Is the Internet Second Nature?

Business leaders everywhere are asking, What is the future of the Internet economy? Good question. But here's a better one: Are you tapping the real power of the Net to transform your company here and now? For leaders at Cisco, Intel, and Microsoft, the answer is a resounding"yes."

These days, life in the Internet economy is more about questions than it is about answers. What went wrong with dotcom startups? Will any of the business models that emerged over the past five years survive the meltdown on Wall Street? Those are big, important questions. But for companies that have made the Net "second nature," there are better questions.

These companies understand that the Internet is more than just a technology and more than just a channel. Above all, the Internet is a mind-set. Net-based companies will come and go. But Net-centric companies -- companies that succeed in translating the possibilities of Internet technology into the everyday realities of an Internet culture -- are here to stay. Even as Internet hype continues to evaporate, the real significance of the Net is seeping down to the roots of smart, serious companies. Down there, where the real work of business is done, the Internet is reshaping the nature of leadership, the logic of competition, and the scope of innovation. Ultimately, becoming a Net-centric company is less about bandwidth than it is about behavior.

So second-nature Net companies are asking questions that force them to look within, questions that revolve not around external conditions but around internal operations. How can you -- how must you -- transform the way that your company deals with information and with ideas, with customers and with employees?

Cisco Systems, Intel, and Microsoft are three companies for which the Net has become second nature. Although each has struggled amid the havoc of the past year, each has irreversibly transformed itself in response to opportunities that the Net opens up. Each is a model -- not just of how Net companies operate today, but of how all companies will operate tomorrow.

Cisco embodies a devotion to the Internet that goes beyond just selling routers. And while the recent drop in Net-related spending has taken a toll on the company's earnings and its stock price, that devotion remains evident in Cisco's adoption of smart, Internet-driven business practices throughout the organization. "The long haul is going to be about the complete reinvention of companies," says Peter Solvik, 42, CIO. "It's not a matter of throwing technology at a problem. It's a matter of changing every aspect of how the company works internally."

For Intel, embracing the Net starts with a militant pursuit of efficiency. It is a place, after all, where every conference room features a poster that outlines the rules for effective meetings. Meanwhile, despite the recent dip in chip demand, Intel has become the number-one e-commerce company in the world. How? "We get technology," says Craig Barrett, 61, president and CEO. "We make it, and we use it . . . . We almost couldn't help becoming an Internet company."

Six years ago, Microsoft made a better-late-than-never commitment to the Net. Today, it stands out as a true Net-centric company. But its absorption of Net products and practices extends beyond such high-profile experiments as MSN.com and Hotmail. "We've worked hard to recraft how to do business internally," says Bob Herbold, 58, a former COO of Microsoft, who still works with the company. "Using the Internet, we've driven the cost of handling an invoice from $30 to $5. Yes, that saves us money. But more important, our people are a lot more in tune with what customers should expect."

How can you connect with customers? How can you balance size with strategic flexibility? How can you grow ideas and groom leaders? Read how Cisco, Intel, and Microsoft answer those questions -- and learn how your company, too, can make the Net second nature.

Are your vital assets within easy reach?

At a Net-centric company, leaders understand that information is one of their most vital assets. But the key metric here isn't how much data the company's Intranet contains. No, it's the distance between an employee and the information that she needs at any given moment. For a second-nature Net company, that distance is just one click: Sales figures, customer profiles, market analyses -- it's all available online, in an easily browsable format.

And people -- another vital asset -- need to be available online as well. After all, a company's most valuable knowledge often resides not in a database but in someone's head. On its Intranet, Microsoft has a people-based search engine that allows employees to troll through the company's roster using queries like "Who manages the Xbox project?" and "I'm looking for a programmer who can do kernel debugging." This tool follows a "one degree of separation" principle: Users can reach easily across teams or departments to get help from a former colleague, say, or from a stranger whose work they admire.

Intel takes that principle a step further: Just about anything that its employees can do online, its external partners can do online as well. Indeed, the Web connections that Intel has established with its 75,000 resellers and 18,000 suppliers are so robust that those partners in effect help the company manage its supply chain. Says Sandra Morris, 47, vice president and director of Intel's e-business group: "We've taken the walls off of Intel and wrapped it in cellophane, and everybody can look inside."

Do you excel at serving your employees?

At a second-nature Net company, people can go online to file expenses, to select benefit options, to order supplies, and to perform lots of other mundane functions. That commitment to internal customer service translates into better external customer service, because it fundamentally adjusts employees' perspective on how easy it should be to interact with a company. But there are other, more tangible benefits as well.

Cisco employs just two people to handle expense reports for the entire company -- thanks to an online system that automatically approves expenses that fall within certain parameters. Thus, a meal in Tokyo that cost $100 will probably be approved without a hitch, while a meal in Topeka that cost $100 might be flagged for a human audit. The system is so sophisticated that employees usually get reimbursed via electronic deposit within 48 hours of filing a report.

That approach saves money by cutting down processing costs; it increases productivity by liberating employees to get on with their real jobs -- and it makes retaining those employees much easier. "Once you've experienced how easy these things can be, it's hard to go back," says Bob Lavin, 44, senior director of technology and operations for Cisco's HR department. "I frankly don't think I could work for a company where it took me six weeks to get reimbursed for expenses."

Do you aggressively cultivate new ideas?

The best ideas win -- but only if they find their way into the arena. Net-centric companies know how to get ideas aired, vetted, and implemented with breakneck speed.

"Microsoft has always been a company that thrives on championing ideas," says Alex Simons, 30, a nine-year Microsoft veteran who is now a product-unit manager for bCentral. Not every idea finds a home at Microsoft. But there are no rules about whom an employee can pitch to, no penalties for wasting a VP's time, no stigma attached to backing a rejected idea.

Simons, who has gone three for seven in pitching ideas to Microsoft executives, recalls one pitch to CEO Steve Ballmer that failed: "I got three-quarters of the way through, and it was clear that Steve thought it was just a stupid idea. But there was no 'Hey, you're stupid.' He said, 'Hey, Alex, I don't think that this fits into Microsoft's strategy. But I'm willing to discuss it again. Why don't you come back in six weeks if you think that you have a story that addresses the issues I've raised?' I never went back to him. But it wasn't like there was any failure involved. It was just 'Well, on to the next idea.' "

In its approach to idea generation, Microsoft is "like a startup community with one venture capitalist," says Simons. "There's always a moment of truth when you have to go to Steve or Bill [Gates] and ask for money. But there is an awful lot of collaborative work that goes on inside the company before you get to that point."

Intel takes ideas seriously too -- so much so that it subjects them to a trial by fire. The company even includes a segment on "constructive confrontation" in the training that it offers all new hires. The class teaches employees how to rip into one another's ideas without actually ripping into one another. "We have this common way to disagree, and that gives us speed," says Michael Fors, 37, a comanager of Intel University and an instructor for the course. "We don't spend time being defensive or taking things personally. We cut through all of that and get to the issues."

Do your customers work for you?

For a Net-centric company, the flip side of "customer service" is "customers serve us." Any company can use the Internet to help its customers. But the Net enables companies to turn part of their customer base into an effective ad hoc R&D team.

At Microsoft, the Office team has reinvented its product-development cycle. Previously, the process of testing a new version of Office was an exercise in frustration: To inform the team about glitches in the software, volunteer testers had to pick up a phone or compose an email. The information submitted by testers was subjective and often incomplete. And by the time the team received that information, it was usually too late to change anything. Not anymore. Today, beta versions of Office are written so that if a tester's computer crashes while using the software, the tester can instantly send a report via the Internet that outlines exactly what he was doing at the time, what kind of system he was operating, and which programs he was running in the background.

By analyzing such data in preparation for its 2001 release, the Office team has been able to spot and fix bugs that it would otherwise detect only after the software was on the market. "The development curve is just incredible," declares Michael Angiulo, 28, group product planner for the Office group. "If we can fix 10 key bugs, we can make the product as much as 50% more stable."

Do your employees have "big jobs"?

Net-centric companies spend a lot of time preaching to employees about goals -- and relatively little time telling them how to achieve those goals. That finding comes from a study by Lynne Waldera, president and CEO of InMomentum Inc. Waldera spent a year exploring the connection between culture and performance at 15 companies, including Cisco. "Internet companies build a sense of collective ownership," she says. "In these environments, we found what we call 'big jobs' -- expansive jobs that don't have a lot of role clarity."

Waldera points to a conversation that she had with a new Cisco employee. "I asked him, 'With all of the craziness that you have going on, how do you know what you're supposed to be doing?' He turned over his badge, and on the other side were the five strategic initiatives that John Chambers has laid out. This employee recited those initiatives and said, 'That's pretty much my job -- to make those goals a reality. It's up to me to figure out how to do that.' "

At Microsoft, "program managers" are responsible for overseeing the development of a particular product -- yet none of the developers or designers who work on that product actually report to them. So they must hone the skill of artful persuasion. "I started out as a program manager," says Michael Angiulo. "For my first job out of college, my business card said 'manager' -- which I thought was really cool. My parents were like, 'Who do you manage?' And I said, 'Hmm. I think just myself.' Some of the people I worked with were more high-level than me, and it was my job to get them to buy in on product features and ideas."

Are you programmed for change?

For a Net-centric company, all other questions ultimately lead to that one. A company that has made the Net second nature harnesses all of its resources to ensure that it won't be caught flat-footed when changes loom. As a matter of course, it scans the digital horizon for trends and opportunities -- for shortcuts to the future. It uses technology to build change into its everyday operations.

Consider Intel, which has created a special unit within its IT department for the sole purpose of implementing ideas in next-to-real time. This 400-person team, called IT Flex Services, ignores the standard budget cycle and focuses on getting good ideas off the ground fast. One recent accomplishment of the team was to set up a system that allows any employee who joins Intel through a merger to access the company's secure Intranet the day the deal is finalized. The same system allows employees to access benefits information and company data from any Web-connected PC.

"We've just begun to understand the value of having all of this technology -- as well as a culture that understands how to exploit it," says Douglas Busch, 48, vice president and director of information technology at Intel. "The culture that we've built pushes us. Employees don't want to work at a company that takes five years to change its mind on something. They want to work at a company that's responsive to their ideas, where they can come up with something great and see it actually get acted on."

Cheryl Dahle (cdahle@fastcompany.com) is a Fast Company senior writer. Visit Cisco Systems (www.cisco.com), Intel (www.intel.com), and Microsoft (www.microsoft.com) on the Web.

Sidebar: Survival of the Fastest

Net-centric companies have a simple focus on flexibility -- on adjusting nimbly to fast-changing circumstances. But for a company as big as Microsoft, staying flexible is anything but simple. So the software giant relies on scenario planning to remain strategically limber.

Last year, for example, the Microsoft Office group ran an experiment that was patterned in a tongue-in-cheek fashion after the TV show Survivor. The impetus behind this scenario was the company's .Net initiative -- a move to shift the platform of Microsoft products from the Windows operating system to the Internet.

In the experiment, Office program managers and planners divided themselves into three "tribes," and members of each tribe had to live for a week with certain restrictions on their digital work habits. One tribe wasn't allowed to save files on a PC; another tribe wasn't allowed to launch Office products at all. How hard was it to "survive" those conditions? Just consider the names that the group chose for the three tribes: Mucky, Sucky, and Yucky.

"It was a fun little game to play," says Michael Angiulo, group product planner for the Office group. "We learned a lot about how changing the rules affects productivity." And yes, along the way, the group also learned to give careful consideration to each possible change before declaring it "off the island."

Sidebar: iCulture Vulture

Lynne Waldera knows a Net-centric outfit when she sees one -- or, rather, when she studies one. Waldera, 38, has spent nearly 15 years doing research on leadership and organizational development, and today she is president and CEO of the research firm InMomentum Inc. Recently, after surveying thousands of employees at 15 companies, she formulated a diagnostic tool that she calls the iCulture Index. High-iCulture companies, she says, have shared traits that are strengthened, and indeed required, by life in the Internet economy.

In an interview with Fast Company, Waldera described how several of those traits work.

Idea-to-market execution. Companies with high iCulture make it easy for workers to turn ideas into products and to bring products into the marketplace.

Adobe Systems has a great mechanism for this: the IdeaStudio. Any employee in the company can submit an idea to the studio, which is equipped with a vast array of customer data, along with tools for evaluating business models. The studio makes a go or no-go decision quickly and then provides resources to help flesh out a successful idea. Essentially, Adobe has found a way to operationalize innovation.

Customer-centricity. High-iCulture organizations excel at collecting customer data and at turning customer needs into practices and tools that touch every employee.

At Cisco Systems, most staff members have a customer-satisfaction score in their performance evaluation. Employees, both internal and external, are graded on the degree to which they have satisfied customers. That makes it very, very clear to Cisco's people where they should focus their time and energy.

Network connectivity. High-iCulture companies are interconnected: They promote communication between departments and divisions. This trait goes beyond just having an Intranet. It's about having a network structure, as opposed to a hierarchy.

Adobe now has nearly 3,000 employees, but it still holds monthly all-hands meetings that are Webcast. That helps the company retain its closeness, even though not everyone can fit in the same room anymore.

Heroic leadership. Across the board, high-iCulture companies have leaders who inspire people with their vision and credibility, and we found that the Internet is a huge factor in enabling such leadership.

In our survey of Cisco employees, 90% of them say that they have weekly contact with top managers, and most of that contact occurs through Cisco's Intranet. That helped the credibility of Cisco's leaders -- because, when the time came to ask the organization to turn on a dime, they had a relationship of trust with employees.

For more information on the iCulture Index, visit InMomentum Inc. on the Web (www.inmomentum.com/products/survey.html).

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