February 2001

BY DANIEL A. CARMEL

The business landscape today bears little resemblance to that of a decade ago -- or even a year ago. The emergence of e-business as a dominant business model has rapidly and radically changed the nature of business competition, posing new challenges to market leaders and new contenders alike. Three trends are driving this change: 1) Competitive advantage now springs from core competencies that are knowledge-based rather than quality -- or customer-service-based. 2) The Internet has emerged as the new standard platform for software application development across all business functions. 3) New levels of connectivity afforded by Internet solutions enable new levels of knowledge exchange and collaboration.

Taking advantage of any one of the above trends can have a major impact on your business. Knowing how to take advantage of all three can transform your business and your entire industry. Market leadership in today's economy will be driven increasingly by the intelligent use of knowledge -- about products, customers, manufacturing processes, etc. -- to deliver the right products at optimum speed. Indeed, the way we now use knowledge is changing the way we conduct business.

The global economy is shifting to knowledge-based products, as evidenced by a growing percentage of GDP generated by non-manufacturing industries. Core manufacturing industries are becoming more complex and require specialized knowledge to successfully implement the latest business initiatives -- such as just-in-time manufacturing or mass customization.

This shift is the latest stage of a 40-year business evolution. In the 1960s and 1970s, corporations competed on the basis of manufacturing scale and automated production processing. Companies built large, vertically-integrated manufacturing capabilities, and low-cost of production became the basis for competitive advantage.

This changed in the 1980s with the dramatic global success of the Japanese, who captured major shares of many markets because of their ability to produce higher-quality goods at competitive prices. In the 1990s, the basis for competitive advantage shifted further toward improved customer service and satisfaction. This led to huge investments in enterprise customer relationship management applications as companies moved to improve service and retain customers.

It is important to note that each shift builds on, rather than replaces, the previous requirement. For example, delivering excellent customer service is only a competitive advantage if your cost of manufacturing and quality are also high. Each generation of market leaders has reaped huge rewards by understanding the shifting basis of competition and by focusing on the new core competency.

Today, the basis for competitive advantage has shifted again. The rise of efficient networked communications between suppliers and customers has created the opportunity to assemble virtual corporations by linking companies with complementary specialties. This new capability enables companies to focus on their true core competencies and outsource to, or partner with, other companies able to deliver key components of the total product.

Huge industries such as automotive and high-tech are spinning off nonessential manufacturing and peripheral operations to create more flexible extended enterprises. These leaders have recognized that the key to competitive advantage is their knowledge about products, pricing, manufacturing, and customer requirements. This knowledge is in the heads of their best people, and they do everything they can to make sure those core competencies are fully exploited.

Take, as a prime example, Cisco Systems. Cisco has grown to leadership status at an incredible rate. It sells billions of dollars of networking equipment, but lets others do the manufacturing. Instead, Cisco focuses on designing, branding, assembling, testing, and marketing. In other words, it maximizes its use of knowledge to stay competitive.

In this sense, Cisco is one of the leaders leveraging knowledge to change the rules of business. It is, however, far from alone. In the automotive industry, General Motors and Ford are divesting previously captive parts suppliers, which underscores the larger economic trend: vertical markets are being transformed into horizontal layers of competency (knowledge) connected by information technology. In this arena, the basis of competition is markedly different and is driving a reorganization of the economy.

THE INTERNET AS PLATFORM: IT'S ABOUT REACH AND SPEED
As the basis for competitive advantage is shifting, the information technology landscape is also being reshaped. The Internet is quickly displacing client/server technology as the platform for developing all business applications -- not just those used on the Web.

The advantages of Internet technology are clear. Anybody with a browser and Internet connection can have immediate access to current information and applications without having to install software. What the Internet platform enables is broad reach and breathtaking speed.

In today's business environment, everything happens faster. As John Chambers, chairman of Cisco Systems notes, "In the new millennium, it's not going to be big companies beating small. It's going to be fast companies beating slow companies." Speed is not only essential to responding to change, but also to leveraging the benefits that change brings.

A BREAKTHROUGH IN APPLICATION DEVELOPMENT
The Internet platform itself is changing because software applications are being built in new ways. The most promising new technology models process by capturing business rules.

The central idea behind the business rules approach is that applications can model the knowledge (rules) used to run the business declaratively instead of procedurally; that is, you can simply state what needs to be done, not how to do what needs to be done. Although it is beyond the scope of this article, a complete discussion of business rules is of high value and may be found in "What Not How" by C.J. Date (Addison Wesley, 2000).

The business and technological advantages provided by the business rules approach are phenomenal. Modeling business rules allows for dramatic reduction in application development time, maintenance cost, and total cost of ownership. Modeling allows business managers, as opposed to IT professionals, to make modifications to applications and change business logic. In his book, Date says, "The complete set of business rules constitutes a model of the entire business. That model is a specification of what the business does and is truly one of the business's most valuable assets."

CONNECTIVITY AND THE KNOWLEDGE BASE
The broad-scale adoption of Internet standards like Java and XML is leading to the creation of a seamless continuous loop where information can flow from the enterprise out to the extended enterprise and vice versa. The dynamic extended enterprise comprises your partners, suppliers, distributors, and customers. The ability to optimize collaboration across the extended enterprise determines your competitive edge. As companies take advantage of knowledge flows across the extended enterprise, gains can be measured both qualitatively and quantitatively in terms of lower inventory, faster time-to-market, and enhanced product development.

Consider companies like Microsoft. When Microsoft beta tests a new release of its software, it distributes thousands of copies to customers and partners. These "testers" then report results back to the company via the Internet.

The information received from tens of thousands of extended users is far greater than the company could get through internal testing, and the data is gathered at a much lower cost. The users, in turn, get a better product that directly reflects their feedback.

When companies use the Internet platform to consolidate knowledge from the extended enterprise, they create a centralized knowledge sharing system (a knowledge base) that will yield enormous advantage in the marketplace.

MEETING THE NEW CHALLENGES
To effectively meet the challenges posed and opportunities presented by these trends, companies should develop Internet-based business rules applications to capture and distribute knowledge across the extended enterprise. That is much easier to say than to do. Success depends on choosing the right components and putting them together in the right way.

To ensure that your application is accessible by the greatest number of users, it must be developed as a thin client application; that is, one that uses only HTML and does not depend on programs that are downloaded and run on the client. The reason for this is clear. Downloaded programs may or may not run on any given platform. This situation is compounded if you want to reach mobile devices such as cell phones and PDAs, a business-critical requirement for a growing number of companies.

Proven business rules applications are now reaching the market. However, the ability of these systems to address the complexity inherent in many businesses differs widely. Many companies have products, pricing and business requirements that are highly complex. The availability of a specific feature or component may prove critical to an entire product or system. If the business rules application cannot effectively handle complexity, its value is limited. In fact, the usefulness of business rules applications is directly proportional to their ability to model the full complexity of real-world situations.

The ability of different software packages to accommodate change also varies widely and can have a dramatic impact on the system's total cost of ownership. To be effective, a system must have the ability to change business logic without extensive reprogramming by IT professionals. Ideally, these changes should be made without having to recompile programs and bring servers down, which shuts down critical business applications. Consider how many times during the day or week your products, pricing, bundling, and manufacturing rules change. You simply cannot afford to bring your business to a halt for each change.

Transitioning to the Internet platform is a true sea change for businesses and it comes with its own set of special requirements. As with any transition of this magnitude, the move will not be easy, but it is both inevitable and critical to long-term survival. Those who successfully make the transformation will seize the advantage of early adoption -- at the expense of those still struggling to maintain a paradigm whose days have already passed.

Daniel A. Carmel is vice president of worldwide marketing for Selectica. 

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