BOOK EXCERPT
MARCH 22, 1999 VOL. 153 NO. 11
Bill Gates' New
Rules
In Business @ the Speed of
Thought, Microsoft's chairman
says that only managers who
master the digital universe will
gain competitive advantage
BY BILL GATES
If the 1980s were about quality and the
1990s were about re-engineering, then the
2000s will be about velocity. About how
quickly business itself will be transacted.
About how information access will alter the
lifestyle of consumers and their
expectations of business. Quality
improvements and business-process
improvements will occur far faster. When
the increase in velocity is great enough, the
very nature of business changes.
To function in the digital age, we have
developed a new digital infrastructure. It's
like the human nervous system. Companies
need to have that same kind of nervous
system--the ability to run smoothly and
efficiently, to respond quickly to
emergencies and opportunities, to quickly
get valuable information to the people in the
company who need it, the ability to quickly
make decisions and interact with
customers.
The successful companies of the next
decade will be the ones that use digital
tools to reinvent the way they work. To
make digital information flow an intrinsic
part of your company, here are 12 key
steps.
1 INSIST THAT
COMMUNICATION FLOW
THROUGH E-MAIL
For a large company to be able to
maneuver as well as or better than a
smaller competitor is a testament to both
the energy of the employees and the use of
digital systems. Personal initiative and
responsibility are enhanced in an
environment that fosters discussion. E-mail,
a key component of our digital nervous
system, does just that. It helps turn middle
managers from information filleters into
"doers." There's no doubt that e-mail
flattens the hierarchical structure of an
organization. It encourages people to
speak up. It encourages managers to
listen. That's why, when customers ask
what's the first thing they can do to get
more value out of their information systems
and foster collaboration in their companies,
I always answer, "E-mail."
I read all the e-mail that employees send
me, and I pass items on to people for
action. I find unsolicited mail an incredibly
good way to stay aware of the attitudes and
issues affecting the many people who work
at Microsoft. The old saying "Knowledge is
power" sometimes makes people hoard
knowledge. They believe that knowledge
hoarding makes them indispensable.
Power comes not from knowledge kept but
from knowledge shared. A company's
values and reward system should reflect
that idea.
I like good news as much as the next
person, but it also puts me in a skeptical
frame of mind. I wonder what bad news I'm
not hearing. When somebody sends me an
e-mail about an account we've won, I
always think, "There are a lot of accounts
nobody has sent mail about. Does that
mean we've lost all of those?" A good
e-mail system ensures that bad news can
travel fast, but your people have to be
willing to send you the news. You have to
be consistently receptive to bad news, and
then you have to act on it. Sometimes I
think my most important job as CEO is to
listen for bad news. If you don't act on it,
your people will eventually stop bringing
bad news to your attention. And that's the
beginning of the end.
2 STUDY SALES DATA
ONLINE TO SHARE INSIGHTS
EASILY
"Know your numbers" is a fundamental
precept of business. You need to gather
your business's data at every step of the
way and in every interaction with your
customers. With your partners too. Then
you need to understand what the data
means.
Making data digital from the start can
trigger a whole range of positive events.
The Coca-Cola Co. is collecting data
directly from smart vending machines via
cellular phones or infrared signals. A
PC-based restocking program at the local
bottler office analyzes the data and
produces a delivery slip that tells drivers
which products and locations need to get
stocked the next day.
Taking advantage of digital data at the
source can even create new business
opportunities. A pilot program in Texas lets
customers use a credit or debit card to pay
for Coke drinks while fueling at a gas
station. Since most people who pay at the
pump don't go into the building, the digital
sales system at the pump creates a whole
segment of new customers for Coke.
When figures are in electronic form,
knowledge workers can study them,
annotate them, look at them in any amount
of detail or in any view they want and pass
them around for collaboration. Going digital
changes your business.
3 SHIFT KNOWLEDGE
WORKERS INTO HIGH-LEVEL
THINKING
A company's middle managers and line
employees, not just its high-level
executives, need to see business data.
They're the people who need precise,
actionable data because they're the ones
who need to act. They need an
immediate, constant flow and rich views
of the right information. Companies
should spend less time protecting
financial data from employees and more
time teaching them to analyze and act on
it.
At McDonald's, until recently, sales data
had to be manually "touched" several
times before making its way to the
people who needed it. Today
McDonald's is well on the way to
installing a new information system that
uses PCs and Web technologies to tally
sales at all its restaurants in real time. As
soon as you order two Happy Meals, a
McDonald's marketing manager will
know. Rather than superficial or
anecdotal data, the marketer will have
hard, factual data for tracking trends.
What I'm describing here is a new level of
information analysis that enables
knowledge workers to turn passive data
into active information--what M.I.T.'s
Michael Dertouzos calls
information-as-a-verb.
4 USE DIGITAL TOOLS TO
CREATE VIRTUAL TEAMS
A collaborative culture, reinforced by
information flow, makes it possible for
smart people all over a company to be in
touch with each other. When you get a
critical mass of high-IQ people working in
concert, the energy level shoots way up.
Knowledge management is a fancy term
for a simple idea. You're managing data,
documents and people's efforts. Your aim
should be to enhance the way people
work together, share ideas, sometimes
wrangle and build on one another's
ideas--and then act in concert for a
common purpose.
Jacques (Jac) Nasser, president and
CEO of Ford, sends e-mail to Ford
employees worldwide, sharing news--the
good and the bad--with everybody. No
one screens the e-mail. He talks straight
to the employees. He also reads
hundreds of responses he gets each
month and assigns a member of his team
to reply to any that need follow-up.
Getting people motivated to take on
responsibility is not a question of
organizational structure so much as
organizational attitude. Digital tools are
the best way to open the door and add
flexibility. If the right people can be
working on the issues within hours
instead of days, a business obtains a
huge advantage.
5 CONVERT EVERY PAPER
PROCESS TO A DIGITAL
PROCESS
In 1996 I decided to look into the ways
that Microsoft, a big advocate of
replacing paper with electronic forms,
was still using paper. To my surprise, we
had printed 350,000 paper copies of
sales reports that year. I asked for a copy
of every paper form we used. The thick
binder that landed on my desk contained
hundreds and hundreds of forms.
Paper consumption was only a symptom
of a bigger problem, though:
administrative processes that were too
complicated and time-intensive. Using
our intranet to replace paper forms has
produced striking results for us. We have
reduced the number of paper forms from
more than 1,000 to a company-wide total
of 60 forms.
Companies talk about rewarding
initiative and keeping workers focused
on business. When employees see a
company eliminate bottlenecks and
time-draining routine administrative
chores from their workdays, they know
the company values their time--and wants
them to use it profitably.
6 USE DIGITAL TOOLS TO
ELIMINATE SINGLE-TASK
JOBS
An acquaintance of mine had an uncle
who spent 25 years at an auto plant in
Flint, Mich., tacking chrome strips and
other finish parts onto automobiles. It was
a good job in the years immediately after
World War II, but it followed the classic
Industrial Age approach: break a process
into small, discrete tasks and assign
each to one person who does it over and
over "the one best way."
In the new organization, the worker is no
longer a cog in the machine but is an
intelligent part of the overall process.
Having people focus on whole processes
allows them to tackle more interesting,
challenging work. A one-dimensional job
(a task) can be eliminated, automated or
rolled into a bigger process.
General Motors launched the Saturn
Corp. back in 1985 to create not only a
brand-new car from scratch but a
brand-new way of building cars and
empowering workers. Teams are tight,
autonomous units. Each team has a
specific function, such as building
engines or doors, and each team
member is trained to do approximately
30 different jobs in that area, so that
people don't get stale from doing
repetitive tasks. Through a Web
interface, the worker can retrieve data
from a database, automatically load the
data into a spreadsheet and pivot
through the data to analyze it by part and
type of problem.
Give your workers more sophisticated
jobs along with better tools, and you'll
discover that your employees will
become more responsible and bring
more intelligence to their work.
One-dimensional, repetitive work is
exactly what computers, robots and other
machines are best at--and what human
workers are poorly suited to and almost
uniformly despise. In the digital age, you
need to make knowledge workers out of
every employee possible.
7 CREATE A DIGITAL
FEEDBACK LOOP
Since Michael Hammer and James
Champy introduced the concept of
reengineering in 1993, companies the
world over have been re-examining their
business processes. When I read their
book, Reengineering the Corporation,
three of their ideas really stood out for
me. The first is that you need to step
back periodically to take a hard look at
your processes. Do they solve the right
problems? Can they be simplified? The
second is that if you cut a job into too
many pieces and involve too many
people, nobody can see the whole
process and the work will bog down. The
third, closely related to the second, is that
too many hand-offs create too many likely
points of failure.
Creating a new process is a major
project. You should have a specific
definition of success, a specific
beginning and end in terms of time and
tasks, intermediate milestones and a
budget. The best projects are those in
which people have the customer scenario
clearly in mind. That's true of process
projects too.
Digital technology makes it possible to
develop much better processes instead
of being stuck with variations on the old
paper processes that give you only
incremental improvements. You need to
be flexible in the face of evolving
requirements. You should have a crisp
decision process to evaluate change,
including a provision for re-evaluating
your original project goals.
8 USE DIGITAL SYSTEMS TO
ROUTE CUSTOMER
COMPLAINTS IMMEDIATELY
Listening to customers means hearing
their complaints about current product
shortcomings. But getting bad news from
customers passed all the way to the
product design groups is surprisingly
hard to do.
I recommend the following approach:
1. Focus on your most unhappy
customers.
2. Use technology to gather rich
information on their unhappy experiences
with your product and to find out what they
want you to put into the product.
3. Use technology to drive the news to the
right people in a hurry.
If you do these three things, you'll turn
those draining bad news experiences
into an exhilarating process of improving
your product or service. Unhappy
customers are always a concern. They're
also your greatest opportunity.
Companies that invest early in digital
nervous systems to capture, analyze and
capitalize on customer input will
differentiate themselves from
competition. You should examine
customer complaints more often than
company financials. And your digital
systems should help you convert bad
news to improved products and services.
9 USE DIGITAL
COMMUNICATION TO
REDEFINE THE BOUNDARIES
The internet allows a company to focus
far more than in the past by changing
which employees work within the walls
and which work outside in an adjunct,
consulting or partnering role.
For Microsoft, outsourcing has been a
way to temper the expansion of our work
force and reduce management overhead,
but it hasn't stopped the growth of our
work force. The Web work style, in which
each contributor or company organizes
itself optimally, enables us to extend our
electronic web of partnerships and--I
hope--keeps us from growing big in the
wrong areas and becoming ineffective
through too much overhead.
As a business manager, you need to
take a hard look at your core
competencies. Revisit the areas of your
company that aren't directly involved in
those competencies, and consider
whether Web technologies can enable
you to spin off those tasks. Let another
company take over the management
responsibilities for that work, and use
modern communications technology to
work closely with the people--now
partners instead of employees--doing the
work. In the Web work style, employees
can push the freedom the Web provides
to its limits.
10 TRANSFORM EVERY
BUSINESS PROCESS INTO
JUST-IN-TIME DELIVERY
M.I.T.'s Nicholas Negroponte describes
the difference between physical products
and information products in the digital
age as the difference between moving
atoms around (physical products such as
cars and computers) and moving bits
around (electronic products such as
financial analyses and news broadcasts).
Producers of bits can use the Internet to
reduce their delivery times to practically
zero. Producers of atoms still can't beam
the physical objects through space, but
they can use bitspeed--digital
coordination of all kinds--to bring reaction
time down dramatically.
In some industries, the issue is not so
much faster time to market as it is
maintaining time to market in the face of
astronomically rising complexity. Intel, for
instance, has consistently had a 90-day
production cycle for its chips, which
power most PCs. Intel expects to
maintain this 90-day production rate
despite the increasing complexity of the
microprocessor.
Ultimately the most important "speed"
issue for companies is cultural. It's
changing the perceptions within a
company about the rapidity with which
everybody has to move. Everybody must
realize that if you don't meet customer
demand quickly enough, without
sacrificing quality, a competitor will.
11 USE DIGITAL DELIVERY
TO ELIMINATE THE MIDDLE
MAN
In 1995, in The Road Ahead, I used the
term friction-free capitalism to describe
how the Internet was helping to create
Adam Smith's ideal marketplace, in
which buyers and sellers can easily find
one another without taking much time or
spending much money.
If you're a middleman, the Internet's
promise of cheaper prices and faster
service can "disintermediate" you,
eliminate your role of assisting the
transaction between the producer and the
consumer. If the Internet is about to
disintermediate you, one tack is to use
the Internet to get back into the action.
That's what Egghead.com (formerly
Egghead), a major retail software chain,
did after struggling for several years.
Egghead closed all of its physical stores
nationwide in 1998 and set up shop
exclusively on the Internet. Egghead now
offers a number of new online programs
that take advantage of the Internet, such
as electronic auctions for about 50
different categories of hardware and
software and for reconditioned
computers. It puts special liquidation
prices on systems available on its
website and sends out a weekly e-mail
"Hot List" with exclusive offers available
only to e-mail subscribers.
For the majority of products, which are
available through many outlets,
consumers will be the greatest
beneficiaries. For unique products and
services, sellers will find more potential
customers and may command higher
prices. The more consumers adopt the
Web life-style, the closer the economy will
move toward Adam Smith's perfect
market in all areas of commerce.
12 USE DIGITAL TOOLS TO
HELP CUSTOMERS SOLVE
PROBLEMS FOR
THEMSELVES
As electronic commerce booms, it's not
just the middlemen who will find creative
ways to use the Internet to strengthen
their relationships and customers. The
merchants who treat e-commerce as
more than a digital cash register will do
the best.
Dell was one of the first major companies
to move to e-commerce. A global
computer supplier with more than $18
billion in revenue, Dell began selling its
products online in mid-1996. The
company's online business quickly rose
from $1 million a week to $1 million a
day. Soon it jumped to $3 million a day,
then $5 million. It's now risen to $14
million.
Michael Dell characterizes the business
today as "different combinations of
face-to-face, ear-to-ear and
keyboard-to-keyboard. Each has its
place. The Internet doesn't replace
people. It makes them more efficient. By
moving routine interactions to the Web
and enabling customers to do some
things for themselves, we've freed up our
salespeople to do more meaningful
things with customers."
Smart companies will combine Internet
services and personal contact in
programs that give their customers the
benefits of both kinds of interaction. You
want to move pure transactions to the
Internet, use online communication for
information sharing and routine
communication, and reserve face-to-face
interaction for the activities that add the
most value.
As I said in The Road Ahead, we always
overestimate the change that will occur in
the next two years and underestimate the
change that will occur in the next 10.
Don't let yourself be lulled into inaction.
You know you have built an excellent
digital nervous system when information
flows through your organization as quickly
and naturally as thought in a human being
and when you can use technology to
marshal and coordinate teams of people
as quickly as you can focus an individual
on an issue. It's business at the speed of
thought.END
From Business @ The Speed of Thought: Using
a Digital Nervous System, by Bill Gates. (C)
1999 by William H. Gates, III. To be published
this month by Warner Books, USA.