things. Product development is to a large extent production development.
In early industrial society products sell themselves. The industry can concentrate on production. On today’s markets, companies compete for customers and focus is shifting from production to marketing, sales and customer relations. Today it is not enough to produce automobiles. One has to be able to provide a rich variety of ”travel services” and develop new services, in which the automobiles can be packaged.
Automobiles are produced with machines, but travel services are provided with information technology. As essential as the machine competence is for a production company, as essential is information technology competence for a service company. And soon every company that makes money is a service provider. It is as ridiculous today to outsource one’s information technology competence, as it would have been in the 1950s to lay off one’s engineers.
The factory organization is built to run a big machine, and the best way to think of it is probably like a machine. A sales organization is built to communicate with customers wherever they are, and the best way to think of it is as a mobile phone network. There are individuals (mobile phones) and there are small relay offices (base stations), and the whole network hangs together all over the global market.
4 From Routine Work to Innovation
The factory is built for routine tasks. Today’s offices are modelled on yesterday’s factories. With business process reengineering, total quality management, maturity levels, and ISO 9000 we have spent the 1990s refining and tuning routine operations, turning our offices into more efficient machines. Now it is time for us to move on to the innovative aspects of business.
The first stopping point in this reorientation away from the bureaucracy is the project organization. Projects are adhoc-organizations put together to perform a new but well defined task. Office managers become project leaders. The professions, diplomas, and careers so important in the bureaucracy give way for competencies and cooperation.
Projects that go on for a long time, or organizations which take on the same sort of project again and again, turn project groups into departments, and project leaders into office managers. But when projects become more short-lived and less well defined, when the work load increases and people move in and out of projects, when projects cross over borders and involve people from several business units or even different companies, then projects dissolve into more loosely connected networks of tasks, people, and connections. The organization turns into a market.
The market organization is a game where players compete. Someone has to oversee the market. She is like a game master in a role game. She provides the game board (the market place) and with an easy touch she sets the framework for the games. The game master makes it easier for the players to invent their work tasks, define their goals and missions, grow their occasional networks to increase their capacity.
The management information systems of the 1970s were used for collecting accounting data for economic production control. In the 1990s, companies wanted to support the efficiency of project groups with electronic mail, intranets, and document management systems, providing information about the content of work.
Both information management and document management were attempts to increase the efficiency of routine tasks. When we go from information management and document management to knowledge management, we go from focusing on routine work to focusing on innovation and ideas, from production to business. And we need information technology support for an organization that takes its inspiration from the market, rather than from the military or family. Electronic commerce applications provide that support. E-commerce is so much more than systems for buying sex, books, beer and drugs on Internet. It provides platforms for introducing the market as organizing principle within organizations.
Electronic commerce is a vital element in the new public infrastructure for human interaction, for the exchange of services, goods, information, ideas, competence, contacts, in a global information society. With e-commerce systems we support transactions, deals, contracts, sales. We break the isolation of factory organizations, small and big. With e-commerce even small companies must compete on a global market. Schools and hospitals will have to move out on the market to meet their customers. Students now buy books from the US on Internet. Soon they will take exams and get degrees from the US in the same way.
5 IT is a Global Network
Infrastructure was introduced in the 19th century as a military term to designate railroads, industries, and other resources, behind the actual front, necessary to wage war. With its huge and complex, distributed production system, an industrialized society needs a well functioning and reliable distribution system – roads, harbors, railroads, airports, energy systems and telephone networks as its foundation. Thus, the notion of infrastructure is formed.
The Clinton-Gore initiative for information highways, not only created an IT media boom, it also helped initiate an interest in Internet as a global infrastructure. Now, infrastructure has become IT-jargon: Windows NT, MS Office, intranets, SAP and other ERP-systems make up a modern company’s infrastructure. This infrastructure is a resource for the company, a necessary condition for its business, and an enabler for new business opportunities.
This seems to be a way, once again, for chief executives to get rid of IT strategical questions. If IT is an infrastructure, preferably outsourced and subterranean, that we don’t have to think about it any more than we think about water supply and electric distribution. Just make a decision about what infrastructure to have, and then we don’t have to think more about IT.
An infrastructure is a stable foundation, a common resource, a standard for business activities. But if you think of IT in this way, you will soon find yourself in trouble. IT is characterized by its lightness rather than by its weight and inertia. IT is no productive foundation, it is a flexible means of communication. It is relatively inexpensive so that we can afford to compete rather than share. It is an adapter technology that invites us to experiment with several standards at the same time.
Information technology is no infrastructure issue to decide upon and then lay aside in order to attend to business. Information technology is what we make business with. Electronic commerce is not a question of finding a standard for payments on Internet. It is instead, as the name indicates, the nature of commerce, the market, of electronic society. And it is on this market we must compete, by experimenting with new technology, moving quickly.
Today, when companies are trying to keep up with the revolution brought on by Internet, when they are ”globalizing” in response to the global market made possible by Internet, there is much talk about ”global infrastructures”. So far, this has mostly been a misnomer, however, since what companies do to become global is introduce global information systems. Just like traditional management information systems were used to support control and standardized conduct in the organizations of the 1970s, so today’s ”global infrastructures” are nothing but global information systems for internal control.
A production oriented company will focus on its production and distribution infrastructure, an office oriented company will focus on administrative systems, while a sales oriented company will focus on external communication. So far, the public globalization process has been moving much quicker than companies normally have expected, and so they have wasted money on internal infrastructure rather than using what has quickly become publicly available. Why build your own roads, when you can use the public roads? Why develop EDI when there is Internet? A high and reliable quality in production and distribution may demand an internal infrastructure, that is yours to own and control. But a powerful sales organization need to meet the customers where they are, and therefore has to operate on the public infrastructure.
Large companies today hesitate about how to deal with Internet as an infrastructure. Should they invest in electronic commerce with Internet as the market place? In many ways this can be a much more important decision than might first seem. By choosing to use information technology as a public infrastructure, in this case Internet, the company will open its boundaries to the surrounding world. Instead of using information technology to build information systems to sharpen company boundaries, a process will begin that eventually can turn the old factory companies of industrial society into more distributed, customer oriented, sales organizations. If the old industrial companies don’t do this, there will be other companies who will do so at their expense.
6 The New Nomads
In major cities around the world you can buy Gant shirts, jackets, pants, sweaters. Perhaps you have seen one of their catalogues, made in a truly American style, with colorful pictures in New England settings on nice, thick paper. When the Gant shirts were becoming popular in Sweden in the early 1980s, I used to look for Gant stores when visiting the US. I never found any. Gant is not a US shirt maker. It is a team of a few clothes designers, a couple of business people, a copywriter, and some assistants. Altogether they are about a dozen people. They operate out of Stockholm. Now, there are even Gant stores in the US.
Companies like Gant are like the hordes of classical sociology. In pre-agricultural, nomadic, societies, people lived in small groups of about twenty-five members (the size of a modern school class), roaming around in the fields and forests, gathering roots and nuts or hunting for small animals. Such hordes live off the land, but they never stay very long in one place, and they don’t sow to harvest.
Companies like Gant live off industrial society like the hordes live off nature. In a world run by such networking, nomadic organizations, there will still be room for industrial type organizations providing a sort of infrastructure for the networking organizations. There will still be a need for steel production, paper mills, railroads, ports, airports, airlines, and the whole system of industrial production and distribution will be necessary for the networking organizations to operate.
But the communications networks that are so vital for nomadic, networking life will not be part of that infrastructure. The optic fibers, satellites, routers and hubs necessary for communication is in no way an infrastructure for information society. Those networks will be much too flexible, changing, and makeshift to be anything like infrastructures. They will be like the Internet is today.
Information society hordes are small, mobile companies with good design ideas, or companies that simply are good at selling, good at doing business on the new electronic markets and can place orders with the old industrial companies, use their resources, like the nomads used nature, and move on when opportunities are better elsewhere.
The first hordes are already here. And in some big companies, innovation projects are sometimes designed as hordes. When electronic commerce at last becomes a major factor on the business scene, we can expect to witness an interesting game with the old industrial companies and the new hordes as players. One day there may be an automotive company that is a horde! A small group of automobile designers developing a car the production of which they place on contract with different traditional companies (like some automotive companies already do). The horde has the ideas, others can do the low paid, high quality, routine work for them. Information society will be an Idea society.