[From iSource Business, April 2001] With great opportunity comes great risk. It's one of those self-evident truisms that is self-evident only during the battle damage assessment that follows a major mistake.
And so it is with the New Economy. There are great opportunities, and there are great risks. Especially given the speed of change and information flow in the New Economy. The ability to move quickly also means the ability to err quickly.
But overall, it's better to have opportunity and risk than no opportunity at all. And the New Economy is aflush with opportunity. To get some bullish and bearish perspectives on what executives believe about the New Economy, iSource Business magazine spoke with executives from both pure-play Internet companies and more traditional brick-and-clicks. Here's our lineup of experts: Jim Hunt, e-commerce director, 3M; Mark Goldstein, president and CEO of Bluelight.com, Kmart's Web enterprise; Kevin Surace, CEO of strategic sourcing company Perfect.com; Tom Hennings, CEO of OrderFusion; Orville Bailey, president and CEO of B2eMarkets, an e-sourcing software company; and Bob Shecterle, vice president of product strategy, market-place solutions division of e-business application software company PeopleSoft. Here's what we found out.
What's All the Excitement About?
Recent presidential elections notwithstanding, it's best not to change rules or definitions halfway through an exercise. So let's start with the term New Economy. What, exactly, does that mean?
Hennings' response is blunt. What does New Economy mean to him? Nothing. It's a hype word. It's not that Hennings doesn't grasp the concept, it's just that he realizes that some factors are constant, and the presence of an economy is one of those factors. I'm not sure who invented the term, but there's been an evolution going on in the economy over the last 30 to 40 years, having to do mostly with response times and communications. And as we all can communicate more and more effectively and more broadly, I think the term New Economy' is almost synonymous with globalization. Which means that geographic boundaries are falling away.
Hennings says that this globalization is a natural outgrowth of a key human characteristic: impatience. We are an impatient species. You don't see your housecat wandering around the house tapping his paw on the carpet waiting for you to come home. And the New Economy, as I look at it, is the fulfillment of our impatience.
According to Jim Hunt, the New Economy is business in a new manner. For example, at 3M a lot of what we do is new product introductions and development. It isn't necessarily just selling the products. That's part of it, but it's how we get that information out, how we get the new item out faster.
So there are varying definitions, but the underlying threads are speed, globalization and information transfer. In other words, the New Economy seems to be much like the Old Economy, only exponentially faster. Businesses have valued speed since one courier got the job over another courier because he could cover fiefdom more quickly. Globalization has been around as long as someone looked at the distant horizon and wondered who was out there, and would they swap something with him. And information transfer probably goes back to someone scrawling, Honey, we're out of mammoth, on a cave wall.
So what is it about this New Economy that makes C-level execs look forward to the next evolutionary wrinkle, the next disruptive technology? In a move that should please the less energetic, Hennings predicts an intellectual liberation from grunt work. He explains, The Industrial Revolution was about us not having to do the mundane physical labor that machines could do. There is an awful lot of mundane intellectual labor that all of us have to do. In the coming decade that will go away. I think that's what this next revolution is really about
Hennings gives some examples of this liberation. What are mundane tasks for sellers? Looking up products in the catalog. And if it's not in this building I have to go over to the other building and get it because my best customer just called me and is now asking for something that isn't a product line I normally deal with. But they buy $5 million a year from me, and I'm going to go to the other building and find the catalog and do it. So there's lots of effort, but nothing really productive. Put in business terms, you're not getting a good return on investment (ROI) on your intellectual investment. Brainpower that could be developing improved business processes is instead devoted to slogging through files.
Hunt is excited by what he calls the speed and the connectivity, the interconnectedness of people. And this interconnectedness has promise beyond e-mailing Grandma pictures of the twins. Engineers can already thrash out a new plant design over long distances, and will perform more of this type of work in the future. As Hunt explains, this is particularly important as you go into the realm of industries like the automotive industry, and start sharing engineering drawings and some of those really elaborate documents.
Bailey multitasks his feelings. The same thing that excites him also concerns him. Here's how he explains it: The exciting thing is the access to information. And it is literally unlimited. You can go out on the Internet and get information on just about anything. And that is powerful. That is liberating. The downside, according to Bailey? The scary thing is also information overload. It's the idea that there's so much information you just get overloaded with the vast amount of it.
But the information cavalry is on the way, says Bailey. I think that the idea of being able to articulate what you're looking for, either in the form of a profile I'm interested in any information about these five topics at any time and being able to go out and match yourself exactly to what you're looking for, is exciting. He calls this service an information broker. I see that as inevitable; the idea of your own personalized agent who will go out and get the information you need.
While there are already limited capabilities in this area Bailey expects this capability to become more and more powerful. I think what we'll see is more and more matching, personalization. And as we get the information more and more structured, it's going to make that easier.
The New Economy Unites
Mark Goldstein likes the chance the New Economy provides to combine Old World retailer Kmart with an online presence such as Bluelight.com. Discovering ways to leverage both our strengths to meet the consumer's needs is the kind of challenge anyone would dream of having. Programs, like in-store returns of online purchases and in-store online shopping kiosks, are just the tip of the iceberg on where we can take this New Economy and the New Economy customer.
Perfect.com's Surace considers the New Economy a function of the Internet. He says, [The Internet is] literally another communication medium. And, as such, it's a communication medium that allows a different level of interaction than, say, the telephone or fax. You can interact with hundreds or thousands of databases all at once, which you could never do on the phone.
Surace goes on to say that, for corporate America, The real excitement is the ability to use that communication medium to re-engineer a lot of their processes, drive costs out and drive dollars to the bottom line. As a communication medium, the Net allows businesses to streamline and automate processes that they could have never done before. Because it's a worldwide network, whether your suppliers are in India, Bangladesh, China or the United States, ultimately you can connect to them and negotiate with them electronically and buy or return or whatever you have to do with them.
PeopleSoft's Shecterle is excited about two facets of the New Economy. One, the ability of even smaller enterprises to reach new market opportunities, is fairly well-known. But his second point, the ability to take the supply chain outside the enterprise, is not an obvious advantage. As he explains, We spent a lot of time in the last 10 years talking about how to extend the supply chain and, through extranets and EDI, get closer to the other members of a supply chain. That's true, and the Internet and the New Economy are really going to make that even better and more effective. The Internet is also now allowing us to do that same kind of getting outside the enterprise, not just with suppliers but with customers and with employees. We're finally able to look at all the business processes within the enterprise and optimize all of those that it makes sense to extend outside the four walls.
Shecterle explains, If you take a look at [the Internet], you'll quickly realize that this is a way to get closer to your customer, improve customer services and get your employees connected not only internally but externally. What happens if, on the human resources side of my business, I need to staff projects with temporary employees? The ability to link out through the Internet to a marketplace really optimizes that business process. The ability to link employees directly with benefit providers, whether they're health or financial benefits, really leverages their time and business processes around that, and it allows me to provide a superior work environment.
New Economy Concerns
And now for the downside. (It's part of life, and it makes for a better story.) Since we have all this potential, it stands to reason, if we adhere to the opportunity equals risk hypothesis, that there are myriad problems that could turn out to be New Economy Grendels, spawning the need for countless cyber-Beowulfs. We already have Bailey's concerns; here's what our other experts told us they're concerned about.
The Human Factor
Hennings is concerned with undervaluing the value of humans in the [business] process. Humans will always be there, and will, in fact, be more important as time goes on. Humans are going to become extraordinarily critical, because machines are going to take away all the mundane tasks.
According to Hennings, this naïveté is exemplified in the failure of some marketplaces. As he puts it, They tried to embody negotiation in an exchange, and that can't be done. We all learned negotiation when we were two years old, fighting over a pail and a shovel in a sandbox. The sandbox analogy might rankle some consultants and business people, who might not prefer to be compared to children in a sandbox (although some business meetings can make a sandbox look like a model of decorum), but it's as sound as any you'll come across.
Hennings explains, One of the most important things we do in negotiation isn't to negotiate or determine the result of a set of known variables; the first thing we actually do is to decide what we're going to talk about. So I don't go into negotiations and say, Well, the price is going to be this. What do you think?' When I go into negotiations, maybe I don't want to even talk about price. Maybe today, I want to talk about how many of your products I can get over the next 12 months, or whether or not you'll commit to that manufacturer. Yet tomorrow, I could call you and want to negotiate price. The real issue is, in a negotiation, I'm actually determining the variables I want to talk about. The hype around the public marketplaces caused a dangerous oversimplification of the real process that goes on and why humans are needed.
The Value in the Value-add
One of the things Hunt is most concerned about in the New Economy is the inability of smaller companies to meet standards imposed by some organizations. He gives the example of the automotive industry. General Motors wants products delivered to their assembly line. Well, they happen to want their products delivered in what they call fiber-free' containers. Which means you can't take them in corrugated cardboard any more. And we, as a manufacturer, still pack everything in corrugated cardboard. That's one of the areas where the distributor adds value. Locally, they have the inventory, and they will deliver three of an item to a certain point on the production line in, basically, a plastic, recyclable container. As a manufacturer, we aren't going to get involved with it.
The smaller company may meet a specific need as far as the core components, but the necessity of different value-adds becomes a problem, particularly if the smaller organization is incapable of effectively collaborating with others to add value where needed.
It's Still the Economy
Bluelight's Goldstein has concerns that have already been addressed by the recent Wall Street slide, which he says is a slap in the face to many people. As he explains, the public finally caught on that New Economy success requires more than becoming a dot-com. You need real business models to succeed. You need to sell goods at a profit to survive. I think many people were so caught up in the glitz and glamour of the Internet, they forgot basic Business 101, and the fallout ensued. I think this has made a number of people gun-shy, which, in a way, is a good thing as they take the time to really develop their strategies when dealing with the Web. To some extent, the brakes have been put on the Internet Economy for now.
Dazed and Confused
Surace's concerns revolve around companies that miss out on opportunities. As he puts it, The risk in this New Economy is that many of the Fortune 1000 either don't recognize the power of doing that, don't have the expertise to do it or don't understand what to do, and they'll be left behind by competitors who quickly figure out how to streamline their processes.
According to Surace, part of this reticence can be attributed to the tech slaughter of 2000. As a result of that fallout, Surace says, I think the risk is that a lot of businesses will now write off the Net for a while and not see what other businesses will be doing. And they're going to get caught off-guard and clobbered.
Companies not wanting to join the ranks of the clobbered can take their cue from GE, which Surace calls very progressive. By the first of 2000, GE had automated many of their back-end processes, had already been purchasing many of their goods and services online at 20 different divisions, and by mid-2000 was named Internet company of the year. Now, if I were the CEO of a Fortune 50 company, that would have shocked the heck out of me, because you'd think it would be eBay or Yahoo! or Excite or some company like that. But GE was named Internet company of the year because, instead of setting up a store online, they put a billion dollars on the bottom line by automating processes. That is powerful.
Can't We All Get Along?
Shecterle is concerned about the increasing complexity facing B2B, the efforts of standards programs like UDDI and RosettaNet notwithstanding. He explains that while the connectivity and availability represented by marketplaces is a good thing in general, there are also dangers. [The presence of exchanges] is a good thing in terms of competition, because it implies you don't have to be a multibillion dollar traditional enterprise to play. It also means there's a lot of confusion in the marketplace. As a result, you get to a situation where there's going to continue to be many competing technologies, many competing marketplaces and exchanges, and, potentially, that could lead to a lot of complexity for the participants.
Shecterle believes that interoperability will be a crucial factor for success in the New Economy. I think the risk here is that if a lot of the current online exchanges and marketplaces are too parochial, too closed in their view, that drive toward interoperability will be slowed and not everyone will be able to realize all the benefits that are on the table. If it's just Covisint getting together with the automotive suppliers, that's not enough to really benefit the economy in general.
While it's clear that the experts believe there are upsides and downsides to the New Economy, Hemmings provided what might be the most telling comment on the whole situation. He said, I truly believe that work is going to be a much more fun place for people to come to, because they won't have to look forward to a bunch of mundane, repetitive tasks that, frankly, computers can do. Fun at work. What a concept.