Welcome to the New Economy: Act III
Dot-coms have discovered that they have to make money, and the Fortune 1,000 have learned that E-commerce isn't all that hard. What happens now?
- From .com to .profit, by Nick Earle and Peter G.W. Keen (Jossey-Bass, 2000)
- How Digital Is Your Business? by Adrian Slywotzky and David J. Morrison (Random House, 2000)
The radicals of the 1960s got it wrong. The (technical) revolution will not merely be televised, it will appear on your computer screen in glorious, living color.
In the new-economy tech wars, we are now in the third act of what promises to be a three-act play. In Act I, small companies used the Net to their advantage. In Act II, old-economy companies caught up with remarkable speed. And now, with the digital playing field more or less level, the best ideas and services will win.
A series of new books reinforce the point that if you don't understand what is going on, you -- like thousands of generals before -- are doomed to fight your last war.
In their book From .com to .profit: Inventing Business Models That Deliver Value AND Profit, authors Nick Earle, president of Hewlett-Packard's in-house incubator, E-Services.Solutions, and Peter G.W. Keen, a technology consultant who has written 20 books on business and IT strategy, deconstruct Act I clearly and informatively and delineate the new ground zero: being a dot-com, they say, "is about being open for business on the Web. Profit is about making money as a business on the Web. And they are not the same thing."
That distinction is being made painfully clear to tens of thousands of now struggling Internet start-ups. To underscore the obvious: being on the Web is no longer an objective but rather the price of entry for being in business. The ultimate goal is still to create a business model that makes sense.
Ironically, that gives large companies an advantage. Prior to the advent of the Internet, old-economy companies had sales and almost always reported earnings. In general, costs fell dramatically and sales climbed as those companies went digital. GE is a perfect example. Once the company made the decision to master the Web, it caught up to, and in many cases surpassed, the dot-coms.
What's a smaller company to do now that the first-mover advantage is gone? Well, you could do a lot worse than spend some time with How Digital Is Your Business? by Adrian Slywotzky and David J. Morrison, authors of The Profit Zone and Profit Patterns (Random House).
The book's premise is that your company should have a "digital business design" -- another way of saying that you need to have a detailed business strategy that actually makes sense. To Slywotzky and Morrison, a digital business design is "never about technology for its own sake; it's about using technology to create a unique and better business design."
The authors go on to list eight areas of importance and pose eight questions that they say you need to answer when building that model:
- Customer selection. Which customers do I choose to serve?
- Unique value proposition for the customer. Why do they buy from me?
- Unique value proposition for the talent. Why do people work here?
- Value capture/profit model. How do I make money?
- Strategic control/differentiation. How do I protect my profits and my customer relationships?
- Scope. What do I do to add value?
- Organizational systems. What organizational structure and culture do I create?
- Bit engine. How do I manage and distribute the intelligence inherent in the system?
Although the first seven concepts are fairly basic, they are important and necessary to mutually reinforce one another.
But what is perhaps most intriguing about their list is the eighth item. In creating their concept of a bit engine, Slywotzky and Morrison are building on a concept put forth by Nicholas Negroponte, author of Being Digital and founder of MIT's Media Lab. Negroponte drew the now accepted distinction between managing atoms and managing bits. Managing atoms is manipulating physical assets: stockpiling inventory, shipping product, building factories, and so forth. Managing bits is all about manipulating information.
Obviously, given a choice, you would prefer to have your company stationed behind door #2. That, as Slywotzky and Morrison point out, is where digital business design fits in.
"On the surface, Digital Business Design is about what fraction of your business processes are conducted online," they write. "At a deeper level, it's about whether you've transformed the way you do business by taking advantage of the new strategic options enabled by digital technologies."
Now, if you think some of that sounds familiar, you're right. And concepts like the "choiceboard," a process by which customers are allowed to interactively design the exact version of the product that they want, are just mass customization in a different guise. And many of the corporate examples given in the book (Dell, Schwab) will be well known to even the most casual business readers.
But Slywotzky and Morrison have put this information together in a way that is useful for managers. They provide specific examples -- including international cases such as Cemex, the Mexico-based cement company -- that show how companies have digitized their business effectively. Their book could help you write your own Act III.
On the Other Hand, Maybe We're All Doomed
- The Coming Internet Depression, by Michael J. Mandel (Basic Books, 2000)
Maybe you shouldn't be thinking about technology at all. In fact, if you listen to Michael J. Mandel, a truly smart guy, you might want to use your computer to sell every tech stock you own and then go hide -- with your money -- under your bed.
That would be a perfectly understandable reaction after reading Mandel's book, The Coming Internet Depression: Why the High-Tech Boom Will Go Bust, Why the Crash Will Be Worse Than You Think, and How to Prosper Afterward.
First a discussion about why you should believe Mandel, and then a summary of his argument. Mandel is an economics editor at Business Week. But unlike most editors, he actually knows something and has the credentials to prove it. (Mandel has his Ph.D. in economics from Harvard.) Second, he has written well on the new economy for some years. Third, unlike most economists, Mandel has a definite opinion about what's going to happen. And that opinion is this: we are heading for a heap of trouble, and technology is to blame.
