Expert Voices: Jim Champy on Corporate Darwinism

By Brian P. Watson  |  Posted 03-03-2008

Expert Voices: Jim Champy on Corporate Darwinism

In his new book, Outsmart! How to Do What Your Competitors Can't (FT Press, 2008), Jim Champy chronicles the success of companies that reengineered their business models to transform both their organizations and their industries. In his research, Champy looked at more than 1,000 companies with double- to triple-digit growth. What he produced is a collection of crisp case studies on the most innovative, growth-charged business models he found.

The common thread: These companies all drew on IT to produce substantial competitive advantages.

The concept of change and transformation is nothing new to Champy, chairman of Perot Systems' consulting practice. With Michael Hammer, he co-authored the best-selling Reengineering the Corporation: A Manifesto for Business Revolution in 1994 and followed up two years later with Reengineering Management: The Mandate for New Leadership.

In today's business environment, a combination of innovation, ambition and calculated risk--mixed with a strong IT strategy--can transform companies from has-beens to market leaders. The keys to success? Looking at IT as a strategic asset and adapting management to meet the changing dynamics of business.

Champy spoke recently with CIO Insight online editor Brian P. Watson, who condensed and edited the following transcript.

CIO Insight: You say there's not much new in management, but plenty new in business. How so?

Champy: Executives know the fundamentals of management but don't always practice them. Managers today ask the same questions about how to change as they did 20 years ago. Every new manager is still discovering this stuff. It's not that we shouldn't be teaching good management practice--I just felt there wasn't much new I could contribute about what's new in management.

But doesn't management have to evolve to handle change in business and customer strategies?

Champy: Management does evolve. Almost all the leaders and founders of the companies I wrote about were very open and transparent in what they thought or said with their people and their customers. They were open and transparent to a point where they were prepared to be vulnerable, to be wrong in their decisions and to change what they might be doing if it didn't work. It was a very open management style and leadership style that many executives in larger companies would not adopt, or would be fearful of adopting.

Management style is adapting and changing, and, in some instances, it was much different than what I'd find at larger companies.

Page 2: The Great Leveler

Expert Voices: Jim Champy on Corporate Darwinism

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In those firms, how are IT units and CIOs viewed?

Champy: Particularly in larger companies, the IT operation is viewed as a business function. It's viewed more importantly today than it was 10 years ago, but there's a great deal of variability about whether IT is considered to be truly strategic in enabling some dramatic change in the way the company operates. And there are, in some large companies, the right sensibilities about what IT can do to change the business--not make it more efficient, but really change the nature of the business.

In many of the companies I wrote about, IT was absolutely central to the business model. The CIOs were very front and center in the design of the business. Even if the companies weren't IT-based, there was a sense of IT as the great enabler that allows them to do much of what they do.

That's contrary to the notion that IT is no longer strategic because it's ubiquitous. That's a very dangerous argument, because the extension of that argument is that because it's ubiquitous and no longer strategic, it can be relegated deep into the organization.

At every one of these companies I've written about, IT was very strategic and enabled them to adapt and develop new business models. Therefore, it was critically important to the executives and the founders to understand not just how IT was working inside their company, but what it could do.

One young entrepreneur I interviewed said, "The Internet is the level playing ground for entrepreneurs in their 20s. We use the Internet as well as an established business uses the Internet. It's the great leveler. Someone who's been in the business for 50 years doesn't know more about how to use the Internet than I know."

Technology, on its own, isn't strategic. But technology, in combination with the business idea, is more strategic than ever. In fact, the ubiquity of technology is what makes it strategic.

What from your research makes you disagree with Nicholas Carr's thesis that most IT isn't strategic and will increasingly become a commodity?

Champy: If I went to the founders of the companies in my new book and said, "IT doesn't matter," they'd say: "What? Look at how central IT is to my business, and look at how it allows me to invent a wholly new business model, and how it allows me to operate and change some of the fundamentals of my industry." The dangerous extension of that argument is that an executive or manager doesn't have to pay attention to it.

The CEO of SonicBids is changing a $15 billion industry. [SonicBids is an online marketplace that connects music promoters with aspiring musicians; it's one of the companies featured in Outsmart!] He will eventually get to change the way entertainers are paid.

In the industry today, an entertainer--even a big-name entertainer--gets paid [some of the fee] in advance and the balance in cash at the end of the performance. That's the way the industry operates, because no one trusts anyone in the industry. SonicBids' CEO has the opportunity to create a trustworthy bank to change the way the industry operates. He couldn't do that without technology. It's changing the fundamentals of how that end of the industry operates.

The argument that IT isn't important is an over-intellectualization of what's going on. It lacks a complete understanding of what's going on in business today.

The dot-com bust taught us that traditional thinking isn't such a bad thing, in terms of business models and long-term viability.

Champy: It's smart to always have a little skepticism of what's possible. In the last bubble, some of the companies that were trying to build marketplaces had some very interesting business models--models that I thought were quite sound. They just didn't have enough staying power to perfect the business model, and they were spending money very foolishly.

It's important to keep asking yourself, Is this a business model that will have staying power, and can I scale it? Having a little skepticism is good.

The people I interviewed had a mix of ambition and a willingness to test ideas. You can put a product or service out there and test it very quickly to see if customers will bite.

The folks at SmartPak [a prescription service for horses that used innovative IT to expand its product and service offerings; another firm featured in Outsmart!] launched a product for dogs not long after they had their engine going for horses. The dog business didn't work initially because there were some issues with the product and how they would deliver it. But because they were using an Internet channel, they were quick to realize how and why it wasn't working. The Internet is a great enabler for testing ideas and maintaining a bit of skepticism.

Page 3: CIO Integral to Strategy

Expert Voices: Jim Champy on Corporate Darwinism

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In the companies you cover, where did the CIO fit in the business strategy?

Champy: Traditionally, in half of all companies, the CIO reports to the CFO; in the other half, the CIO reports right to the top. In the companies I've written about, the CIOs report to the people at the top.

What's different about these companies is that the executives are hands-on managers. CEOs haven't delegated the important operating decisions deep into the organization. They're making a lot of the decisions about how the company will operate, so they want the CIO at their side.

The best-run transformational programs have the CIO reporting to the top executive, not to the CFO. Operational excellence is about making operational change happen, and you can't have that without a strong CIO who's integral to the program.

The companies that get in trouble with big transformation programs have the CEO delegating a lot of the systems application decisions too deep into the company. When that happens, you get expensive compromises: Every warehouse argues that it's different, every plant argues that it's different, and therefore should have its own set of systems and processes.

If there's nobody at the top making the call, the transformation project gets out of control. When you see IT-related projects that have grown from

$10 million to $100 million, it's usually because there was nobody home at the top. The executives who keep the IT function close to them are the most successful transformation players. But again, the people running the businesses I write about weren't transforming them--they were inventing them.

Ambition plays into transformation, but most CIOs are being dictated to. How can they overcome that?

Champy: The cultural tone is always top-down driven. It's typically the chief executive who sets the operating style. In the companies in my book, everybody played: It wasn't just the CEO who was important, it was everyone else, really deep throughout the organization.

It's very difficult to change a company from the bottom up. There's a possibility that you can demonstrate how IT can add value in some dramatic way. It'll happen in some cases; it won't in others. Some CEOs have a much different worldview of what's important for the business. CIOs should keep trying to demonstrate that IT brings value to the business and to customers, and maybe--maybe--someone at the top will recognize it.

I've been in this business for 30 years, and very little has changed in our ability to alter the beliefs and management styles of executives, especially someone who has been in a business for a long time. I'm not saying you can't. But if I look at the companies that have gone through some major transformation--operationally and culturally--I could count them on one hand, if that.

We have failed to develop the behavioral-change skills that companies thirst for. I see companies that are stuck. I know how to change them, but it would take five years of hard work--and it would probably require the change of a few people in the company.

When you go deep into a company, people are not necessarily risk- or change-averse. Many of them are actually thirsting for change, because they see that if there isn't change, they're not going to have a job.

But they also see that their job is at risk in a big change program. Still, they're much more willing to change than the people at the top are. The biggest issues around change at any enterprise have to do with the people at the top. What is their appetite for change? What is the nature of their ambition? What's their skill level in being able to bring about and execute change?

Whenever a company struggles to execute change, the problem isn't in the middle or on the factory floor--it's at the top. That's why you sometimes need a new team or a new leader.