The consulting report provides expertise on technical problems for audiences that are not expert in the field of interest. Consulting reports are written by outside experts for groups or organizations that do not have the time or the expertise to treat the subject or problem. Hence, a consulting report may present experimental work on a problem defined by a client. One common variation on the consulting report is the white paper, which examines a general problem from an expert's perspective. White papers do not present experimental inquiries but, rather, cover a series of findings or generalizations based on expert insights into a problem or class of problems and a set of issues. These findings constitute the body of the consulting report. In other respects, the consulting report follows the general structure of the formal report: front matter, body, and back matter.
The following white paper examines a class of problems from an expert's point of view. It is addressed, however, to the nonexpert who stands to benefit from this information.
The New Strategy of Integrated Systems:
Why Technology Doesn't Always Mean
May 15, 1984
M. B. Packer
Executive Vice President
Technology Systems and Operations
Simon and Schuster
Upper Saddle River, NJ
Many executives now devote substantial portions of their day to worrying about new technology: how to develop it, how to market it, how to use it, and not least how to pay for it. Yet, because the new wave of technology sweeping through corporations is fundamentally different from previous technologies, new kinds of strategies must be devised to gain competitive advantage.
The new wave of technology has been building ever since the advent of computers. Between information technology (e.g., database management systems, office automation, and personal computers) and design and manufacturing technology (e.g., computer-aided design, robotics, automated storage/retrieval systems), few industries have remained untouched by computerization. Any firm that wishes to remain in business must ride this wave of technology, both in its product line and in its own operations.
How New Technology Can Build Competitive Position
There are only three ways to gain advantage using technology: keep your competitor from obtaining it, develop or adopt each new technology faster than your rivals do, or implement it better than the opposition.
The first of these avenues--keeping competitors from obtaining technology--is impossible if the technology was developed in another industry. For instance, Aetna Insurance cannot stop Liberty Mutual from buying the latest IBM computer. Even proprietary technology developed for a firm's own products is not always safe: "reverse engineering" can reveal technological advances to competitors. A strategy based on trying to keep the competition from obtaining technology over the long term seems to work only in industries with large financial barriers to entry (e.g., the chemical process industry) or for firms with unusually strong patent positions.
The second avenue, to develop or adopt new technology faster than the competition, can work in two situations: extremely agile companies willing to commit their resources to speculative ideas, and large firms that dominate by virtue of their sheer financial and technological power. However, firms that try to stay ahead of their competitors by continually marketing technologically more advanced products are vulnerable to later market entrants, who learn from earlier mistakes while avoiding heavy R&D investments. Similarly, attempts to outflank rivals by adopting new technology for one's own operations may simply lock a company into expensive and obsolescent systems.
The third approach, to surpass competitors by implementing technology better in your own products and operations, has been largely neglected by corporate strategists in the U.S. Yet Japanese firms have captured whole markets by stressing the implementation of manufacturing and product technology. These firms lavish attention on vital components of implementation: quick changes in manufacturing set-ups, detailed quality control, low inventories, and highly trained workers. Using systems and technology, these Japanese firms have made implementation the core of their strategy of quality and responsiveness to customer demand.
In contrast, American strategists focus on broad considerations of market growth rates, market share, and the competitive structure of the industry. Executives concentrate on quick, dramatic moves (such as acquisitions and divestitures) that they can directly control. Unfortunately, implementing new technology is harder to accomplish. It often requires a change in corporate structure and culture, and demands detailed knowledge of the technology and operations of both one's own business and that of one's customers. As Robert H. Hayes and William J. Abernathy have pointed out, relatively few American executives have this kind of knowledge (Robert H. Hayes and William J. Abernathy, "Managing Our Way Toward Economic Decline," Harvard Business Review). As a result, implementation is viewed as an obstacle rather than an opportunity, as something that needs to be "managed" and overcome.
Yet implementing technology better than competitors can be the key to long-term success: the "how" is more important than the "what." The ability of a firm to use implementation as a competitive weapon hinges upon its appreciation of the basic characteristics of these new technologies and of their strategic implications.
The Rise of Integrated Systems
Most new technologies share not only a common dependence upon computers but also two crucial, basic characteristics: they hold the potential to integrate business functions and to improve the flexibility with which an organization can respond to a changing environment and change its direction. Three examples will illustrate this point.
- Computer-aided design systems (CAD)--The biggest gains from CAD systems result not from automated drafting but from their ability to integrate functions such as conceptual design, engineering analysis, producibility checks, and tape generation for numerical control machine tools. Many users purchased CAD equipment, ignorant of the importance of this integration, and are now burdened with incompatible systems.
- Decision support systems (DSS)--These business analysis tools aid managers in free-wheeling investigations of market trends and business operations. Allowing managers to query corporate databases using English-like commands, decision support systems bring together a wide variety of information and analytical techniques in a whole system. With decision support systems, managers have the flexibility to tailor questions to their own needs rather than to the capabilities of the data processing system. However, these advantages can only be garnered if corporate databases are suitably structured for such inquiries.
- Robotics--Most current industrial "robots" really represent soft automation: a spot-welding robot on a Detroit assembly line essentially replaces an individual laborer. However, robots now beginning to enter factories are true integrated systems, which combine traditional materials handling (e.g., transportation, fixtures, sorting), part fabricating-(drilling, deburring, assembly), and inspection functions. Too often, robots are installed in isolation without sufficient consideration given to material flow, production balancing, and other factors.
The new wave of participative management methods and work redesign efforts is also characterized by its emphasis on integrating business functions and increasing flexibility. For example, the quality control concepts espoused by Deming, Juran, and others combine the functions of production work, quality assurance, and often maintenance or process development, as well. Since workers have broader skills, management can deploy them more flexibly. Similarly, new transaction processing systems in some banks give one clerical worker control over an entire customer transaction, improving both job satisfaction and responsiveness to customer requests.
All of these new technologies and management methods are fundamentally different on a strategic level from older technologies. Older technologies such as transfer lines in mass manufacturing or early financial transaction processing systems targeted two strategic goals: achieving economies of scale and tightening management control. These technologies and methods assumed strategies of minimization: to minimize cost and to minimize variances. The result was systems that divided tasks into small pieces and repeated each task efficiently. Unfortunately, as world-wide competition becomes more important and as manufacturers stress quicker response to customer demands, these strategies are no longer adequate.
Implications for Corporate Strategy
How can a firm use new technology to maximize the effectiveness of its operations and of its products? The key is not to look at new technologies and management methods in isolation. Each represents a possibility of competitive advantage by integrating business functions and enhancing flexibility. The implications of this idea range from new product development to customer service and from manufacturing to finance. Four brief examples show the advantages of this type of strategic approach.
- Software development tools--Every major firm now faces enormous backlogs of application software development and immense maintenance costs for existing software. Firms that deal successfully with this problem will take approaches that emphasize integration of business functions and flexibility. The first possibility is to move data processing closer to the user (perhaps through personal computers or through IBM's Information Center concept). This not only gives the user more control over his work (and thus more flexibility) but also integrates user need analysis, programming, and data interpretation. The second approach (taken by firms such as Higher Order Software) is to create tools that automatically write provably error-free code from the user's specification of the problem. This integrates user-need analysis and programming and eliminates most logic and programming errors as well. In order to gain competitive advantage, firms must concentrate not on the mechanics of these approaches but rather on the philosophy that underlies them--namely, bringing varied business functions together whenever possible.
- Manufacturing--Many sophisticated companies now use materials requirements planning (MRP) packages. The essence of the MRP approach is to link previously isolated functions such as inventory control, production scheduling, bill of materials preparation, and ware-housing to actual customer demand. (Incidentally, supermarkets are also utilizing the same strategy of tying inventory control and accounting to actual customer demand through use of check-out scanners linked to central computers.) Yet maximum benefit from this MRP approach can only be obtained if all systems are tied together. One relatively untouched possibility is to integrate CAD systems that generate bills of materials directly with the MRP system. Such a link could determine if design changes might improve production scheduling and thus smooth the manufacturing process. Integrating these functions has implications for organizational structure as well: firms will increasingly turn to matrix-style or project team organizations, which mirror the technological interconnections of their design and manufacturing groups.
- Financial services--The explosion of one-stop financial services (families of money market funds with exchange privileges, Sears Roebuck's forays into insurance, stockbroking, real estate, are a few) is another example of the power of a strategy based on integration. These organizations looked beyond the database technology that makes one-stop financial services possible. They saw that competitive advantage could stem from integrating consumers' various financial needs. Instead of using technology only to lower their costs (a strategy of minimization), they focused on technology as a tool to integrate customer functions and to enhance their own flexibility to change direction and emphasize different mixes of products.
- Personal computers--While the use of personal computers is already widespread, their potential has barely been tapped. Most personal computers can perform only one function at a time (e.g., word processing, electronic mail, database inquiries). Thus a manager who wishes to examine his electronic mail while in the middle of using a word processing program to write a letter must save his letter on a disk, exit the word processing program, load the mail program, and read his mail. The real revolution in personal computer usage will not come until those devices can change tasks as quickly as people can. Hardware and software firms are now developing machines that can perform several tasks at once, that display several "windows" on the screen so users can switch rapidly from one task to another, and that employ "mouse"-type pointing devices to speed transfers between tasks. The Apple Lisa workstation and Lotus Symphony software are examples of this type of approach.
Technology and Strategy Formulation
Strategic planners traditionally study the structure of the market in great detail: market segmentation, industry structure, and product positioning are ubiquitous phrases in their vocabulary. Technology often appears only in comparisons with competitors: does the firm lead or trail its rivals in product line X? Does it have lower manufacturing costs in Division Y?
Yet technology and its implementation can play a more central role in strategy formulation. Planners should consider technology not just as something in which the firm is strong or weak, but rather as something with its own inherent strategic characteristics. Implementation of technology can be viewed as an opportunity to gain competitive advantage, not just as a challenge thrown in the path of strategic planners. Specifically, strategic planners should:
- Gain a deep and detailed knowledge of their firm's technology. Without a comprehensive picture of both process and product technology, how can they understand the forces working on their firm? How can they ask where the market is going without sophisticated sense of technological trends?
- Think in terms of the strategic characteristics of their firm's core technologies. Do these technologies implicitly assume strategies of minimizing costs and variances, or do they rely primarily on integration of business functions?
- Ask what integration possibilities are inherent in the technology. Is it best aimed at horizontal integration across organizational functions (e.g., computer-aided design linked to manufacturing sales, and purchasing groups), at vertical integration across levels of control (an information system that gives corporate executives real-time access to detailed plant data), at geographical integration of branches, plants, and distribution centers (branch banking data processing and communication systems), or at integration with the outside world (order entry systems at the customers' sites)?
- Remember that technology for its own sake is useless, at best, and dangerous, at worst. To buy robots or word-processing machines without a clear sense of how they fit with current organizational structures, power relationships, and reward systems is a sure prescription for disaster. Don't buy technology, buy strategies.
- Consider the implementation of technology as an opportunity to restructure the business and to redefine the industry through integration. Should project teams be set up between engineering and manufacturing when CAD equipment is first purchased? Should the customer handle more of a financial transaction through personal computers?
- Ask whether the firm can really maintain a long-term proprietary position in technology. Does it have the resources or a narrow enough market niche so that it can always stay one step ahead of its competitors? If not, a strategy focused on implementation may be the best option.
Without modern technology, firms will not survive. Yet paradoxically, technology by itself often gains a company little beyond parity with its strongest rivals. It is in the implementation of technology to coordinate and integrate business functions that a firm can win a new kind of competitive advantage.