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The Networked Corporation

When I am driving along Route 128 in Massachusetts or Route 101 in the Silicon valley, I use an eyeball …

When I am driving along Route 128 in Massachusetts or Route 101 in the Silicon valley, I use an eyeball measurement to evaluate the companies that line those highways. The number of cars in the parking lot after 6 P.M. is inversely proportional to the size of the company. The smaller the company, the more cars and lights on in the building. In the large companies, the parking lot is a desert.

This phenomenon is one that reinforces a business lesson I learned right after graduating from MIT. I was associate editor of a computer magazine and my job was to travel around the U.S. and visit computer companies. I noticed immediately that the people I met at the smaller companies were more excited by their work, about product opportunities and contact with customers. The bigger the company, the less satisfied the people were. There was frustration with internal competition to get ahead, not to mention much less contact with the customer.

The conclusion is obvious: small is better. Without a doubt, a small organization creates a greater challenge to the individual to succeed. I learned in biophysics that the performance of an organism is directly related to the challenge to that organism.

Unfortunately, the success of small leads to problems. Companies get bigger; some are already large and cumbersome. But the very success that makes organizations burgeon with revenues and earnings can eventually result in stagnation and lost business opportunities. So the question is, how can you create a small company environment and still continue to grow and prosper?

The answer is the networked corporation and the facilitator is technology. Technology breaks down barriers that blocked the door to the next generation corporate environment. Networked computers, sophisticated but affordable communications capabilities, and strategic use of information systems suddenly create a myriad of possibilities; the possibility of small, for example.

When I started International Data Group in 1964, the lessons I learned from my previous job weren’t lost, but the technology simply didn’t exist to allow the effective creation of a networked organization. Still, I knew this was a goal to pursue and time and again, I was proved right.

I am hardly surprised that the term “globalization” is suddenly on the lips of CEOs and business school professors. The concept of creating a truly global business organization was at the core of my vision for IDG. When we reached $1 million in sales, I started to view markets outside the U.S. as the future for the business. I even put International in our name.

Skeptics scoffed at the idea of a publishing company, of all things, being able to operate and flourish on a global basis. Even today, a leading economics columnist stated: “Newspapers will never become a truly global industry.”

Perhaps so, as a total industry. But in my opinion, it seems as though companies like The New York Times or McGraw-Hill have simply overlooked this opportunity. No one, myself included, could ever have predicted the impact that technology would have on the advent of true globalization. Without that vision, publishers felt they had a unique product that couldn’t be duplicated overseas and preferred licensing their products instead.

I saw it differently, even without a crystal ball on technology’s role. We were filling a need in the U.S.: providing information about a burgeoning computer industry. Other countries would inevitably have those same needs. Readers everywhere want the same thing: to be more effective in business through the use of technology. Throughout the 1970s and 1980s, I was on the road constantly, planting the seeds in Europe, South America, Australia, and the Far East.

My goal was to allow the local publishers, editors, and reporters to determine what their markets required. By the year 2000, I fully expect that up to 70 percent of our business will be generated outside the U.S.A.

Headquarters identifies the mission-in our case, to be the world’s leading supplier of information about the information technology industry. We create a set of common values, send the message, provide support, advice, and training…but success or failure is determined by the local business unit.

Today, we have 68 business units operating in 40 countries with 3,500 employees. We’ve grown at a 20-30 percent rate per year for 25 years. Headquarters staff is just 18 people and our costs are only 1.5 percent of revenue (as opposed to an average of 3-5 percent).

I’m convinced that our success is based on a decentralized approach to doing business, on our ability to stay “small.” By so doing, we can evolve with the market and constantly identify new customer groups.

The most successful business units in the company validate my concept. Those with one goal, (i.e., one publication under its wing), perform the best. I’ve seen units over the years start two or three publications. The first publication does well but the new baby has trouble. It has either too much or not enough love. These struggling publications spring to life when set out on their own in separate business units.

The other side of the equation is that this concept lets me sleep peacefully knowing that our company does not depend on the success of any one business unit to survive. If China‘s recent crackdown had resulted in the closing of our Beijing operation (it didn’t), IDG would go on.

AUTONOMOUS BUSINESS UNITS

I constantly fight the spread of hierarchy who extol the top-heavy approach. “Why don’t you have central paper buying rather than each individual publication finding its own source?” the experts ask. Such economies of scale would certainly produce an immediate increase in margin, they say. That may be true, but taking away operating freedom would cause key people to leave the company and in a few years, stagnation would set in. If you allow a small group of people to take an idea, nurture it, build it and make it happen, the chances of success are enhanced beyond measure.

Ken Olsen saw this clearly at Digital Equipment Corp. in the early ’60s when he became frustrated with a suddenly stagnant young company. He found that when things went wrong, everyone turned to him to place the blame. In a stroke of business genius, he restructured the company. Each product group became an autonomous business unit responsible for the individual success or failure of that product. Each unit would compete for corporate resources but would share certain centralized functions such as manufacturing and sales.

Olsen’s concept lit a fuse. Digital’s sales and earnings took off and throughout the next two decades, this product line strategy propelled the company beyond the $5 billion barrier in revenues. Though he eventually reorganized again in the early 1980s, Olsen never gave up on the concept of individuals having great responsibility and driving their own businesses to success. Today Digital is a $13 billion giant and is fighting IBM toe to toe.

It was no coincidence that as Digital grew, its internal network spread like a giant web around the organization. Top management understood intuitively that such a decentralized approach required a highly refined communications capability. Without information in this environment, one can easily get blindsided by a wave of change or innovation. Today, Digital has a vast international network that allows more than 70,000 of its employees to communicate instantly via computer-based systems.

Adopting a decentralized, networked approach is certainly a lot easier for smaller companies but it is not an untenable concept for giants either. AT&T, for example, recently replaced five of its major business units with 19 business units in order to spread increased responsibility to lower levels of management. Robert Allen, AT&T chairman, simply got tired of the turf wars and endless committee-made decisions. He wants individuals to take responsibility and expects the move to make AT&T much more responsive and quicker to market. This is a reorganization worth keeping an eye on.

T.J. Rogers, head of the highly successful Cypress Semiconductor Corp., has also embraced the concept. Despite its success, Cypress is breaking itself into smaller, independent operations. According to Electronic Engineering Times, this marks the first time a healthy electronics company has undertaken such a move. Why do it?

Cypress would be more vital as ten $100 million companies than as a single $1 billion company,” Rogers stated.

My advice to Fortune 500 CEOs is: Don’t be afraid to divide things up, throw out a challenge. Most people are only working at 15 percent of their capacity. If you give them a challenge, their skills and capabilities most definitely will flower. People will be happier and business performance will increase. Best of all, a lot of sour-faced middle managers will disappear.

I saw a clear example of this when I was establishing the first joint publishing venture with the Soviet Union. In Moscow, I met with a group of negotiators who ranged in age from their 30s to 50s. Gorbachev’s mandate for change was exciting for those in their 30s. The older bureaucrats, on the other hand, feared the change. They had four-foot-high piles of requests on their desks and perceived perestroika as a threat to their careers. It was clear to me that the way to succeed in this venture was to align myself with the people in their 30s.

Of course, breaking down the barrier of overstuffed bureaucracy is no guarantee of success, nor is it the only necessary step to the networked organization. Technology has become the great enabler, the steam roller that is flattening organizations. Ironically, the path of computer technology mirrors the philosophy of the networked corporation.

Like massive, top-heavy bureaucracies, computing was dominated not long ago by huge, powerful mainframes, which controlled the flow of information out into the company. With the advent and proliferation of personal computers and networks, the individual is now empowered with technology at the desktop. More and more, the mainframe is becoming a data repository, no longer in control, but rather a source for information that is turned into knowledge by the end user.

Suddenly the mainframe and the personal computer are partners in the network rather than the master and the slave. Analogous to corporate headquarters, the mainframe can no longer dictate, it must allow other machines to have autonomy in the network.

The combination of networked technology with a small group of talented, motivated professionals is a powerful one. Our flagship publication, Computerworld, is a prime example. Long dominant in its market, Computerworld started spinning off other publications several years ago while seeking ways to increase market share. Headquarters lost sight of what had made Computerworld special. We missed some very important industry trends, had bloated unresponsive management and most important, lost sight of our customer, the reader.

Inevitably, Computerworld suffered; readers began to desert, key staff people left as well, and morale was way down. In the past two years, Computerworld became its own business unit. Aggressive and talented management was put in place, virtually all the key players coming from within the company. New production technology and graphics equipment was brought in, allowing not only for a complete redesign, but for longer news deadlines, which allow readers to get the very latest information on their desks.

The mission was refocused, the product reevaluated and overhauled, and the tide turned dramatically. With a sleek new look and an ever vigilant ear to the reader, Computerworld not only dominates its market but continues to be impressively profitable in a sluggish technology market.

As technology gets lower in cost, it has driven the realization of this organizational structure. We use electronic mail extensively throughout our company, which allows the immediate transmission of news and the sharing of resources around the globe. We’ve instituted our IDG News Service, which allows stories gathered by our more than 120 computer-related publications to be shared electronically around the world on a daily basis.

 

THE GLOBAL NETWORK

All our autonomous units can benefit from the global network; they share market knowledge accumulated by 25 years of publishing experience. Since no business unit has a corner on expertise, knowledge can be and is shared. A technique for improving circulation in Norway works just as well in the U.S. The Australian PC publication can acquire essential marketing expertise from Infoworld or PC World. I wasn’t prepared for this when I started out, but I found to my great delight that there is a tremendous amount of transferability of skills around the world.

Indeed, I remember when we set up our first international managers meeting in 1978. Everyone assumed it would be a nice social event but there’d be little exchange of useful information. When I traveled to each country in prior years, they emphasized how unique their market was. Of course, when I’d ask for their four-year plan, they’d set up easy goals so they’d look like heroes to headquarters. We constantly pushed for more aggressive goals.

I actually expected the individual country managers to be reluctant to share anything for that reason. But at the meet ing, just the opposite occurred. The Germans stood up and bragged about how good they were and announced ambitious goals for themselves. Then the Americans,then the French, etc. Soon there was a lively exchange of ideas and information. I saw the benefit of using the forces of natural interpersonal rivalries to work for you. By instituting a worldwide employee stock ownership plan, we’ve generated even more desire for success. Now the Brazilians have all the more reason to help the French or the Japanese. They all own part of the business.

And this experience puts the networked organization into a different perspective. Technology is the vehicle, but it is the people who provide the fuel, who give shape and dimension and power to the concept. This seemingly obvious tenet is constantly getting lost in corporate hierarchies where CEOs are now asking why they are spending large percentages of budgets on technology and seeing little productivity increase.

Layering on technology offers no strategic advantage if the culture and environment aren’t structured to allow individuals to flourish. We are not in business to acquire technology. We are in business to allow people to fulfill their potential, to give them something useful and exciting to do.

I agree with Boston Globe economist Robert J. Samuelson, who recently wrote: “Companies will increasingly flourish-or fail-on how well they become multicultural organizations. They will need to create effective cooperation between people of different nationalities. The marketplace for ideas and technology is now worldwide. Companies are the means of transmission.”


Patrick J. McGovern is founder, chairman and chief executive of the Framingham, Mass.-based International Data Group (IDG). IDG is a supplier of information services on information technology. Its subsidiary, IDG Communications, is publisher of more than 120 magazines and newspapers, including Computerworld, a business trade publication printed in the U.S.

About patrick j. mcgovern