Chapter
one

Information
Flow is Your Lifeblood

Information
work is thinking work. When thinking and working together are significantly assisted by computer technology, you have a digital nervous system. It consists of the advanced digital processes that knowledge workers use to make better decisions - to think, act, react, and adapt. Michael Dertouzos of MIT writes that the future "Information Marketplace" will require a large amount of special software and complex combinations of human and machine processes - an excellent description of a digital nervous system at work.

Do
you view information technology as a way to solve specific problems? Then you're probably only getting a fraction of the benefits that modern computers and software can provide. Instead, you should be creating systems that will deliver information immediately to anyone who can use it - "digital nervous systems."

As
the boss of Microsoft, the world's most successful software company, I played a large part in the birth of the Information Age. In this book I explain the idea of a digital nervous system - the use of information technology to satisfy people's needs at work and at home, just as the human nervous system supports the human mind.

Like
a living creature, an organization works best if it can rely on a nervous system that sends information immediately to the parts that need it. A digital nervous system can unite all of an organization's systems and processes, releasing rivers of information and allowing businesses to make huge leaps in efficiency, growth, and profits. I have a simple but strong belief: how you gather, manage, and use information will decide whether you win or lose.

The
best way to put distance between your company and the crowd is to do an excellent job with information. There are more competitors today. There is more information available about them and about the market, which is now worldwide. The winners will be the ones who develop a world-class digital nervous system so that information can easily flow through their companies for maximum and constant learning.

I
know what you're going to say: no, it's efficient processes! It's quality! It's winning market share and creating brands that are recognized! It's getting close to customers! Success, of course, depends on all of these things. Nobody can help you if your processes aren't efficient, if you don't care about quality, if you don't work hard to build your brand, if your customer service is poor. A bad business plan will fail however good your information is. And bad practice will spoil a good plan. If you do enough things badly, you'll go out of business.

But
whatever else you have on your side today - smart employees, excellent products, loyal customers, cash in the bank - you need a fast flow of good information to make processes efficient, raise quality, and improve the way you put your plan into practice. Most companies have good people working for them. Most companies want to treat their customers well. Good, useful data exists somewhere within most organizations. Information flow is the lifeblood of your company because it enables you to get the most out of your people and to learn from your customers. See if you have the information to answer these questions:

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What do customers think about your products? What problems do they want you to fix? What new features do they want you to add?

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What problems do your partners have as they sell your products or work with you?

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Where are your competitors winning business from you, and why?

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Will customers' changing demands force you to develop new capacities?

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What new markets are appearing that you should enter?

A
digital nervous system won't guarantee you the right answers to these questions. But it will free you from the old paper processes so that you'll have the time to think about the questions. It will give you the data to start thinking immediately, and to see the trends coming at you. A digital nervous system will make it possible for facts and ideas to quickly surface from deep in your organization, from the people who have information about these questions and, it's likely, many of the answers. Most important, it will allow you to do all these things fast.

An
old business joke says that if the railroads had understood that they were in the transport business instead of the steel-rail business, we'd all be flying on Union Pacific Airlines. Many businesses have changed their goals in even more basic ways. But it's not always clear where the next growth opportunity is.

McDonald's
has the strongest brand name and market share and a good reputation for quality. But a market analysis recently suggested the company change its business model. McDonald's has occasionally promoted movie-linked toys. The analysis suggested that the company should use its well-known small-profit product to sell the high-profit toys, and not the other way round. Such a change is unlikely, but not unthinkable in today's fast-changing business world.

No
company can assume that its position in the market is safe. A company should constantly be thinking about its options. One company might be hugely successful if it broke into another business. Another company might find that it should stay with what it knows and does best. The most important thing is that a company's managers have the information to understand where they can compete and what their next great market could be.

This
book will help you to use information technology to ask and answer the hard questions about what your business should be and where it should go. Information technology gives you the data that leads to deeper understanding of your business. It enables you to act quickly. It provides solutions to business problems that simply weren't available before. Information technology and business are becoming so tightly linked that you can't talk about one without talking about the other.

The
first step in answering any hard business question is to look at the facts. It's easier to say this than to do it. The principle is illustrated in my favorite business book, My Years with General Motors, by Alfred P. Sloan Jr. If you only read one business book, read Sloan's (but don't put this one down to do it). Extraordinary success can follow from positive leadership that's based on information and reason.

During
Sloan's time as boss, from 1923 to 1956 General Motors became one of the first really complex business organizations in the United States. Sloan understood that a company could not develop a broad business plan or choose the right projects without building on facts and on the understanding of the people in the company. He developed his own understanding of the business by working closely with his staff and by regular personal visits to the company's technical departments. His greatest influence as a manager, however, came from creating working relationships with GM dealers across the country. He constantly gathered information from GM's dealers, and he worked to develop close relationships with them that produced results.

Sloan
thought that fact-finding trips were very important. So he built an office in a private railroad car and traveled all over the country, visiting dealers. He often saw between five and ten dealers a day. These visits helped Sloan to see that the car business was changing. It was moving from simple selling to trading, as people wanted to trade their old cars when they bought new ones. Sloan saw that GM's relationship with its dealers had to change as well. The manufacturer and the dealers had to become partners. Sloan formed a dealer council to meet regularly with GM's senior executives. He also created a department to handle complaints from the dealers. He paid for economic studies to find the best places for new dealers, and even found a way to lend money to "capable men" who did not have the cash to become dealers.

Accurate
information about sales was still hard to find. When a dealer's profits went down, GM didn't know why. Without the facts, it was impossible to know what to do. Sloan said he would pay a lot of money so that every dealer "could know the facts about his business and could intelligently deal with the many details... in an intelligent manner." This would be "the best investment General Motors ever made."

Sloan
created a standardized system of accounts for the entire GM organization and all its dealers. Every dealer and every employee, at every level of the company, put their numbers into exactly the same categories. By the mid-1930s GM's dealers, its factories, and its offices could all do detailed financial analysis using the same numbers. A dealer, for example, could clearly see how well he was doing and also compare his results to the average across the company.

An
infrastructure that provided accurate information led to a company that responded quickly to events. Other car makers could not compete with GM for decades. This infrastructure - what I call a company's nervous system - helped GM to dominate the car business throughout Sloan's career. It wasn't yet digital, but it was extremely valuable.

Of
course, you couldn't get nearly as much information flowing through your company then as you can now.