VIDEO: Transforming the Relationship between Business and IT Executives

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Dr. George Westerman is a research scientist at MIT’s Center for Digital Business, currently leading a series of projects examining the impact of digital technology on the management of large firms. In this video interview, Dr. Mark Chun, associate professor of Information Systems and director for Applied Research at the Graziadio School of Business and Management, interviews Westerman about the changing role of the CIO from a tech specialist to innovator and strategist.

Westerman is co-author of The Real Business of IT: How CIOs Create and Communicate Value (named the No.1 IT Business Book of 2009 by CIO Insight magazine), and IT Risk: Turning Business Threats into Competitive Advantage (one of CIO Insight’s Best Books of 2007). His research has appeared in journals such as Organization Science, Sloan Management Review, Industrial and Corporate Change, and MIS Quarterly Executive.

Questions for Dr. Westerman:

  1. What are some of the critical issues that businesses need to consider when they use IT to establish a competitive advantage?
  2. How has the role of CIO evolved over the last several years?
  3. Studies have shown that 29 percent of CIOs have never had a job in IT before. What are the implications behind this?
  4. What are some of the new emerging trends in the technology industry and how can businesses prepare for these shifts?

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“The Role of the CIO” with Harvey Koeppel

Harvey Koeppel is the executive director of the Center for CIO Leadership, based in New York City. In this capacity, he sets the Center’s strategy and directs internal and external operations. He also serves as chairman of the center’s Advisory Committee.

From May 2004 through June 2007, Koeppel served as the Chief Information Officer and Senior Vice President of Citigroup’s Global Consumer Group (GCG). In that role, he set the strategic direction for the GCG’s operations and technology and actively supported the development and growth of the operations and technology community across all GCG lines of business globally. Koeppel served as the chairperson of the Offshore Program Office Steering Committee and provided strategic input to GCG’s offshore and outsourcing practices. He additionally provided executive oversight to the Information Security and Data Protection programs for the group.






Harvey Koeppel, executive director of the Center for CIO Leadership

Harvey Koeppel, executive director, Center for CIO Leadership




Prior to taking on the CIO role, Koeppel provided consulting services to CitiFinancial, Citibank, and other Citi affiliates from 1986 to 2004. He was heavily involved in supporting the planning and integration of many of Citi’s major acquisitions, including Travelers Insurance, Associates First Capital, European American Bank, and Golden State Bank.

Koeppel has a distinguished record of IT innovation in the financial services industry. He designed the first graphical user interface for the NASDAQ trader workstation. He was the architect and designer of FxNet, a software program that revolutionized the way large financial institutions manage settlement risk within FX portfolios. He was also a primary contributor to the development of the Maestro platform at CitiFinancial, the online interface between customers, the sales force, and the back office, which fundamentally changed the loan sales and approval process and significantly streamlined branch workflow. Koeppel is the named inventor on the Citibank patent of the “Recommendation Engine,” a software component that advises sales and service staff about products and services to discuss with clients based upon their financial goals and objectives.

In this video interview, Koeppel talks with Charla Griffy-Brown, director of the Center for Teaching and Learning Excellence and associate professor of information systems and technology management at the Graziadio School of Business and Management at Pepperdine University. They discuss the following questions:

  1. What are some of the new leadership and management requirements for Chief Information Officers that have been triggered by the current economic challenges?
  2. Have you seen a change in the evolution for this role in your capacity as the executive director of the Center for CIO Leadership, and your role as the CIO of CitiGroup?
  3. What is the most surprising change you’ve seen in the evolution of the private sector CIO in the last decade?
  4. Why do you think the trend is moving more toward a tactical role for CIO and less toward the strategic?
  5. What are the competencies that are absolutely critical in distinguishing a manager from a leader in terms of the role of Chief Information Officer?
  6. From your vantage point, do you see differences in CIOs globally?
  7. What have you observed in the leap to mobile communications globally?
  8. How do you see real-time systems, which allow for instantaneous interaction between customer and the organization, affecting the public sector and governmental services? What are some examples from New York City?
  9. What technology opportunities or challenges do you see CIOs in business and the public sector facing over the next few years?

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The Charisma of Twitter

Twitter is a form of electronic charisma that can attract or repel followers. This article explores the uses and limitations of Twitter and analyzes its success based on the definition of charisma.

[powerpress: http://gsbm-med.pepperdine.edu/gbr/audio/fall2010/black-charisma.mp3]

Twitter birdChances are almost everyone has heard of Twitter by now and the communication phenomenon it has quickly become in the last three years. Twitter is a social networking site that people can join for the purpose of micro-blogging. Micro-blogs, named “tweets,” are short messages of 140 characters or less. They can be sent and received using a variety of electronic tools, including cell phones and computers with Internet access. The new communication style has been embraced by social networkers, news organizations, and businesses alike.

No one really predicted the power this new medium would amass as a communication tool. Twitter has emerged as a marketing force that has exploded beyond even the imagination of its creators. Yet, some decry the abbreviated language the micro messages require. It seems that Twitter is a form of electronic charisma that can attract or repel followers. The fundamental question is: What are the true potential uses for this form of communication in the business world? This article aims to explore the uses and limitations of Twitter and analyze its success based on the definition of charisma.

Electronic Charisma

In an essential way, Twitter is expanding the definition of charisma. Max Weber wrote extensively about charisma and how it results in followers choosing to follow a leader. He defined it as a trait or quality a person possesses that makes others treat them as if they have powers above the ordinary.[1] Powerful words masterfully delivered can result in a mass of people following a leader’s direction.

So how can a series of micro-blogs possibly be charismatic and benefit business? Let’s say you have a leader in front of a conference group extolling the company vision and potential for future success. It’s challenging enough to get people excited to the point at which they want to follow the company, and good luck even getting people in the seats. Now consider Twitter. A person can sit alone in a room and construct a tweet that will be read around the world by thousands of followers. What is in that message can inspire customers to buy new products, inform news media of current events, or form the communication basis for a revolution.

Here you have a captive audience and the stage whereby an organization is able to send out a call to action and solicit followers who are able to bring a plan to fruition. For marketers, the call to action sent to consumers may be for the purchase of a product or service or to entice a visit to a Web site or event. This communication style also easily fits into the rhetorical component of a political or business social movement.

For example, in 2009, Mahmoud Ahmadinejad won an Iranian election. Iranian voters who believed the election was invalid took to the streets. The Twitter site was going to perform system maintenance during that time, which would have disrupted communications from Iranian citizens. The U.S. State Department asked the company to keep the site active so protestors and news informants could keep world governments and global citizens apprised of what was happening in Iran.[2] Clearly this kind of networking communication power is valuable because it is efficient, inexpensive, and fast. When Twitter continued to operate in Iran, tweets took on a charismatic quality as they enthralled supporters of democracy while giving Iranian protestors the feeling of being connected. Tweets helped to fuel the revolutionary movement. A mere five years earlier, the protestors would have been isolated from the rest of the world.

There are other instances where Twitter postings have enabled people to communicate more quickly and effectively. For example, terrorist attacks on a hotel in Mumbai in 2008 were quickly described by eye witnesses tweeting staccato messages. The first pictures of the Hudson River landing by the U.S. Airways flight 1549 were sent via links included in Twitter posts.[3] In 2010, Twitter became a lifeline during the Haitian earthquake. Family and friends were notified of victims or reassured of survivals, donations were solicited, names of missing people were tweeted, and resource availability was communicated.[4]

Business Revolution in a Tweet

Twitter goes beyond simple social communication, and that is why businesses began using tweets as marketing tools to build quality organizations. One of the key components of a business is its communication structure. Effective organizations have communication systems that connect executives to front-line managers, managers to staff, staff to staff, and ultimately, the organization to its customers.

Quality control managers must embrace and cultivate the communication link between the organization and the marketplace. In a highly competitive environment it is easy to lose contact with customer needs. It is also common for today’s consumer to feel disconnected from the company making or selling the product just purchased.

If charisma is a trait that makes people see another person as having qualities that inspire confidence and create an emotional connection, then it is easy to see Twitter as a charismatic communication tool. For example, customers who once threw broken products away in complete frustration, and then proceeded to tell everyone they knew can now send a tweet that connects the customer directly to the company’s customer service department. The customer believes the company truly cares about their opinion since the business opened a quick portal into its organizational communication structure. It works the other way too. The company can send out a tweet to thousands of customers in a call to action to buy products or services. Tweets can move people from objectives to results.

Twitter’s creators did not foresee the full extent of the use of Twitter as a mass communication tool and had to quickly adapt the scaling of the project to the demand.[5] Twitter’s designers have managed to do something that would interest Max Weber if he were alive today. They have made it possible to electronically network on a personal basis by placing everyone on the same level without regard for personal interests or associations. Anyone can read anyone else’s tweets, even those of celebrities. There are no secrets, special associations, or friendships needed.

The tweet communication form is being called a content revolution. A number of well-known companies are using Twitter to market their brands.

  • Dockers teased customers with tweets providing information needed to win free khakis during the Super Bowl[6]
  • Tommy Hilfiger tweeted company news to customers as Hilfiger’s Fifth Avenue store prepared to open, hoping that personal dialogue would insure a large store following[7]
  • Dell’s tweets to customers have helped the company to sell millions of dollars worth of products[8]
  • Best Buy uses tweets for customer service[9]

Twitter followersThese are just four examples of large companies that tweet thousands of customers every day. However, one of the great advantages of using Twitter is the company does not have to be large to use it. In fact, Twitter was actually designed for people who wanted to keep family and friends updated with current news.

Perhaps that is why many Fortune 100 companies still do not use Twitter to their advantage. A study released by Weber Shandwick reports that 73 of the top Fortune 100 companies have Twitter accounts, but most do not use the accounts very often, if at all. When they do tweet, according to the study, the tweets “don’t display any personality.”[10]

There is the concept of charisma again. Customers expect tweets to be informative and to have some personality, or charisma. That seems to indicate tweets are viewed by the electronic generation as a social medium as important as the personal telephone call or the personal visit.

What is the marketplace value of Twitter? Currently Fortune 100 companies are using it primarily for company and product news and announcements. They are also using it for customer service. The business practitioner can use Twitter for any of a number of purposes in the marketing arena. As any marketing specialist knows, creating a bond with customers builds customer loyalty. Twitter enables a company to create that bond with little expense and more frequent communication through 140-character, charismatic messages. Here is just a sample of ways to better market services, products, and brands:

  • Issue press releases about events, promotions, sales, and accomplishments
  • Encourage employee tweets to customers that promote the business by sharing ‘insider’ information such as new innovations or products
  • Monitor customer attitudes and opinions about the company, products, or brands
  • Improve the quality of the company workforce by tweeting job openings to those already fans of the company
  • Direct customer traffic to the company Web site
  • Enter a specific market niche difficult to break into in other ways
  • Tweet real-time coverage during company events, galas, new store openings, seminars

The President and CEO of SunGard, Cristobal Conde, believes that Twitter can improve the ability of a business to be competitive by flattening out the organizational structure. Employees are encouraged to tweet personal successes, collaborative information, creative ideas, and general information to other employees. Conde adheres to the philosophy that flattening out the organizational structure by allowing employees to gain recognition from peers builds a stronger collaborative team.[11]

Tweeting Saturation

Acknowledging that Twittering can help build a business by enabling more efficient marketing of brands, the next question is whether the market can become saturated. The answer is that it could from a couple of viewpoints.

First, customers can grow tired of numerous tweets coming from a company. An overly aggressive marketing program can have an opposite effect of what is desired. Inundate people with annoying sales pitches and they will soon remove their names as followers.

In fact, Twitter has specific rules concerning “aggressive following” and “churning.” The former occurs when a user follows hundreds of other accounts to gain attention while the latter refers to repeatedly following and then not following large numbers of Twitter users.

The use of Twitter by businesses has inundated the Twitter software, leading to new limits being put in place. The need for limits indicates a fear of market saturation and a desire to prevent aggressive following. Currently there are limits of 1,000 tweet updates and 250 direct messages per day. One user can follow 2,000 people and over that number additional limits go into effect based on a ratio of followers to following.

Business managers need to be aware that constant flows of self-promoting tweets can give a company a negative image.

Second, the Twitter turnover rate is 60 percent according to Nielson online.[12] The same report states that the audience retention rate is at 40 percent. The opinion is expressed that Twitter will not be able to sustain its phenomenal growth rate unless it increases its user loyalty.

What does this mean for business purposes? If the Twitter audience has a high turnover rate then businesses will have a difficult time getting real benefit from ongoing marketing campaigns. That could greatly diminish the effectiveness of Twitter for business use. Perhaps that is one reason many Fortune 100 companies have not aggressively pursued Twitter as a marketing tool.

“Follow me,” said the Pied Piper

The next phase of Twitter development will be to improve business services by providing “verified account” information, making it easier to communicate with customers.[13] The developers also hope to arrive at a way to interpret collective tweets to find out what moves people emotionally, what interests them, and how they manage information. This would be very powerful knowledge. Jaime Teevan, a Microsoft researcher, has built a career on taking data about people’s knowledge, preferences, and habits to help them manage information. She studies the ways people navigate the flood of information available in the digital age and builds tools to help them handle it.[14] This seems to be what Twitter developers have in mind for the site, but their data is comprised of simple 140-character tweets.

Twitter limits the number of characters for good reason. As one of the Twitter developers said, “We want to make Twitter indispensable, so it tells people what they need to know and what they want to know and hopefully not much else.”[15] Organizations can send messages to staff or customers that get right to the point. It gives a cozy feeling that makes the message receiver feel as if he or she has been hand selected. As a result, the contact becomes a follower.

Conclusion

Is this charisma? Except for the fact the message is conveyed by electronic means rather than by mouth, it certainly has many of the components of charisma. The most important one is that Twitter messages can inspire masses of people. According to a Twitter company report, the goal was to have 25 million users by the end of calendar year 2009. That number will grow to 100 million users by the end of 2010.[16]

It’s a new age in which communication is reduced to essentials. Some people predicted this would happen when e-mail communication was developed. Is Twitter the new Pied Piper of modern society? It would seem so.



[1] Weber, Maximillan. “The Nature of Charismatic Authority and its Routinization” as translated by A. R. Anderson and Talcott Parsons. Theory of Social and Economic Organization, 1947. Originally published in 1922 in German under the title Wirtschaft und Gesellschaft chapter III, § 10.

[2] Morozov, Evgeny. “Iran Elections: A Twitter Revolution,” Washington Post, June 17, 2009 (accessed Sept. 30, 2009).

[3] Julia Angwin, “How to Twitter,” The Wall Street Journal, March 13, 2009 (accessed Oct. 5, 2009).

[4] Judy Keen, “Facebook, Twitter 2-Way ‘Lifeline’ for News, Relief, People’s Statuses,” USA Today, Jan. 14, 2010, p. 7A.

[5] Adam L. Penenberg, Viral Loop, (New York: Hyperion, 2009) 153.

[6] Seckler, Valerie, “From Tweets to Youtube: Brands Creating Content to Gain Attentions,” WWD: Women’s Wear Daily, February 2010, EBSCO (accessed Jan. 28, 2010).

[7] Ibid.

[8] Lavrusik, Vadim, “STUDY: Most Fortune 100 Companies Don’t Get Twitter,” Mashable – The Social Media Guide, http://mashable.com/2009/11/17/fortune-100-companies-twitter/ (accessed Jan. 26, 2010)

[9] Ibid.

[10] Ibid.

[11] Bryant, Adam, “Structure? The Flatter, the Better,” The New York Times, Jan. 16, 2010 (accessed Jan. 20, 2010).

[12] Martin, David, “Twitter Quitters Post Roadblock to Long-Term Growth,” Nielson Online, http://blog.nielsen.com/nielsenwire/online_mobile/twitter-quitters-post-roadblock-to-long-term-growth (accessed Feb. 1, 2010).

[13] Lvey, Steven, “Who’s Running Twitter?” Wired, November 2009: 151.

[14] Teevan, Jaime, “Using Personal Information to Improve Search Results” Technology Review. November 2009: 50.

[15] Lvey, Steven. “Who’s Running Twitter?” Wired. November 2009: 151.

[16] Ibid.

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2010 Student Paper Winner: Using Social Media to Grow Your Business

Businesses can best benefit from social media by having a good overall strategy and knowing how to listen, participate, and measure results.

[powerpress: http://gsbm-med.pepperdine.edu/gbr/audio/fall2010/bagdasarian-socialmedia.mp3]

Click here to view a photo from the GBR 2010 Student Paper Competition Award Luncheon

Social Media NetworkSocial Media is one of the most pervasive technological trends of our day. The phenomena that are Facebook, YouTube, and blogging have fundamentally changed the way we express ourselves and connect with others. No longer is social media just for the creative expression of individuals and consumers; now businesses and organizations are getting involved. But how do businesses use social media to uniquely define themselves in the marketplace? This analysis will show that, contrary to popular belief, businesses of various industry, size, and target audience can all benefit from social media. Specific tactics are described that businesses can use to better engage with customers, which will boost brand equity and eventually lead to bottom-line growth.

What is social media? From the broadest perspective, social media is about Web tools that enable dynamic multi-user interaction.[1] If past forms of communication were about a one-way message to your audience, true social media is about a multi-way conversation where users share content with one another and become more deeply engaged. See social media types in Table 1.

Table 1: “Social Media Types”

Social Media Type

Function

Examples

Social Networking Sites

A medium for sharing information between friends within a network.

Facebook, LinkedIn

Multimedia Sharing Sites

Hosting of photos, video, and music for the purpose of sharing.

YouTube, Flickr

Web forums

A destination for conversation around a specific niche topic.

vwvortex, boston.com

Microblogs

Sharing concentrated bursts of information.

Twitter, FriendFeed

Blogs

A log of user-generated content, news, and advice.

Huffington Post, TechCrunch

Let’s look at this communication on Facebook. A consumer wants advice on Thai restaurants in their area. They post this request on their Facebook status update, which can be seen by other users in their network, or “friends,” who may then offer advice as comments, Web links to nearby Thai restaurants, Southeast Asian food blogs, or reviews of local Thai restaurants. Now consider the potential here for a Thai restaurant. What if the restaurant itself could respond to this prospective customer? In today’s social media environment, that is exactly what is happening. Places of business are increasingly responding to this request by creating their own Facebook pages and using them to raise awareness and offer the user incentives through weekly specials and coupons.

Social media clearly presents an important communication tool for businesses and organizations. The potential has not been lost on President Obama, who has a Facebook fan page with 11,405,803 members as of July 2010. A survey conducted by consultancy firm Marketing Sherpa found that the 2009 to 2010 social marketing budget for each of the seven industry sectors represented in the survey was projected to increase. In the e-commerce vertical alone, budgets were projected to increase by as much as 79 percent.[2] Sites like Facebook have become so ubiquitous that Ford Motor Company unveiled its brand new 2011 Explorer through a dedicated Facebook page this July (2010), forgoing a traditional car show—the first time a major carmaker has ever done so. Ford has already well surpassed their goal of 30,000 Facebook fans.[3] Social media is vital enough that, of the more than 5,000 marketing executives surveyed by Datran Media in December 2009, 72.3 percent had company Facebook pages, 72 percent had a company Twitter account, and 67.2 percent planned on leveraging online video in 2010.[4]

So, it’s clear that companies and organizations are using social media, but just how significant is it and will it grow your business? Not every company has the marketing muscle of Ford Motors or President Obama, but many businesses can implement some of the same techniques. To be successful with social media you must first decide what your specific goals are. Increased revenue is always important but that is an indirect result of deeper customer engagement and building your brand equity. To better engage and build brand equity, many companies focus on improving the following: brand awareness, Web site traffic, customer service, thought leadership (providing unique insights and value), search engine optimization (SEO), and lead generation. Social media can readily assist with each of these goals. Deciding which ones to emphasize is also a function of a company’s industry and target audience. For example, a B2B software company may focus its efforts on “thought leadership,” whereas a women’s apparel manufacturer could emphasize brand awareness. And, in a few cases, your business may not benefit at all from social media. Table 2, “Social Media Goals by Company Type,” can assist a company in determining how social media may best suit its marketing objectives.

Table 2: “Social Media Goals by Company Type”

B2B Company Social
Media Goals

B2C Company Social Media Goals

Companies with Least Benefit From Social Media

Thought leadership

Brand reputation

Defense contractors

Web site traffic

Customer service

B2B companies whose potential target market is highly limited.

Lead generation

Web site traffic

Any company unwilling to devote some time and resources to it

Once clearly defined goals are established, companies must be realistic about the resources they’ll need. Management buy-in and investments in personnel and other resources will all be necessary to create and maintain a social media presence. Buy-in can pose a challenge, as social media is still in its early stages and correlations between social media activity and revenue growth are slowly emerging and not yet fully formed. To make the most of your investment in social media, employ these three methods: listen to the audience, participate in the conversation, and measure success against predefined metrics, (i.e., increasing Web site traffic by 20 percent in the second quarter, reducing customer service wait times, etc.)

Social Media - sales are up!

Listening

Whether you already have a social media presence or not, the key to getting into the game is getting a better feel for what people are saying about you in the “interactive marketplace.”[5] Some of the top tools for monitoring and listening include: Twitter Search, Google Alerts, Radian6, and PR Newswire’s Social Media Metrics. By signing up for these services, you will be notified any time your company’s name comes up online. You can also set them up to receive notification of your competitor’s names or key words for your industry. From this information, companies can discover what social media channels to participate in (i.e., social networks vs. forums), and how best to engage with customers. The key is to be willing to hear the good and the bad that’s being said about you online, and where it’s being said. Then companies can best figure out how best to reach out to their target audience.

Location

Some of the more significant “locations” where your business should have a social media presence include Facebook and microblog Twitter. But there are other social networking sites out there where your audience may already reside including Hi5.com, Plurk.com, Bebo.com, Jaiku.com, Xanga.com, and Vox.com. Deciding where to get involved will depend on where your audience spends its time.

For example, if you are a manufacturer of performance after-market parts for Volkswagen vehicles, then chances are you have some passionate fans outside the mainstream social networks in a dedicated enthusiast forum like www.vwvortex.com. Updating customers about your products and services on that forum may be just as, if not more important as your Facebook and Twitter presence.

And once you’ve accurately found the locations where your audience spends most of its time, you can use aggregator software to create messaging and status updates from one source and broadcast it out to all your social media locations—software like Hootsuite and Ping.FM do this very well.

Participating

Participation is the crux of making social media work for your business. Participating is the act of contributing to different social media channels to effectively interact with your audience. The key to participation is knowing which exact locations to target and what tactics to use. See Tactics below.

Tactic #1: Blogging

With an understanding of where to participate, the next question is what tactics to use.

An excellent way to do this is through a company blog. Company blogs fulfill the goal of increased “thought leadership” and product/brand awareness. In 2010, already 65 percent of U.S. companies were using a corporate blog.[6] A good corporate blogging technique is to focus on relationship building and less on selling. Engage with your audience by building trust based on shared principles, instead of just talking about the features and functionality of your products. Jeff Swartz, president and CEO of Timberland, an outdoor clothing and shoe company, spends a lot of his social media efforts blogging about social causes he is passionate about instead of just talking about the company’s shoes and apparel. His biggest cause is Timberland’s environmental charity, Earthkeepers.[7] The idea behind this technique is that the more personal and human you can be in your social media interactions, the greater the connection you’ll make with your audience, which will translate into greater brand recognition and eventual revenue growth. It is also important to keep the blog active by updating a few times a week, but not so often that you’re simply writing just for the sake of saying something.

Tactic #2: Social Networks



Baby Gap screen shot

Click on thumbnail to view full-size image


Social networks like Facebook are clearly a great way to learn about your audience and interact with them in a dynamic way. These networks also allow you to have your customers do the marketing and advertising for you by simply getting them more engaged. For example, on Gap’s “Baby Gap” tab on their fan page, there is a simple yet colorful collage of pictures of babies wearing GAP denim. Users who become fans of the page have the opportunity to upload pictures of their own babies wearing any variety of Gap denim. Users show off their own well-dressed babies and send the link to the many friends they have in their network, Gap denim gets more exposure, and it is all done for a fraction of the price that a traditional marketing campaign would cost. This type of social network interaction can be used by businesses to boost Web site traffic to the corporate site and help increase brand recognition.

Tactic #3: Microblogging

Microblogs like Twitter, FriendFeed, and Tumblr are a great way to communicate in short concentrated bursts. In the case of Twitter, those bursts are limited to 140 characters or less. One industry that has made the most of Twitter is the food truck industry in Los Angeles. These mobile trucks announce or “tweet” their locations, and followers flock to them. The tweets have grown to include food specials, promotions, and contests several times a day. In fact, without Twitter, these trucks may not have had a future. According to an interview with proprietor Y.L. of Kabob N’Roll truck, “Ninety-nine percent of our business is through Twitter. But we weren’t the first. If it weren’t for Kogi [a Los Angeles-based Korean barbeque truck], we wouldn’t be here. In March of last year [2009], Kogi almost gave up. Their trucks barely had sales of $300 or $350 a night and were going to shut down. But when they started using Twitter, their sales started booming, especially when they started parking at clubs after they get out. It’s thanks to them that we’re here.”[8] Twitter can be used for fun contests to drive sales as well, according to our interview with Jamie Kadzik of the Crepe’n Around truck. Kadzik tells his Twitter followers that the first person to tweet, “Crepes are for Mondays” gets a free meal of their choice at his truck.[9] Contests like these are a free and easy technique that your business can use to generate excitement that will help you engage with your customers, increase your brand awareness, and boost your sales.

Tactic #4: Integrate Multiple Social Media Channels



Emerson Salon Web site

Click on thumbnail to view full-size image


A good example of a small business that integrates multiple social media techniques that complement one another well is the Emerson Hair Salon of Seattle, Washington. Knowing full well that one in five small business owners are integrating social media into their business processes[10], Emerson integrates Facebook, Twitter, and a daily blog into their Web site. This strategy is easy for any small business to emulate. Their Web site is very uncluttered and has a highly intuitive layout. There is a link to each of their stylist’s Facebook profiles right on their home page, and users can book their next hair appointment online. Taking it one step further, Emerson’s site gives customers a chance to share that appointment with other users on Twitter and Facebook. Emerson also encourages patrons to post pictures and talk about local rock concerts, street festivals, and block parties on their pages. Their efforts are paying off: over the last two years, 75 percent of their business now comes from their Facebook, Twitter, and blog.[11]

Measuring

Now that you’ve listened and participated, it’s time to measure your success. If your goal was to increase Web site traffic by 20 percent through your social media campaign, were you successful? Were you able to increase your SEO ranking on Google through social media so that every time people search your Web site, you now rank on the first page of a Google search instead of the seventh? In addition to those more traditional metrics, new social media metrics include how many Facebook followers you have, the number of conversations going on about you, and “sentiment”—what people really think about you. Software like Radian6, Sentiment Metrics, and Argyle Social can help you quantify success in those areas. Finally, how do you measure if your social media has boosted your revenue? While it may be difficult to quantify the connection between each Facebook fan and a certain dollar increase in revenue, by having a good strategy of knowing where your customers are and how to reach them—you will see quantifiable results. Specifically, the more engaged your company is on a whole with its customers, the more your revenue and gross margin can increase—top brands that ranked highest in their social media engagement (such as Starbucks and Dell), saw increases in their revenue of 18 percent vs. non-engaged brands that saw a 6 percent drop in their revenues in the 12-month period ending July 2009.[12] See Figure 1.



Fig. 1: Engagement Correlates to Financial Performance

Fig. 1: Engagement Correlates to Financial Performance


Conclusion

The world of social media for business is still in its early stages, but a variety of businesses have already seen quantifiable benefits. There is very little to lose and much to gain by getting involved. The case studies and examples provided are proof that by having a good overall strategy and knowing how to listen, participate, and measure, you can better engage and build your brand, as well as your long-term revenue goals. Regardless of what stage you’re at in your social media marketing approach, the sooner you become more engaged with your customers, the sooner you’ll develop a strong relationship with the people who are most important to your business.


[1] About.com: Webtrends, “What is Social Media?” http://webtrends.about.com/od/web20/a/social-media.htm.

[2] MarketingSherpa, “2010 Social Media Marketing Benchmark Report,”
http://www.marketingsherpa.com/SocialMediaExcerpt.pdf.

[3] Van Grove, Jennifer, “Inside the 2011 Ford Explorer Facebook Reveal,” Mashable.com, July, 2010
http://mashable.com/2010/07/26/ford-explorer-facebook-reveal/.

[4] Datran, “Fourth Annual Marketing and Media Survey,” December 2009,
http://www.datranmediasurvey2010.com/start.php?showtype=page-1.

[5] Solis, Brian, “The 10 Stages of Social Media Business Integration,” Mashable.com, January 2010, http://mashable.com/2010/01/11/social-media-integration/.

[6] KingFishMedia, “Social Media Usage, Attitudes, and Measurability: What do Marketers Think?” 2010,
http://www.kingfishmedia.com/marketing-resources/research/social-media-usage-2010-ebook08112010.

[7] Charles, Ann, “Five Social Media Tips for Better Corporate Social Responsibility,” Mashable.com, February 2010, http://mashable.com/2009/09/22/social-media-business/.

[8] Y.L., owner of Kabob N’Roll, In-person interview, August 13, 2010, Los Angeles.

[9] Jamie Kadzik, owner of Crepe’n Around, In-person interview, August 11, 2010, Los Angeles.

[10] Swallow, Erica, “Five Small Business Social Media Success Stories,” Mashable.com, June 2010,
http://mashable.com/2010/06/02/small-business-social-media-success-stories/.

[11] Ibid.

[12] Wetpaint and Altimeter Group, “The World’s Most Valuable Brands. Who’s Most Engaged?” Engagementdb, http://www.engagementdb.com/downloads/ENGAGEMENTdb_Report_2009.pdf (link no longer accessible).

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Utilizing Business Service Management Concepts to Improve Healthcare Information Services

This article presents background information on the Information Technology Infrastructure Library (ITIL) and Business Service Management (BSM), introduces methodology for implementing the ITIL processes in a business, and highlights lessons learned from the initial implementation of these processes at a regional medical center.

[powerpress http://gsbm-med.pepperdine.edu/gbr/audio/spring2010/healthcare.mp3]

Doctors at computersBusiness Service Management (BSM) is a fairly new methodology, which is being used by Information Technology (IT) organizations and businesses to describe a way to organize, operate, and manage IT Services.[1] Specifically, BSM allows an IT organization to properly align critical business services to the underlying IT infrastructure that provides the service, as described by the Information Technology Infrastructure Library (ITIL). This article provides a brief summary of ITIL and BSM, and describes the adoption of BSM concepts in an IT department and a business service unit of a regional healthcare provider that aims to further examine key performance indicators. The goal of the project described in this article is to identify potential points of service failure and proactively prevent these service failures from occurring, create a more efficient information flow, improve patient care, and lower IT costs. The lessons learned from the implementation of BSM at this company will be outlined in the article.

Background – Business Service Management

In order to fully explore BSM, we must also look at ITIL and its goals. The Information Technology Infrastructure Library (ITIL) was first published by the British Office of Government Commerce[2] in the early 1990s, and became widely adopted in the mid-1990s. ITIL was originally conceived of as a way to better align information systems with the business processes they supported. The goal was to improve the management of IT by implementing a more process-oriented model of control. Starting with ITIL version three, ITIL concepts focused on developing the quality of services that IT organizations provide to the business, rather than simply managing and maintaining the business IT infrastructure and technology. ITIL V3 introduces the idea of the “service life-cycle,” with five major components:

1. Service strategy—guidance, policies, and processes that assist in developing service management policies to govern the other service components,

2. Service design—guidance on developing processes that manage how changes and improvements are made to increase and maintain the business value,

3. Service transition—guidance on the development and improvement of capabilities for transitioning new and changed services into operations,

4. Service operations—guidance on achieving effectiveness and efficiency in the delivery and support of services so as to ensure value for the customer, and

5. Continual service improvement—guidance on creating and maintaining value for customers through better design, transition, and operation of services.[2]

With the addition of the “service-life cycle,” ITIL is focused more on the implementation of high levels of IT service for the business.

ITIL is becoming much more widely accepted in the business and IT communities. According to a study by Dimension Data, 85 percent of American CIOs stated that IT service management practices will allow increased optimization of IT “best practices” with 60 percent stating they were focused on implementing the ITIL framework.[3]

Business Service Management enables organizations to implement the ITIL framework, and enables the goals of the business to be more closely related to the IT components that support them. It also represents “a category of IT operations management software products that link the availability and performance status of underlying IT infrastructure and applications components to business-oriented IT services that enable business processes.”[4] Implementing this type of software can improve the service levels provided to the organization by IT, and reduce costs for the IT organization and the business.

According to Marquis,[1] the implementation process for BSM can be broken into four steps:

1. Define IT services and validate business cases.

2. Analyze service value and prioritize services in terms of IT focus.

3. Measure quality externally from the organization to choose improvement opportunities for those services that are not performing as required from the service consumer.

4. Authorize every IT improvement program as a formal project and allocate resources.

Adoption of ITIL and Business Service Management practices

Individual business services are built out of many different processes, policies, functions, systems, and customer interactions. The ability to model these moving parts in a single monitoring system is the real value of BSM, as the organization gains insight into the business service, end to end. In this section, the key module layers in BSM are discussed using the example of a large regional medical center, which benefitted from the flexibility and value that BSM adds to an organization.

In 2007, a large regional medical center began to implement ITIL practices into their IT long-term planning as well as in daily operations. In the fall of 2008, these practices were extended to the hospital’s IT Project Management Office, which specifies the ITIL guidelines implemented for knowledge, change, and service management modules. Goals were established for the BSM services, and several vendor applications were solicited to assist with the implementation of BSM.

The goals and anticipated benefits of the BSM modules were: a) monitor end-user experience to identify IT problems; b) spot pre-failure warnings through trending and historical analysis; c) prevent “finger pointing” through early detection of potential service failures; d) distinguish between vendor points of failure and internal points of failure; and e) provide management dashboards (a user interface to provide a visual representation of multiple key performance indicators) and alerts.

A vendor was selected to provide the core software for the “Business Service Management Model,” which functions as the engine that maps incoming data to the relevant business process it impacts. Once the business service is defined, and the IT components that provide this service are mapped out, data can be collected and used to tailor dashboards to the different end users. This in turn allows users to make informed decisions based on current and historical data.[4] Implementation of this service monitoring module began in early 2009. Key to the implementation was mapping specific hospital workflow practices to the monitoring system.









Mapping of service module.

Fig. 1: Mapping of service module.









The first layer inherent in the BSM is the establishment of the proper metrics and standards for the services being monitored. These metrics must be divided between those items that are the responsibility of the IT department and the service level agreements (SLA) with the individual hospital service providers. The IT responsibility arena includes items such as measuring network speed and managing capacity, including utilization of the central processing unit and random-access memory. The service level agreements are based on measurements like transaction or response times, and define the acceptable levels of performance for these metrics and the penalties for failing to meet these performance targets.

The next layer is what really defines BSM. When modeling a line of healthcare services, there are generally clearly defined steps that need to be monitored. For example: measuring the time from when a patient enters the hospital’s emergency room, to when they are provided the needed services and, finally, to release or admittance. A metric that defines this level of performance is called a key performance indicator (KPI). KPI’s are generally built upon SLA’s with additional interaction measurements between the managed service and the customer. Another example of a KPI would be the amount of time it takes for an employee to capture and enter new patient contact information. This time is measured from the time the employee starts entering the information to the time the system returns a complete message back to the employee, acknowledging that the information was captured accurately. This time measurement includes both the system response time and any additional interaction time between the patient and the employee, as the measurement starts as soon as the employee opens the new customer screen and ends only when the data is saved to the system. Thus, business performance is measured in KPI’s, which are an aggregation of system time (as defined by the SLA’s with the business unit) and interaction times.

Building Business Service Management Modules

All of the different layers of criteria and standards may be represented via a tree. Each layer of the tree has a node, which represents a service. In the tree, there is a top node or service, defined as a KPI. Other layers define the measurement standards, locations, and performance standards. Figure 1 represents the model to measure the business service management performance of the hospital’s emergency department (ED). The following definitions will assist in the understanding of the module components:

1. KPI—Key Performance Indicators for this tree are the actual business process definitions, such as “quick registration” to “triage,” which is the time it takes for a patient to go through the quick registration process, and ends when the triage process begins. Each KPI is the next step in the ED process in this service model.

2. Location—This medical center has multiple ED departments.

3. Acuity—Patients are assigned an acuity level or degree of illness.

4. Process—Due to the performance measures being calculated, patients could be divided into different process levels within each KPI. For this example the process levels are “In Process” and “Completed.” A patient is in process if they have a start timestamp for a KPI, but no end timestamp.

5. Performance—In this particular model we are measuring two performance metrics: the number of patients in the business process, and the average wait time for those patients in this business process. Each base node would represent the complete segregation of data we were looking for and as you moved up the tree, the “Patient Count” and “Average Wait Time” would aggregate to give you another view. This means, at the Acuity level, you would see the total number of patients and the average wait time across all of the nodes below Acuity.

Figure 2 represents what one entire leg of the tree would look like once data is entered into the system. The base of the tree, when fully populated, has approximately 300 nodes across. Once data is fed into the system, the tree grows horizontally at each layer of the service model. As messages come into the system via the data feed, the messages are compared to the model template. The model template is essentially a waterfall filter, which determines where the message (the data) fits into the tree. Once the message is fit into a template, it is compared to the other data that has already been fed and fits that template. If the node already exists, it is updated. If the node does not exist, a new node is created. The system then moves on to the next data set: building the message, running the message through the waterfall template filter, and fitting the data into the tree.





Tracking nodes are built automatically to track service points of contact and other KPI's

Fig. 2: Tracking nodes are built automatically to track service points of contact and other KPI




IT management, ED management and first-line supervisor dashboards

Once the model is populated, the tracking of performance can be segmented into a series of dashboards to assist IT management as well as ED personnel to identify potential bottlenecks. Several of the key management dashboards are shown below:









Component of the Executive Summary Dashboard

Fig. 3: Component of the Executive Summary Dashboard (above)









Figure 3: An executive summary dashboard that tracks and reports five KPI’s in terms of their current quality, availability, SLA status, and monthly quality trends.

Figure 4: This dashboard shows, by criteria, nodes where there might be service bottlenecks. This figure represents those items previously defined in Figure 2 and those that might be out of compliance for pre-established SLAs. The user can click on any node to drill down and respond to situations where the business might be performing poorly.









Potential service failure points.

Fig. 4: Potential service failure points.









Figure 5: This operation dashboard shows another view of the overall throughput of the ED business processes. It provides management and front-line supervisors information on the key KPI’s impacting service levels. The most interesting gauge here is the Acuity Throughput gauge—this is the number of hours, on average, it takes a patient of a specific acuity level to get through the selected ED location.









Operations Overview

Fig. 5: Operations Overview









Usage and Implementation

As this article was written, the dashboards were being introduced to additional IT management and the ED management at the medical center. A key component of using the dashboards is to train all users on their meaning and how responsible individuals may respond to different nodes that may be out of compliance.

Care was taken to involve the end user in the establishment of the KPI’s, the nodes to monitor, and potential responses. The goal is not to track failures and “point the finger,” but rather to assist the ED and IT supervisors in preventing a potential future service failure. For example, the BSM provides the acute care ED nursing supervisors real-time data on how many patients are currently in the queue at each specific level of acute care. This enables the supervisor to shift ED staff to those acute care levels approaching service failure.

Conclusions

The project team at the regional medical center reported success in the adoption of this business service management module. Several lessons were learned from this adoption, which will be applied to future work in expanding the modules and future implementation of ITIL standards. They are:

1. Creating and implementing this solution was more resource-intensive than originally anticipated. The next portion of this implementation will require additional monies more appropriately budgeted. Additional resources applied to develop and maintain the solution, including modeling business processes, creating dashboards, and mapping the information systems, are key to a successful implementation. The development and ongoing maintenance are extremely time-intensive tasks that require focus, especially in a rapidly evolving environment like healthcare.

2. Input from the employees who work the business processes each day is absolutely required from the start of the project. Their feedback allows the model to be more accurate conceptually. Including the business service managers as the KPI’s are discussed and developed on the dashboards is especially crucial, as these are things the business service managers may already be tracking.

3. Finally, this solution is best for process-driven businesses where management is already looking for ways to improve performance. If business lines operate in an organized fashion with clear business processes, the dashboard monitoring and maintenance costs decrease, and the process becomes easier. When starting a BSM project, it would be wise to start with a well-defined business process or unit, as these projects are more likely to succeed.

While this article tracks the implementation of ITIL standards at one medical facility, this method of process-improvement is relevant for any number of businesses and industries. Examples of other industries that may benefit from ITIL include production, shipping operations, financial institutions, and customer service. Management in each of these areas could work with their IT teams to define the key performance indicators, the primary bottlenecks, and the acceptable level of operations and service response times. Once these are defined, the use of dashboards can alert management to potential problem areas in advance, thus permitting managers to respond proactively to problems, rather than simply “fighting fires.”


[1] Marquis, H., “Business Service Management: What It Is and Why You Should Care,” Global Knowledge, August 2008 [White paper]. Retrieved from http://whitepapers.zdnet.com/abstract.aspx?docid=384727. (link no longer accessible).

[2] www.itil-officialsite.com, “ITIL, Information Technology Infrastructure Library,” 2010: http://www.itil-officialsite.com/home/home.asp.

[3] Dubie, D., “ITIL Adoption Increases in U.S., Proficiency Still Lacking,” Network World: Feb. 29, 2008. Retrieved from http://www.networkworld.com/news/2008/022908-itil-adoption.html.

[4] Compuware. “Vantage Service Manager: A Technical Overview,” 2007 [White paper]. Retrieved from http://whitepapers.techrepublic.com.com/abstract.aspx?docid=347890.

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Interview with Robert Eckert, Chairman of the Board and CEO of Mattel, Incorporated

What does it mean to be the CEO of the worldwide leader in toy design, manufacturing, and marketing? When you’re responsible for $6 billion in annual sales, how does your success impact the world at large? How do you stay on top of today’s trends in technology and corporate business practices?

On November 5, 2009, Robert Eckert, Chairman of the Board and CEO of Mattel, Incorporated, visited with David Smith, PhD, Associate Dean of the Graziadio School of Business and Management at Pepperdine University, to answer these questions and more.

Bob joined Mattel in May 2000 from Kraft Foods, Inc. A 23-year veteran of Kraft, he most recently served as its president and chief executive officer. Bob received a BS in business administration from the University of Arizona and an MBA in marketing and finance from Northwestern University. He serves on the McDonald’s Corporation Board of Directors, the J. L. Kellogg Graduate School of Management Advisory Board at Northwestern University, and the Board of Visitors at The Anderson School at UCLA.

Questions for Mr. Eckert

  1. How do you balance your career, family life, and personal needs? How do you address work/life balance with those who report to you?
  2. What was your career plan when you received your MBA?
  3. What are your core responsibilities as a CEO and how do you prioritize?
  4. What is the greatest challenge you’ve faced as a CEO? What have you learned as CEO that has surprised you?
  5. What is your personality type and how does that impact your leadership style?
  6. Today’s employees change jobs more frequently than ever before. How does this trend impact Mattel?
  7. How do concerns over the lack of environmental compliance from China affect Mattel?
  8. How is its business model being impacted by the declining dollar?
  9. In what ways does the success or failure of Mattel products impact the world?
  10. What do you see in the future for the toy industry?
  11. What are your core values as a leader?
  12. What’s the last book you read?
  13. What do you see in terms of your legacy for Mattel?

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Editorial: Is Robotics America’s Ticket to Continued Global Competitiveness?

The real problem is not whether machines think but whether men do.

- B. F. Skinner

[powerpress http://gsbm-med.pepperdine.edu/gbr/audio/winter2010/robotics.mp3]


The ethical concern regarding robots replacing humans in the workforce is a continual refrain. On the one hand, the increased productivity enabled by robotics may be the key to strengthening the U.S. economy and allowing a leaner workforce to remain competitive. On the other hand, is it fair to put people out of work just to save a few bucks?

A Brief History of Robots

From the beginning, humans have been fascinated by mechanical devices. The first recorded steam-powered device, a major technological milestone in human development, was the Aeolipile, described by Hero of Alexandria (Heron) of Roman Egypt in his first-century manuscript, Spiritalia seu Pneumatica.[1] Almost two thousand years later, the Westinghouse Electric Corporation introduced the first humanoid robot, Elektro, which they exhibited at the 1939 and 1940 World’s Fairs. The first autonomous electronic robot was created by William Grey Walter at Bristol University in England in 1948. It was named Elsie, or the Bristol Tortoise, and it could sense light and use physical stimuli to navigate.[2]

Today, robots are linked to improvements throughout the economy. In fact, in manufacturing operations, robots outperform their human counterparts in tasks that require precision, accuracy and repeatability and, unlike humans, they maintain consistent production and quality levels.

Current Developments

Over the past decade, much attention has been paid to the exodus of jobs to overseas and rightly so. The United States lost over two million manufacturing jobs between 2001 and 2007;[3] in November 2009 alone, 41,000 manufacturing jobs were lost.[4]

But offshoring has not been limited to manufacturing; millions of white-collar jobs have also disappeared. It seems the general view of corporate America is that the only way to remain competitive is by reducing labor costs and moving jobs overseas to cheaper labor markets.

However, with the continued advances in robotic technology, the profit motive to offshore demands re-evaluation. Along with lean manufacturing and quality enhancements, the United States can use robotics to level the playing field with foreign competition. The key has always been to work smarter, not harder, and automation allows this to happen.

While replacing humans with robots is a perennial ethical concern, the reality is that the U.S. workforce will be shrinking on its own as the baby boomers begin their transition into retirement. According to Rick Schneider, CEO of Fanuc Robotics America Inc., within 15 years, the United States will suffer its own labor gap when just 40 million new workers are available to fill the jobs vacated by 70 million retiring baby boomers.[5]

The Japanese, who have been experiencing their own labor gap, have already converged upon robotics as the solution and are outpacing America in terms of robotic technology. Nevertheless, the United States has a long history of embracing technology that allows fewer workers to produce more goods and services, for example, within the agricultural industry in the early 1900s and the steel industry in the later 20th century. Future education will be the key to successfully increasing the use of robotic technology throughout U.S. industry and government.

The other major obstacle facing robotics is the myth of cost and training.[6] In some quarters, the perception still exists that robots are fancy and expensive; however, the reality is quite different. Just as computers have shrunk from the size of a room to the size of your lap, technological advances have similarly benefited robotics and automation. More robots are in use generating valuable experience to apply to future designs. As the technology continues to improve, costs will continue to decline, while at the same time, new and different domains become available.

New Uses for Robots

Traditionally, robots have been used to perform mundane, repetitive, or dangerous tasks. However, with recent scientific leaps in automation, more opportunities exist for robots to step in and take on more sophisticated duties. Several of the new fields of service for robotics include food processing, postal processing, nanotechnology, medical surgery, and military applications. For example, robotic-based surgical technology, although expensive, can result in shorter hospital stays, reduced infection rates, and quicker recovery times.

Conclusion

Generally speaking, each of the industrialized nations can acquire the same robotic technology. The real challenge is how the technology is used in combination with human skills. Humans and robotics can provide complementary capabilities. This is why education plays such a key role; without an educated work force that can continue to find new ways to improve and use the technology the full potential of robotics may not be reached.

The current economic and financial crisis plaguing the United States underscores the need for new and innovative solutions to job creation and efficiency. In that regard, robotics can play a significant role in allowing U.S. manufacturers to overcome the current challenges and to remain competitive in the global marketplace.[7]


[1] Heron Alexandrinus (Hero of Alexandria), Spiritalia seu Pneumatica, (Germany: K. G. Saur Verlag, 1998).

[2] Adam Currie, “A Brief History of Robotics,” The Robotics Lab, http://robotics.megagiant.com/history.html

[3] Robert Scott, “The China Trade Toll: Widespread Wage Suppression, 2 Million Jobs Lost in the U.S,” paper, Economic Policy Institute, no. 219, July 30, 2008.

[4] Bureau of Labor Statistics, “The Employment Situation – November 2009,” news release, U. S. Department of Labor, December 4, 2009.

[5] Rick Schneider, “Robotic Automation Can Cut Costs,” (hyperlink no longer accessible) Manufacturing Engineering, 135, no. 6, (12/2005).

[6] Diana Kurylko, “Vance Makes Room for G-Wagen; Mercedes’ Alabama Plant Expands to Build More Vehicles, Share More Parts.” Automotive News, October, 13, 2003.

[7] Rich Goshgarian, “Turning to Automated Processes,” Quality Magazine, 47, no. 13, November 24, 2008.

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The Power of Sharing in an Uncertain World

As global economies rise, managers are reassessing the benefits and costs of different business service models. In the past, inefficiencies in corporate business units and high costs led organizations to choose shared service or outsourced alternatives. Other choices emerged with the advent of Web 2.0 technologies and global service options. Today, virtual insourcing is becoming a viable option because it showcases the efficiencies of corporate business units and maintains costs near or below those of shared services.

A case study of a corporate business unit at Nestlé in the United States demonstrates the potential of virtual insourcing. While the benefits of sharing information and services will vary across organizations, the authors believe virtual insourcing deserves to be added to the list of service models being assessed.

[powerpress http://gsbm-med.pepperdine.edu/gbr/audio/fall2009/virtualinsourcing.mp3]






Image: Konstantin





In an effort to increase efficiency and cut costs, current business service models for credit and collections, product manufacturing, and even research and development are being compared with offshored, outsourced, and shared-service alternatives. This article identifies an emerging business service model that increases worker efficiency and reduces costs even below shared-service levels. This model, which uses Internet technologies to showcase the contributions and cost reductions provided by employees who share information and services, is referred to as virtual insourcing.

Sharing information is a maturing process. In the last decade, Web 2.0 technologies have emerged to support business models that connect internal business units with external, organizational entities and customers in order to achieve common goals in communities.[1] For example, Procter & Gamble has a website and program called “Connect + Develop” that allows consumers and external partners to submit ideas directly to their product development group; if an idea is used, the submitter is compensated.[2]

This article introduces virtual insourcing as a viable business service model and explains why managers should consider it as an option for the volatile and uncertain times ahead.

What is Virtual Insourcing?

Figure 1 is a visual representation of how virtual insourcing options works: Basically, an Internet communication platform stores information in a single place (Data Center #1) where geographically dispersed employees in a business unit can access the files and programs they need to perform their daily work. It allows employees to be in different corporate offices or work from home because they have the same level of access to their work files and programs regardless of their location.




Figure 1




Ideally, digital copies of paper files, working files from desktops, emails, enterprise resource planning (ERP) data, dashboards, and third-party information should all be available over the communication platform. Daily work activities (services) are performed using calendars, assignment and workflow tools, message boards, and chat rooms. Communication paths, which connect users to the information they need to perform their tasks, can also be customized.

The “people paths” feature allows users to share both information and services (such as new customer applications, financial analyses, risk ratings, approvals, and decisions) while corporate auditors and executives can view outcomes and findings. In addition, employees from other business units can be invited to participate in select two-way communications.

Sharing both information and services across an organization can generate cost reductions and efficiency improvements and even support wealth creation. With virtual insourcing, knowledge is created and stored digitally and transparently; the high visibility of user contributions encourages learning and facilitates sharing. Examples of “off-the-shelf” virtual insourcing solutions include Google Apps and Microsoft SharePoint; however, they may not offer the security or customizations that a particular organization may need.

Strengths and Weaknesses

Organizations with strong local-market customers, suppliers, and business connections are often subject to scrutiny with respect to costs and inefficiencies. Inefficiencies often occur when managers make decisions based on incomplete information.[3] Searching for paper files and connecting information across emails, paper files, desktop files, and telephone conversations only increases labor costs. Management consulting firm McKinsey refers to these costs as interaction costs and has reported that they can account for half of total labor costs.[4] Over the past two decades, Fortune 100 companies that managed and reduced their interaction costs created $30,000 more wealth per employee than their competitors, according to McKinsey.

Sharing information and services can be viewed as a hybrid approach that combines the strengths of other organizational options while minimizing known weaknesses, such as high interaction costs.[5] The following table summarizes the key strengths and weaknesses of the three core organizational options:

Strengths Weaknesses
Status Quo Local Connections High Infrastructure Costs
Outsourcing Low Corporate Cost High Interaction Costs
Shared Services Low Interaction Costs Loss of Local Decision-Making

In this situation, “status quo” refers to a group of employees within a business unit who work with other business units within the organization. They form a local team with strong ties to the market and use an assortment of paper files, desktop files, emails, voice messages to do their work. As they are often located in key metropolitan markets, employee labor costs are high.

Outsourcing is often seen as a cost-saving option as labor costs are low compared to employee costs. However, the interaction costs for dealing with external vendors must be included in the total cost of outsourcing, and they can significantly close the cost gap between this option and others.[6]

In an outsourcing situation, customer and supplier relationships are often more complex and require additional checks and balances to manage. One company recently noted that invoices submitted by suppliers had to go through local offices to a national scanning and coding center in the United States, then to an outsourced accounts payable systems center in Puerto Rico, and then to a control center in Europe before finally arriving at a local bank for payment. In addition, local office staff was required to spend a significant amount of time checking that the scans and codes were done properly, confirming that system notices, such as blocks and denials, were not being encountered, and answering vendor questions regarding payments.

Shared services comprises of a centralized business unit in a low-cost labor area that performs a business function across several local business markets, dramatically reducing the costs of repetitive services or transactions.[7] Some centers are offshored while others are located in rural communities; the information they use is available and stored on corporate ERP systems. The downside is that when automated corporate controls are implemented, talent chains are disconnected and frequent communications with suppliers and buyers are eliminated, which can cause relationships to suffer. Another key disadvantage is that business units lose their autonomy in decision making and their flexibility to do things differently from other units.

Virtual insourcing emerges as the best option as it retains valuable local-market connections and relationships by keeping employees in one business unit in the same space as employees from other units. This solution can also help encourage business units to adopt best practices (through high transparency and audit standards), reduce interaction costs, and recognize employee contributions.

But these are simply the promises of virtual insourcing—can its potential be realized in the real world? The following section attempts to answer this question by documenting a successful case of virtual insourcing implementation.

The Problem

In an uncertain world characterized by volatile markets, innovation is critical. Executives in successful, global companies stress that they want their managers to propose new ideas, even if there is a chance that they will fail. At Nestlé, innovation includes discovering new business service models. This case study focuses on a virtual insourcing model implemented within the company’s credit and collection units.

In 2004, the credit and collections groups at Nestlé companies across the United States knew they were facing some significant challenges. There were five separate credit and collections units—Nestlé USA, Dreyers, Alcon Labs, Purina Pet Care and Nestlé Waters, and so, customers and suppliers often addressed and resolved issues in different ways with different units.

The director of Nestlé USA’s credit and collections reviewed their current operations and reported that account paperwork and information were scattered, which made files hard to find. Phone call messages, emails, attachments, desktop and laptop working files, credit files, and other materials were located in multiple places, making it difficult for employees and the company as a whole to move quickly in response to market changes. While the necessary outcomes were achieved, the process of achieving them was time-intensive and uncertain. Clearly, the monthly phone call to discuss high-risk and high-value accounts was not going to be enough going forward.

At the time, Nestlé USA was launching its new ERP program in the United States, and all IT resources were being directed to its rollout. Discussions were also under way with the chief financial officer regarding shared-service options, with a central location serving all five U.S. credit and collections units. There was a dire need to quickly discover what other options existed beyond the status quo and shared services.

The Solution

An outside advisor with experience in shared services was brought in to discuss alternatives. He told them that the best option in terms of cost would be shared services but the best option in terms of service would be one that shared information as well as services.

The virtual insourcing business service model would create a single place where information could be shared and services, such as financial analyses, could be stored. This would mean that only one application and one financial analysis would need to be performed for each account, minimizing duplication of efforts. A primary difference between the virtual insourcing and shared-services options was that using virtual insourcing allowed professionals to remain with their companies and retain valuable connections with customers, sales, and other units.

A set of analytics was prepared to compare the costs related to subscriptions, duplicated services, staffing, and working capital. The results showed that virtual insourcing held the potential to reduce costs to near the level of the shared-service cost model. In fact, consolidating subscription fees into a single, shared fee and eliminating duplicate services generated savings large enough to cover the basic costs of putting the solution in place.

The related technology, interface, and user risks were also assessed. Of these, the user risks—namely, user adoption—were determined to be the most significant. A recent corporate-wide sharing solution had only seven logins across the entire global company in six months.

A team was formed to meet for two hours, once per week, for eight weeks to work out the details. Four “people paths” were set up for ongoing credit, unauthorized deductions, red flags, and invoice collection discussions. Documents, email programs, subscriber notes, news, references, and working desktop files were all moved to the virtual insourcing solution. Chat rooms were opened to share information on services.

The Results

Once communication lines opened among the five units, customers began to view them as one entity, rather than as separate organizations. Junior analysts learned from seasoned professionals. Employees shared customer contacts and job opportunities opened up for those who could now be recognized as strong contributors. Performance reviews now included sharing activities and survey responses indicated what was working well and what needed to be improved, such as the timeliness of responses to information requests. User activity was tracked and rose steadily.

Over the next three years, credit and collections activities rose, but headcounts remained stable; however, in some cases, open positions caused by normal turnover and voluntary retirements did not have to be filled. Each unit shared in the cost of the sharing solution; once the value of the sharing solution was shown, the path to a shared-cost formula was easy to establish.

In retrospect, the risks taken to implement an innovative sharing solution for credit and collections across Nestlé in the United States were manageable, the outcomes exceeded expectations, and the big question became why had it not been done sooner.

Keys to a Successful Sharing Solution

As part of a well-orchestrated campaign, significant benefits and value can be created by implementing virtual insourcing within an organization. Below is a summary of key findings to stimulate discussion.







Image: Ayzek







Successful sharing solutions can:

  • Pay for themselves by eliminating duplicate costs (such as multiple subscriptions to third-party publications like Dun & Bradstreet), reducing redundant work, and decreasing working capital and days-to-order results.
  • Open the door to having employees work at home, thus reducing office rental and utility costs as well as employee expenses, such as parking and travel costs.
  • Improve the daily work activities of all users. Benefits include reducing time lost due to duplicate work, email, telephone tag, and file or document searches.
  • Allow users to go from usage (seeing what is being shared) to participation (taking part in discussions) to contribution (posting information, analyses, and recommended actions), all of which serve as steps along the path to self-engagement.
  • Support users with various access and security privileges. Not all users need to be equal. Some can be restricted to discussions with selected accounts so that confidentiality is maintained in accordance with privacy agreements.
  • Provide clear audit trails. Notification is automatic and one click should take a user to a new message or document when it is posted for an important account. Documents, discussions, and actions are stored in one place. Search engines make it easy to find and access accounts, documents, and messages.
  • Facilitate continuous learning as more information and expertise is centrally and transparently collected.

It is important to note that value must be established before implementing cost-sharing formulas. Ideally, an organization should treat first-year efforts as a corporate investment to discover the benefits of sharing both information and services and to verify that the expected benefits are recognized by business units. Only afterwards should discussions and implementation of cost sharing begin taking place. Also paramount to success is having a clear leader who recognizes the risks and value from sharing solutions and is willing to spend time tracking and managing activities.

The proportion of successful virtual insourcing solutions remains around 15 percent—consistent with other Internet applications. Usage risk, that is, getting employees to engage in sharing information and services, remains the most difficult hurdle to overcome.

Conclusion

Business service models are only as good as the costs they reduce and the benefits they provide. Virtual insourcing is an emerging alternative that uses Internet technologies to enhance the contributions and value of employees. In today’s uncertain economy, and with the great need to create competitive advantages, virtual insourcing offers managers a viable new cost-saving and wealth-creating option.[8]


[1] Daniel Tapscott and Anthony Williams, Wikinomics How Mass Collaboration Changes Everything, Portfolio, (New York: Penguin Group, 2007).

[2] Procter & Gamble, https://www.pgconnectdevelop.com/.

[3] Larry Goldman, “Driving Toward Action: The Action Stage,” DM Review, 15, no. 5 (May 2005).

[4] Lowell L. Bryan and Claudia I. Joyce, Mobilizing Minds, (McGraw-Hill, 2007).

[5] Shelly Heiden, “Centralization Versus Decentralization: A Closer Look at How to Blend Both,” Chief Learning Officer, 6, no. 12, (December 2007). (hyperlink no longer accessible).

[6] Sameer Kumar and Krisoffer Kopitzke, “A Practitioner’s Decision Model for the Total Cost of Outsourcing and Application to China, Mexico and the United States,” Journal of Business Logistics, 29, no. 2, (2008).

[7] JP Morgan Chase, “Moving Towards Global Shared Service Centers,” white paper, JP Morgan Chase, May 24, 2004 [registration required]. (hyperlink no longer accessible).

[8] Antonio Verdü-Jover, Jose-Maria Gómez-Gras, and Francisco Lioréns-Montex, “Exploring Managerial Flexibility: Determinants and Performance Implications,” Industrial Management and Data Systems, 108, no. 1, (2008).

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IT Solutions for SMBs in an Economic Downturn

In an uncertain economy, small companies often feel the pinch of reduced business activity acutely. When customer orders fall, they suffer an immediate impact as they often do not have diversified product lines or buffers in place like large firms. Suppliers and lenders seek safe, low-risk investments, often favoring large firms, while small businesses’ already stretched resources become even more so. As a result, it becomes increasingly important to do more with less, including careful, strategic, information technology portfolio investment analysis.

[powerpress http://gsbm-med.pepperdine.edu/gbr/audio/fall2009/smallbusinessit.mp3]

The U.S. Small Business Administration (SBA), the government agency responsible for assisting and protecting the interests of small businesses, created small- and medium-sized business standards, which are usually stated in terms of the number of employees or average annual receipts. SBA has established two widely used size standards: 500 employees for most manufacturing and mining industries, and $7 million in average annual receipts for most non-manufacturing industries. While there are many exceptions, these are the size standards applied in this article to distinguish small- and medium-sized businesses (SMBs) from large enterprises.

Table 1 lists the pros and cons when it comes to information resources associated with being a small- or medium-sized business.

Table 1 – Pros and Cons of IT Investment for SMBs

Pros Cons
Business processes are often immature so easier to re-engineer. Must justify IT based on a smaller number of users.
Less risk as processes modeled on fewer product lines/customers. Capital expenditure on IT difficult to justify because of high cost.
No legacy IT infrastructure to contend with. Ad-hoc approach to IT investment
because of pressure on operations, limited funds, and lack of strategic planning.
Benefits immediately seen from better data management. Established strategic IT portfolio management processes for large companies too expensive or complex.

Many SMBs fail to see the opportunities hidden in economic downturns. In reality, this is the time for them to make the most of the pros in terms of IT investment and to effectively mitigate the cons. But first, SMBs must thoroughly assess their vulnerabilities and act decisively to minimize them.

Leveraging the opportunities of the economic downturn often means focusing a high level of attention on cost improvements—usually strategic, structural improvements, such as streamlining infrastructure, adjusting the service delivery model, and redesigning the business model. Figure 1 is an example of various cost-improvement levers.[1] These projects all involve a significant number of information and process systems decisions.




Figure 1 - Cost-Improvement Levers




Adapted from Deloitte’s, “Three Steps to Sustainable and Scalable Change, Part 1: Rethinking a Company’s Business Model.”[2]

For SMBs, IT alignment with business objectives must be elevated and strategic data information flow management should be a top priority. However, these often get pushed aside in the midst of crisis management—especially if IT projects are seen as additional up-front capital expenditures.

Now, with the arrival of cloud computing, software as a service (SaaS) can provide lower-cost alternatives without the need for an internal IT group and reduced up-front capital costs. (Editor’s Note: For more on SaaS, read “Servicing the Software Industry: 7 New Rules for the Software Business.”)

As indicated above, one advantage that SMBs have over large enterprises is that they do not have legacy infrastructures. Large enterprises have to migrate these often-complex legacy systems, whereas SMBs can often build their services directly into the cloud with greater efficiency, at a lower cost, and in a streamlined, strategic manner, thus mitigating many of the challenges highlighted in Table 1. However, in order to move toward a solution, SMBS must first consider more strategic IT portfolio management based on the cost improvement levers above and critical success factors for surviving the economic downturn.

Critical Success Factors for Surviving Economic Uncertainty

Innovation

In any economy, innovation is essential to business success. While the economic downturn lasts, firms will need to find innovative ways to cut costs and to make better strategic decisions. They must also create products and services that will drive greater revenues once the economy improves.

The Internet and enterprise IT are accelerating competition within traditional U.S. industries—not because more products are becoming digital, but because more processes are. Just as a digital photo can be endlessly replicated quickly and accurately by copying the underlying bits, a company’s unique business processes can now be propagated with much higher fidelity across an organization by embedding it into enterprise information technology. As a result, an innovator with a better way of doing things can scale up with unprecedented speed to dominate an industry.[3]

To survive or, better yet, thrive in this more competitive environment, the mantra for any CEO should be “Deploy, innovate, and propagate”.[4]

  1. Deploy a consistent technology platform.
  2. Separate yourself from the pack by coming up with better ways of working.
  3. Use the platform to propagate these business innovations widely and reliably.

The most effective corporate strategy is now a function of answering three key questions: What are my capabilities? What is my position relevant to the competition? What technology should I use to help improve my results?

Strategic Planning

IT benefits the most from a long-term, disciplined, strategic view and a square focus on achieving the company’s most fundamental goals. Many units within SMBs have individual initiatives that are not centralized or integrated. They each might have their own business applications, technologies, and even data definitions. Data rationalization and integration become important once an SMB reaches a tipping point in its life cycle, such as significant growth in