In the last two weeks I have been writing about my feeling that 2008 might be a key year in the transition to an IT-based knowledge economy. In the first post, I focused on the emergence of the advanced technology platforms needed to deliver a diverse set of information-rich services to a very large number of people. In the subsequent post I wrote about the critical importance for a business to stand out and differentiate itself from competitors by providing consistent, first-rate customer service and thus building a loyal customer base.
In my third and final post on the subject, I want to focus on business values - in particular, on the critical importance of trust, responsibility and accountability in our increasingly integrated, global knowledge economy. This subject keeps coming up over and over, from the extreme malfeasance that we saw with Enron, Worldcom and other companies when the dot-com bubble burst; to the use of lead-based paints in children’s toys and incidents involving contaminated pet food; to the evolving controversies surrounding subprime lending.
These and other incidents raise serious questions. Just about all of us would agree that trust, responsibility and accountability are absolutely vital to the smooth functioning of open societies and free markets. This has always been the case. It is a major part of the culture of just about all nations. It is, for example, a major theme of the Western movies that I so much enjoy watching - the transition from the wild, unruly, lawless West to a civilized society that protects its citizens not just from the individual bad guys but from rapacious business interests.
For individuals it is typically not very hard to tell the good guys (or gals) from the bad ones. But for companies the line between what is and is not acceptable behavior in the process of wealth creation is often more subtle.
One of the focus areas of IBM's 2006 Global Innovation Outlook was The Future of the Enterprise. GIO participants observed that increasingly, the organizing principle for work is no longer the enterprise but the endeavor, and that it may soon be time to redefine what we mean by enterprise, employer and employee, as looser aggregations of collaborators form and disband opportunity by opportunity. They concluded that “the very definition of the enterprise is being challenged, as networks of specialized entities with complementary interests increasingly provide the organizing structure for work activities."
The GIO report then made a very interesting observation: “In such a world, unifying forces such as loyalty and pride of ownership could be supplanted by trust and pride of contribution. But that also suggests the need for a new set of social standards to help foster collaboration. In many GIO discussions, people kept coming back to the idea of reputation capital. Think of it as a kind of accumulated trust, a standard of accountability that enables diverse, and often virtual, networks of people to confidently strike partnerships with one another.”
Other studies about the evolution of the enterprise have come to similar conclusions. Business strategist and author Don Tapscott has been writing extensively about the changing nature of companies, and the notion of Enterprise 2.0 or the Open Networked Enterprise - how once vertically integrated companies are unbundling into business webs. Throughout his research, Don has found that, as enterprises increasingly outsource and rely on business partners for many of the functions once performed in-house, one of the major management challenges is how to sustain the reputation of the company and its brands, given such a distributed model.
How do you ensure trust in your company and its products and services when major parts of its operations may be shaped by other companies that are part of your virtual enterprise? While Don gives great prominence to IT and the Internet in particular as the key enablers of the open networked enterprise, he places an even greater emphasis on the need for trust in all of the actions of the corporation. He sees this as a major by-product of the increasingly transparent environment of our Internet age. In fact, this was the core subject of one his recent book, The Naked Corporation: How the Age of Transparency Will Revolutionize Business.
It is not surprising that trust and reputation are such important attributes in an age when we are increasingly dealing with each other virtually, over the Internet. More and more, we are communicating, collaborating and working with lots of people online, many of whom we have never even met in the physical world. We are buying from and generally conducting business with companies online, many of which exist only as Web entities. All we can go by is their reputation. Do we trust these companies? Do we feel that they will behave responsibly? If anything goes wrong, will they quickly correct the problem to our satisfaction?
Let me finish this post by thinking aloud about some related questions that have recently been on my mind.
How can companies with an otherwise very strong reputation make the kinds of serious mistakes we have seen in the last few years - be it the distribution of contaminated food and toys, highly risky financial investments that seemed to defy common sense, or behavior towards their own customers that are at best shady, if not downright unethical? I don't buy the simple answer that some offer, namely that the management of these companies are just bad people who only care about enriching themselves personally. I have enough faith in the system - perhaps naively so - to believe that such people would rarely achieve top management positions in good companies.
I really believe that these management failures are actually a result of the massive economic transition we are going through. Most companies and managers have simply not adapted to it yet.
We have more tools than ever to gather and analyze huge amounts of real-time information - enabling us better to manage a distributed supply chain or to understand the inherent risks facing the company. But they have not yet been deployed to help in the management of complex, global systems, let alone been used by senior executives of companies to help anticipate and avoid crises.
Many senior executives still pride themselves on being decisive, intuitive decision makers. That’s necessary, but not sufficient. You also need the best possible information and the tools to extract the insights that are often buried in all that information. Perhaps most important, you need to be surrounded by highly talented people who can help you make sense of it all.
Deep down, I wonder if a reason why so many smart senior management teams get into serious trouble is the lack of time, especially the kind of quality time you need to be able to do a good job in managing a business in our highly complex, fast-changing and unpredictable world. The demands are relentless and often seem contradictory: from meeting short-term, financial objectives, to formulating viable long-term strategies; from having in place a good set of processes, to reacting quickly to unanticipated events; from battling it out with competitors in the marketplace, to establishing the right set of collaborative relationships - sometimes with some of those same competitors. You can appreciate how tough it is to manage a business in today's world by just reading the papers and seeing how many management teams get in serious trouble one way or another.
There are a number of new ideas - from technologies and tools to help us make better informed decisions, to distributed organizational models that enable management teams to better focus on the highest priority tasks, to collaborative platforms that make it easier to bring people together to jointly address tough problems. This whole area - how do you best structure and manage complex organizations - is ripe for major innovations in the years ahead. I believe that this is one of our most important challenges in our evolution towards a knowledge economy.