Re-Thinking the IT Model

Sheelagh Whittaker President and CEO, EDS Systemhouse Canada Ltd. RETHINKING THE IT MODEL Chairman: Robert J. Dechert President, The Empire Club of Canada

Head Table Guests

Montague Larkin, C.A., Retired Executive Director, The Ireland Fund of Canada and an Honorary Director, The Empire Club of Canada; Reverend Dr. Andrew Stirling, Senior Minister, Timothy Eaton Memorial United Church; Lesley Wroughton, Journalist, Reuters; Jim Rager, Vice-Chairman, Royal Bank of Canada; Nona MacdonaldHeaslip, Director, Banff Centre of Fine Arts and a Past President, The Empire Club of Canada; John C. Koopman, Principal, Heidrich & Struggles and a Director, The Empire Club of Canada; Sherry Ramersaud, OAC Student and Student Council President, Western Technical/Commercial School; William Morgan, Journalist; and John Craig, Corporate Sales Manager, Cantel AT and T Canada.

Introduction by Robert J. Dechert

The e-commerce revolution is exploding all around us; the harnessing of new information technology to the Internet is changing the way we buy and sell everything globally in the blink of an eye, and with much better information about the marketplace than ever before.

Incorporate a company called xyz.com, list it on NASDAQ and you will be a billionaire in less than two weeks. Eighteen-year-olds are doing it every day. Your next e-commerce project can't failright? Or can it?

Ladies and gentleman, our guest speaker today is well qualified to explain to us the many risks associated with e-commerce projects.

Sheelagh Whittaker holds a Bachelor of Science degree from the University of Alberta, a Bachelor of Arts degree from the University of Toronto and a Master of Business Administration degree from York University.

Ms. Whittaker began her career as a combines investigation officer for the federal Department of Consumer and Corporate Affairs.

Later, as a director and partner of the Boston Consulting Group for eight years, she led the successful application by the Cantel Group to operate Canada's first national cellular radio network.

In 1986, Ms. Whittaker was appointed Vice-President, Planning and Corporate Affairs, of the Canadian Broadcasting Corporation. While at the CBC, Ms. Whittaker played a crucial role in winning the CRTC license to operate CBC Newsworld.

In 1988, Ms. Whittaker joined Canadian Satellite Communications Inc. and was appointed President and Chief Executive Officer of that corporation in 1989.

She was chosen as "Woman of the Year" by Canadian women in radio and television in 1992 and was awarded the outstanding Executive Leadership Award from York University.

In 1993, she joined EDS Canada as President and Chief Executive Officer.

Ms. Whittaker serves on several public company boards including the Royal Bank of Canada, Royal Trust Corporation, Imperial Oil and SPAR Aerospace.

Ladies and gentleman, please welcome Ms. Sheelagh Whittaker to the podium of The Empire Club of Canada.

Sheelagh Whittaker

Thank you. Good afternoon.

It is always a pleasure to come to the Empire Club and share what's on one's mind with a grown-up thoughtful audience. The future is coming at us so fast these days there is seldom even enough time to enjoy the present. It often feels as if we are in danger of being overwhelmed entirely unless we can find a new strategy, a new way of doing things. But to illustrate properly I have to begin in the past.

In early September 1974 I went to Eaton's where I put down $129 to buy a calculator. It had four functions which seemed like a lot at the time. It could add, subtract, multiply and divide and I needed it to do my MBA course work. I was also engaged in a little biological multiplying of my own. Some babies get to listen to symphonic music in the womb. My baby Megan had to be content with quite audible clicks of the calculator's keys.

Fast forward 25 years and no one even makes a fourfunction calculator anymore. You can buy a calculator with memory the size of a credit card for less than $5. Sometimes they are even given away. Megan goes to law school in her clumpy platform shoes with her eyesight perfected by laser, carrying a laptop. She uses the Internet to register for her courses, to find out her marks and to do her law research. Megan is a second-generation IT user. For my generation the Internet is still largely a curiosity. For Megan's generation it is a given.

What we have here is an information technology generation gap. And it is a classic. My generation is still running most of the economy and making the business investment decisions. But Megan's generation is our market and our future. You may have noticed that a lot of the most successful new businesses we hear about these days are run by young people; in some cases teenagers. Could that success have anything to do with the fact that the people running those new businesses are the peers, the contemporaries of their target market? They don't have to struggle to reach their customers across a generational divide. They all speak the same largely unintelligible language.

So what are all we old people who run businesses supposed to do? Well we could simply arrange to be picked up in a van' and taken away to a nice peaceful home for out-of-date executives while they bring in the 15-year-old replacement. But if that isn't our first choice then we want at the very least to work seriously at understanding the uses and the potential of information technology and at getting help to put that understanding into practice.

If Thomas Watson and his colleagues at IBM worked with a framed exhortation to "think" on their wall then every executive of today must recognise the need to rethink. To ensure our effectiveness, perhaps even our survival, in the rapidly evolving information-rich Internetbased digital economy we will all have to re-think information technology, our attitude towards it and its proper central place in the future of our businesses.

Under the initial IT model, computer systems were largely just counting machines. They tabulated, measured and reported transactions. As they became more powerful they also became better at reporting not just numbers but broader information. More information than you could ever want to use. So much information that huge digital storage bins, data warehouses, had to be built just to house all that information. An entire sub-industry, the development of so-called business intelligence tools, sprang up. Their soul purpose was to help you wade through all this stuff in the data warehouse to locate pertinent useful information hidden within its overstocked electronic shelves.

For many companies, setting up an in-house computer system was, and in some cases sadly still is, a rather unimaginative process of specification writing and specification filling. The questions asked tended to be mostly not about the true potential of the system but practicality of the system as if it were a telephone or a kitchen appliance. How much does it -cost? What are the service charges? When can it be delivered and installed? When am I going to have to replace it? Just lately there's been added to this the new but still vague question: Oh and while you're at it can you see if the Internet can help?

Corporate IT departments, experts in execution but often left on the periphery by senior management, mainly look to equipment manufacturers for leadership on what they should acquire and build. For the company they worked for, they simply became willing and ultimately very expensive order takers even when the orders were contradictory or only led to more information and complexity than the company needed or it could possibly swallow.

The previous generation of senior executives clearly viewed technology as at best a support function. Its real worth, conventional wisdom held and in many cases still holds, was improving productivity to do the same thing but faster. Although the productivity gains sometimes proved illusory, computers certainly did enable business to do many more and different things with data which at least diverted one's attention from the lack of productivity improvement.

In my view, however, the use of IT can no longer be considered either a productivity or a data manipulation issue. Or expensive either. In the right hands IT today can provide depth, quality and flexibility to a business's business. And perhaps even save it. But to achieve that, IT thinking must become integral to the business.

There is a new-generation IT model emerging-one that responds to real immediate needs. This model recognises above all the potential of new technologies to be absolutely central to a business. Not just as tools to help manage the business better but as a means actually to invent new business. Lots of new business.

If I had to invent a catch phrase, it. might be think yesterday, re-think tomorrow. Rather than rely on a slogan though, it might be more useful to give you a few examples of why I believe it's so imperative that we indeed should re-think our attitudes towards best ways of benefitting from information technology and the skills of those who practice it.

The next-generation IT model, the re-think model, arises inescapably from a number of today's most urgent current business issues. The old verities are changing. Once a substantial company could be confident in pursuing further business with its existing customers. It enjoyed a privileged position because the price of entry for a new competitor was untenably high. No more. Today telephone companies with intricate networks of copper and fibre with a large and experienced staff and a centuryold name find themselves having to compete against companies with new names and new services operating on equipment leased by the call. Suddenly substantial investment in equipment, staff or infrastructure is not an impediment to entry by competitors. Rather it is an onerous burden which generally reduces one's agility and flexibility. Long-standing businesses and corporate identities are being redefined. Suddenly Loblaws is your banker. And you're your own car dealer dictating car engine, trim, colour and options direct to the factory as if you owned the place. The same-day delivery of a customised car is even being talked about.

This is a world in which more than ever one needs to concentrate on seeing things as they are, not as they were. "For people with young children," says my husband, "MacDonalds is now a toy store that gives away food." A U.S. cellular phone executive I met with recently describes what his company sells as a credit card you talk on. A friend of ours in Montreal said he's already convinced that there's no long-term future in conventional retail and that before long much of our major shopping will be done via the Internet. In terms of investment though he's finding it difficult to figure out which companies will succeed. He had a bright idea however. The company that makes the sale will need a delivery service. So you can guess what shares he's accumulating.

It isn't easy for first-generation IT people to re-define ourselves quickly enough, never mind articulate the requisite compelling new vision. What many of us do find easy, dangerously so, is to become a little less resilient, even a little hesitant. In the urgent demanding impatient world of new technology and new investor expectations, he or she who hesitates can be lost or at least badly damaged.

Take the recent experience of Peter Job. At a meeting with analysts in late October, Mr. Job who is CEO of Reuters, was questioned about his company's response to the highly competitive business information market. He said in an admirably honest but unguarded moment: "It is hard to be clear about strategy because of the high rate of change." Peter Job has operated Reuters quite effectively during his time as Chief Executive Officer growing the company and increasing shareholder value, but also building up a substantial cash reserve. Looking at investment options Job and his Board saw nothing that had clear-cut appeal and so they decided instead to try and further enhance value by buying back some Reuters shares. It is an approach that many companies have taken and often been greeted with analyst and investor approval-but not this time. A couple of key members of the business press in London put the statement about strategy together with the buy-back and flatly accused Reuters management of having no idea what to do next. And a well-managed company with a highly successful record suddenly lost 40 per cent of its market value. Subsequently one of the London analysts expressed sympathy for Peter Job and tried to explain what seemed like such a huge market over-reaction. "If you look at the whole media sector in the U.K. today it is in a state of turmoil," said the analyst. "Many companies are faced with the replacement of their business through a quicker, cheaper, means of distribution."

In truth no one including the experts knows for sure which companies are in that category. Meanwhile however, even a tiny hint of uncertainty becomes a self-fulfilling prophesy of doom. Regulators of course are completely flummoxed by the challenge of the Internet. Even legislation devoted to specific industries is left behind. One might think it unlikely for example that the Bank Act covers Loblaws. The CRTC has announced its decision not to regulate the Internet which is a bit like King Kanute announcing that he has decided not to regulate the tide after all.

Among today's business leaders there's already widespread recognition that we must take risks and make bold strategic leaps if we want to still be here tomorrow. But as Reuters case shows, even today's routine decisions are fraught with risk. In the bank business, for example, it seemed only a routine decision to prepare for substantial growth in PC banking. It was a judgment that most banks in North America made and acted upon. But almost before the software could be written, the brochures printed and the amortisation of investment schedules put in place, it all had to be written off. Before it could even get seriously started, PC banking had been leapfrogged and superseded by Internet banking which is so much more flexible and easy to use.

Today some companies with a long successful history, suddenly experiencing their first death throes, realise that their only hope is to bet everything that they have on an IT play.

Last week for example Encyclopaedia Britannica announced that it would make its entire 32 volumes available free on the Internet. Only a few years earlier Encyclopaedia Britannica had declined to participate in a CD ROM partnership proposed by Microsoft. So Microsoft went with Funk & Wagnells to offer an electronic version of what many would have considered an inferior product. Britannica's sales have now fallen so far that the company saw no alternative but to offer its entire encyclopedia free on the Internet and rely for future revenue on adjacent advertising. But that's not the end of the story. The further irony is that the demand was initially so great that Britannica's rather amateurish web presence collapsed under the sheer weight of it. There is clearly a tremendous business there but they took far too long to decide to go the Internet route.

I recognise that giving up one's traditional marketing approach is scary enough and that the prospect of offering everything of value that you own free of charge to anyone who wants access seems downright suicidal. But doing those two frightening things could've saved Encyclopedia Britannica and still might if they get the right type of IT going quickly. In any event it is increasingly clear that doing nothing or adopting a cautious wait-and-see approach is simply no longer an option for most businesses.

If people of my generation, IT l, find this difficult to accept they should simply try looking at the world through the eyes of the next generation-IT-2. Our grownup children would never think for a minute that the web was just a passing fancy or not applicable to a company's fortunes. Quite the reverse. Members of that second IT generation who after all are the potential customers, employees, partners and suppliers of your business simply take involvement with the Internet for granted. I try to put myself in their uncomfortable looking shoes. "If you were part of that generation," I ask myself, "would you even consider dealing with a financial institution whose web presence was non-existent or just rudimentary?" Of course not. "As a bright young graduate would you want to work for a non-net company? If you are running a modem digitally efficient business yourself would you want to be supplied by or be in partnership with a company that reeks of the day before yesterday?"

The truth is that without the Internet, indeed without an intelligent future-oriented IT strategy, companies may simply not have any future to worry about. It isn't an easy conversion for older folks like us to make no matter how smart we may be. Rupert Murdoch, one of the most astute and successful businessmen of our generation, IT-1 that is, held out for years, always saying that the Internet would destroy more businesses than it creates. But this summer Murdoch's News Corporation established a subsidiary to explore electronic ventures in investments and then Rupert Murdoch placed his younger son James in charge of new technology issues for the whole of News Corporation. I guess Murdoch recognised that there is at least a need to hedge his bets to try and make sure his own businesses aren't amongst those that are being destroyed. Rupert says privately that he still doesn't understand the technology, maybe never will, but that he is trying hard. In fact that's a pretty impressive conversion for a 69-year-old IT generation-one type. Perhaps however it is no coincidence that Rupert Murdoch recently remarried and that his new wife, Wendy Dunn, is 31. And definitely a member of IT generation two.

I have to say though that Rupert wasn't entirely wrong in his earlier stated opinion of the Internet. It will indeed destroy many businesses. It is probably doing so right now. And just being on the Internet doesn't by itself guarantee success unless you have a desirable product and the other elements of a viable business. We don't really know yet how it will do at creating businesses aside from the novelty stories like the 14-year-old getting rich from the Pokemon sites he established. Things are moving so fast. When our son Nicholas was three he got into an airport limousine and said: "Driver, take me to a toy store." Three years later, he and his school friends are more likely to want to visit those Pokemon sites, not by limo but via the Internet. And though their shares may have gone through the roof on the basis of hope, many of the newly minted Internet companies can't seem to come up with very convincing answers when one pins them down about how they propose to generate profit or even just revenue.

Strategies tailored specifically to your business and the way it can best be conducted and grown. At the same time your IT resource should have a greater understanding than anyone of the impact of technological change on your people and how to help them deal with it comfortably and effectively. Finally, your IT resource should be capable of providing, or at least contributing to, what President Bush used to call "the vision thing." After all who would be better to look ahead, to project how your business might best be configured one year from now, five years from now, see where the next technological developments will likely take you and determine who might be out there trying to converge on your space?

Stated like that it does sound like a big jolt but I like to think that the best of us in the information technology trade, especially those who already look at these matters more from a strategic or a consultative viewpoint than from a manufacturing one, are good and ready. Thank you.

The appreciation of the meeting was expressed by Nona MacdonaldHeaslip, Director, Banff Centre of Fine Arts and a Past President, The Empire Club of Canada.