Powerful Messages from a Powerful Book

Originally Published July/Aug 2005

It’s summertime as I write this, time to relax with a good book. But it’s difficult to relax having just finished Tom Friedman’s The World is Flat. It’s a truly big book—big in size (469 pages) and especially in ideas. And Friedman’s ideas about how the world is changing are powerful and daunting. He describes a world in which walls are turning into bridges, where companies both compete and collaborate at the same time, where third world countries like India have become economic powerhouses and China is on the verge of doing so, and where technology is transforming government and business operations in ways difficult to imagine.

Consider:

1. 1. If you own a Toshiba laptop under warranty and it breaks, you’ll probably call Toshiba’s customer service. You’ll be told to take the laptop to UPS to ship it to Toshiba for repair. Well, that’s not quite what happens. Next, UPS does indeed pick up and ship your laptop—to the UPS hub in Louisville. There it’s taken to a UPS service center, where UPS repairmen (certified by Toshiba) repair your Toshiba laptop. Then UPS returns it to you. The entire process takes as little as three days! You get your laptop back faster, Toshiba is freed up to do what it does best—design and manufacture computers, and UPS makes a buck by expanding into a new business, acting as though it’s part of Toshiba Corp.
2. 2. Wal–Mart, the world’s largest retailer, is known for its low prices, for its size and economies of scale, for pioneering many advanced business practices, and also for many controversial policies. What most people don’t know is that the key to its industry dominance comes largely from the unprecedented levels of information sharing between Wal–Mart and its suppliers. When you buy a box of Pampers at a Wal–Mart store, for instance, the point of sale computer terminals at the check out counter immediate tell Proctor and Gamble every detail about that sale. Then P&G’s computers know how many boxes of Pampers are still in that store, how fast they’re selling, and when they need to be replenished. Wal–Mart doesn’t place an order for more Pampers; P&G automatically does that through this incredibly efficient just in time inventory system. While other retailers have guarded their sales and inventory information very closely, Wal–Mart treated its suppliers as partners.
3. 3. Our military uses Predator drones to keep abreast of the situation in various hotspots in Iraq. These pilotless planes use high power television cameras to send back images that help the troops learn about the situation on the ground. What’s amazing about the Predators is that they are “flown” by experts stationed in the US. Not only that; the Predators’ video images are being analyzed by soldiers on the ground in Iraq, by officers at the Central Command headquarters in Tampa, by the CentCom regional headquarters in Qatar, by staff in the Pentagon and sometimes by analysts at the CIA. And all of these people are “talking” to each other about the images and how to interpret them through an online chat, that is scrolling down the right side of the screen that portrays the Predator’s images. Some of the people involved in this real time analysis and discussion are low–level officers and enlisted personnel, comparing notes with mid and senior level officers and officials.

What’s going on in these examples? They all depict the very “flat” world that Friedman describes in his book, a world with far fewer walls and many networks. We know that UPS is no longer just the company that drives those brown trucks and delivers packages; it also repairs computers, manages the inventory and delivery of the Ford vehicle you bought (and gets those vehicles to the dealer’s lot in almost half the time it used to take). Wal–Mart is famous for pressuring its suppliers to continually reduce prices; it also shares information with them and allows them to manage their inventory within Wal–Mart stores as though they were part of Wal–Mart. And members of the US Armed Forces, famous for intraservice rivalries, are learning how to think and act as one, using technology and collaborative relationships in ways we couldn’t imagine a few years ago.

SOME FORCES CHANGE THE WORLD

Revolution by information

One of Friedman’s most fascinating chapters is titled “The Ten Forces That Flattened the World.” The first began on Nov. 9, 1989, when the Berlin Wall came down. That political watershed was the result of many things, and Friedman rightly gives major credit to a factor that doesn’t get much attention: the way that the information revolution begun in the 1980s made information available to the citizens of the Soviet Union and other communist countries. Totalitarian regimes require a monopoly on information to maintain their power; they control the television and radio stations, the print and electronic media. But the information revolution couldn’t be controlled; fax machines, computers and other modern tools started informing people in the USSR about the rest of the world, and the Soviet leaders ultimately lost control.

Netscape and the Web

Friedman’s second force began on Aug. 8, 1995, the day that Netscape went public. It’s hard to believe that websites began to proliferate only ten years ago when Netscape created the first mainstream browser, bringing the power of the Web to the general public. As websites spread and more people learned to use email, we experienced a phenomenon never seen before on earth; people could communicate directly with other people anywhere and everywhere, in real time.

Supply Chains

Another force Friedman describes is the movement to create lean, efficient, “frictionless” supply chains between companies. Supply chains are the series of steps and handoffs required for materials to become products that are shipped to wholesalers, retailers and ultimately to the final customer. It’s a system of horizontal collaboration that requires a huge amount of information sharing, the adoption of common standards between companies, enormous trust and intense coordination.

I recall vividly the day I stood in a Toyota assembly plant in Japan. A truck from a supplier backed up to one part of the assembly line, and sets of tires were automatically taken from the truck and installed on the auto frames moving along the line. Each tire set was a different size, exactly fitting the specific model that was coming along the line. It was all synchronized perfectly by the suppliers’ computers talking to the plant’s computers, so that each tire set was on the proper car. For it to work so seamlessly, the computers of each player in the supply chain must be interoperable; the organizations must be willing to share internal information on sales, inventory, scheduling, etc.; and each part of the supply chain is constantly monitored so that when a change, glitch or surprise occurs, each player can respond immediately.

Insourcing

If Wal–Mart is considered to be the leader in developing supply chains with its suppliers, UPS has emerged as the innovator in synchronizing supply chains for other countries. Friedman cites this as an example of “insourcing,” bringing an outside company into one’s firm to manage part of the firm’s operations. When Toshiba contracts with UPS to fix its laptops, it is insourcing. When Nike contracts with UPS to handle customer fulfillment of Nike’s shoes (picking, inspecting, packing and delivering the shoe to the customer), Nike is insourcing. Nike would rather focus its energies on designing and marketing better shoes, not becoming an expert in supply chains. Again, this kind of relationship with another company requires unheard of information sharing and trust. As Friedman writes, “In many cases, UPS and its employees are so deep inside their clients’ infrastructure that it is almost impossible to determine where one stops and the other starts. The UPS people are not just synchronizing your packages—they are synchronizing your whole company and its interaction with both customers and suppliers” (pp 149­150). The UPS chairman and CEO Mike Eskew put it this way: “We answer your phones, we talk to your customers, we house your inventory, and we tell you what sells and doesn’t sell. We have access to your information and you have to trust us&ellip; we are asking people to let go of part of their business, and that really requires trust” (p. 150).

SORTING OUT THE WINNERS AND LOSERS&ellip; WHAT IS GOVERNMENT’S ROLE?

Tom Friedman has written a breathtaking book, and it focuses primarily on technological and corporate advances in managing business in a global economy as walls and barriers crumble. But what is the impact on our communities, and why should government officials care about these changes? It turns out that these changes are producing winners and losers, that will alter the politics of our communities and country in ways not yet clear. Take Wal–Mart. If you’re a consumer, you love it for the low prices. If you own stock in Wal–Mart you’re also pleased. If you are a community leader, you’re happy with the taxes it produces, but aware of its impact on the mom and pop stores that often go out of business when another Wal–Mart “big box” opens. And what about other employees in the community who are happy with their current job, in part because their employer pays good benefits? Wal–Mart pays relatively low wages and doesn’t cover all of its employees with health care insurance, and its example is spreading to some other companies. Some full time Wal–Mart employees live in public housing, use food stamps, and end up in emergency rooms when they’re sick (the most expensive way to get treated). And who picks up part of their hospital tab? All of us. So as citizens, we have mixed emotions about the impact of Wal–Mart on our communities and country. Those “everyday low prices” and tax revenues are great. Those everyday low wages and indirect costs to our communities are lousy. What (if anything) should government be doing to deal with the many repercussions of this new flat world without walls? That is the topic of our next column.