As Labor Day closes the summer this year, it bears some reflection
as legions of e-business, Internet and strategy people have involuntarily
taken the summer off. Some rather uncomfortable unknowns have emerged
as the electronic communications revolution has unfolded, and many of the
revolution’s most active participants are wondering what the fall will
hold: a building groundswell, a frustrating lack of change or an even more
poignant worsening. Certainly the change that has happened this year is nothing short
of remarkable. It shows that, no matter how much momentum exists,
slowing to the point of almost stopping is always a possibility. It
definitely invites perspective.
The fundamental forces and value proposition of e-business, which
selectively transforms manual, analog communications into digital communications
processes, remain unchanged even as the environment has changed drastically.
Digital processes are generally real-time, infinitely scalable and asynchronous,
all of which tend to drive communications to lowest cost. Because
communications accompanies most business transactions, lowering the cost
of communications can alter the economics of business transactions
1 , and it offers a compelling value proposition that will change the face
of business and society. This proposition is valid and will prevail,
but how and when it will unfold are the questions now.
Now that the hype of first stage of the revolution has ended, we
are left with the substance of the changes that everyone was talking about.
Seen from the perspective of the general consciousness, there is not much
substance that is immediately apparent, which was completely predictable
in retrospect. If one removes the "hype" from the business models,
strategies and overall excitement of the last three years, the overwhelming
reality is that not much remains, not because there was little substance
to the ideas but because the hype was so large in comparison.
It is instructive to take a look at how and why the "hype" developed.
It is very easy for anyone to write about the transformation of communications
processes, but the complexity of implementing it to the point of achieving
verifiable economic value was not fully appreciated, and it could not
have been due to its complexity. Many of the ideas and strategies
were fairly easy to grasp, but getting to the economic value was cloudy
and was assumed in many cases. Now add to this the growing participation
of the investor pool, many of whom represented fairly unsophisticated investors
("e-traders") who were highly motivated to seek high returns (the "boomer"
generation). In another twist, many boomers grew up as self-styled
revolutionaries in the 60s and 70s, so the idea of a revolutionary, better
way to transact was inherently very attractive. The leaders of the
then-unknown public Internet companies were incented to gloss over the complexities
of delivering value, the idea of the value proposition was fairly simple,
and the media loved it because it sold ad pages, it was interesting, and
it was fun. So everyone was off to the races.
In fact, the degree of hype deflected attention from many of the
real issues, which are largely unknown to the broad investor pool.
The current state of affairs reflects how little the investor pool knows about
the e-business transformation and what it will mean. That being the
case, finding a way to evaluate the value of companies—Internet or otherwise—remains
a problem. The technology itself is a stretch for most investors,
but the investment value is determined by the application of the technology
to create business value, a much more daunting undertaking. This
means that everyone that wants to play in the game, whether as customer,
investor, proponent, critic, or consultant, will have to work much harder
to understand it better before investing. This stands in sharp contrast
to last year’s mantra, "Let it ride, it’s going up."
One question that bears research is, "What is the tangible impact
of "e-traders" on the investment community overall?" The market boom/bust
will prove to have brought significantly more e-trader investors into
the market permanently, even when discounting for the opportunistic bubble
and its concomitant chasing of many—but not all—unsophisticated investors
from the market. Assuming that the investor pool has permanently broadened,
there will be an interesting dynamic between executives of public high-tech
companies and investors because investments in companies whose value propositions
are tied to e-business will represent significant risk going forward as
the business models and technologies are proven within the context of the
ongoing transformation of business and society. If the investor pool
is broader, the public company model may well continue to gain prominence.
This situation would beg the question, "How can executives of e-business
and technology companies interact with a more diverse investor base in
the face of the investment risk?" When investments are made in the
context of a major transformation, a strategic outlook is best because
it will seek to identify risks and unknowns, and it will specify the intentions
to act to minimize the impact of the risks. However, most investors
are not sophisticated enough to appreciate the strategic perspective, and
they are notorious for their "short-term return mentality." This
gap will confront executives with a leadership choice: they will either
lead by openly stating unknowns and strategies in an effort to educate
investors, or they will follow investors by managing their companies through
attainment of short-term "conventional wisdom" objectives and glossing
over complexity.
There are some of the dynamics in the market. You can read
more in The
School of Red Herrings , which was published this month. As you make your own plans for
the fall, these observations may be useful:
- In general, focus your thoughts about e-business, the Internet,
and web applications on cost containment rather than revenue growth.
The most positive economic scenario at this point is slowly rising growth,
tempered by conservatism. Glib promises of "new economy" revenue
ideas are still fresh in everyone’s mind, and they are largely discredited. Transforming inefficient analog processes to digital ones has barely begun.
- "Internet time" has changed in several ways. Yesterday’s
blanket sense of immediacy to get to market at any cost is largely over.
During the last three years, "Internet time" was automatically assumed because
it was the key to grabbing "new" market share. However, using digital
processes to run a business enables very rapid execution in many cases,
and companies’ extensive technology investments have increased their capacity
to execute rapidly. Try to gauge the timing of how fast things move
on a case-by-case basis by answering these questions: 1) what kind of economic
goal is connected with the activity/project/job?; 2) how economically verifiable
must it be to be seen as a success by key stakeholders?; 3) where are
the weakest points in producing, measuring and verifying success; do they
lie in the purview of bricks and mortar (BAM)? In general, you will
probably have to give more weight to BAM timeframes because producing verifiable
economic value will probably take place from a BAM perspective.
- Strategy activity at companies of all sizes has been relatively
nonexistent since the spring, which reflects companies’ responses to the
remarkable change in the climate that we have all experienced this year.
This fall should see a significant increase in activity as companies try to
figure out what will happen moving forward, what they should do and how
they should do it. Especially BAMs stand to gain the most from e-business
strategies and applications because they contain the largest number of
transactions, and diminishing transaction costs will benefit them the most.
Strategy is needed more than ever to identify the correct verifiable economic
goals for e-business activity. For example, as companies continue
the trend of using alliance models to interact more seamlessly with vendors
and customers, they will need to create and maintain a firm grasp of the
strategies that govern these relationships due to the risk involved.
- Look for ways to integrate early stage technology companies with
BAM companies. The "start-up model" contains extraordinary learning
within it. Among other things, it represents the activity of taking
an idea to market to create economic value from it. Such focus and
activity cannot take place within an existing business in its most pure
form. The speed, focus and execution were serving the wrong masters
(hyped public markets) during the last three years, but the process and
execution are replete with valuable learning. BAMs, in a general way,
represent the "real" world of "verifiable economic value." They need
to increase the value they deliver to shareholders by harnessing new technology
and e-business: what better way than to work closely with and invest in early
stage technology companies? The trick here is forming a realistic strategy
that builds on a common ground to create value for each party who may serve
very different shareholders.
Other things
you can do
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