The History of Digital Intelligence - Part Three

In this blog we will look at some of major disruptions that the application of digital intelligence has brought about and compare it with an example from the industry standard of the ‘wait and watch’ principle. 

Uber (2015) 

A third case of history in this series is Uber. This company is built on top of emergent technologies. It requires that people have smartphones, access to a mobile network, and an electronic credit card (all overwhelmingly true in 2016). In the fall of 2016, the online tax network system of Uber (founded in 2009) completed its third year of operations in Boston, Massachusetts. The ability to access from one’s iPhone or iPad the nearest car electronically and have the car appear in two to six minutes turns out to be an overwhelming strategic advantage vis-a-vis the incumbent taxi industry, which has relied on either direct hails in the street or telephone dispatching. One third of taxi rides have moved from taxi cabs and limo services to Uber cars. The price of a taxi medallion has dropped by over 50%, and a legitimate question today is why one would want to own or try to run a traditional taxi operation. Outside the US, two-thirds of the taxi traffic has been destroyed by Uber. The pain for the traditional incumbents has been intense as they try to manoeuvre behind laws and unions to neutralise this threat before it destroys them. In this case, a new company itself has been developed by IT-savvy venture capitalists. 

Together, these stories make a startling contrast to that of J L Carver. These are companies that developed IT-enabled differentiated processes, new IT-enabled distribution supply channels and even new IT-enabled products and services. In the IT age, new age competitors and new channels have been created, providing fierce competition for incumbents, in some cases driving the incumbent to bankruptcy. For some firms, a real question is whether they can survive in this new competitive environment, while for others, massive adaptation of processes is the price of survival. IT issues can consume an inordinate amount of senior managers’ and board time as the firm seeks to adapt and survive. Technology leadership was the key to the creation of Uber. William Carter, conversely, was a company whose old operating models were eviscerated in this new information age. 

Otisline (1981) 

The last two examples looked at the firm as a whole being transformed (or in one case, created) by changing IT technologies. Equally important were the deep changes in a firm’s functions and processes that emerging IT capabilities made possible. One of the next two examples was written in the mid 1980s, and the other in early 2000. They show how IT can fundamentally change one or more aspects of how one competes. These examples show the extraordinary pressures new IT is putting on both the CEO/Board and CIO to execute survival programmes in a world where technology continues to evolve. 

The Otisline (1985) example shows how new information technology and a determined CEO in tandem completely rewrote the organisational structure of a firm, transferring decision rights and power within the organisation. The Otis elevator service organisation of 1980, because of the complexities of information handling, had been a bottom-up five-level organisation for many decades, with every elevator service call coming into one of the 126 local branch offices (the lowest organisation level). 

Historically, all decisions relating to dispatching mechanics for elevator service calls were made by these 126 local branch offices. Consequently, it was difficult to compare the relative quality and responsiveness of service offered by different branch offices, as all records relating to service response time, breakdown frequency of elevator and quality of elevator repair were stored locally, making cross-branch comparisons difficult. It was also easy for local staff to under-report failures in the branches, thus making their service appear better than it really was to senior management. It was impossible to assess the overall quality of Otis Elevator service for the organisation as a whole or to identify potential quality issues related to specific products, branches or staff. 

When the new system called Otisline was completed, the company was converted into a top-down control system. The elevator service calls no longer came into a branch office, but instead came to a national call service centre. The national call centre recorded the call (thus ensuring it was never lost track of and that its existence and handling would be incorporated in all service statistics), then triggered the dispatching of a mechanic from the appropriate branch office to the customer. After the work was done, the mechanic reported what was done to the national call centre. This system gave immediate transparency to how long the work took and whether it really fixed the problem, (for example, was there another service call for the same elevator the next day, indicating a failure of the mechanic to do the job correctly)? 

Suddenly, the relative service performance of each branch office, in terms of both its responsiveness to calls and quality of service being delivered by its mechanics, could be identified and corrective action taken. For the first time, light was shed on the relative performance of individual mechanics, branch offices and products, as well as the performance of the company as a whole. Of particular importance was the capability to track trends in all the above items for the first time. The system enabled a series of actions to be taken, which sharply improved service, which, in turn led to an increase in Otis’s service contract market share as it became perceived as the high-quality service elevator operation. 

Poor performing products, weak mechanics and underperforming branch offices were all identified and acted on (through product design improvements, staff training and staff upgrading). This example demonstrates vividly how new information technologies enabled the creation of fundamentally different organisation structures, if that is what the company felt it needed to do to improve performance. A video of Otis’s CXO talking about their applicability of digital intelligence showed how implementing Otisline consumed significant portions of his time (he, in fact, was the driving sponsor of the Otisline organisation, involved like Harmony Life CEO, but where the stakes were much higher). 

For many years, this example was taught beside a case of FritoLay, where technology had enabled the company to decentralise product stocking decisions from corporate headquarters to the local areas, and thus react more quickly to local differences in tastes. In general, the technology per se forces nothing to change, but rather opens up many new possibilities for organising work and reallocating responsibilities. In the case of Otis it led to centralised decision-making and in the case of FritoLay it led to decentralised decision-making. To an extent not realised before, the changing art of the possible in information handling has a powerful impact on shaping appropriate organisation structures of a firm. These changes, however, are not easy to implement (think even of the relatively modest effort at Harmony Life of Hartford requiring the explicit, overt support of the CEO). Intense, sustained internal change management processes were needed as all internal processes and psychological contracts were smashed and restructured. 

In the next blog, we will look at the actual transformation that took place slowly, yet steady - which wasn’t necessary because the future held that the early bird did catch the prey.