Shots in the Dark
Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
Shots in the Dark
Yet as GE's cockpit shows, the real-time movement is also about strategic advantage: being able to monitor business continuously and react when conditions change. "Today, businesses mostly shoot in the dark," says Michael Maoz, a research director at Gartner and one of the pioneers of this concept.
In addition, real time means the ability to use newly available information to offer new products and servicesor, simply, to have a window into operations that wasn't available previously. In 2000, GE's consumer appliance business installed online kiosks in selected branches of The Home Depot. Today, customers can order an appliance, select a delivery date and time, and be told instantly whether their request can be met.
Internally, says GE Power Systems' DeLarge, the use of cockpits has eliminated the need for weekly operations reports. "In the past, some operating numbers weren't available until the Saturday of each week," he says. Now, information is loaded continuously into GE's cockpits and, he says, "in the case of past-due invoices, for example, salespeople know how much leverage they have over price in the field and can act on operations figures right away."
To be sure, it takes money to make or save money: Gearing up to real time will require companies to make massive new investments in software, sensors and other technologies. According to Reiner, GE so far has spent about $1.5 billion in employee time, hardware and software and other expenses, which works out to a roughly 33 percent return on investment per year over the five years of the project.
Advocates and experts on the subject of real-time operations say a 50 percent to 100 percent return on revenues should be possible. "Basically, every 1 percent of revenue you spend on real time should give you a 1.5 percent to 2 percent revenue increase as payback," says Vinod Khosla, a partner at the venture capital firm of Kleiner Perkins Caufield & Byers, and one of several experts widely credited with coining the term "real time." Says Khosla, "If you're not getting that kind of return, either you've already spent so much on IT that you have wrung out a lot of costs already, or you have a poor IT strategy."
But while this new digitization process carries much promise, it also poses some significant management and operational challengesat GE and elsewhere. In the view of Eric Clemons, professor of information management at the University of Pennsylvania's Wharton School, what businesses need to do is follow the model of the U.S. Marines. "Current Marine war-fighting doctrine says you cannot have micromanagement. You have to permit local decision-making with distributed responsibilities and trust without monitoring"precisely, he says, the opposite of the command-and-control digitized model being developed at GE.
And real time will cause labor dislocations, experts caution. Real-time initiatives, as they spread through the economy, could lead to an increase in unemployment of 2 percent to 2.5 percent because of labor-saving improvements in technology, says John Parkinson, chief technologist at Cap Gemini Ernst & Young. Adds Ann Bartel, a professor of human resource management at Columbia University's Graduate School of Business: "Just the shift toward a more monitored workplace will affect the quality of workers' lives and change the way workers are used to working, creating significant management challenges."
Indeed, taking a glimpse at GE's experiences so far on the road to real time, such predictions don't sound entirely hollow. John Seral, vice president and CIO of GE's IT and e-business, says that as GE's plastics division moved from a traditional business model to real time, with digital cockpits in managers' offices, "the company was able to eliminate all the people who were producing data and spreadsheets on a regular basis"for a savings of $3 million in payroll costs last year alone. During Gartner's conference on the real-time enterprise, research vice president Carl Claunch told assembled executives that "in businesses being transformed by e-business and real-time strategies, there will be 10 percent fewer workers on the payrolls by 2005."
Larrie McNary, president of International Union of Electrical Workers Local 701 at GE's aircraft engine plant in Madisonville, Ky., says workers there have mixed feelings about the company's real-time initiative. "It's a way for the corporation to analyze whether or not a plant is getting the most work effort and productivity, and I've seen how the whole environmental, health and safety information is now on the digital system," McNary says. "Of course, GE has always tried to see which of its operations is going to be profitable, and this is now a means by which GE can continuously keep track of each division via real time. From a business point of view, it's good. But for us, it's quite the opposite. It gives management a minute-by-minute comparison of the cost factors for each of its sites and each part being produced."
McNary says digital cockpits let GE "slop back and forth as to whether Madisonville should be making 70 percent of a part or whether the Evendale, Ohio, or Lynn, Mass., plants should be making it instead." In this way, McNary says, GE managers can play one plant against the other. "It's really a work speedup, a way to get people to run more parts in less timeand at no extra pay. Those who can do it the fastest get to keep their jobs." McNary says workers and managers at the plant have already "had some skirmishes about it. All the monitoring has been quite an issue at our site, and it's going to be a growing problem in labor-management relations. It's something we'll be addressing at our next contract negotiations."
And there's another potential speed-bump on the road to real time: While geared to make firms better and faster at responding to change, real time also threatens to make firms far more vulnerable to changeand far more difficult to control and manage well.
The financial markets have already shown that putting even parts of the economy on autopilot can lead to accidents. A stock market crash in 1987 was caused in large part by automated program trading. Further, even the best technology can offer no protection against bad management decisions: Cisco Systems Inc., for its part, got hit a year ago by a classic "bullwhip effect" and had to write off $2.5 billion in inventories because its order books failed to reflect real demand. Cisco managers refused to believe the dramatic changes in the numbers that their automated systems were showing them, and got stuck with components already ordered from suppliers. "The idea of corporate cockpits at GE is good, but the key is how good is the information in that cockpitand how ready are we to believe the machines we set up to monitor this stuff?" says Fred Meyer, chief strategy officer with Tibco Software Inc., a business integration company that has constructed digital trading floors for Wall Street investment banks. "This is a great place for the concept of garbage in, garbage out," he says. "It's a great place for a powerful person to make decisions based on yesterday's news."
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