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  New Corporate Ethics For The New Economy  

By Robert McGarvey, Founder & Director of Strategic Performance
Business is changing. The e-business revolution is not only changing the technology of the workplace, it is fundamentally re-defining the way we do business. The B2B world with its e-markets, customer focus and deeply integrated corporate relationships is driving business at Internet-speed and creating value in different ways. The key to survival in the new environment depends upon management's ability to adapt to a new, more collaborative, corporate-competition model. This new reality presents major challenges to traditional business ethics.

The old 'industrial' model of business ethics was often referred to as the billiard ball model. Each corporation considered itself to be isolated, competing for survival against every other corporation in a hostile commercial environment. Companies developed a tough outer shell, which manifested itself in a narrowly defined concept of self-interest. Such a view provided ethical justification for a variety of predatory practices toward outsiders -- whether customers, suppliers, strategic partners, agents or distributors. Alone in the commercial jungle, management was encouraged to maximize short-term advantage. Trust between companies was very fleeting in this anarchic world, a factor that severely limited cooperation. Internally, ethics in the old economy were not much better. Value in the industrial setting was perceived to reside in the fixed assets, the productive equipment. Therefore employees were also in a sense outsiders, simply another cost center whose value was limited.

What has changed in the new economy? Almost everything. The changing value proposition in the knowledge economy is spawning a revolution in business ethics. The Internet always did have its own homespun ethics and those ethics were frankly dismissed by old style management. Not so anymore, they are, in part, becoming the rules of the game. Hard-shelled billiard balls are out. B2B supply chain management not only provides huge efficiencies and significant bottom line improvements, but its deep integration allows partners to see into and through other organizations. As a consequence management is often privy to their business partners' internal strengths and weaknesses, trade secrets, unique know-how, market positioning, key personnel and other valuable corporate assets. Modern business ethics, which value the network relationship, place new limits on the self-interested use of this information. Rising customer expectations and speed-to-market demands are giving rise to deeply integrated eBC's (e-business communities) which allow highly networked partners to move together at Internet-speed. Trust is now a critical value, without it companies may be deliberately excluded from profitable opportunities.

Of course, trust remains a crucial element for this deep integration to operate, for such integration can be a double-edged sword. Going "open Kimono" exposes your partner to valuable information about your organization, information that could be inadvertently passed on to your competitors. For that reason, all companies entering the new model of business should carefully screen their potential partners. Here is a case where "less is more," i.e. you don't want to rush out and enlist as many partners as possible for the sake of having "the most."

Additionally, the protection of sensitive corporate information should be withheld from supply-chain partners. For example, a firewall should exist between the server that houses your intellectual property assets and your production-process servers.

Caveats notwithstanding, any organization that wishes to compete in the 21st century should take note of the migration toward deep integration, for it portends that those who ignore this trend will not prosper. Obviously, it is hard to compete against the tremendous efficiencies that supply-chain partnerships engender. For example, some studies cite a 25-30% reduction in inventory thanks to the marriage between supplier and manufacturer. Also, just-in-time delivery enables the manufacturer to compete more effectively. Equally important, the ability of the supplier to drill into its customer's production schedule allows for the anticipation of necessary parts and supplies, thus presaging any potential shortages. Again, these efficiencies can create enough of a market advantage so that those businesses who don't employ them, will end up forced out of the market.

In summation, perhaps the most profound ethical changes in the new economy are going on internally. In the new economy, where knowledge, not equipment, drives profits, employees can no longer be considered "outsiders." They are the source of competitive advantage. Successful companies in the new economy have inclusive corporate cultures. The traditional command and control model of management is rapidly being replaced by de-centralized teams of empowered individuals motivated by their ownership in the corporation. These Silicon Valley type organizations are designed to unleash the innovative power of their employees, to translate ideas to market opportunities at Internet-speed. Successful leadership today is much more motivational and much less authoritative.

Value in the new economy is being radically re-defined. As a result, business ethics are becoming one of the keys to success in the 21st century. In e-business circles, ethics cannot be a rhetorical word.

Robert McGarvey is Founder & Director of Strategic Performance at Beckett Advisors, Inc., a strategic marketing firm based in Los Angeles. He can be reached at robertM@beckettadvisors.com


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