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Why the New Forces of Transparency Will Permanently Change the Way You Run Your Organization -- Don Tapscott -- Rotman School -- Lifelong Learning, June 7, 2002, 1:45 p.m.
Why the New Forces of Transparency Will Permanently Change the Way You Run Your Organization
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Band: Men in Suits
The campus of America in 30 years will be relics
Universities were originally place where you had books, and then brought in people.
Would graduate, then set for life.
Now, the knowledge isn't worth much, even a few minutes later.
Will be sharing proprietary research, given permission to share high-level findings.
The relationship between transparency in network world, and corporate behaviour.
Harold Innis: Teacher of Marshall McLuhan
In Digital Economy: new media shift power.
Writing in the 1950s: realignment reinforces vernacular.
As information and knowledge becomes more available, it has a huge impact on institutions.
Political power becomes much more distributed.
Prior to the printing press, serfs had no access to knowledge.
Didn't make sense for king to have all of the power --> parliamentary democracy.
Even in industrial revolution, rise of the trade union movement, as workers organized.
Rise of social and democratic parties
This changes many things
It's creating a profound change in the economy, that is changing the way of the corporation.
Bottom line: In a age when corporations are naked, they better be buff!
Doing well by doing good -- was true before, but now need it to build trust.
If you can't build trust, you can't build relationships, and you can't compete.
Increasingly, bad behaviour is an aberration that is self-repeating.
Drivers of transparency:
Driver 1. Technology: communication, accessibility, immediacy
Internet is about to become the hypernet
Will have smart communicating device, e.g. door in a hotel
Key is a smart communicating device in the car; when the phone rings, the radio goes down.
New house: everything in the house has an IP address at Ken Nickerson's house.
Shirts with chips in the collar -- if Tide doesn't wash whiter, the shift will find out!
The physical world is becoming informed.
When you have knowledge, you have power
Driver 2. Economy:
Drucker: knowledge-based economy
Environment increasingly is global
Changes in division of labour, where instead of government, we have governance webs.
Related to this is a change in the architecture of the business
Chandler, The Visible Hand
Creating companies to shield people
Coase, paper 60 years ago: why the firm? Why isn't everyone an independent contractor?
Transaction costs: collaborating, contracting
Henry Ford owned a mahogany forest, tires, ... because the cost of transactions was lower
Along come networks:
The boundaries of the enterprise are becoming more porous.
Now becoming a business web.
Why? Because they can.
This is what the Internet was about: not eyeballs, but hearts -- relationship
Dropping relationship costs -- more liquid
Companies now can be more focused
Focus on competencies; can partner through business webs for the rest
Now need a high degree of transparency between firms
Driver 3: Society
Higher scrutiny and expectation of companies, post 9/11
Enron -- a dagger in the heart of opacity: people want to know, now
Increased reach in legitimacy in civil society networks.
Had nation-states around the national economy.
Created a border around nation-states.
Problem, we now a global market
Common market --> state
As a corporation, used to work within a civil foundation of a society
You didn't break laws
In Canada, child labour is illegal, but it's legal in the Ivory Coast.
There's a huge vacuum on the global scene.
The civil society on a global basis is organizing
Protests at Davos
Couple this with changing attitudes in the public
40% of consumers have punished a company they see as socially responsibility
Basis on social performance factors
90% of citizens think the companies should do more than focus on profitability
Rainforest Action doesn't go to governments, it goes on the Internet and attacks Home Depot directly.
Growing up digital.
Access to information, can organize.
Noticed children could effortlessly use technology
Worked with 300 kids for a year.
Kids aren't watching television
Tv networks are in denial
Not passive, active -- children are initiators.
Children today authenticate -- is it a real cyber-chick, or a bot, or a bad person?
Even in video games, develop strategies
The oldest of the kids are now 24, just graduating from the Rotman school
This generation will demand transparency.
Watching Mickey Mouse, used to not have any idea of what was happening with Annette Funicello.
Will they be satisfied with the old model of democracy?
Scandal of the last election: 100 million people didn't vote, mostly young people.
Transparency: don't mean GAAP, or reporting.
Mean a whole different way
A woman had her own web site, and the company tried to get it shut down.
Quebec superior court said no.
A single mother can cause a problem
2. Business web
Celestica, negotiating to build for Hewlett-Packard
HP declares reasonable costs.
Polistuk say it's like we're naked.
5. Society, public:
If you're going to have slave labour, everyone is going to know about it.
Nestle and Cadbury are leaders in the anti-slave movement.
To create transparency
1. at the firm level
Need a culture of openness and accountability
2. at the B-web level
Drawing for Cisco
Need open information sharing
Need a high degree of transparency, but don't want too much.
Will start to give away trade secrets, will encourage opportunism for a competitor to come in.
3. at the customer level
Customers will become part of the business web
Lego Mindstorms -- robots
Kids hacked the code, and started sharing the applications
Lego could be like the music industry, and sue the children, or it could push more towards transparency.
They published the APIs, now there are lots of companies developing.
Will see someone bid for Cadillacs, knowing the cost structure
4. Market transparency
WSJ: on web, reported: you'll see a lot of balance sheet debt (Janis Joplin, 2/98)
5. At the level of the public
Person wanted sweatshop embroidered on Nike shoes
On Good Morning America, will be writing a book.
Nike is actually a leader, now, in fair labour practices, based in the 1990s.
Corporate Knights, in Globe & Mail this week
Performance of good companies versus average companies.
The selected the companies, and then asked CIBC World Markets to do the analysis.
Are they just well managed?
Something going on, and you don't know what it is
Roger Martin: the unintended consequences of being good.
Not clear that begin good leads to profitability.
If embraced by competitors, then lower industry profitability.
If not embraced by competitors, free-rider problem.
McDonald's put out a report, now being hammered by a social responsibility groups.
Business rationality for begin good is contextual.
Conference Board: either managers thought it was good, or contextual, e.g. schools in Pakistan so they don't need to go to religious schools.
How can you tell investments in being good pay off?
Convinced that long-term competitive advantage does pay off, through building relationship capital.
When something sticky happens to Tony Comper at BMO, instead of going to PR, he asks about the right thing to do.
The bank that finances terrorists can become toast overnight.
If you could have relationship capital, it will let you architect the capabilities through relationships
People and institutions become part of the organization.
These should drive shareholder value.
Relationship capital as a new form of wealth -- a new type of intangible asset.
Relationships seem to appreciate in value, the more you use them.
We'll see classes of relationship:
PRM: Partner relationship management
ERM: Employee relationship management -- to see that values become a part of the organization
SRM: Stakeholder relationship management -- with NGOs, etc.
All of the four become relationship capital management -- RCM
Will compete in a transparent world
Want a better term for a values-based company
Had used "paradigm shift" in the 1980s
Have a neologism database, and a neologism committee, can't use a term unless it's passed -- to bring clarity.
Best so far: the new color of business
Companies try to be green
Maybe the new corporation is blue, like a prairie sky
Old --> new
Compliance --> initiative
Reactive --> proactive
Unknown impact --> part of business strategy to enhance shareholder value
Spin --> values and behaviour
Opacity --> transparency
We behave a certain way, we want you to understand who we really are.
Brand as image --> relationship capital
Harley-Davidson, how do you measure: loyalty, profitability?
The number of people who tattoo the logo on the body
Harley has a relationship
If they were focused on profitability, they would have shut down some union plants; instead they worked with the union.
Departmental activity --> DNA
Rationale for investment
What does a transparency company look like?
Information: which activities
Governance: who sets rules
Infrastructure: what channels and technology
to ethics officers
to executive and board level
to a strategy and process driver
Will cause a crisis of leadership
Nothing so perilous as bringing in the new.
We're very uneasy about corporations today, but we love brands, and the majority of us own them.
Often, on picket lines, striking against themselves.
Where will the leadership come?
This is the challenge, at all levels.
Senge: the person at the top can't learn for the organization as a whole.
Need to create organizations that learn.
Optimistic, in the midst of angst, that fundamental drivers will cause change.
The civil foundation of the economies is becoming global.
You need to govern yourself in the Ivory Coast, not just in the Ivory Coast, but at the highest common denominator at a global level.
This is a great time for opportunity. It's a turning point.
Door #1: old thinking, philanthropy, being good for goodness sake.
Door #2: Kris Kringle economy: people see you when you're sleeping, they know when you're awake.
What is the role of government? Are governments more spin doctors than corporations?
How much information to provide, in government?
Just because we have the invisible hand in markets, doesn't mean that governments should get out of the way.
Roger Martin, in HBR article: behaviours eventually become laws and practices.
American corporations may not be able to sell in Europe, unless they become more like them.
Many things are not national, but global.
There won't be global government in our time.
Global civil foundation, and market forms which cause standards
Standards, tracking, reporting,
e.g. the global reporting initiative: HP, McGraw Hill, Siebel, ...
BT thinks it's a great idea, part of transparency.
Other companies (won't mention) who think it's evil.
They're building an accounting industry for social reporting.
Should let the invisible hand of the market guide
Changes in rule in information disclosure.
This intersects with individual behaviour -- if you're elected, personal behaviour becomes part of the public record?
The sex life of a government official should become the focus for a year?
There's an issue around non-elected people
Novelist: the transparent society, where everyone knows everything about everyone.
We leave digital crumbs around everyone.
Creates a virtual image of you.
Some people say privacy is dead.
You can't create a just society, unless you can choose to be left alone.
The flip side of a transparency strategy is a privacy strategy.
Executive compensation versus employees?
In a transparent society, people know.
Won't comment on social justice, because it has to do with personal values and ethics.
Impact on corporate governance? If trying to set up a board, what changes, or what kind of people should you be looking it?
Has been on a lot of boards, little discussion about values or even behaviours.
e.g. tax strategy worldwide, global strategy
These all impact shareholder value.
When you bring people onto the board, will this influence them?
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