What could be achieved by harnessing all the latest technology? Have a look in DaVinci's virtual world.
Company bosses are frequently told that they need not bother themselves with technology. Rather, they should focus on business strategy and get the IT department to put in place the appropriate hardware and software. But this does nothing to help chief executives spot the really innovative business opportunities made possible by computers and telecoms.
Now a consortium of high-tech companies has decided to give business chiefs a helping hand. Led by Andersen Consulting, the management and technology consultancy, and Intel, the microchip giant, the group has spent the last year developing a model business for the future that exploits the latest in computers and telecommunications. It has created a 'virtual corporation' - a group of companies that have come together to pursue a specific business opportunity; in this case, the development of a gold and copper mine on the remote island of Irian Jaya, in Indonesia. It is loosely based on a real-life case. The partners have named their model DaVinci in the hope that it will challenge contemporary thought in the same way as did Leonardo that of Renaissance Europe.
The virtual company allows its members to combine the benefits of shared product knowledge and market expertise with the nimble, innovative approach of small, specialist organisations. There is nothing earth-shatteringly new in the technology used. Indeed, the computers, software and telecoms links are all readily available today. What is new is the way they work together. 'DaVinci provides a bridge between strategy and technology,' says Keith Burgess, managing partner of business integration at Andersen. 'What we've done is assemble enough of the future in one place so executives can see the link. Once they've seen some of the possibilities in action, they are in a position to adopt new strategies sooner and more aggressively than their competitors.' According to DaVinci, it is only during the past year that the technology to set up the virtual company has become affordable. Developments in microproces-sor power, telecommunications, and the spread of the Internet, have created a climate ripe for exploitation in a multitude of ways. 'Technologies such as multimedia, e-mail and 24-hour on-line banking, mean that the old constraints of time, space and form no longer apply,' says Joe Carter, a partner at Andersen. 'These developments are beginning to make possible discontinuous improvements in overall business performance.' Despite its virtuality, DaVinci is physically located at Andersen Consulting's Center for Strategic Technology in Palo Alto, California, where it will be demonstrated to some 2,000 of the consortium's members during the next few months. It is also coming to Sophia-Antipolis in France. The model, designed to be as universal as possible, spans a wide range of businesses from engineering, construction and financial services to mining, shipping and the travel industry. Visitors view a series of role-plays in which consortium members pose as representatives of the various companies and individuals involved, communicating with each other by video-conferencing or electronic mail, and discussing documents they can each see on their screens.
One scenario shows how IT can support joint ventures between companies addressing a market opportunity together - here, the development of a hotel extension. The mining company which owns the hotel wants to raise outside investment to fund the extension. It uses e-mail to offer a leading hotel group a 50% stake in the project. The hotel group is interested but unhappy with the financial details. The two sides reach agreement by discussing a series of spreadsheets on the screen.
The hotel group provides information about the region's potential for eco-tourism using on-screen maps and diagrams, transmitted down the line to the mining company. A facilities management company is brought in to show how overheads could be reduced by displaying a 3D model of the new wing on the screen, and a video that explains how the hotel's running costs could be reduced.
Pooling expertise in this way gives each of the three companies much more information than they would have on their own, and enables the project to go ahead extremely quickly. All the discussions take place on-line and nobody needs to meet in person.
Another scenario shows how suppliers can use technology to anticipate market changes and forecast consumer demands, always keeping one step ahead. It focuses on the manufacturer of slurry pumps in use at the Irian Jaya mine.
The pumps contain electronic sensors which highlight emerging problems. When an impeller on a pump starts to wear out, the sensor sends an electronic message to the manufacturer's service operation in Australia. Direct links to maintenance records show that the same problem has occurred 16 times already. The service engineer decides that the impeller needs to be manufactured from a harder steel, and collaborates electronically with the product development division to get it redesigned.
The manufacturer then notifies the customer of the redesign and the customer orders a new pump via the manufacturer's Internet-based product catalogue and order-entry system. The old pump has not yet broken but this pre-emptive action ensures that a replacement will immediately be available when it is needed.
A UK-based transportation and logistics company is used to deliver the European-made, 20-ton pump. The customer can check its journey on the continually updated map on the shipping company's section of the Internet World Wide Web and make sure he is ready to receive it.
DaVinci also shows how technology can be used to expand the relationship between customers and suppliers in the consumer market. It demonstrates database software and multimedia customer service kiosks being used for new product development and having a direct impact on profitability. The idea is to find ways to sell additional products to existing customers rather than trying to squeeze every ounce of profit from what they already buy.
In a further example, a man plans to move to Indonesia to join his wife who is already working there. He books his flight via the British Airways page of the World Wide Web. DaVinci shows a system that knows the man's personal preference for seats and meals on board and also advises him about innoculations and visas. Although UK banking hours don't coincide with those of Irian Jaya, he is also able to use a graphical on-line information system to inform his bank of his move and ask for investment advice. The model is closely based on a real multimedia network run by the Nationwide Building Society in the UK.
It uses graphical screens representing the inside of a real bank to present a range of options to the customer. He points to the area he needs to acquire the advice, and the bank gains a wealth of marketing data about his financial situation. This is fed directly into the corporate database. DaVinci shows the information being exploited to devise a credit card for travellers. The card's developer experiments with lots of 'what-if?' questions to find out which features would appeal to travellers and how much profit the various options would generate for the bank.
Even the IT team gains from going virtual, say DaVinci's creators. It can shed its old image of being a costly overhead and become a strategic asset instead. Indeed, unless it is able to make the transition, the virtual company is a non-starter. IT teams have to be able to run their networks as coherent, reliable and secure entities worldwide, regardless of which country they may be sitting in.
Many software tools are available to simplify this task, as DaVinci illustrates. For example, knowledge management systems summarise all recent events on the network in a newspaper page format. Design simulation tools allow network managers to experiment with repositioning computers simply by dragging icons across the screen rather than plugging in wires. Colour coding highlights whether such moves ease congestion problems on the network.
Even PC software can be updated by transmitting computer codes down the line instead of using floppy disks or human installers. One company, says Andersen, used its network to update 7,000 machines to Windows 95, saving $2 million.
Another invaluable tool is the 'intelligent agent' - a software routine that can scour the network for items of interest. A manager writing a report on a specific topic can immediately find out whether anyone else in the organisation has tackled the issue and access the relevant file directly. Such facilities help companies avoid re-inventing the wheel or repeating past mistakes.
Technology creates these opportunities, the DaVinci team points out, but it takes people to turn them into business success. Senior executives must spend at least 70% of their time on supporting transition to the virtual structure if its full benefit is to be realised, says Carter.
Although the DaVinci model involves large corporations, many of the principles it demonstrates also apply to small ones. 'In fact, IT gives smaller companies the same advantages as larger companies, and scale is frequently proving to be a liability,' says Carter. In the US, for example, a supplier of fresh-cut flowers has grown from nothing to being one of the largest operators by forming a network of business partnerships with growers and with Federal Express, the courier company. It delivers fresh flowers faster than most people can get from their local florist.
Some of the best examples of the DaVinci methodology are to be found in the UK. Andersen cites First Direct and Direct Line as exemplars, as well as BA and Nationwide. Having invested some $10 million in DaVinci, the consortium hopes it will stimulate many more organisations to take the plunge. 'We've set aside our competitive instincts in pursuit of a higher goal,' says Carter. 'We're trying to make a big pie so we can all have a large slice.' Early adopters are likely to be in the retail, finance and transportation sectors, reckons Intel's John McNulty. They are expected to be using the virtual techniques within the next one to three years.
But some business leaders who have already visited DaVinci still have their doubts. One worry is the feasibility of linking computer systems in different organisations. 'It is unlikely that equipment would be compatible across corporations in the immediate future,' says one observer. Another fear is that the market may not be ready for such an approach. Even Nationwide has apparently been taken aback by the huge popularity of its multimedia kiosks.
Several DaVinci visitors object to the fact that the consortium will not say how much, if any, money could be saved as a result of investing in this type of technology. 'That's not the right question,' says Intel's McNulty. 'The point is that people who don't use the tools we're talking about can't remain competitive.' However, boardrooms have developed a scepticism about the claims of the IT industry and its consultants during the past few years. Many believe that they have paid heavily for negligible business benefit. Whether DaVinci will convince them to start spending again remains to be seen.