Manning the new Economy

Deloitte Touche Tohmatsu e-business head Peter Williams has a young lad sitting in his office who not only works for him but runs an e-business on the side. A couple of shakes ago, the 24-year-old might have been labelled a moonlighter, had his extracurricular activities exposed to the closest scrutiny, and perhaps even been threatened with dismissal.

Now the deal is embraced as a win-win situation. The young man is setting himself up in a realm where millionaires get created overnight while simultaneously gaining exposure to some of the world's larger e-business projects. Williams gets the benefit of next-generation e-business experience and the chance to bounce ideas off someone who is already making his own way in the new economy.

Meanwhile, Deloitte Consulting's global operation intends introducing an equity-based profit-sharing scheme to try to keep employees from leaving to join dotcom start-ups, after losing 200 of the best of its 7000 strong US workforce in January alone. When the local arm recently acquired 20 per cent of the Eclipse Group, one of the fastest growing e-content providers in Australia, partners and staff were offered a 10 per cent interest for similar reasons.

Williams is in no doubt the battle between dotcoms and old-economy companies for Internet talent is set to just keep getting fiercer. "The biggest challenge on the people side is that given the amount of Internet-related work there is at the moment there won't be enough people on the planet to be able to effectively implement it all," he says.

Williams says he talks to dotcom staff every day who have come out of IT consulting firms, more traditional IT shops or marketing departments. GoCorp, he says, seems to be almost entirely peopled by ex-employees of SAP. "These guys are all good people, and they're just walking out of everywhere," Williams says.

The Gap Widens

Year after year, says Cambridge Technology Partners in its "New Economy Primer", the gap in value creation is growing between companies that employ intellectual capital and those with an asset-based business model. "As more of the world's business migrates from asset-based economies - tonnes of iron ore, barrels of oil, acres of bananas - to fundamentals of creativity and innovation, intellectual capital will become the dominant source of value creation for both customers and shareholders alike."

And while asset-based businesses will continue to be players in the new economy, the work that takes place in these companies will rely less on physical labour and more on the knowledge-based engines of productivity that ultimately shape their business models and dictate their economic viability.

People matter in the new economy. They matter a lot. The only thing is, there just is not enough of the right kind to go around. "If you don't invest in recruiting and rewarding the bright sparks who'll fuel the innovation engine that inflates your margin, your competitors will. And if you don't connect all that intelligence, you're wasting it," Cambridge says. Companies at the fiercest focus of the skills battle - like Cap Gemini, SAP, and Cisco - have already learned to listen more to employee aspirations, deliver more of the rewards and benefits they seek, and empower individuals to meet their own professional goals and skills development.

Sadly, too few Australian organisations are doing the same. Andersen Consulting associate partner financial, Paul Lewis, says long after US firms have moved on from such issues, Australian businesses seem to be focusing far too much on processes and technology, and far too little on people and culture. "It is the application of the human performance element that's going to enable our clients to live in this new e-environment," Lewis says. "I think probably the most important thing CIOs have to bear in mind is that while certain elements of culture, leadership, employee performance, reward and so on, have all been nice to have previously, the e-economy environment is going to drive these as critical elements."

Jamie Rintel, manager, financial service industry with Andersen Consulting, agrees, saying the biggest mistake a traditional business can make is to carry over too much of the legacy baggage, such as policies and culture, from the traditional business. "In reality this means only [taking across] existing employees into the e-commerce venture who demonstrate the desired mindset," he says. "Technology and processes will get an organisation into the e-world, but human performance is what will make them succeed there. Addressing the human performance issues will be an order of magnitude more difficult than anyone who hasn't created an e-business from a traditional business could imagine."

Prepare to Change

Rintel says successful Internet companies share a number of key elements, including a high capacity to change, ability to deal with ambiguity, a level of creativity, acceptance of risk and a heavy emphasis on customer focus. They are also willing to think outside the traditional boundaries - being prepared to view competitors as potential partners and as opportunities, for instance.

But both Rintel and Lewis point out that making such a cultural change is incredibly difficult, and a far greater challenge for bricks-and-mortar companies than for start-ups. It's one of the main reasons why many companies start up the dotcom as a separate entity. "You can then start to populate it with people with the right attributes," Rintel says. "Your reward structures, your leadership style and your policies can all be set up to reinforce risk taking, decentralised decision-making. If you try to do it within an ordinary organisation you find the command and control policies, structures and limits of authority don't allow you to have that risk-taking innovation, that creativity, that you need."

The partners agree that winning the war for talent starts with a recognition that in the existing sellers market, recruitment should be used as an aggressive marketing campaign, selling the company as the place to work. They also advise companies to:

* Offer attractive base salaries in combination with benefits matched to the values of e-workers. E-workers are savvy and are looking for a piece of the economic action - hence the prevalence of stock option packages.

* Create a desirable work environment and a reputation as a "cool" place to work, while not forgetting that money isn't everything. To many of these workers what is far more important is the work environment and the type of work - like the opportunity to build unique skills, to work on leading edge projects, to have flexible work arrangements.

* Continuously recruit for talent rather than hiring for specific positions. The quality and quantity of the people in the business are the biggest drivers of success. Hardware, software and business models can easily be copied - the workforce cannot. With a shortage of talent in the marketplace successful companies recruit whomever they find is good and worry about finding a position for them later.

* Develop Internet-based marketing campaigns aimed at the most desired workers. These people are Internet-savvy - use the medium to find and attract them.

Ken Love, a senior manager with Deloitte Consulting, also says employee expectations will demand more flexibility and new forms of remuneration:

* Internet-savvy employees are non-hierarchical, enjoy experimentation and a high degree of autonomy - large bureaucratic organisations with complex processes frustrate them.

* Incentives and reward practices will need to change and considerable emphasis will be placed on instilling shared values as a way of binding together a complex and fast-moving organisation.

Attracting and retaining top talent will require new HR processes and policies.

Rules Shmules

Commonwealth Bank general manager e-commerce Stephen Coulter says the bank has an online vision "in chosen markets, to be the leading global provider of online information services related to financial services in a profitable manner". And the bank knows full well that the right people will be crucial to its success. In pursuit of its goal the bank plans to have its entire business run using online infrastructure and technologies within five years, and has established an e-commerce Centre of Excellence across the bank to drive the changes.

"In one sense we're a separate, self-contained unit; but on the other hand, being a centre of excellence we touch all parts of the organisation and work with them," Coulter says. Choosing the right people has been essential to its e-commerce success. Coulter says the organisation has consciously striven to people the Centre of Excellence with staff comfortable with change and ambiguous environments.

"At the end of the day our advantage comes from our people and nothing else. The technology is a commodity - it's how you apply that technology to your customer's benefit that separates the winners from the losers. To achieve that, you've got to have business people that are passionate and intelligent and innovative to drive that through," he says. "And you've got to communicate that to the rest of the organisation. You've got to challenge the conventional and not be bound by rule books. That means doing the right thing, rather than following rules if they don't make sense, because an awful lot of business rules and business generally is constructed around the traditional business models, which simply don't work online."

Kids Rule

The Tile Factory Group imports, wholesales and sells tiles, and provides advisory services to customers. Its comprehensive Internet Web site and expanded market reach has led it to develop new service products and online applications to fill the specific needs of rural and remote customers in northern Australia and Pacific island countries. Three years down the e-commerce track, says managing director David Peel, the company is still developing ideas on how to make e-commerce pay.

One thing it has learned - it matters considerably where the e-commerce group sits. "Like so many businesses we dumped the e-commerce business into the finance and accounting department," Peel says. "Why would you do that? That would be like giving your child into the protection of a cannibal. Accountants are by nature not creative or innovative - it's just not their style of operation." At least the company has learned what doesn't work. To overcome the mistake the company engaged the services of an external consultant to help drive and modernise its Web page, and put e-commerce in the hands of a young IT systems administrator.

Peel gives himself some credit for the e-commerce venture's success, saying he has driven the e-commerce initiative from the top because he's in love with the capacity of technology to grow the business. "And I'll tell you what the biggest challenge is - you've got to trust kids," Peel says. "You try and get an IT specialist of 40 - it's an oxymoron. If they're over 25 they're half past it. We've got this young fellow here and he's great. He doesn't know much about business, but I want him to blue sky and paint what we can do and help us develop the exciting future we can have with it."

Structural Change

Such innovative structures are far from unusual in the e-economy.

"In a successful e-organisation, fluid project-based organisation structures are common, in which cross-functional teams come together to achieve a particular objective, then disband and reassemble in another configuration to address a different issue," Andersen's Lewis says. "At the individual level, roles need to be defined with high levels of decision-making authority and autonomy to encourage fast decision making and to respond to motivational needs of the e-workforce."

Survival of the Fastest

To survive in the new online economy, organisations need to become "kinetic" - that is, capable of rapidly adapting to shifts in customer and market behaviour. At the same time managing core competencies means managing intellectual capital and knowledge generation, capture and application, Deloitte's Love says.

He says in order to leverage knowledge and the power of partnering with customers, suppliers and others, organisations will have to account for three things in an organisation's design:

1. The source of the value-adding knowledge2. Where the knowledge is modified for customer use, structures must enable customer-centric innovation3. The direction of the flow of this knowledge from point to point.

"As organisational boundaries become ill-defined - a blend of customers, suppliers, employees, contractors, specialist associates, and so on - leadership will be founded more and more on building voluntary commitment to a shared vision, appealing to shared values and interests. This will require considerable skill as power, ownership and authority become less relevant," Love says.

Increased information sharing among business partners will demand a greater degree of trust based on a shared set of business ethics. Other changes will also be apparent.

Love says Internet technology will intensify the pressure on corporations to account for their impact on the communities within which they operate. Buying behaviour will change as consumer consciousness grows regarding issues of environmental sustainability and social impact.

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