Tapscott: Success Will Come From Trust, Shared Information

For years now, ever since he wrote the bestselling The Naked Corporation: How the Age of Transparency Will Revolutionize Business (Free Press, 2003), Don Tapscott has been imploring corporate America to bare it all. Now he has a different message: Share it all.

Tapscott believes it’s time to abandon many of the “old-world” tenets of corporate management, such as retaining top talent and protecting intellectual capital at all costs. By using technology to connect and collaborate with outsourcing partners and corporate stakeholders, companies must learn to be more open—and honest—about their practices.

Those that don’t, he says, will fall prey to the Darwinian market forces of natural selection.

To help support his case, Tapscott recently completed a $4 million research project that looked at hundreds of companies around the world, assessing not only their use of IT to better compete, but also the way IT is changing their business models. As access to information increases, and technology makes connecting disparate systems possible, companies are turning toward partnerships with organizations outside their traditional boundaries, creating what Tapscott calls “business Webs.”

His conclusion: Technology is enabling the emergence of a new kind of corporation—the open, networked enterprise.

As the CEO of New Paradigm, a Toronto-based think tank that consults to political leaders and global corporations, Tapscott says his theories don’t apply to corporations alone. In the wake of Hurricane Katrina and the failure of state and federal agencies to respond adequately to the catastrophe along the Gulf Coast, he envisions how open networks can help create a better, more functional government.

During a recent conversation with CIO Insight Reporter Debra D’Agostino, Tapscott discussed the opportunities associated with embracing this new way of thinking. An edited version of his remarks follows.

CIO INSIGHT: Does IT matter?

TAPSCOTT: It’s been a difficult time for business over the past few years. This has left senior managers thinking that hunkering down is the way to build a successful business, and that IT cost control is a sufficient framework for success. 28226
Tapscott And it’s created fertile ground for theorists such as Nick Carr to give life to the cynicism that IT has become so ubiquitous that it’s no longer something you can use to differentiate.

But it’s also created a great opportunity to have a really deep discussion about IT and the nature of the corporation going forward. How do we expand our business, and what is the role of technology in building a globally successful enterprise? That’s the question I have been working to answer with this research project.

Can you describe the study and its purpose?

It was a $4 million initiative, the biggest research project ever to take a hard look at IT and competitive advantage. It was sponsored by 22 companies and focused on 24 separate IT and business projects. It was a massive undertaking, and many IT and business strategy “gurus” took part, including Erik Brynjolfsson, the director of the Center for eBusiness at MIT, Denis O’Leary, the former CIO of J.P. Morgan Chase & Co., and Joe Pine, an advisor to Fortune 500 companies and author of the bestseller The Experience Economy.

We came to the conclusion that the corporation is arguably going through the biggest architectural change in a century. Throughout the 20th century we created wealth through vertically integrated companies that did everything from soup to nuts. Within the boundaries of Ford Motor Co., for example, was a power plant, a shipping company, a steel mill and a glass factory. Why? Because the cost of transactions and partnering in an open market were far greater than the cost of doing it yourself.

But the rise of the Internet means that boundaries are far more porous. A new model is emerging, enabled by IT and networks. Vertically integrated companies are unbundling into business Webs, or what I call the open networked enterprise. These are companies that think and act differently, that take a new approach to doing business in a highly networked world.

Business Webs have been around for decades. What’s new about this?

Older business Webs, such as those used in materials requirements planning, just-in-time delivery, and total quality mangement, sought to compensate for the deficiencies of the assembly-line production model by reducing costs and tightening the supply chain. Each model offered improvements over their predecessors, but was restricted because the information systems were closed. Then came the “virtual” corporation, which was equally limited because systems were expensive and proprietary, relationships between partners were not built on trust, and the customer was still left out of the equation. Today’s business Webs are more inclusive and more supple than previous models.

Why do you think this is possible now, and why has it taken so long to get here?

As Victor Hugo said, nothing is so powerful as an idea whose time has come. The idea of the open networked enterprise began about five years ago. It couldn’t have happened earlier because we didn’t have widespread adoption of the Internet, and that’s really the big driver here. Meanwhile, a lot of business and technological changes are happening. Bandwidth is exploding like never before. The physical world is becoming connected and infused with knowledge—if you’re on a farm, IT now includes the milking machine, the tractor, the fence, the field and even the cow. And technology standards are also on the rise. All of this makes it much easier to connect people and systems, both inside and outside of the corporation.

What are some of the basic principles of this open networked enterprise?

First we need to scrutinize the ten old-world, or what I call “motherhood,” ideas about how you build a corporation (see “Ten Principles,” page 40). One such myth is that you have to hire the best people to remain innovative. The truth is that you don’t innovate by having the best people. We think of human resources as being resources you own inside the company, which is fundamentally wrong. Today, you have to think about the best human resources as not just being inside, but also outside, your organization.

So how do you harness that genius?

We looked at this concept of innovation Webs, a very powerful idea, completely enabled by IT. I’ll give you an example. Rob McEwen, a director at Goldcorp, a gold mining company in Vancouver, B.C., gathered his engineers one day and told them that unless they could assure him that they could find any more gold in his largest mine, he was going to shut it down. The engineers scratched their heads; they just didn’t know.

So McEwen decided to hold a contest on the Internet. He published his most proprietary data—the specs about his mines, geological data, things that are fiercely held secrets at any mining company. He offered $500,000 to anyone who could submit a viable way to find gold. Of the 77 submissions he received, he chose the top 25, and they shared $575,000. Using those proposals, McEwen managed to locate roughly $2.5 billion in gold on that property.

That’s pretty impressive, but still a terrifying prospect for many companies that have built high walls around their employees and intellectual property. I don’t see record companies, for example, being so forward-thinking.

Well, the music industry is very instructive because they are a pretty good example of an industry that did everything wrong. As an industry, you see a lot of examples of companies that make a lot of mistakes. But here is an entire industry that didn’t understand that there is a new model of music, a new emerging distribution channel, a new way of production, and new opportunities to make music more central to people’s lives. As a result, being leaders of an old paradigm, they fought to defend the old model instead of embracing the new.

In contrast, rather than IP being something to protect, defend, copyright, patent, trademark, and get your lawyers out when anyone infringes, McEwen gave his IP away to the world. Because of that, the company was able to fend off a hostile takeover bid by Glamis, choosing to merge, on its own terms, with Wheaton River instead.

So secrecy can actually create vulnerabilities?

Absolutely, and this is the whole point of our research. You need to build open, transparent systems of communication that are founded on integrity.

Isn’t that the point of the Sarbanes-Oxley Act?

Well, Sarbanes-Oxley has been helpful in that it’s caused a lot of companies to think carefully about their IT and make sure they have a single version of the truth, and systems that report information properly. But it’s also problematic because companies tend to think that compliance is the same as transparency. Transparency is actually much more. It’s a force that changes the way you build a business. It’s tough to do, but when you open yourself up as a company, a lot of good things happen. You improve collaboration, deepen loyalty among employees and customers, and decrease transaction costs with supply-chain partners. If you don’t behave according to the values of integrity, you will be unable to build trust. And without trust, the open networked enterprise won’t work as well.

Why not?

Trust is key in this environment.

If you’re hiding something, I will be less likely to trust you. If you’re not a good company to work for or with, people will know now. They will go to InternalMemos.com or some other form of the electronic water cooler to find out. The same is true for business partners and communities. There is a growing powerful and ubiquitous infrastructure that’s out there. People can access unprecedented information about your company. They have at their fingertips the most powerful tool ever to find out what’s going on.

So if technology makes it easy to connect people and resources and share information, why weren’t state and federal agencies better coordinated and equipped to respond to Hurricane Katrina?

Well, the government was equipped. It had at its disposal powerful technologies that enabled it to anticipate events and communicate information. Yet authorities were not able to respond. It doesn’t seem right. You don’t just tell an elderly or disabled person living in a nursing home to evacuate; you collaborate with them to make sure that they can evacuate. But our government is more oriented to using information technology effectively for war than to respond effectively to internal problems. It doesn’t take us five days to address a situation in the Middle East, for example. We’re not as well oriented toward using technology to improve social development.

Why isn’t the U.S. government more transparent?

The decision-making process in government is notoriously opaque, although we do see some baby steps toward transparency around the world. Elected and unelected public officials fear that openness leaves them vulnerable to attack. So while public consultation is an idea that most governments champion, the opportunities for true citizen involvement are severely limited.

But I think that is starting to change. The technology is here now to help people find out what’s really going on, and to organize collective responses. The failings of the system are now subjected to scrutiny. Digitally enabled consultation is only just emerging. Governments are adapting asynchronous consultation to the Internet by accepting e-mail and faxes as written submissions; the next stage is to adopt real-time digital interaction.

Will Katrina will be a catalyst for change?

Let’s hope so. When people are walled inside their own little fiefdoms and protecting information, living by the old laws of opacity, things don’t happen so fast. On the positive side, in the days after the hurricane, we saw Web sites that sprang up from ordinary citizens to help people self-organize, such as Google Maps, to help locate sick people. People on craigslist.com are offering rooms and help to evacuees. And we had all these blogs, for example, discussing how FEMA Director Michael Brown was unqualified for the job. To me that shows IT matters not just for competitive advantage, but for social development, safety and creating a better world. We have an opportunity to move toward a deeper form of democracy—a true participatory democracy. It’s this sort of thing that makes IT matter more now than ever.