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
Competitive Advantage
May 15, 1984
M. B. Packer
Executive Vice President
Technology Systems and Operations
Simon and Schuster
Upper Saddle River, NJ
Introduction
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.