By Don Tapscott and David Ticoll

A powerful new force in business has quietly gained momentum during the past decade and is now precipitating profound changes in the corporate community. Firms that embrace this force and harness its power will thrive. The force is transparency. This is far more than the obligation to disclose basic financial information.

People and institutions that interact with firms are gaining unprecedented access to all sorts of information about corporate behaviour, operations and performance. Armed with new tools to find information about matters that affect their interests, all sorts of stakeholders now scrutinize firms like never before, informing others and organizing collective responses. Whether they like it or not, and whether they cooperate or not, firms face direct scrutiny and exposure from all manner of interests.

Customers can evaluate the true worth of products and services. Employees share formerly secret information about corporate strategy, management and challenges. To collaborate effectively, companies and their business partners have no choice but to share intimate knowledge with one another. Powerful institutional investors today own or manage most wealth; they are developing X-ray vision. And in a world of instant communications, whistleblowers, inquisitive media and Google, citizens and communities routinely put firms under the microscope. The corporation is becoming naked.

Leaders see transparency as a threat or an opportunity. Some fight it or hide from it. Others believe they will do better for shareholders when they openly align their business with the interests of stakeholders, sorting out trade-offs along the way. Increasingly, in the face of transparency and legitimate expectations, smart firms take the open path. In consultation with stakeholders, they become open enterprises, with explicit and sophisticated transparency strategies. Their sustainable business practices — when aligned with their business model — strengthen relationships with employees, customers, shareholders, business partners, community members and interest groups. Trust — based on open, honest, reliable, transparent and considerate behavior — increases, which in turn strengthens relationships and improves value for all.

Rather than to be unwillingly stripped, smart firms are choosing to be open. Over time, what we call Open Enterprises — firms that operate with candour, integrity and engagement — are most likely to survive and thrive.

THE TECHNOLOGY PUSH
While there are many factors causing the rise of transparency, none is more important than changes in media and technology over the last decade — in particular the Internet. It raises transparency to a whole new level. Broadcast media are one-way, centrally (and corporately) controlled, single message. The multidirectional Internet is the opposite of all these. Anyone can use it to originate messages — from any location, any time. You can find any point of view you want if you care to look. And no one controls its content, except for all its users. The Internet, as the saying goes, “routes itself around obstacles” and it’s virtually impossible to block it. The ’net has boundless versatility. Simple person-toperson communications, fancy and complex informational Web sites, the instant personal soapboxes known as Weblogs, real time activity coordination (business, personal, political), financial transactions, information capture, long-term archiving — the list goes on. All these are new and powerful tools for transparency.

By the Internet we mean more than just the World Wide Web:

it extends from Weblogs and e-mail to mobile phones and PDAs and, just out of the gate, cameras in our mobile phones; wireless communicators for specialties like healthcare, education, security and gaming; and communicating chips embedded in everything from running shoes to soup cans to door handles, production lines and prosthetics. Using commercial remote sensing satellites, anyone with a few hundred dollars can buy detailed images of any spot on the planet. Surveillance cameras are everywhere; you can’t take a half-hour walk in downtown London without having your picture taken 200 times. Individuals have them too; cameras that communicate with the mobile Internet are becoming commonplace.

This medium empowers individuals and grassroots groups to learn, inform others and organize like no other. The search engine Google and others like it (see sidebar) is one of the single greatest forces for transparency in the world today. Type just about any search term and you are bound to find what you need to know, as well as any dissentions or debates that pertain to the topic.

THE BUSINESS WEB
As market capitalism goes global, it imposes a performance discipline on the competitive success of firms and nations. The crises of 1998 in East Asia and 2002 in the U.S. exposed the costs of cronyism, corruption and false reporting. In addition to bankruptcies, job losses and stock market crashes, opacity adds a risk premium “tax” onto loans and investments, according to research by accounting firm PriceWaterhouse Coopers. Banks charge more interest and investors demand more equity (or back off completely) in the face of dubious business practices and opaque corporate governance.

Further, corporate structure is going through the biggest change in a century — in turn propelling transparency between firms. In the networked global economy, firms increasingly work in networks, what we call business webs or b-web. Information technology (IT) is leading to a profound change in business design, not just in new business processes but to the deep structures of the corporation. The vertically integrated corporation is unbundling.

Rather than attempt to do everything from design to component manufacturing, assembly, marketing, distribution and customer service, firms focus on areas of expertise and partner to do the rest. The companies that do this well tend to be the ones that compete and perform well — having better products or lower costs or both.In the office furniture industry, Herman Miller has orchestrated a high-performance business web. Industrial designers who don’t work only for a furniture company create innovative designs. Their distribution channel is an IT-based network of partners who customize furniture for customers. And increasingly they outsource manufacturing to firms that can do a better and cheaper job. They have high-performance business processes and the results are clear: dramatically better revenue growth, net profit margin, Return on Assets, revenue per employee and inventory turns. (And they also have better IT.)

In radical business models — like eBay and Amazon — the core company does very little. eBay operates a Web-based auction site, where its 28 million active users handle all aspects of inventory, marketing, pricing, delivery and trust creation for the goods that they sell and buy. Amazon runs a growing online retail mall where consumers and freelancers write most of the product reviews and the products themselves are all sourced from third parties (no house brands here); the company itself focuses its software technology on physical fulfillment. In all these cases, clear, precise, trustworthy communication is the sine qua non of success.

Transparency is essential to the functioning of b-webs.

As corporations unbundle, focusing on what they do best and partnering to do the rest, information flows that were formerly internal to the firm are now between firms. Transparency drops transaction costs, increases trust, improves the metabolism of supply chains and improves inter-organizational collaboration.

So the biggest push to openness in business relationships is not the American Sarbanes-Oxley Act or other legislation, but rather technology and economics.

RETHINKING IN FORMATION TECHNOLOGY
Information technology may well be the most powerful single force for transparency in our time. Most companies use IT to communicate with stakeholders — often in primitive ways such as through Web sites. Yet rarely do they fully exploit the power of IT to bake transparency and integrity into day-to-day operations and relationships with every stakeholder group. This goes well beyond supply chain enablement to the full range of stakeholder engagement: customers, employees, communities and shareholders.

Process-enabling applications include customer relationship management, supply chain management and the like. Firms can improve stakeholder trust, reduce inefficiencies or enhance effectiveness through the use of timely and accurate information in their business processes. These in turn lead to reduced transaction costs, stakeholder loyalty and faster/better/cheaper outputs.

Many process tools are specific to an industry or activity.

For example, today many North American trucking fleets use computerized maps to help drivers choose efficient routes. Now, a new generation of such maps and services from companies such as Maptuit also provide information about traffic jams and road hazards and how to find preferred gas stations. Such applications are truly eco-efficient: they save money and reduce consumption of carbon fuels.

To create an Open Enterprise firms need open — standards based — IT infrastructures that reach out to partners, customers, shareholders and other stakeholders. Because of transparency, Open IT is an idea whose time has come. Most companies already use technology to communicate their agendas, notably by publishing their sustainability reports on the Web. Yet rarely do they fully capitalize on the power of IT to drive, enable, enhance and embed their stakeholder/sustainability agenda into the everyday life of the firm and its stakeholder interactions.

Every IT function should be mandated to rethink its applications solutions to embrace the firm’s new integrity strategy. For example, today some firms have programs to track the financial, delivery and product performance metrics of suppliers. IT managers should think about how to enhance such applications to also provide reporting on environmental, working conditions and other stakeholder/sustainability metrics. In the absence of such initiatives, opportunities will be missed, costs will be higher and some risk will never get mitigated.

CIOs are, in many ways, on the front lines of the shift toward transparency, and have the chance to provide leadership to move the company more towards a default position of candour and openness and in so doing, be thrust into the centre of these huge changes in the nature of business, to build more trusting relationships with stakeholders.

The smart IT executive will learn about this stuff, get up to speed about it and provide leadership and develop a sensible approach. Once again, CIOs have been given a whole new set of business issues with which they’ll need to become familiar. If they are to be effective, they must build good relationships and align themselves with the business, and combat these inexorable pressures for inappropriate slashing of IT budgets that’s been going on all over. IT is not dead. It’s just getting started.