Today's customers want better service, higher-quality goods and lower prices. With so many competing for the same customers in a time of volatile markets, businesses must proactively evolve or fall victim to their competitors. It's little wonder companies are rethinking how they do business. For years, companies have accumulated valuable information as a byproduct of production while failing to recognize its strategic value. Knowing the buying patterns, interests and demographics of customers provides companies with an advantage over competitors. This knowledge is so crucial to success that the process of managing information has become an industry of its own.
How does a company manage its strategic information assets in today's rapidly changing business environment? What challenges arise out of that task? Are there any preventive measures that can ease the "growing pains" associated with moving from one information paradigm to the next? Regardless of how simple or convoluted the current information architecture is, evolving companies' effective use of information can help them achieve a level of sustainable competitive advantage that can be measured on the bottom line.
The Information Evolution Model
Companies evolve through a number of levels in what could be called the information evolution model. In this model (see Figure 1), the only absolute is that an enterprise's capabilities accumulate from one level to the next. Because the process is highly driven by business objectives, the application of the model will be unique to each organization's business focus. However, there will be similar issues and rewards as any company proactively evolves through the model. But for those that wait for competitors or harmful market experiences to prod them along, the process will be painful. In addition, there is no guarantee the company will survive the transition.
Figure 1: The Information Evolution Model
Four key dimensions of any company -- people, process, culture and infrastructure -- must evolve together to avoid an unhealthy tension in the enterprise (see Figure 2). Remember CASE tools? They were great technology (infrastructure), but quickly became shelfware because the people, process and culture were not ready.
Figure 2: Four Key Dimensions of a Company
Level 1: Operate
An operational company, Level 1, functions with the most basic information. This stage represents the company that focuses on the "here and now" challenges of operating today's business. This environment often exists in companies run by strong leaders and in niche markets. These businesses emphasize activities required to support day-to-day operations and do not have long-range plans. They operate and make decisions in a chaotic information environment that is internally competitive and lacks consistent evaluation and performance criteria. Information costs are high due to redundant and inconsistent data collection processes. Organizations at Level 1 are often successful due to visionary leaders, information mavericks and, more often, luck. Most companies do not stay at this level for very long. Excessive operating costs, data inconsistency and missed opportunities hurt a company if it does not further evolve.
Level 2: Consolidate
A consolidated company, Level 2, has combined information into departmental or functional databases for decision making. Individuals now leverage the same information within a department to make effective decisions. The downside is that there is little control over information from an enterprise perspective.
Within departments, managers and subject-matter experts have vested interests in maintaining data and continuing to drive departmental agendas that may not be in the company's best interest. Department heads make more informed decisions, but they may filter out information that is valuable to the enterprise if that information reflects poorly on their department. While the cost of information is lower than in an operational company, it is still high. Although there may be uniform hardware, networks and software in place, they are used inconsistently. Thus, the departmental perspective works against establishing enterprise-wide technology standards beyond the basic infrastructure.
A company proactively reaches Level 2 when it not only consolidates data around business functions, but also:
- Manages departments with systems that reflect accountability and can be accumulated later as an enterprise view.
- Works with information mavericks to understand their greater value to the department as a subject matter expert.
- Builds information projects that support departmental objectives that can later contribute to an enterprise information environment.
- Develops the information infrastructure (i.e., platform, tools, procedures) to support departmental efforts with an eye to the future.
Achieving this transition to a consolidated company reduces information processing costs, increases data analysis efficiency, improves employee motivation by inspiring confidence in the system and allows the company to better address customer needs. To ensure the efforts undertaken serve as a foundation for future transitions, these efforts must be designed from a long-range perspective.
Level 3: Integrate
An integrated company, Level 3, recognizes the importance of defining data and information consistently across the enterprise. Information is clearly tied to organizational objectives, which ultimately help enhance the company's ability to create value for its customers. A result of having access to enterprise-wide information -- one version of the truth -- is that information is widely accepted as an essential tool to success and competitive advantage. This level is truly a breakthrough because it positions an organization to make business decisions that streamline enterprise performance and value creation.
Level 3 companies use information to understand their value creation process, which is clearly defined and evident in corporate metrics. The company is able to act from an enterprise-wide perspective, and functional agendas have been exchanged for an enterprise-wide perspective. They deal with internal and external data, often extending their value chain to suppliers and other stakeholders.
At this level, companies gain a true awareness of what information can do for them; and it generally serves as the catalyst for future change. In addition, you start to see a change in the reliance upon operational systems to reliance upon intelligent systems for the corporate memory. This gives the company the flexibility to rapidly change their operational systems to meet market demands.
Forward-thinking companies quickly recognize the limitations of being a consolidated company and will plan to evolve to an integrated company before they begin to suffer from high costs, missed opportunities and the inability to respond to threats. Moving to Level 3 takes several steps:
- Define enterprise-wide business measures and strategy.
- Align existing information management to achieve an integrated approach.
- Create incentives for employees to attain results between departments.
- Use infrastructure management to maintain the integrated information environment.
The advantages of an integrated organization include a larger share of the wallet and retention of customers and supplier relationships due to an enterprise-wide view of the customer, efficient supply chains, faster response times to market changes and lower costs for handling information.
Level 4: Optimize
Once a company is integrated, it will begin to look for ways to maximize performance to meet market demands. The scope of an optimized company, Level 4, is to ensure constant alignment with the marketplace and then quickly optimize the entire business and its value chains around this new alignment. The company is quicker than its competitors to understand the marketplace and ultimately, better serves its customers.
The organization can quickly eliminate obvious inefficiencies, but it will leverage deeper analysis to weed out more subtle flaws. The enterprise must examine the entire value chain and create intercompany communities with a shared interest in efficient operations. Part of that examination includes detecting customer buying patterns and predicting future behavior in order to understand their needs and respond consistently.
For this to work, the corporate culture must embrace the idea of improving incrementally. Information is so integral to business processes that if a breakdown in the information flow occurs, continued operations are jeopardized; therefore, the infrastructure must be able to tolerate problems. A Level 4 company will use automated rules and pattern- detection systems to respond to issues that were handled manually in the past and allow decision-makers to focus on edge cases.
Companies moving from Level 3 to Level 4 will realize that being an integrated company was the beginning, not the end, of a journey. The preparation for the journey focused on integrating information (Levels 1-3). Then, the journey actually begins. A company reaches this level by taking these actions:
- Build the ability to monitor the marketplace and quickly realign the company to meet market demands.
- View the business model as an extended model, including suppliers, customers and other stakeholders and build the ability to optimize across the model.
- Build the ability and culture required to capture unstructured data as well as explicit quantitative information.
- Establish cross-divisional processes and hold your stakeholders to them.
- Provide employees with incentives for helping achieve incremental improvement.
The company that invests in this level of optimization will see a return on investment through cost savings, lower cycle times for product development and customer acquisition, improved market penetration and retention of customers, suppliers and partners. Companies also begin to see a constant, incremental increase in revenue generated from new activities.
Level 5: Innovate
Companies that are not constantly innovating eventually reach the point that they are in a commoditized marketplace. Forward-looking companies recognize the need to leverage their knowledge in new ways to introduce innovative products and services so as to constantly differentiate their offerings. They are adaptive and build new value creation processes from their core competencies and information assets. Once these processes are in place, they quickly optimize them to ensure alignment and efficiency. By adding this new capability to constantly build new value creation processes to their information capability arsenal, companies should realize a huge payoff.
The challenge of being an innovative company, Level 5, is cultural - being innovative is very different from being optimized. It requires the culture of the organization to change radically to be open to implementing relatively unknown business models. At this level, the organization leverages its collective knowledge, gathers information from a variety of industries, continues to encourage employee collaboration and promotes employee diversity. Companies attempt to minimize the risk associated with new ventures by forecasting demand and staying ahead of the competition.
The Level 5 environment requires employees, customers and suppliers to contribute and evaluate new ideas. Alignment with enterprise goals is a given, and the organization rewards individuals who take advantage of information in ways that propose new, viable ideas. The company's culture understands that failures are inevitable but should be tolerated as part of the learning process and controlled through risk management. Sharing knowledge gained during trial and error is important to the overall cultural development. Moreover, the company will often look to business concepts established in other industries and technologies to help it define new value.
When a forward-looking company anticipates the commoditization of a marketplace, it is ready to evolve from Level 4 to Level 5. To accomplish this:
- Proactively facilitate and manage innovative processes.
- Value intellectual capital as highly as tangible assets.
- Develop a risk management mentality and apply it to the innovation pipeline.
- Establish systems to scan information from external sources and use that information to make recommendations for new opportunities.
Level 5 payoffs are higher profit margins from new products and markets, upsetting the playing field for competitors and increased market share based on a sustainable competitive advantage.
The need for high-quality information has never been greater. As information managers, it's our job to know what information the business needs and make it readily available. Companies predictably mature in their use of information. As such, they have clear choices - manage their evolution or risk having competitive pressures drive them to change, a more costly option that may not work. A proactive information management strategy can maintain a level of competitive advantage that is sustainable. That advantage has a positive impact on the bottom line.
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