|
||
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|||
|
 
|
|
|
Howard Dresner recently interviewed Don Tapscott and discussed the subject of corporate transparency, as presented in Mr. Tapscott's most recent book: THE NAKED CORPORATION: How the Age of Transparency Will Revolutionize Business (Free Press, October 2003). Interview conducted 9 March 2005
Howard Dresner: The subject of your book "The Naked Corporation: How the Age of Transparency Will Revolutionize Business" (coauthored with David Ticoll) is based on the importance of transparency. How do you define transparency? Don Tapscott: Well, transparency is much more than the obligation to openly disclose financial information. Rather, all the stakeholders who interact with companies — customers, employees, partners, shareholders and communities — are gaining unprecedented visibility into the performance, operations, behavior and even values of companies. Corporations are being scrutinized as never before, and the stakeholders have at their fingertips the most powerful tools ever for finding out, for informing others and for self-organizing. So the corporation is becoming naked. Numerous conclusions flow from this. The first is that, if you're going to be naked, fitness is no longer an option; as we say in the book, if you're going to be naked, you'd better be buff. This means that you'd better have the best value, because value is evidenced as never before; you'd better have the best prices if you're in a commodity market or a differentiated value proposition if you're not. But you also need to have values. You need to have integrity as part of your corporate DNA and baked into your systems, your operations and your bones. Otherwise, you'll be unable to build trust. Smart companies understand that, rather than being something to be feared or an obligation, transparency is a force that can be harnessed for growth and for building trust, success and sustainability.
You dedicated a chapter on transparency versus opacity. How much transparency is too much? What steps would you recommend to govern this? Tapscott: Every company needs a transparency strategy. We were amazed when doing our research about how, when it comes to transparency as I've defined it, most companies are just winging it. Someone in one department will be releasing information through one channel, and someone in another department will not be releasing the same information, or releasing it through a different channel. There can be all kinds of unintended consequences of being too closed or too open. It makes sense for companies to stand back and to look at how their various stakeholders use or could benefit from information. What are the risks and vulnerabilities? What are the potential payoffs and benefits? Companies must develop a coherent and comprehensive approach regarding what information should be released, who decides, what the governance mechanisms are and what channels should be used to release information. Amazingly, information released through one channel can be a disaster, but released through a different channel can be very positive. Dresner: Can you offer an example? Tapscott: McDonald's did a sustainability report and spent millions of dollars researching its operation, trying to change it and trying to ensure that it was a good company. It published a traditional sustainability report to the corporate social responsibility community. And it got creamed; we couldn't find a single article anywhere where someone said, "This McDonald's showed that it was a good company." The main people leading the attack were a couple of small groups who said McDonald's is a bad company because it kills animals. Well, you're going to have difficulty convincing those people that you're a good company. They couldn't care less whether you recycle cardboard. They have a fundamental difference with you about your business model. What McDonald's should have done is analyze its stakeholder web, where it decides — using a two-by-two matrix — to what extent individual stakeholder is influential. High or low? Then you determine to what extent their interests are aligned (or are alignable) with your interests. High or low? The people who think McDonald's is a bad company because it kills animals are in the highly-influential-but-not-alignable-with-interests quadrant. You need to treat them differently and approach them differently than you do with other stakeholders. This is a long story, but it would have made a lot more sense to stand back and diagnose the stakeholder web. McDonald's could have released information about the positive things it was doing a different way. It might have engaged its stakeholders and have a stakeholder release that information, for example, or it might have partnered with a stakeholder to release that information once McDonald's had met or passed certain compliance hurdles. That's one of many, many examples of how, if you nonchalantly fumble into this new age of transparency, punishment can be very swift. Dresner: What should organizations know about stakeholder webs? My sense is that most haven't thought much about them or done much analysis or the modeling you've suggested. So tell us why stakeholder webs are important and what organizations ought to do about them. Tapscott: The first thing is that companies need to understand that transparency is not some abstraction or some theory that we dreamed up in this book. It has an organizational form, which is concrete, and that's the stakeholder web, or network of stakeholders who scrutinize every company. If you're a big company, chances are that you have a significant stakeholder web. Most big companies are not even aware that these things exist, let alone have developed a strategy to engage them. The way they usually find out is when a stakeholder web goes into what we call a vortex state, where there's a ton of activity in the stakeholder web. That can lead to a trust crisis, which is a big problem. The way you deal with these things is different from the way we used to deal with the traditional challengers, opponents or enemies of a company. You can't spin anymore, because people find out what's really going on. You can't attack them like a traditional opponent, because when you attack them, you make them stronger. They're all based on communications, so when you attack them, you give them someone more to talk about. They're like that old sci-fi movie "The Blob," where, when you attacked it, it got bigger. Dresner: One of my favorite examples. Tapscott: Companies need to develop a different approach, and it's called diagnosing your stakeholder web and then engaging them appropriately to ensure that their interests and behavior are aligned with your interests. When companies do this, it's not just the stakeholders who change and become enlightened about the company; the company typically changes as it understands that the interests of its stakeholders might actually be quite alignable with its own interests, if it can embrace them. Dresner: You talk about incentives and aligning incentive systems along with transparency. Assuming a company has gone through the process and has analyzed its stakeholder web, what incentives does it need to put in place to ensure transparency? Tapscott: You need to build transparency and, more broadly, integrity into every aspect of an operation. This is not about Sarbanes-Oxley or reporting; this is about, in the case of Royal Caribbean, how engineers behave on a boat and if you motivate them to control costs, whether they decide to bypass pollution control devices. It needs to be built into your product strategy. Printer companies right now are facing a potential disaster because a lot of their revenue comes from selling ink cartridges. There's a business model challenge to that, the remanufacturing and refill industry, which refills cartridges. This industry has hooked up with the environmental industry to say that printer companies are bad companies. Therefore, a company like Epson is vulnerable, because it has no strategy that I'm aware of to engage its stakeholder web, to develop a sustainability plan and to ensure that product designers, as an example, are motivated to build products that are environmentally appropriate and correspond to the growing environmental demands of their marketplace. Dresner: You've said that government regulation like Sarbanes-Oxley is not what's really driving transparency in the marketplace. Can you talk about that? Tapscott: The reason companies are changing is not out of fear of [New York State Attorney General] Eliot Spitzer, the SEC, Sarbanes-Oxley or the "perp walk." Sure, lots of companies are getting their financial reporting buff to be able to comply, but that's about 2 percent of the transparency story. I'm talking about a change in the way that companies share information with the different stakeholders and, more broadly, the way they go about building trust in the marketplace. Market forces are causing companies to change. Sometimes government regulations are a reflection of market forces. Don't get me wrong — I'm not saying we shouldn't have regulators. But the reason Progressive Insurance is publishing its operating results monthly is because that helps it build a successful company. And the reason IBM shares all kinds of information with its employees about what's going on in the company is because that's the way to build high-performance collaboration and knowledge work within IBM. The reason Cisco and Celestica have high transparency in their supply chain is because it drops transaction costs and improves the metabolism of the supply chain. The reason Home Depot engages its stakeholders and opens the kimono when it's going to bring a new store into a neighborhood is because it found that that's the way to do the right thing, and building a store that will be accepted by the community will result in high performance. Therefore, it's the tonic of the market that's driving companies to make the fundamental changes that we're talking about, not just the superficial changes in disclosure. Dresner: That's consistent with what we've seen. In fact, in our own research, we've found that regulatory compliance as a catalyst for investing in technology is relatively low. Typically, you need the carrot, not the stick, to motivate people. So if there's an opportunity to grow the organization, market share and revenue, that tends to be a somewhat better incentive than the prospect of punishment. Tapscott: Yes. Part of it is that, with a real leader, companies change because they understand it's in their interest to do so. One of the leading practitioners of transparency is the CEO of Sutter Health, Van Johnson. He stands up in front of all of his management and the boards of all the hospitals in this $50 billion hospital network and says: "Why can't my mom have access to all pertinent information about her own healthcare? Why can't she know what the costs are?" Well, she should know about the costs involved. She should know whether it's a good hospital that she's dealing with. Transparency could be a catalyst to move toward a patient-centric — or a citizen-centric, because you think about wellness, not just sickness — model of healthcare. Van Johnson's driving this transparency story throughout his organization, and he uses anecdotes and stories to make the point. One I heard was that he developed a strategic plan and sent it out to one of his main competitors as soon as it was done, saying, "I know you're going to get this soon, so you might as well get it from me." He got a note back from the COO of this company, who wrote: "Thank you very much; it was a really great document. Congratulations. Yes, I have received a copy of other copies." This is the age of transparency — people are going to find out. So even when it comes to competitors, sometimes it makes sense to tell them.
There's probably a fair amount of technology that one would need to enable transparency and, arguably, to enforce it. What needs to be in place? What's available today, and what's lacking? Tapscott: If you think about these four values of transparency, you need to have an information technology architecture, suite of applications and data structure that enable you to be an open enterprise. If you're going to be honest, you need a single version of the truth. You need to know what's going on in your own business and have business intelligence, which is the foundation of information exchange with any stakeholder group. Overall, you need the IT tools and information to ensure that integrity is part of your DNA. If you're going to be considerate of the interests of other parties, you need to know what their interests are. To be considerate of customers, you need to understand them with forecasting tools and models and with good data mining, and be able to communicate with them in an integrated way across channels. You need to be able to segment them appropriately — ultimately, down to markets of one. If you're going to be considerate of the interests of stakeholder groups, you need to find some way to have enterprise planning driven by strategy. Performance management is central to all of that. The third value is accountability. For effective scorecarding, it's about translation of strategy and managing measurable actions. Performance management is all about monitoring performance against goals. To be open with various stakeholder groups, you need to have an architecture and applications that enable you to do that. Good CRM involves providing you with information not only to learn about customers, but also to build relationships with them. You need to have transparency in the supply chain and the systems to deliver that. You need effective portals, dashboards and so on for employees to be able to understand what's going on in their own world. You need new approaches to investor relations, whereby you provide investors with real-time, appropriate information — not just financial, but all kinds of information — about what's going on in the company. It turns out, as it often does in business, that that information technology is crucial to implement a new vision and a new strategy. Dresner: As we go headlong into this age of transparency, for better or worse, what comes to mind is whether our legal system is ready for it. As you become more transparent and open up more, you're going to have more violations of intellectual property rights and patents. How do we manage that? Is that a real risk in your mind? Tapscott: No, I view it as fundamentally as an opportunity. There are always risks involved with anything. Corporations that are open enterprises are corporations that are based on values and therefore will protect basic rights, like the right to privacy. There's no tension between privacy of individuals, on the one hand, and transparency of corporations, on the other, if you really think it through. Of course, there is a danger that as we reveal more and more information about companies — say, the salaries of executives — we might decide that we should reveal the salaries of everybody in a company. That would be a big mistake; you need a transparency strategy to ensure that privacy is protected. But that's exactly my point — open enterprises do the right thing. And one of the things they do is protect privacy. On a different matter, intellectual property, there's a growing trend that we're researching, which is to think about IP differently. Conventional wisdom said that IP is a resource that needs to be fiercely protected, patented, copyrighted, trademarked and kept opaque at all costs. However, when you look at the real world, for many blockbuster drugs, the majority of their revenue and profit come after the patent has expired. Aspirin would be a great case in point. Dresner: For the inventor, or for other companies? Tapscott: For the inventor. IBM gives away hundreds of millions of dollars of software to the open-source movement, and it does this to achieve competitive advantage. I have no inside information, but it looks to me as though IBM is trying to build up the open-source business web as a way of combating the Microsoft and other competitive business webs. There's a lot of evidence to indicate that this approach is succeeding. If you look at the growth of something like Apache, which IBM has hitched its wagon to, versus proprietary approaches to server software, Apache is now dominating the market and growing very rapidly. So, maybe companies need to think differently about IP and view the control of IP as something that can inhibit innovation and competitiveness. Maybe companies should develop a strategy for IP whereby they develop a portfolio of their IP, some of which is proprietary, some of which is open and some of which they may have a deliberate strategy of having common or peer-based IP production, where they get their customers to develop their IP, or they develop it in collaboration with some competitors. So, we're in the early days of this one. And it just touches on the transparency story, the issue of IP, but I think we're about to see some big changes. Dresner: Interesting. I would say that as transparency increases, there will still be those who will find ways to manipulate it so they will be semitransparent, if you will. How do you govern that? Do you try to govern it? Tapscott: For any individual company, that is a huge opportunity. Because it means that, by harnessing transparency, it can differentiate, build trust and high performance and compete. Certain minimal requirements will be governed by law. Beyond that, there will be requirements that are governed by the tonic of the market. I'm not talking about just shareholders or customers; I'm talking about all the different stakeholders. There's a market for human capital, and there's a market for business web partners, and so on. Many companies will attempt to appear to be transparent when they're not. We call this apparent transparency. But you're going to get found out. How about all these companies that publish 200-page annual reports with 130 pages of numbers? Warren Buffett says that if he can't read a financial statement in three minutes, the company is probably hiding something. Dresner: There are some good examples out there about investing for corporate social responsibility. When will we see a dramatic change in the marketplace away from greed and toward more socially responsible types of investing? Tapscott: There is a growing view that the way to enhance shareholder value is to have a stakeholder view of a corporation. If you look at Johnson & Johnson, the corporate credo lists the customers first; shareholders come last. That drives its behavior; it's part of the bones of everybody in that company. When I was talking to their CEO, I said to him that it must have been rough trying to defend this stakeholder view of the corporation during his shareholder value period, or the "era of the great happiness," as I heard someone call it. And he said, "I think it was the great genius of General Robert Johnson 70 years that he knew the way to put the shareholders first was to put them last." So, you take care of your customers. Within constraints and acknowledging trade-offs, you take care of your other stakeholders — employees, business partners, communities. You do that, and the shareholders get taken care of, thank you very much. Having said that, my argument is not that companies ought to be good for the sake of being good. My argument is that if greed is what drives you, then you will become more open and you will build integrity into your operations. The statement that you do well by doing good was not true in the past. Many companies did well by being really bad: by having monopolies, by selling lousy products through massive advertising, by mistreating their employees or by having unethical practices in their supply chain. But today, because of transparency, if you're a company that lacks integrity, over the long term you'll be unable to create a profit. In a sense, our message is quite optimistic. It means that all this evidence we see of horrible behavior by companies is not indicative of some decline in corporate behavior; it's the opposite. It's sort of the last gasp of the old model of the corporation. These companies understand that they need to embrace transparency and integrity and build it into their operations and systems to be successful. Dresner: In your book, you talk about Wal-Mart. Wal-Mart is obviously a very successful company, and within its business web there's a great deal of transparency to do what it does, so well. It's very forward-thinking and visionary. What about the rest of its stakeholder web? Tapscott: When we analyzed the Wal-Mart stakeholder web, the main people scrutinizing it were its own employees. The Wal-Mart stakeholder web was based on its employees, who are very concerned about the company. Since the book came out, Wal-Mart has showed a lot more candor. It has launched a big transparency initiative for its own employees where it's attempting to open the kimono on its labor practices, its human resources, how it's managed and so on. It's taken some initial steps, but it has a long way to go on that. Recently, Lee Scott, the CEO of Wal-Mart, also did a mea culpa and admitted that Wal-Mart had approached communities inappropriately in the past. This had to do with Wal-Mart trying to get into the tri-state area around New York. He admitted to the world that it had been an 800-pound gorilla, going into communities and pretty much having its way. That, in hindsight, had been inappropriate. And recently he's shown considerable candor in analyst calls, for example, admitting that Wal-Mart was poorly serving more-affluent customers. So, even Wal-Mart, which is held up as the archetypal counter-evidence to the theories in our book, is having to change to be successful. And it's vulnerable. A stakeholder web, as we've seen, can explode and go into a vortex, and a company can be in a trust crisis very quickly. When that happens, it's a dangerous situation for the company, and many companies never make it out. Dresner: So, is Wal-Mart on the brink? Tapscott: Hardly. But it's vulnerable. The danger is there for Wal-Mart. On the other hand, Wal-Mart does a lot of great things. In a sense, you could argue that it's been the No. 1 institution eliminating rural poverty in the United States, because it enabled people in the Midwest and the South, for example, to get access to stuff that they couldn't buy before. It enabled them to have better farms, to build better little businesses, to educate their kids better and feed their families better, and so on. But no company is immune from transparency. Dresner: You reference in your book a list of interesting Web sites. I assume they're like Web logs, or blogs, where people, some probably very credible, some not so credible, share their experiences and report on the good and the bad behavior of corporations. Tapscott: It's often people within the company who do this. The last time I checked, the electronic water cooler in Wal-Mart was very active at the Vault. And I'm sure you can find internal memos from Wal-Mart on www.internalmemos.com. Dresner: So, ease of communication has enhanced transparency, whether companies want it or not? Tapscott: Yes. Dresner: What about private companies? We talk a lot about transparency in public companies, largely because of regulations (SEC, Department of Justice, shareholders, etc.). What about private companies - does it apply to them, and, if so, to what degree does it apply to them? Tapscott: Every single thing we write about applies to a private company. I'm saddened when I hear that public companies want to take themselves private to avoid transparency. When companies go private to avoid the cost of complying with Sarbanes-Oxley and other regulations, they do not avoid the glare of transparency. Their customers will still want to know, their employees will need to know, and their shareholders, private now, will need access to information. The communities within which companies operate and their business partners will require them to be an open enterprise. So, again, there is this problem of confusing transparency with simple financial disclosure. It's something that's much bigger. Dresner: You've talked about — and others have written about — RFID and micro-electromechanical devices that are going to be out there. That introduces a wholly different kind of transparency. There is a real risk that we as consumers will become too transparent to corporations.
And do we know what they're doing? Dresner: Absolutely. Of course, the recent, high-profile security breaches of consumer data represent the "dark side" of transparency. Where do you think that's going to end up? Tapscott: What you're talking about is what we call reverse transparency, where stakeholders are gaining unprecedented visibility into corporations, but corporations are also gaining unprecedented knowledge about all their stakeholders. There can be huge information asymmetries within any business web. Someone higher up in a supply chain may know a lot more than somebody else lower down, for example. There is a real danger that we're creating a mirror image of everybody, sort of the "Virtual Howard." Virtual Howard may know more about Howard than you do, because you can't remember what you bought 18 months ago or what you said 18 months ago. There is a danger that we will create a fundamental violation of everything that we had known as our basic right to privacy. People used to worry about Big Brother, and there still is a danger there with national security, where everyone has said, "Forget about privacy; national security is more important." To me, this is unfortunate, because the two could go hand-in-hand. We have this looming problem not of Big Brother, but of Little Brother, where we leave a trail of digital crumbs as we go throughout life. Right now, you leave crumbs when you send an e-mail, when you make a purchase and when you fill out a warranty survey. But imagine when this new infrastructure becomes the basis not just of commerce, but of learning, healthcare, play and human discourse. There's a fundamental problem here. I've written 10 books, five of them were best-sellers, and five of them were duds in the market. It wasn't because those five were bad books; it's just that the timing was horrible. I co-authored a book 10 years ago called "Who Knows: Safeguarding Your Privacy in a Networked World," where I argued that it was in companies' interests to protect the privacy of their customers and other stakeholders. Ultimately, it will not be government legislation that will protect consumer and other stakeholders' privacy; it will be market forces, because if you don't have an operation based on integrity that protects privacy, then you'll be punished in the market. So you need to have principles. You know: "This information is being collected for the purpose stated. It will not be used for other purposes unless you agree." I'm not going to deal with a company that doesn't have that as one of its principles. Dresner: And the discussion of the stakeholder web certainly becomes a critical part of that. Don, I really appreciate your time. This was great. Thank you.  |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
