Building the Intelligent Enterprise
When he is describing the successful company of the future, James Brian Quinn borrows an architectural image from the ancient past -- the ziggurat.
The ziggurat was the ceremonial tower at the center of the Sumerian city, rising high above the terraced buildings surrounding it. To Quinn it is an image of excellence -- the exceptional achievement that those who settle for the mundane can only gape admiringly at.
But Quinn's vision is hardly Sumerian. He sees the economies of the world at a critical crossroads, caught between the product-driven strategies of recent years and a new strategic insight that what drives a company to succeed today is raw intellect -- and the ziggurat today's intelligent enterprises are building will not crumble soon.
The service century
In the conventional view, what enabled a country to succeed was availability of raw materials, proximity to markets, and possessing state-of-the-art equipment and plants. So how do we explain Japan and Singapore? Neither are raw material-rich. Both are remote from Western markets. And both avoid, when possible, direct investment in fixed plants.
Raw materials and belching smokestacks, Quinn concludes, are no longer essential parts of the picture. Creating value is what distinguishes winners from losers, and the distinction is major, not minor -- Quinn talks about intellect torquing the competitive advantage of a company 10, 25, even 100 times over its competitors.
Creating value is fundamentally an intellectual task. But how does a company establish such an incredible advantage? And how does it maintain it? Business schools don't teach courses in how to manage this great differentiator. Businesses must build their ziggurats by themselves, pursuing Quinn's three-step logic:
Intellect ð Service ðValue
Without downplaying the importance of the manufacturing sector, Quinn calls our attention to the service side. Manufacturing jobs have remained fairly constant over the last 100 years, while service jobs have quadrupled as a percentage of all U.S. jobs. The goods sector added $1.2 trillion in value to the U.S. economy in 1991; and accounted for 22% of jobs. Services -- not including government services -- added $2.7 trillion to the mix, and accounted for 59% of jobs. And these are not just hamburger flipping jobs. High paying jobs are being created in healthcare, entertainment, financial services, law, and real estate.
Quinn compared primarily product companies with their service counterparts, on an industry-by-industry basis. In the toy industry, retailer Toys 'R' Us, with $7.2 billion in 1992 sales, dwarfs top manufacturers Hasbro ($2.5B) and Mattel ($1.9B). Wal-Mart is a bigger business than all its textile suppliers combined. UPS -- said to have 6-7% of the nation's gross domestic product in the backs of its trucks on any given business day -- is four times bigger than any maker of trucks.
Intellectual drivers
Why are services beating up on the goods sector? Technology is the main reason, and it works two ways.
In the first place, technology has made it possible for companies to communicate, decide, and transact much more rapidly than in the past. High technology has transformed commerce from the transaction of real things -- gold, certificates, documents, tractor parts -- into the transfer of electrons representing those parts. Technology, itself an intellectual phenomenon, has in large part created the service world.
In the second place, the rapid pace of modern technology has had the effect of commoditization on all hard goods, from shoes to computers.
When Intel develops and releases a new-generation microchip, it's big news -- for about a month. Soon after that, copycat chipmakers find a way to deliver equivalent functionality, and quickly gain market share, forcing chip prices down. The life cycle of technological breakthrough -- from modern miracle to marginal utility -- is frustratingly short. Even the most marvelous box is ultimately seen as what it is -- just a box. Imitatable and indistinct.
Not so services. Services allow differentiation. We don't go to the record store to buy a Sony CD -- we go to buy Streisand or Pink Floyd. We don't go to the theater to see a generic Paramount movie -- we go to see Eastwood or Schwarzneggar. Individuation is an aspect of intellect, and people like individuation.
Global communications technology also helps put manufacturing on the back burner. When communications hookups like EDI can allow foreign manufacturers in Mexico or Singapore to fly high-quality products to stores within four days of an order being placed, the business of making things has lost much of its distinctiveness.
Today, the service companies call the shots. Wal-Mart tells its vendors what features and styles to include in its clothing items -- because being close to customers it has consumer information textile manufacturers can only dream of. (See "Technology Is the Ticket") Boeing has just released its impressive new line of 777 jumbo jets -- but thousands of important design decisions were made at the behest of Boeing's service clients American and United Airlines.
While goods maker IBM has been dying with its box technology, service deliverer Microsoft has been soaring with the tools that make the box do tricks.
"Twelve years ago," Quinn said, "I asked IBM if, knowing what they know about the emergence of services, they had a service sector strategy. They looked at me as if I was bonkers."
Twelve years ago, IBM was the idol of the industrial world. No one would have dreamed of calling IBM behind the times. Yet they were structured dismayingly similar to industrial giants of the previous era -- profiting through the traditional value-adding of an enormous vertically-integrated manufacturing infrastructure.
A service-minded company, by contrast, would have found a way to sidestep the industrial age expenses of plants, property, and equipment. IBM spends 63% of sales revenue keeping its factories open and its machines running. Apple, which increasingly sees itself as a service company, spends only 18% of sales on these traditional expenses. Instead of making money pushing raw materials through a machine, Apple is making money using its heads. They are very smart heads.
Freed of the material encumbrances of the industrial age, the intelligent enterprise creates, stalks, and dominates markets by knowing:
Identifying a company's core competencies sounds like a breeze, but it is not. First of all, the core competency must be important to the customer. It can't simply be a function -- great accounting or engineering. A core competency is almost always multifunctional in character. And it must have "legs" -- it must be a conceptual skill that can survive beyond this year's technology or platform.
Once the core competency is identified and committed to, the organization must reassess virtually every other business activity and ask itself: would this activity be done better by an outside party -- a subcontractor or ally. Quinn was very firm on this point: if an organization cannot perform a non-core-competency activity at best-in-world levels, it should be farmed out. Not to save on costs (though it usually does), but because the intellect of top management must focus on what is important and excellent, not on managing mediocrity.
For Boeing it means outsourcing nearly every part of the airplane but the aerodynamics controls. For MCI it means handing all of its almost all its technical support work to outside contractors, maintaining only a skeleton support crew for internal tasks. For 3M it means centering almost its entire business acumen on three areas of chemistry expertise -- bindings, adhesives, and coatings.
As the chart "The Outsourcing Escalator" shows, there is a range of options available to companies as they identify what they are best at and what should be handed over to someone else. The objective at all times is to free an organization's management and its top professionals to focus on those things that are most critical to the company's long-term success.
Obviously, a big company cannot decide on a Wednesday morning to outsource its entire accounting function by Tuesday afternoon. But start with a piece -- payroll or accounts payable -- and learn how to manage that one piece from afar. Bit by bit, task by task, your organization will be skilled at the new business of focusing on core competencies.
Managing Intellect
Sometimes a company goes overboard thinking that its workforce lacks creativity. While giving creativity its due, Quinn said that perfection is more valued by customers.
"Which would you rather have," he asked, a surgeon who's perfect or one who's creative?"
The problem, of course, is that perfection is even rarer in most organizations than creativity. How, Quinn asked the audience, can we inculcate an appetite for perfection in the companies and institutions we work at?
Again, the image of the ziggurat looms above us, and what it represents is knowledge. The intelligent enterprise is one with mastery of a tremendous amount of knowledge and information.
There are three classes of knowing out there, Quinn said. First there is know-how. Knowing how football is played, for instance. Millions of people are pretty good at know-how as far as football goes.
Then there is know-what -- knowing enough about a topic to make a living at it. In the case of football, there are perhaps a thousand people with the know-what to be journeymen.
Then there is the highest level, know-why. The people who know-why may not even play football, but they know the game so well that they are its masters. These are the people whose knowledge is dynamic, revolutionary, whose sensibilities sit at the very top of the ziggurat, catching the first rays of each day's sun.
In industry there are individuals who create whole industries out of their intellects. Bill Gates and Paul Allen at Microsoft are this sort of person. So are Bob Noyce and Gordon Moore at Intel.
And just how were these know-why wizards created? Here Quinn, who has been speaking at the very cusp of new things, borrows a page of the very old . Just as law schools and medical schools put their charges through the intellectual mill, so should other organizations. Rigorous academics, exhausting internships, and tons of real-world experience, compressed in a short period of time is his prescription for greatness.
"All learning is exponential," Quinn said. "Push individuals to the limit of what they can do, and they surprise by learning much, much more, climbing higher up the steepest part of the learning curve. But at present we don't accelerate people's learning with the kind of boot-camp/120-hour workweek doctors and lawyers go through."
Quinn called for a raising of standards across the board. He scorns the typical corporate mission statement with its pale ambitions of "delivering customer satisfaction" and "being the leader in our industry."
"If you want to attract good people you had better have a vision with some impact, one that snaps," he said. Your vision should be so exciting that the best people in the world will want to work for you voluntarily."
New organizational strategies
The typical structure for the large organization in the past has been the standard pyramid. The boss sat at the top, several layers of management huddled below that, then finally came the lowest levels of the organization, with the greatest contact with the public. Since the lowest level is generally the lowest paid and least empowered, it is also the least able to function "intelligently."
From a customer satisfaction standpoint, the traditional pyramid is not the structure of choice. In the future, look for a variety of new structures. Quinn described several, including the four prototypes on this and the next page.
Quinn hastened to add that these models are not to be copied at your organization. There is a place for the good old-fashioned hierarchical pyramid. Bureaucracy is still a good mechanism for delivering consistency to consumers. You may not agree at first, but you really do want government to run as a bureaucracy -- more efficiently perhaps, but without losing the principles of equal, consistent treatment to all (more or less).
But these other structures, like Quinn's key concepts of core competencies, outsourcing, and the management of your primary organizational resource -- its intellect -- may not be dismissed out of hand. The day of assembly-line decision-making is over. The machine is no longer king -- the human mind has taken its place.