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It is not a technology revolution; it is a business revolution that represents a serious expansion of and challenge to capitalism. It is the Information Revolution, and it is a story about managers in many industries who are using information technology strategically to make their companies more profitable in ways that can be sustained for years to come. It is also a story about the ways companies can overcome internal and external obstacles.
Larry Downes, a co-author of the bestseller Unleashing the Killer App, has written The Strategy Machine to help managers succeed over the long haul with a winning portfolio that will take them into the next economy, regardless of their industry, department or the size of their organizations. His latest book offers them the tools to unlock the hidden value that is lurking within their balance sheets, and ways to profit from the transformation that is currently taking place in every industry.
The Age Of Disposable Computers
Downes writes that this is the age of inexpensive, disposable computers. He describes a revolutionary approach to running a business, an approach that has been designed to work in the world of disposable computers that provide regular reports on the status of products from the moment they are made until they are consumed. The Strategy Machine seeks to answer the questions, "Why do I need a strategy machine? How do I put it together? How do I keep it running?"
To answer the first question, Downes predicts that the principal beneficiary and victim of the Information Revolution, which is dominated by disposable computers, will be the supply chain: the integrated set of activities that produce, sell and distribute products and services. As companies use more readily available information about their industries, he writes, their profits will shift from products and services to information about products and services.
An information supply chain will collect information about every sale - for example, who are the customers, how much they paid, and when they need more product. According to Downes, this evolving information supply chain is the real source of productivity improvements today, and will be the source of new value, products and services that are sold as information.
A Strategy Portfolio
Downes says managers must create a portfolio of strategies instead of a single plan. These strategies need to be tested simultaneously and shifted as the environment inside the information supply chain stabilizes.
A strategy machine looks for ways to improve a business today as it tests new ideas that could destroy the business in the future. Downes explains that this strategy portfolio is fueled by information assets, such as brand, expertise, and market intelligence, that increase in value the more they are used. He describes the strategy machine as an invisible capital engine that works like a perpetual motion machine, creating more assets as it reinvests them into the business. A strategy machine is the merger of planning and execution.
How does a manager keep a strategy machine going when it faces the natural, human obstacle of resistance to change? Downes provides answers using several examples of companies that have overcome the many forms of inertia, such as conflicts in marketing messages and problems integrating the strategy machine with employment policies and information systems. Companies overcome inertia by applying leadership to obstacles that are both inside and outside the organization, he writes.
Why Soundview Likes This Book
Downes turns a practical book about business strategy into an exciting adventure into the future of technology and invention, using a wonderful metaphor for organizational change.
His examples are full of compelling anecdotes and descriptive examples that illustrate his ideas about the present and the future. By grounding his visions of the future in real-world business decisions that have worked and failed, he turns his metaphor of the machine into a forward-looking strategy that businesses can use to grow and succeed as they face the uncertainties of the digital age armed with innovation, technology integration and tools for transformation. Copyright (c) 2002 Soundview Executive Book Summaries
A Parable of Port Said
Studying the past can teach you a lot about the future. Consider the story of a famous international effort to build new commercial infrastructure. Proponents of this massive project promised to eliminate time and distance as a constraint on commerce, reduce costs for everyone, and make investors fabulously wealthy. In its first years, the project raised millions of dollars, much of it from the public, and stock prices rocketed into the stratosphere. Minor setbacks and delays turned into years of stalled progress. As the project proved more difficult than expected, however, markets crashed just as dramatically as they had soared. A cottage industry of journalists devoted to tracking the failings, blunders, and arrogance of the project's promoters flourished.
That may sound like a synopsis of the last few years, but what I am describing is the construction of the Suez Canal, the 101-mile trench through Egypt's Sinai Peninsula, the brainchild of French engineer Ferdinand Marie de Lesseps. The Suez created a permanentpassage from the Red Sea to the now-bustling town of Port Said on the Mediterranean -- an engineering marvel on a global scale. It revolutionized the transportation business, making it possible to ship cargo between Europe and Asia without a long, dangerous detour around the southern tip of Africa.
The canal not only changed the nature of global commerce, but also played a starring role in the political fortunes of Britain, France, and the Middle East. After more than a century of operation, five owners and a seven-year war that temporarily shut it down, the canal is still in operation. Nearly 14,000 vessels will journey through the desert this year alone, carrying more than 400 million tons of cargo and generating nearly $2 billion in revenue for the government of Egypt.
The Suez Canal is characteristic of all great infrastructure projects. Because they attempt to do what has never been done, their design and construction is fraught with unknowns. Setbacks, accidents, and exasperating changes in strategy are frequent. They are often the obsessive dreams of visionaries who invariably come equipped with egos big enough to match their ideas, whose arrogance leads to startling turns of events. As a result, such projects become topics of never-ending fascination for the press, who cannot resist reporting on the folly of trying something new. Even when these projects are completed, stale traditions and rusty business processes resist adapting to their use, despite the obvious and immediate benefits of doing so.
Unfortunately, con men also find big projects irresistible, and as a result, the public is often drawn in too soon and given the worst financial terms. Project delays lead inexperienced investors to demand accelerated returns, which further delays profitability and threatens the project with collapse. Frequent panics, booms, and busts dog the effort from beginning to end. The media throws fuel on all the ups and downs, doting on each misstep and gleefully predicting total failure right up until the moment of victory.
The story of Ferdinand Marie de Lesseps is a fable for revolutionary technological change: an arrogant but brilliant engineer; an ambitious plan to change the nature of commerce; a fickle investing public demanding results before they can be delivered; high emotions fanned into flames by a sensational media first lionizing and later spurning the venture; and, finally, the belated realization of the plan and vindication of its creator well after his death.
De Lesseps was a leading figure in the Industrial Revolution, which began in the mid-18th century and continued for 150 years. It is no coincidence that his story echoes so closely our own age. It was, after all, the Industrial Revolution that created the original versions of the manufacturing, banking, retailing, and distribution industries we know -- indeed, the concept of "industry" dates from this period. Even as information technology is remaking those industries, we should take a step back and understand the crucible in which they were formed.
We can go deeper still and observe the relationship between the technologies of the Industrial Revolution and the economic system that allowed them to flourish. It would be only a slight exaggeration, in fact, to say that industrial technology created the capitalist system. Capitalism's chief characteristics -- public financing through debt and equity, asset-intensive global corporations, and infrastructures created and maintained at least in part by governments -- are by-products of inventions like the steam engine, factories, and railroads, which created both the opportunity and the demand for such a system.
In particular, the Industrial Revolution required and produced strong national governments. Central banks maintain neutral and stable currency for the exchange of goods and services across borders. Courts provide a forum to enforce contracts as well as a strong deterrence against violating them. Public education takes a portion of the profits generated by industry and applies it to developing future generations of skilled labor who continue improving the system. Each of these institutions existed in some form before the Industrial Revolution, but it was the needs of a global industrial economy that expanded and shaped them into their highly evolved forms of today.
Even at the individual level, there is much we can learn from Ferdinand de Lesseps' example, and similar stories that can be told about nearly all major developments of the Industrial Revolution. Rather than repeat tales better told by others, however, I have distilled the most important lessons of the Industrial Revolution -- specifically, the five different strategies employed by those who, we can say with the hindsight of history, won the revolution. As we will see in the chapters that follow, these five general responses to revolutionary change are...The Strategy Machine. Copyright © by Larry Downes. Reprinted by permission of HarperCollins Publishers, Inc. All rights reserved. Available now wherever books are sold.
|Preface: Strange Tales of the New Economy|
|Pt. 1||The Information Revolution: Why a Strategy Machine?|
|1||A Distant Mirror: Lessons of the Industrial Revolution||7|
|2||Disposable Computing: Drivers of the Information Revolution||20|
|3||The Metamorphosis: The Stages of Transformation||32|
|4||The Information Supply Chain: Creating New Value from New Information||55|
|Pt. 2||The Strategy Machine: Putting the Pieces Together|
|5||The Strategy Portfolio: Blueprint for a Strategy Machine||75|
|6||Invisible Capital: Turning Products into Services||97|
|7||Perpetual Motion: Starting Up the Invisible Capital Engine||115|
|Pt. 3||The Executioner's Song: Reinventing Your Business Every Day|
|8||The Sociology of Strategy: Confronting Grief, Overcoming Inertia||145|
|9||Internal Catalysts: Overcoming the Inside Obstacles||163|
|10||External Catalysts: Overcoming the Outside Obstacles||187|
In particular, two things came as real surprises to me. The first was that so many people were interested in the book in the first place. When Killer App was published in May 1998, Fortune 500 CEOs were coming to the realization that the Internet and related innovations in digital technology were different in kind than the sorts of computer applications that had come before them. Finding no one in their IT organizations who could help them sort out a strategic response, many readers found that Killer App helped explain the true impact of new technology, presented in language that was familiar to a nontechnical audience.
But then the book started showing up in coffee shops in Palo Alto and other entrepreneurial hotbeds, where it was used as a blueprint for start-ups trying to develop products and services to disrupt the "old economy" companies. (One client told me his start-up referred to the book as "The Yellow Bible" because of the color of its cover.) That really threw me. After all, the book was intended for traditional businesses trying to compete with start-ups. I had no idea that I had anything to tell an entrepreneur. But then you have to remember that the Internet boom and the related floodtide of venture capital that followed it gave rise to a new generation of company founders, most of whom had no experience with start-ups and, unfortunately, not much experience in coming up with good ideas. Killer App may have unduly encouraged some readers to think that a great idea was all one needed, and to that extent I'm marginally to blame for the chaos of the dot-com boom.
This leads to the second surprise. When I wrote Killer App, I was certain that the hardest thing for traditional companies was to find innovative ways to use disruptive technologies; that is, to think up killer apps. The good news turned out to be that this was relatively easy. I was amazed to find in my work with clients after the book was published how little encouragement it took to get even the most seasoned businessmen and -women to think creatively of ways to "destroy" their own businesses.
The bad news was how few of those great ideas ever got off the ground. And that is where The Strategy Machine really begins. As I went back to study companies that should have succeeded, I discovered that while strategy design was easier than I thought, execution was much harder. Building killer apps requires a different set of tools than most of my clients were trying to apply from their IT/engineering perspective. They were used to "back office" IT projects characterized by short-term returns on investment, detailed budgets, and elaborate project management skills. These same skills, which made it possible for them to build first-class systems, didn't seem to work for more innovative and experimental applications. In many cases their project expertise did more harm than good.
That's what led me to catalogue the eight obstacles to change that are described in Part III of The Strategy Machine, which, I hope, will also provide my readers with guidance on how to overcome them -- and use them as catalysts to move the process ahead further.
But I'll never underestimate the force of corporate inertia again! (Larry Downes)