Business and business environment have changed dramatically in the last one and a half decades. The transformation has been nothing short of being radical. Concepts and issues that were centre stage a decade back are now irrelevant and have been replaced by new ones.
A liberalized, globalize and open environment for business and commerce exists today in this new era. New products and services have replaced older ones and competition has become more intense and the churning in the marketplace has resulted in the creation of new market leaders. Customers have become aware and governments have brought in progressive legislations and the pace of international business integration has increased. Globalization has made geographical boundaries meaningless, the Internet revolution has changed the way of life and commerce even the internal functioning of businesses ,have changed with less and less hierarchy, a more open culture, easier and transparent communications, increased expectation of faster delivery and greater focus on corporate governance.
In short, we live now in a completely new order. This new order in which we live is ruled by the power of information. Information and technology that helps in managing information have worked as the catalyst for this change. The change is by no means final. In fact, this process of change is likely to intensify in the years to come.
Managers who run businesses are always tuned with the market realities so that they can react with minimum time and effort in case any problem or opportunity presents itself. The changes sweeping through the business and economic environment have forced business to look at newer ideas to bank on and thrive. One of the ideas reinvented in the modern business era is the management of information, not just for reactive decision-making but for proactive decision-making to embrace the changes in the marketplace and turn threats into opportunities. However, before we proceed any further, let us take a look at the major trends in modern business environment that have forced management thinkers to take a new look at the management of information.
We’ll be covering the following topics in this tutorial:
The most important trend in the modern business environment is the increase in competition. Competition has forced businesses to become more efficient and effective. More and more corporate entities are obsessed with the efficient use of its resources to beat competition. Capital is freely flowing to low-cost (but not necessarily low quality) manufacturing and servicing hubs, the world over. Economies of scale have become important along with the productivity of capital and labor. In fact, most of the measures that a business entity takes today are with a focus on competition. The main reasons for this increase in competition are due to:
Globalization and Liberalization
Businesses want to derive value in any location or in any country by leveraging a wage arbitrage opportunity or creative labor force or business-friendly government policies or low cost scale manufacture/service to create value for the shareholders. The world has indeed become flatter in the last few years.
Market Dynamics Favoring the Efficient
The markets have become demand driven. Customers today have greater choice and hence demand for better quality at a lower price, which in turn favors those companies which are efficient in their use of resources as they can deliver a better quality product at a lower price.
The Fast Pace of Recent Technological Change and Innovation
The recent technological changes in information technology, Very Large Scale Integrated Circuit (VLSI) design, and nano technology and biotechnology space have altered many market equations. Disruptive technologies have leveled the playing field and made competition difficult for established companies and easier for start-up firms. Innovation has now become the new tool for gaining long term advantage in the marketplace. Top management now routinely focuses exclusively to bring in innovation in their products and processes.
Increased Information Exchange
It has resulted in a free flow of information about markets, competitors, strategies and alternatives making competition all the more difficult.
Increasing Uncertainty in the Marketplace
The fast pace of technological change and innovation has resulted in uncertainty. Businesses are continuously alert to changes in the market place. Disruptive technologies get developed faster and the life cycle of a product/service gets shorter every year. Gone are the days when a company had a blockbuster product/service that it could sell for years together. Today alternatives get made in shorter time and from the most unexpected competitors and locations of the world. This competition from unknown competitors and from unknown technologies and products creates a sense of uncertainty among businesses. The manner in which business is being conducted is also adding to the uncertainty. Market meltdowns like the recent global financial market meltdown and slowdowns strike markets without any warning which creates a general feeling of uncertainty. This uncertainty has to be met with greater capacity to absorb external shocks in the organization and by reducing the reaction time to changes in the marketplace. Information management becomes a crucial weapon in such environs where uncertainty is a certainty. The value that an organization gets from investments on information management in such situations is immense as the difference between success and failure may be just a small piece of crucial information provided by an efficient information management system.
Globalization is also another important trend in today’s business. Geo-political boundaries have lost much of their relevance in business due to globalization. Today a North American business house can source its raw materials/components from a country in sub-Saharan Africa, manufacture/assemble in China and sell it in Europe or Japan. The barriers have fallen. Capital flows freely in different forms from one country to another and the primary considerations are lower costs and increased efficiency. Corporations have a more pragmatic view of business and focus only on increasing value. Globalization is a force in modern business that is growing with every passing day. Organizations are on the lookout for global markets, global manufacturing hubs, global logistic hubs, global labor force and global presence. Today a business entity tries to scale up its business to a global scale as soon as possible. The idea is to find lucrative markets in different corners of the planet, create products or services at any location where cost of creating the product or service is lowest and then connect the market with the manufacturing/servicing hub by a global supply chain. Globalization has today transformed from being a business philosophy to a unifier. Several books have been written on the effects of globalization. Globalization has brought opportunities as well as threats to business. Those businesses that can link themselves to this huge global business in any manner (in any part of the value chain) stand to gain from globalization but those that choose to remain outside the ambit may face difficulties. The opening up of the global marketplace for commerce has also brought in threats. Businesses can no longer remain in their comfort zones without having an open-eye to global competition. Local businesses face increasing competition from global players. They can choose to go global themselves or remain local and face competition. Whatever the strategy, one can no longer ignore globalization. It has forced businesses to become more efficient. It has changed the perception of customers and made them more demanding. It has made shareholders hungrier for profits and changed the fundamentals of doing business in many ways. It is here to stay and businesses have to be acclimatized to this modern trend.
Increasing Tendency of Outsourcing
More and more businesses are trying to beat competition by staying focused on their core functions and competencies and outsourcing the rest of the non-key functions to specialized firms. Specialized firms have sprung up (especially in low cost countries like India) that have made managing the non-core businesses of other companies their core competence. Special firms which are called Business Process Outsourcing (BPO) firms have created competencies in voice and non-voice customer relationship management, legal process management, etc., so that they can handle these ‘non-core’ processes of other companies at a fraction of the cost. This helps the outsourcing companies to remain profitable by lowering costs and improving quality of its key and non-key areas. Its key functions are now free to be given complete focus within the organization and its non-key functions are now key functions for someone else Le. the outsourced entity. The tremendous wage arbitrage opportunity provided by transferring these non-core jobs to developing countries makes it a lucrative proposition for companies in developed countries. This has been made possible by the great advances in information and communication technology that have made territorial distance meaningless. It has made the service delivery independent of boundaries. Anyone located anywhere can deliver service anywhere making the service delivery independent of boundaries.
Outsourcing can be of different types. Outsourcing can be voice-based or non-voice based. Sometimes outsourcing can be such that the outsourced organization works from the premises of the client organization. Most IT outsourcing are of this type. Some of the outsourcing jobs being carried out today are:
- Direct selling by tele calling-Outbound calls
- Direct selling by tele calling-Inbound calls
- Customer grievance handling by receiving calls
- Customer support by tele calling
- Medical transcription
- Legal process outsourcing
- Technical support to sales team through inbound calls
- Billing support and management
- Accounts management
- Human resource management
- Recruitment assistance
- Marketing analytics support
- IT application development
- IT maintenance
- Entire IT management
- IT hardware support
- IT software support
And a host of other areas that are cost intensive and require specialization.
Outsourcing requires special managerial skills. Contracts management and time management are crucial for managing outsourcing. Constant monitoring of the outsourced partner needs to be adhered to but at the same time suitable vendor relationship needs to be maintained. Sometimes outsourcing may involve management of entities over different geographies with different cultures and time zones. From the perspective of the outsourcer, outsourcing involves challenges like,
- Ensuring quality of output
- Ensuring timely output
- Ensuring zero cost escalation
- Ensuring minimum customer complaints
- Ensuring synchronized service over different time zones
- Ensuring zero stoppages
- Ensuring six sigma
All this requires a very good relationship management with the outsourced vendor. It requires understanding of the vendor’s capability and a realistic assessment of the achievable goals. It also requires constant communication to ensure that the information flow across the vendor and the client is not disturbed. It also requires an understanding of different work cultures to anticipate problems before they occur. It also requires a bit of legal knowledge of the laws of the land and also of the laws of the outsourced country, particularly with regard to contract laws, workplace related laws, labor laws, privacy and IT laws and security and IPR related laws.
From the perspective of the outsourcing agency the skill requirements are:
- Service orientation
- Ensuring six sigma
- Ensuring proper client management
- Ensuring zero stoppages
- Managing a large body of young and educated labor force
- Managing a large IT platform
- Ensuring efficiency of service level
- Ensuring polite and amiable customer handling
Outsourcing is a controversial issue. In developed countries, there is opposition to movement of jobs to low cost countries outsourcing. Indeed in countries like the US, outsourcing is a major political issue. Even though there has been a lot of hue and cry over outsourcing, several studies have shown that outsourcing not only results in enormous cost savings but also results in improved service delivery. Outsourcing is a natural corollary of the process of globalization as more and more businesses try to become globally competitive, they will search for ways to reduce costs and improve service. Outsourcing provides them a wonderful opportunity to do just that.
Reducing Hierarchy and Improved Transparency
Businesses have themselves transformed over time. The organization structures of business organizations are becoming flatter reducing unnecessary hierarchy. The popular corporate culture within organizations, both in the West and in developing countries like India and China has changed dramatically to a more informal first name, efficiency focused and work driven culture. Focus is now more on work and how to get it done and less on massaging egos of superiors and adhering to strict hierarchy as was the case in the past. This free and open culture is visible and reflected in several areas of business from the modern open office design to the style of writing memos. This open culture has resulted in greater efficiency and a culture of open communication and fast action and decisions based mostly on data driven reports.
This increased openness in the office environment is a process that can be traced to the late eighties when companies grappled with cultural issues in organizations. Transparency has improved because of the impact of MNCs. The increased transparency has resulted in faster and more efficient reactions from employees. The trust levels in companies have gone up with rise in transparency.
Increasing Clout of Civil Society and Media
Civil society and media all over the globe have become more aware with greater clout and power. From environmental issues to consumer protection issues, they are increasingly asserting their power to make consumers aware of different burning issues thereby creating challenge for business in some cases. Environmental pollution, global warming, consumer protection, safety, etc., have now come to the centre stage of business attention. No business house can afford to ignore these interest groups in this changed order.
Civil society bodies and media have made it impossible for companies to hide behind curtains of opacity. Public awareness coupled with an active media has forced companies to increase compliance on regulatory and ethical fronts. Companies now know that the cost of non compliance is much higher now, in terms of not only cost but also in term of loss of goodwill and public image. More and more companies have started to comply with public· welfare issues and the civil society and media have even started to rate companies on their performance in this front.
Increasing Customer Focus
Businesses have become increasingly aware of the need for customer focus to improve market share. They have realized that the customer today has a choice as never before. Those companies which will ensure customer loyalty through good delivery and service will come out as winners in the marketplace.
These trends of modern business indicate that the way business was being conducted has changed and will evolve further in the coming years. Now a more competitive business environment exists. Liberalization and globalization have made international and geographic boundaries meaningless. Cultural changes and social empowerment have themselves brought in positive changes in organizations. Corporate governance initiatives and media focus have made business more accountable and open. The WTO has reduced trade barriers. Businesses cannot survive in this environment in isolation. They have to embrace these changes. The increasing uncertainty of market forces have to be neutralized by visionary decision-making. Businesses have to be proactive. Decisions will have to be based on proactive approach such as using predictive analysis rather than the age-old reactive approach. Efficiency will ultimately decide who wins and who loses. The need therefore is for faster access to the right kind of information and insight to improve the quality of management decision-making. This is the reason why large corporate houses are investing millions of dollars to ensure a proper information technology infrastructure for better information management. Investments in Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Data Mining and Data Warehousing (DM and DW) systems have now become the norm rather than the exception in corporate houses.
The business environmental changes have necessitated a new view on organization and the role played by information management in it. The challenge is to integrate and enable organizational structure, culture and form with information management so that management decision-making is faster, accurate, timely and reliable. Before we proceed any further on the need for information management in this new era, let us clearly understand some of the concepts related to the use of information within an organization.
Increasing Focus on Knowledge in Business
Business organizations are focusing more and more on knowledge as a key ingredient for success along with capital and labor. Focus is more on using knowledge to increase output and get greater value for the resources applied. More and more companies are investing therefore, in research and development to come up with new and better products and services. This knowledge focus has led to very fast obsolescence of products and services and hence, has indirectly led to increased competition.
Increasing Awareness of the Value from Managing Information
Businesses have become increasingly aware of the value of information and invest heavily to acquire the valuable information. Awareness has sunk in that ultimately the greatest differentiators are information based differentiators. Google, Big Flicks, and other such firms have made information their competitive advantage. This trend of information driven competition has created a new breed of companies and managers who focus on analyzing data to derive predictive kind of information so that decisions can be based on what the future has in store. This type of proactive decision-making is very effective and much better than the reactive type of decision-making that is done in traditional companies. This makes the analytics based competitors more agile to changes in the marketplace and hence, their reaction time is much less.
Increasing Investment on Information Technology
Companies are investing heavily in information technology as they are getting greater value from this kind of investments. This trend has resulted in the commoditization of information technology. Today due to the competitive pressures, most successful companies have MIS or even better versions of MIS in the form of ERP or CRM or even KM systems, but that is not able to give them the edge in competition as all its competitors also have similar systems. Thus, a competition has started in the installation of IT solutions for management problems. However, a very few companies make use of the information for decision-making, which is the original objective of these systems. Those that do, dig deeper into their own data to find insights for decision-making. These companies succeed as their decisions are proactive.