MARCH 22, 1999 VOL. 153 NO. 11
Gates' New Rules
In Business @ the Speed of Thought, Microsoft's chairman says that only managers who master the digital universe will gain competitive advantage
BY BILL GATES
If the 1980s were about quality and the 1990s were about re-engineering, then the 2000s will be about velocity. About how quickly business itself will be transacted. About how information access will alter the lifestyle of consumers and their expectations of business. Quality improvements and business-process improvements will occur far faster. When the increase in velocity is great enough, the very nature of business changes.
To function in the digital age, we have developed a new digital infrastructure. It's like the human nervous system. Companies need to have that same kind of nervous system--the ability to run smoothly and efficiently, to respond quickly to emergencies and opportunities, to quickly get valuable information to the people in the company who need it, the ability to quickly make decisions and interact with customers.
The successful companies of the next decade will be the ones that use digital tools to reinvent the way they work. To make digital information flow an intrinsic part of your company, here are 12 key steps.
1 INSIST THAT COMMUNICATION FLOW THROUGH E-MAIL
For a large company to be able to maneuver as well as or better than a smaller competitor is a testament to both the energy of the employees and the use of digital systems. Personal initiative and responsibility are enhanced in an environment that fosters discussion. E-mail, a key component of our digital nervous system, does just that. It helps turn middle managers from information filleters into "doers." There's no doubt that e-mail flattens the hierarchical structure of an organization. It encourages people to speak up. It encourages managers to listen. That's why, when customers ask what's the first thing they can do to get more value out of their information systems and foster collaboration in their companies, I always answer, "E-mail."
I read all the e-mail that employees send me, and I pass items on to people for action. I find unsolicited mail an incredibly good way to stay aware of the attitudes and issues affecting the many people who work at Microsoft. The old saying "Knowledge is power" sometimes makes people hoard knowledge. They believe that knowledge hoarding makes them indispensable. Power comes not from knowledge kept but from knowledge shared. A company's values and reward system should reflect that idea.
I like good news as much as the next person, but it also puts me in a skeptical frame of mind. I wonder what bad news I'm not hearing. When somebody sends me an e-mail about an account we've won, I always think, "There are a lot of accounts nobody has sent mail about. Does that mean we've lost all of those?" A good e-mail system ensures that bad news can travel fast, but your people have to be willing to send you the news. You have to be consistently receptive to bad news, and then you have to act on it. Sometimes I think my most important job as CEO is to listen for bad news. If you don't act on it, your people will eventually stop bringing bad news to your attention. And that's the beginning of the end.
2 STUDY SALES DATA ONLINE TO SHARE INSIGHTS EASILY
"Know your numbers" is a fundamental precept of business. You need to gather your business's data at every step of the way and in every interaction with your customers. With your partners too. Then you need to understand what the data means.
Making data digital from the start can trigger a whole range of positive events. The Coca-Cola Co. is collecting data directly from smart vending machines via cellular phones or infrared signals. A PC-based restocking program at the local bottler office analyzes the data and produces a delivery slip that tells drivers which products and locations need to get stocked the next day.
Taking advantage of digital data at the source can even create new business opportunities. A pilot program in Texas lets customers use a credit or debit card to pay for Coke drinks while fueling at a gas station. Since most people who pay at the pump don't go into the building, the digital sales system at the pump creates a whole segment of new customers for Coke.
When figures are in electronic form, knowledge workers can study them, annotate them, look at them in any amount of detail or in any view they want and pass them around for collaboration. Going digital changes your business.
3 SHIFT KNOWLEDGE WORKERS INTO HIGH-LEVEL THINKING
A company's middle managers and line employees, not just its high-level executives, need to see business data. They're the people who need precise, actionable data because they're the ones who need to act. They need an immediate, constant flow and rich views of the right information. Companies should spend less time protecting financial data from employees and more time teaching them to analyze and act on it.
At McDonald's, until recently, sales data had to be manually "touched" several times before making its way to the people who needed it. Today McDonald's is well on the way to installing a new information system that uses PCs and Web technologies to tally sales at all its restaurants in real time. As soon as you order two Happy Meals, a McDonald's marketing manager will know. Rather than superficial or anecdotal data, the marketer will have hard, factual data for tracking trends.
What I'm describing here is a new level of information analysis that enables knowledge workers to turn passive data into active information--what M.I.T.'s Michael Dertouzos calls information-as-a-verb.
4 USE DIGITAL TOOLS TO CREATE VIRTUAL TEAMS
A collaborative culture, reinforced by information flow, makes it possible for smart people all over a company to be in touch with each other. When you get a critical mass of high-IQ people working in concert, the energy level shoots way up. Knowledge management is a fancy term for a simple idea. You're managing data, documents and people's efforts. Your aim should be to enhance the way people work together, share ideas, sometimes wrangle and build on one another's ideas--and then act in concert for a common purpose.
Jacques (Jac) Nasser, president and CEO of Ford, sends e-mail to Ford employees worldwide, sharing news--the good and the bad--with everybody. No one screens the e-mail. He talks straight to the employees. He also reads hundreds of responses he gets each month and assigns a member of his team to reply to any that need follow-up.
Getting people motivated to take on responsibility is not a question of organizational structure so much as organizational attitude. Digital tools are the best way to open the door and add flexibility. If the right people can be working on the issues within hours instead of days, a business obtains a huge advantage.
5 CONVERT EVERY PAPER PROCESS TO A DIGITAL PROCESS
In 1996 I decided to look into the ways that Microsoft, a big advocate of replacing paper with electronic forms, was still using paper. To my surprise, we had printed 350,000 paper copies of sales reports that year. I asked for a copy of every paper form we used. The thick binder that landed on my desk contained hundreds and hundreds of forms.
Paper consumption was only a symptom of a bigger problem, though: administrative processes that were too complicated and time-intensive. Using our intranet to replace paper forms has produced striking results for us. We have reduced the number of paper forms from more than 1,000 to a company-wide total of 60 forms.
Companies talk about rewarding initiative and keeping workers focused on business. When employees see a company eliminate bottlenecks and time-draining routine administrative chores from their workdays, they know the company values their time--and wants them to use it profitably.
6 USE DIGITAL TOOLS TO ELIMINATE SINGLE-TASK JOBS
An acquaintance of mine had an uncle who spent 25 years at an auto plant in Flint, Mich., tacking chrome strips and other finish parts onto automobiles. It was a good job in the years immediately after World War II, but it followed the classic Industrial Age approach: break a process into small, discrete tasks and assign each to one person who does it over and over "the one best way."
In the new organization, the worker is no longer a cog in the machine but is an intelligent part of the overall process. Having people focus on whole processes allows them to tackle more interesting, challenging work. A one-dimensional job (a task) can be eliminated, automated or rolled into a bigger process.
General Motors launched the Saturn Corp. back in 1985 to create not only a brand-new car from scratch but a brand-new way of building cars and empowering workers. Teams are tight, autonomous units. Each team has a specific function, such as building engines or doors, and each team member is trained to do approximately 30 different jobs in that area, so that people don't get stale from doing repetitive tasks. Through a Web interface, the worker can retrieve data from a database, automatically load the data into a spreadsheet and pivot through the data to analyze it by part and type of problem.
Give your workers more sophisticated jobs along with better tools, and you'll discover that your employees will become more responsible and bring more intelligence to their work. One-dimensional, repetitive work is exactly what computers, robots and other machines are best at--and what human workers are poorly suited to and almost uniformly despise. In the digital age, you need to make knowledge workers out of every employee possible.
7 CREATE A DIGITAL FEEDBACK LOOP
Since Michael Hammer and James Champy introduced the concept of reengineering in 1993, companies the world over have been re-examining their business processes. When I read their book, Reengineering the Corporation, three of their ideas really stood out for me. The first is that you need to step back periodically to take a hard look at your processes. Do they solve the right problems? Can they be simplified? The second is that if you cut a job into too many pieces and involve too many people, nobody can see the whole process and the work will bog down. The third, closely related to the second, is that too many hand-offs create too many likely points of failure.
Creating a new process is a major project. You should have a specific definition of success, a specific beginning and end in terms of time and tasks, intermediate milestones and a budget. The best projects are those in which people have the customer scenario clearly in mind. That's true of process projects too.
Digital technology makes it possible to develop much better processes instead of being stuck with variations on the old paper processes that give you only incremental improvements. You need to be flexible in the face of evolving requirements. You should have a crisp decision process to evaluate change, including a provision for re-evaluating your original project goals.
8 USE DIGITAL SYSTEMS TO ROUTE CUSTOMER COMPLAINTS
Listening to customers means hearing their complaints about current product shortcomings. But getting bad news from customers passed all the way to the product design groups is surprisingly hard to do.
I recommend the following approach:
1. Focus on your most unhappy customers.
2. Use technology to gather rich information on their unhappy experiences with your product and to find out what they want you to put into the product.
3. Use technology to drive the news to the right people in a hurry.
If you do these three things, you'll turn those draining bad news experiences into an exhilarating process of improving your product or service. Unhappy customers are always a concern. They're also your greatest opportunity.
Companies that invest early in digital nervous systems to capture, analyze and capitalize on customer input will differentiate themselves from competition. You should examine customer complaints more often than company financials. And your digital systems should help you convert bad news to improved products and services.
9 USE DIGITAL COMMUNICATION TO REDEFINE THE BOUNDARIES
The internet allows a company to focus far more than in the past by changing which employees work within the walls and which work outside in an adjunct, consulting or partnering role.
For Microsoft, outsourcing has been a way to temper the expansion of our work force and reduce management overhead, but it hasn't stopped the growth of our work force. The Web work style, in which each contributor or company organizes itself optimally, enables us to extend our electronic web of partnerships and--I hope--keeps us from growing big in the wrong areas and becoming ineffective through too much overhead.
As a business manager, you need to take a hard look at your core competencies. Revisit the areas of your company that aren't directly involved in those competencies, and consider whether Web technologies can enable you to spin off those tasks. Let another company take over the management responsibilities for that work, and use modern communications technology to work closely with the people--now partners instead of employees--doing the work. In the Web work style, employees can push the freedom the Web provides to its limits.
10 TRANSFORM EVERY BUSINESS PROCESS INTO JUST-IN-TIME
M.I.T.'s Nicholas Negroponte describes the difference between physical products and information products in the digital age as the difference between moving atoms around (physical products such as cars and computers) and moving bits around (electronic products such as financial analyses and news broadcasts). Producers of bits can use the Internet to reduce their delivery times to practically zero. Producers of atoms still can't beam the physical objects through space, but they can use bitspeed--digital coordination of all kinds--to bring reaction time down dramatically.
In some industries, the issue is not so much faster time to market as it is maintaining time to market in the face of astronomically rising complexity. Intel, for instance, has consistently had a 90-day production cycle for its chips, which power most PCs. Intel expects to maintain this 90-day production rate despite the increasing complexity of the microprocessor.
Ultimately the most important "speed" issue for companies is cultural. It's changing the perceptions within a company about the rapidity with which everybody has to move. Everybody must realize that if you don't meet customer demand quickly enough, without sacrificing quality, a competitor will.
11 USE DIGITAL DELIVERY TO ELIMINATE THE MIDDLE MAN
In 1995, in The Road Ahead, I used the term friction-free capitalism to describe how the Internet was helping to create Adam Smith's ideal marketplace, in which buyers and sellers can easily find one another without taking much time or spending much money.
If you're a middleman, the Internet's promise of cheaper prices and faster service can "disintermediate" you, eliminate your role of assisting the transaction between the producer and the consumer. If the Internet is about to disintermediate you, one tack is to use the Internet to get back into the action.
That's what Egghead.com (formerly Egghead), a major retail software chain, did after struggling for several years. Egghead closed all of its physical stores nationwide in 1998 and set up shop exclusively on the Internet. Egghead now offers a number of new online programs that take advantage of the Internet, such as electronic auctions for about 50 different categories of hardware and software and for reconditioned computers. It puts special liquidation prices on systems available on its website and sends out a weekly e-mail "Hot List" with exclusive offers available only to e-mail subscribers.
For the majority of products, which are available through many outlets, consumers will be the greatest beneficiaries. For unique products and services, sellers will find more potential customers and may command higher prices. The more consumers adopt the Web life-style, the closer the economy will move toward Adam Smith's perfect market in all areas of commerce.
12 USE DIGITAL TOOLS TO HELP CUSTOMERS SOLVE PROBLEMS FOR
As electronic commerce booms, it's not just the middlemen who will find creative ways to use the Internet to strengthen their relationships and customers. The merchants who treat e-commerce as more than a digital cash register will do the best.
Dell was one of the first major companies to move to e-commerce. A global computer supplier with more than $18 billion in revenue, Dell began selling its products online in mid-1996. The company's online business quickly rose from $1 million a week to $1 million a day. Soon it jumped to $3 million a day, then $5 million. It's now risen to $14 million.
Michael Dell characterizes the business today as "different combinations of face-to-face, ear-to-ear and keyboard-to-keyboard. Each has its place. The Internet doesn't replace people. It makes them more efficient. By moving routine interactions to the Web and enabling customers to do some things for themselves, we've freed up our salespeople to do more meaningful things with customers."
Smart companies will combine Internet services and personal contact in programs that give their customers the benefits of both kinds of interaction. You want to move pure transactions to the Internet, use online communication for information sharing and routine communication, and reserve face-to-face interaction for the activities that add the most value.
As I said in The Road Ahead, we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don't let yourself be lulled into inaction.
You know you have built an excellent digital nervous system when information flows through your organization as quickly and naturally as thought in a human being and when you can use technology to marshal and coordinate teams of people as quickly as you can focus an individual on an issue. It's business at the speed of thought.END
From Business @ The Speed of Thought: Using a Digital Nervous System, by Bill Gates. (C) 1999 by William H. Gates, III. To be