The reason the Internet, or e-business, gets so much attention is because business people realize that this networked collection of technological innovations is changing many things so quickly that traditional activities in the physical economy are being displaced by this new situation. We know that enterprises are evolving when they use this technology for greater uses of collaboration and alliances. They rely on more knowledge work, mobile workforces, and rapid communications. Work accelerates and is easily globalized. Customers gain power over vendors, while companies learn to compete in new ways; others find that they must compete differently if for no other reason than competitors use this technology in creative and effective ways.^[3] Traditional industry boundaries change as new alliances and products emerge. As a result of all these various changes, the features of organizations are changing in an attempt to increase a firm's speed of performance and in response to new conditions. Table 4.1 catalogs many of the changes we are currently seeing. This is by no means a complete list of existing conditions, let alone what should be a growing lexicon of others that will appear after the initial wave of Internet implementations have ended.

The notion of sense and response, already mentioned, becomes more critical than ever. In a more traditional environment one might have manufactured and offered products to customers. In a sense and response environment the firm responds to requests for products quickly and at a competitive price. Information would have been embedded in products; now it is also in people. Mass production is replaced with mass customization, or made-to-order for a market of one customer. Organizations find it necessary to optimize on flexibility and responsiveness, not just on efficiency or predictability. Centralized management gives way to decentralized approaches. From a marketing perspective, we are becoming more interested in the share of spending of a customer rather than just of a market. But the heart of e-business is the move from mass marketing and production to mass customization, building and doing for one, relying increasingly on electrons rather than on atoms to get the job done. In short, value chains are increasingly digitizing while acquiring flexibility to respond differently and rapidly. The hunt for new business models lies somewhere in that direction, complicated by the fact that e-business does not yet touch all parts of an enterprise at the same time or with the same intensity. Again, we see more traditional realities existing alongside new ones stimulated by the emergence of the Internet.

There are two pieces to the Internet story. The first involves that portion of the economy directly a part of the Internet, such as telecommunications, software developers, and businesses, providing service to users of the Internet. The second consists of departments within bricks-and-mortar enterprises that use the Internet, such as a billing department sending invoices to customers via the Internet. Regardless of which piece of the puzzle one looks at, growth in the deployment of Internet-based applications is stunning. In late 1999, for instance, a study published by the University of Texas on the deployment of the Internet just in the United States argued that in 1998 alone, this new form of communication had created 1.2 million jobs. It estimated that the portion of the American economy relying on the Internet—actual participants, such as telecommunications—grew 175 percent between 1995 and 1998, while the overall global economy grew in the same period by 3.8 percent. These statistics do not include the costs or benefits experienced by a firm, industry, or economy from a billing clerk sending out invoices over the Internet in a bricks-and-mortar firm. The same study suggests that the size of the Internet economy now exceeds those of such traditional industries as telecommunications, automobiles, and energy and, in fact, was by itself one of the top 20 economies in the world just in the U.S. Furthermore, a list of other major studies cataloged by the University of Texas all indicate that in the early years of the twenty-first century the Internet portion of the economies of the world will continue to expand at lightening speed.^[4]

From the perspective of how we manage and work, the same study demonstrates that a large number of new firms now exist that did not exist prior to the arrival of the Internet. The study team found that one out of three of the 3,400 firms they looked at did not exist before 1996. Furthermore, over 2,000 new secure Web sites are added to the Internet every month, representing new firms entering the electronically-based marketplace. They observed that everyone they talked with was trying to understand the implications of the Internet and determine the direction it was headed.^[5]

This is clearly a new situation. It begs us to ask, "What premises are required in the nature of work in this new environment?" As transactions move from the merely physical to a combination of physical and digital, and from mass to customized offerings, enterprises have to become very good at five kinds of transactional activities. They can be listed quickly:

From a marketing perspective, requirements emerging today suggest what one has to be good at as well. These too can quickly be listed:

Our own research at IBM, and in particular the Watershed study, clearly demonstrates that management teams happy with their exploitation of e-commerce displayed strong capabilities in each of the two lists above. This insight suggests very strongly that these are good indicators of how firms are crafting their new value chains. From these features managers can design their own business architectures. Results are changes in three areas: a firm's value proposition (what is offered to customers), relationship management (how it deals with customers), and efficiency of the business (how cost-effectively, quickly, or accurately a company performs).

The hunt for new businesses in the e-business world is underway across most industries, with the result that there are many cases to emulate. Amazon.com is not the only instance, just one of the better known. Streamline uses telecommunications to automate its replenishment of groceries. American Airlines sells online highly discounted seats that might otherwise have gone unsold. Levi Strauss designs and makes customized blue jeans. Boeing uses technology to improve speed to market. In the area of new technology management approaches, we have the example of GE's Lighting Division, which redesigned its procurement process to cut cycle time from 29 days to less than 12, while reducing costs of materials by some 20 percent. Suppliers and GE communicate online to handle all the work of this process. Saab uses this approach to process orders and collect and use sales and repair data, while building brand loyalty among dealers who sell other vendors' automobiles. It also improves the quality of forecasting demand. Business efficiencies for many companies include making it possible for employees to do things themselves, while firms automate tasks done by people yet deliver output of that work in distributed fashion to employees, suppliers, or customers. In short, the trend continues to extend the process begun over 30 years ago when EDI first became available.

Business efficiency represents an enormous benefit in the hunt for new business architectures. For example, Charles Schwab is profitable in allowing customers to buy and sell on the Internet, driving down costs of transactions across the industry by some two thirds. Dell Computer frequently sells between $3 and $6 million in computers over the Net in one day. L.L.Bean gets orders for clothing from unexpected sources at a cost of less than 80 percent of what it experiences selling from a catalog. Efficiencies cut across all industries and often are similar in form, which means firms can learn from the experiences of others in different segments of the economy.

Ask an executive experienced with the Internet what the benefits are so far of e-business and you will typically hear four things. First, firms uncover opportunities to protect market share by reaching deeper into their existing markets, making them larger while blocking or attacking competitors. Second, some costs of doing business drop sharply in comparison to more traditional approaches. Third, because of the extended reach made possible, a company can expand its business into markets not tapped before. Fourth, service can be improved because of greater access and speedier response to new market conditions.

As this book was being written in late 1999 and early 2000, the IT press filled with stories about the concern companies had about security problems related to the Internet and wireless communications. The noise level generated by these issues was even louder in the popular press, particularly in the United States and in Western Europe, just as had been the commotion about potential Y2K problems in the first half of 1999. But, as with the Y2K concern, these were false issues because at the same time companies were installing effective encryption software within the Internet and across wireless telecommunications, most aggressively by retailers and financial institutions. Furthermore, quietly but effectively, companies created secured networks for internal use called intranets. These are internal systems available only to those authorized to use them, such as fellow employees accessing through company-issued passwords. So the problem of secure credit information or confidential documents, while irritating on occasion, was beginning to come under control.

The wireless telephone has an enormous future because it is far easier and less expensive to implement than laying down cable and wire networks. This has proven to be the case time and again throughout Africa and in parts of Asia and Latin America where governments could not afford wire-based infrastructures, let alone maintain them. Buy a phone, wireless phone, or a modem for a PC, and then rely on a U.S. company to maintain a network of communications satellites, and you have cheap access to the Net or to a national telephone network!

Another major technical consideration with the Internet is miniaturization and consolidation of hardware technologies, such as PCs and cell phones. For over a half century in the field of electronics we have observed a constant, relentless, yet effective move to make electronic devices smaller. The transistor, chip, and fiber optic cables all made profound contributions to this historic trend. Now we even see electromechanical machines being built that can only be seen through a microscope, with initial applications appearing in medicine and military drones. These machines are being equipped with instructions and continue to shrink. Small and smart, they make it possible to distribute function and work into dangerous places or within an artery. When new functionality becomes possible, it does not take anyone long to figure out how to apply it in different ways. Each turn of the miniaturization process has always led to new applications. We can reasonably conclude this will continue to be the case for years to come. The fact that we cannot always predict when or what the next round of miniaturization will be, or its uses, should not cause discomfort. Forecasts tend to be wrong about both timings and applications. But as new forms of miniaturized electronics become available, uses are made that make sense and are advantageous to management. It is enough to understand this historic process so that one can keep an eye open, asking, "How can we apply this new form of electronics to business advantage?"

At an IBM-sponsored conference in August 1999, Professor Rashi Glazer of the Haas School of Business at the University of California, Berkeley, reported on the results of research he conducted in 1997–1999 about the Internet. He uncovered several drivers at work motivating firms to incorporate the Internet into their activities involving e-business. He observed that intelligence about customers could now be a normal part of any department's activities. Boundaries between delivering products and gathering customer-oriented information are now blurred, made possible by existing technology. The same technology stimulated companies to work more closely than ever before with business partners in the late 1990s, while simultaneously expanding the role of mass customization. Finally, and most radically, managers increasingly are placing "importance on setting prices according to the value to our customers, not so much according to our costs." He found that firms were "moving from product/brand management systems to a customer management system." Drivers of e-business were firm-related rather than industry-related, the desegregation of industries issue at work.^[6]

What makes the Internet different is that work and opportunities change from those of the past, and often profoundly and swiftly. Take opportunities as an example. One type of change concerns the content or work and knowledge because information can be shared across the entire value chain quickly and cost effectively. Schwab provides its customers with a great deal of information about companies that they and other brokers used to charge for, with the result that customers can now do their own research and then place their own orders. Egghead Software began selling its products through the Internet, thereby eliminating the need for retail stores (roughly 80 percent of their employees) while providing information and services to their customers.

A second innovation touched on earlier in this book is the changing nature of commerce, where business-to-business transactions have increased and become more comprehensive via the Net. Now that initiative is being extended to customers. Then there is the third innovation, the collaboration made possible by easier-to-use software tools and the Internet to connect people and processes, employees to customers and to suppliers. We can expect more of these kinds of activities when they make sense. Will everyone rush to them? As I suggested in Chapter One, there is a fundamental change underway, sweeping across most industries at a fairly rapid rate. The only thing we do not know, however, is exactly how fast. It seems everyone is commenting on the topic, with most predicting rapid change, probably faster than it will occur. How fast is irrelevant anyway. Companies are reacting to the Internet and adopting its capabilities when it makes sense to their employees. If they guess wrong, competition bites them, move too early and they make mistakes. Move at a good clip, applying sound management practices, and a company arrives at a new way of making money.

Sound management practices include taking the experience you have with e-mail and networks and extending these to a larger pool of customers and suppliers, using the Internet to link everyone who is part of a supply chain closer to your value chain. The sound business practice is about taking measures to maintain clean information files securely and finding practical uses for this data. It calls for applying data mining techniques to use information one has to improve knowledge or market conditions in real time. For a long period of time—probably for the rest of our careers—we will have one foot planted in more traditional ways of doing business. With the other we will initially dip a few toes into the new, then eventually the whole foot into e-business.

We are now at a point where we can actually begin to see the pattern at work, thanks to the actions of early entrants. At IBM, e-business experts began uncovering a pattern of adoption by corporations in the late 1990s, a pattern of sufficient definition that they began to think of these adoptions as waves. Each wave has characteristics, and there are cases they could point to as examples. So far, they have identified three waves. During the first wave, companies are essentially operating as always, but adding Internet activities to enhance revenue, speed to market, and product innovation. Organizations in both the private and public sectors are interested in lowering existing operating costs while simultaneously enhancing services to customers and clients. Market reach is very much a part of this process. So firms use distance learning to lower training costs, or provide customer service online to do the same, while collecting some data on their interests. National Semiconductor, for instance, does extensive data mining to help inform its engineers about what new products to design, while state government agencies allow citizens to renew licenses over the Net. But the key behavior seen in Wave 1 is near-term performance enhancement.

It is during the second wave, however, that substantive change occurs, as new business models emerge based on emerging technologies. There is more extensive use of IT, new classes of intermediaries are introduced, and it is now when global supply chain integration occurs. Outsourcing of noncore activities accelerates. Value chains evolve into value nets. Firms are now deeply into e-commerce as well. Existing firms reinvent many of their offerings. Those that have done this include Bank One, Barnes and Noble, Charles Schwab, Cisco Systems, Dell Computer, IBM, and UPS. In short, the transformation cuts across many traditional industries. Other companies are born, the sorts of firms the University of Texas study suggested. Some of the better-known ones include Amazon.com, AOL, eBay, E*Trade, Yahoo!, and Priceline.com.

A third wave began emerging at the end of the 1990s, suggesting that even more profound changes await managers. In this phase, businesses are totally redesigned from top to bottom, while traditional organizational and industry boundaries dissolve. These changes lead to new bases of competition and obviously to new cost models. Everything seems very electronic. Figure 4-1 graphically illustrates the three waves. The learning point from this figure is that one can be at various stages of evolution.

Figure 4-1. Waves of Business Transformation

The business literature about the Internet would suggest that everyone is somewhere deep in Wave 2 or 3. Nothing could be farther from the truth. The reality is different; firms live in various waves, and even portions of an enterprise participate in various waves. IBM is an example. Some departments are clearly in Wave 1, others in Wave 3. IBM's competitors are all over the place, from Wave 1 through Wave 3, complicating the competitive response of the firm since it must be effective across all three. This is the same challenge other firms face, and why ultimately so many executives worry about the impact of the Internet. These waves are simply evidence of the fact that firms and economies are in a period of transition, with one foot in the old world and the other in the new.

The challenge is to figure out how to move the second foot into the water of e-business while maintaining profitable revenue streams. As with any technology, the ultimate question remains the same with the Internet: When do I start using it and when do I finally drop it? The second half of the question need not be answered for decades, but the first one has to be faced immediately. The work of firms is increasingly affected by this question, so let's begin with several basic assumptions that make sense today and that hover around the issue of how best to be competitive.

First, to remain competitive in the future, a company or individual will require new approaches, many linked to use of the Internet, but not all. Some approaches will be time-honored ones long used (e.g., brand loyalty, sound relationships with key customers, entrepreneurship, and so forth). The new ones already evident include online purchasing off the Internet by customers, and turning channels of distribution into channels of communication back into the firm for use by customers requesting new products and services.

Second, unintended consequences will profoundly influence value systems. In other words, second-order effects of both positive and negative types will occur. A company's ability to react to these, either to exploit opportunities or to minimize damage, will be essential. Understanding when these are occurring and then responding quickly are keys to effective performance. This involves more than just reading about trends and directions in the business press, it is the process of routinely gathering information about market conditions, changes in technology, and being a student of new uses of computing and the Internet. The problem is not the availability of such information, it is often the insufficient interest, especially of managers and thought leaders, to methodically be students of their environment with the boldness to take action based on what they are learning. Action by the prepared mind is essential in our current situation.

Third, access to markets is becoming crucial to any strategic positioning. This is a fancy way of saying that what markets a firm can get into becomes a critical influence on a firm's business strategy. The Internet's availability opens new doors. For example, the automotive industry is beginning to realize that additional sales of cars via bids and auctions from customers can offer incremental sales to either dealers or manufacturers. In the mid-1990s, the issue of the Internet turned on the question of whether dealers were becoming irrelevant and if so, what role (if any) they might play. So far, what has happened is that the need for dealers to sell cars still exists for those customers who do not want to bid on vehicles online; for those who do, dealers are still necessary as points to which customers can go to pick up their new vehicles, or get warranty repairs. That is a very different answer or set of opportunities than might have been conjured by the manufacturers in the mid-1990s. In this example, a market is being created made up of customers who want to buy via the Internet, either through some bidding process (the new emerging approach) or by carefully configuring exactly what they want online before haggling with a dealer (the approach most evident in the mid- to late 1990s). Today, the bidding approach is creating new opportunities, which in turn affects the marketing strategy and business plans of both manufacturers and dealers.

The point of this example is to suggest that in each industry there are emerging influences on business strategies. The three most evident actions being taken by managers are:

But note that the sources of innovation in a company's strategy are the new markets, and these new markets are being created because of the Internet. So, it becomes crucial to be a player in e-commerce in order to be present when unanticipated opportunities emerge. Using e-business processes also has the same effect in calling out new alliances and opportunities that can only be leveraged if the firm has access to these markets. In short, you cannot enjoy the benefits of the information highway unless you are driving on it in the first place. Just having a Web site with some information on your offerings is only as effective as having a car but not using it to get around. It just sits there.

Fourth, new business options are emerging. Today we cannot catalog all the new business options that are emerging as a consequence of electronic business. But there are a number of types that are already evident. Managers should ask themselves if their firms are participating in these categories and, if not, question if they should be attempting to do so. Some of the more obvious classes of new business options include:

While the foregoing list is skewed heavily to the creation of incremental revenues, one can quickly come up with a similar list to suggest how to drive down costs of operation. Some of these have been mentioned elsewhere in this book, such as the development of products using the Internet as a fundamental tool for collaboration with partners and multiple sites around the world. Besides saving time and the cost of traveling to each other, you can draw the ideal experts into a meeting regardless of where they are and only for the amount of time needed. E-mail, of course, remains the "killer app" that put the Internet on the map in the first place.

Fifth, managers will spend more on IT than ever before, and therefore, general managers will become even more fluent in technological issues than in the past. This fluency will be less about how gizmos work and more about the implications of applied technologies. What it would mean to apply miniaturized technologies, or combine two or more in new ways, will be more important to them than simply using mainframes to reduce backroom office applications or front office data collection. Whole new companies are being created, occupying cracks that exist today between traditional industries (e.g., as brokers of information and as agents combining services together into new offerings).

Anyone working today in any role in any organization can view the changes underway either defensively or offensively. Most of the literature on the topic may frighten you, raising questions such as:

To be sure, these questions have to be answered, but why not also ask some questions that put your enterprise on the offensive? For example, IBM's e-business experts ask a set of questions that are counterpoints to the five asked above:

Those who develop new offerings or value and figure out how to manage in this brave new world will answer the second set of questions as well as the first.

Perhaps because so many management consultants are at the nexus of business issues and technology, it appears to this profession that a number of patterns and issues are becoming evident. The most evident is subtle yet obvious and involves the question of what the marketplace is. Given their familiarity with IT language and issues, they increasingly are using the term marketspace instead of marketplace. Viewed this way, one can envision four patterns of broadening scope of markets not evident in years past. Figure 4-2 illustrates this perspective. First is the market, as always. Second, there is the management system required to go after it—the subject of much of this book—but third, also the networks one needs to reach new markets and suppliers. Finally, there is the assortment of computers and other technologies that need to be strapped together in a cohesive manner to make the whole thing work.

Figure 4-2. Managing in the New Markets

By looking at networked-based environments, the management system required to function here, along with the business models that emerge, are all anchored to the marketspace. The description of that space becomes the basis for getting tactical about doing routine and familiar work. For each of these four areas, we can now ask some basic questions, the answers pointing to tasks to be done. Simply listed, they are:

The answers today are all over the place. But basic business management principles apply here just as they always did in other environments. Specifically in regard to the Internet, one still has to develop strategy, plan its implementation, build technical and business architectures, develop management practices and systems, construct networks and offerings, and run organizations.

Increasingly, the way people are looking at their offerings in the marketspace is by focusing on those interactions within value networks where e-business is the game to play. Looking at how a business communicates electronically with customers, suppliers, and significant influencers on its customers and competitors or outsourcers is a crucial element of what work gets done in a value net. A business still has traditional issues, however, and they include use of competencies, development and marketing of value-add offerings, tracking, development of relationships, tools, and processes. But how a business links these together electronically to the four constituencies is very much at the heart of what management does in an e-business world.

You have, like customers, new choices in the market, thanks to e-business. This means options regarding business strategy: target positioning, comparative advantages, and strategic choices. These are not that terribly different from what Michael Porter called to our attention over two decades ago. Business capabilities still influence our choices: processes, skills and availability of people, knowledge, financial wherewithal, brand image, and IT management. A company's ability to create value in the e-business world still requires it to look at offerings through some traditional filters, such as product and services, place, channels, promotions, and pricing. The answers for each are different, however, within the context of e-business environments. But, on balance many of the basics of management practices remain the same.

What then happens within an e-business environment? What is it about current business practices that are changing? The answers are still unfolding. However, one exciting development is the desegregation of value creation occurring in competitive situations, an example of both the mix of traditional managerial concerns with emerging new realities. While a manager might fear a new competitor coming along and breaking off from one's offerings a piece that the rival then converts into a profitable business, the same opportunity exists for the worried executive to explore new strategic options. In a desegregated situation, a company breaks apart products, services, and offerings (what we used to call unbundling) into various contexts, such as format, tone, logo, style, experience, or by content (e.g., product, services, information, even information-based products), and by infrastructure (e.g., business and IT processes or capabilities). In a desegregated world, you can do things in each of three areas or in only one or two, your choice. What influences the choice? Access to customers is a key influencer: ways or channels to reach customers and for them to gain access to your offerings and organization. A second involves the variety of products and services that the firm offers, the classic issue of mix. A third concerns what sets of customers to go after with ever more specific offerings. These three issues complicate yet enrich the opportunities presented through effective competition.

You can count on the process of learning how to use e-business to be an incremental iterative exercise, yet one that proves useful. Someone tries something, learns from that experience, and improves. The only admonition here is that this cycle must operate very quickly if it is to be effective in an e-business environment. Assemble a group of experts on networking and business and invariably they will come up with a similar list of insights and assumptions about working in an e-business environment. Here is a list from one group of experts in my firm:

There are some logical implications that we can extract from such a list. The most obvious is that processes in a company have to be designed to reach out to customers, suppliers, influencers (often called complementors), and even to competitors.^[8] In short, processes have to sit on top of multiple organizations, not simply be contained within an enterprise, if they are to be effective in this brave new world. This means firms have yet another round of process redesigns to conduct. As one injects networking into a process, the opportunity and risk of that process being controlled by someone other than the traditional controller increases. This change carries with it both opportunities and risks. For instance, give a customer the opportunity to select and order a product—now a fairly normal practice in e-commerce—and the firm gives up some opportunity to "sell," but if the offering is attractive to the customer, one can close more business with minimal incremental investments in selling and marketing initiatives. Yet for that reality to exist, processes for working with customers need to change, and as they are implemented, will again transform in response to customer activity and the results obtained. Put another way, processes are not the static organization of work we thought would be the case when these were reengineered in the 1990s. They are proving to be fluid in form, continuously evolving. That circumstance is new.

In addition to the dynamics of changing processes, a manager needs to worry about how resources are deployed. This is more than a people issue. A manager needs technology platforms that are stable regardless of what one offers in the way of goods and services. That is why so many senior executives today are trying to understand the potential of technology in general, and specifically IT. Computers are creating great fissures along the formal boundaries of departments, companies, markets, and industries. The shifts, however, are occurring so far along existing lines when a manager separates information (usually data, not knowledge) from physical activity, usually thought of in terms of products and services. That is why the bulk of this chapter focuses on competition and marketing issues in the context of technology and, more specifically, the Internet.

Are there additional insights for management to gain by observing the three waves of change currently underway? Getting tactical is always important, and by now the reader has identified their firm with one of the three waves. Here is what we see going on with each.

In Wave 1, scope is typically intraenterprise, normally within existing supply chains and demand channels. Employees focus on streamlining existing work by leveraging technology. Three issues always face people at this point: prioritizing among a large collection of opportunities, ensuring strategic fit and initiatives that are complementary to the firm's strategy, and shutting down existing initiatives that now are out of synch with the overall strategy.

In Wave 2, scope typically expands to the whole enterprise or business unit, not just to a piece of it, and involves selected value nets. Life now becomes more complicated for managers as they face the prospect of making significant changes in processes, organization, and the deployment of computing technology. Managers also face the fundamental issue of how to manage existing work while moving to a radically different approach. We see this, for example, in managing channel conflict as a company, shifts from selling goods through dealers to selling through the Internet. How do you keep dealers happy and productive while they are getting mad at the fact that you are shifting to the Internet? Employees create new ways to perform tasks, learn different skills, and must adapt to changed working conditions. For most firms, Wave 2 is the hardest to press through since it is here that old cultural norms and habits are really broken, labor contracts reconstructed, and new rewards and metrics finally imposed on the enterprise.

In Wave 3, the scope is boundless, literally. It can involve new lines of business and new corporate entities. Managers and process teams have to leverage existing assets as they move into new circumstances. It is in this wave that you have to ask and answer three basic questions:

It is not yet clear whether one has to experience these waves in sequential order. Logic and intuition would suggest yes, but the evidence for that is not yet there. This means you might have to leapfrog back and forth in response to market conditions. The possibility of having to do some leapfrogging does complicate strategy and tactical steps, and it challenges your ability to be flexible. My personal observation is that the leapfrogging scenario is more the case than one would like to have. Barnes and Noble, for instance, was clearly in Wave 1 when Amazon.com compelled it to flirt with late Wave 2 or early Wave 3 approaches. IBM went through the same with its PC business. Examples are everywhere. The evidence suggests once again that the reality of managing and working in a period of transitions is one marked by our feet planted in two worlds and with the future overcast by considerable ambiguity. But this ambiguity does not mean that we cannot see some of what lies before us.

E-business is real and will increase its share of commercial activity for the same reasons that steam, electricity, and other technological innovations did before. But it is important to put the Internet in perspective because press coverage of this technology has bordered on the ridiculous during the second half of the 1990s—filled with exaggerations, misinformation, and insufficiently grounded in the reality of how businesses work. An historical perspective gives us a more realistic, sober set of insights on the effect of this new technology on business practices. Such a view does not suggest that we are talking about things not changing, far from it, the transformation is robust.

The Internet, and its accompanying e-business applications, can be seen as an extension of a long process that began in the nineteenth century with the invention and rapid deployment of the telegraph and its vocal successor, the telephone. The reason the telegraph became so popular in the 1800s was its ability to deliver information rapidly across vast geographic space. What might have taken weeks to communicate now took seconds. Without this technology, as historians have long pointed out, creation of efficient railroad corporations in the United States and in Europe would have been delayed or never developed in their ultimate national scope. Deployment of the telephone, like the computer chip nearly a century later, created uses that were eventually replaced with new applications. As with the telegraph before it and the computer chip after, the telephone rapidly became a powerful tool in commerce with which to communicate information quickly across wide geographies. Over time, the cost of communicating via the telephone dropped sharply, as it continues to do today. The same occurred with use of computer chips. Thus, the telecommunications technologies of the past 150 years enhanced the ability of managers to extend their flow of information and simultaneously increased their ability to control commercial activities, most notably operations of corporations. In each instance in the evolution of telecommunications technologies, new technical enhancements were bolted onto existing organizations and, in time, people learned what to do with them and found new uses for these gizmos. Users enhanced them through diversity of application, improved their efficiency or caused their manufacturers to do that, and both trends opened up new business opportunities.

Throughout the twentieth century, telephony and its associated technologies (e.g., computer chips and computers) continued to expand in function, volume, and reach, all the while dropping in cost. In a commercial setting, people used telephones to discuss normal—that is to say, pre-telephonic—business issues. In time, the ability to transmit nonvoice data became possible. Networks linking computers together became a practical reality primarily for reasons of U.S. national defense, thanks to investments made by the Department of Defense in the 1950s and 1960s. By the 1970s, corporations began experimenting with electronic data interchange (EDI), which made it possible to again speed up the flow of information and interaction between and among people and organizations. For example, a company could electronically send a monthly bill to another firm, or place an order for inventory, or link a supplier's production planning process to the customer's build forecast, ensuring timely delivery of components. Automobiles have been built for decades under this regime. It is the lessons learned from EDI, in particular, that are proving so useful to management in their early use of the Internet, particularly in large manufacturing companies where the greatest amount of experience with this earlier application of communications exists.

Large corporations gained insight about e-business and the Internet by codifying what they learned over the past two to three decades regarding the use of EDI, the application of internal telecommunications networks, PCs, e-mail, and telephony. The Internet over the foreseeable future will be exploited initially on the basis of some of these earlier experiences that existed prior to the arrival of the new technology. Put in other terms, this process will occur in those two out of three firms that the University of Texas study identified as active on the Net and existing prior to the availability of this tool. Characteristics of e-business made unique by today's technologies and those that will come, have and will cause shifts in use; we see that with Wave 3 firms for instance. Such shifts will define the work of enterprises and the nature of their configuration. As with previous technologies, the effects are being felt first by large enterprises and by early alert new entrants into markets relying largely on the technology. If the past is any guide, then we can expect the technology to evolve to reflect the priorities and values of management teams aggregated across national economies and not solely by the realities of physics and electronics. Individual corporate uses will also reflect how they run today and tomorrow. Change will come incrementally yet very rapidly. These changes will appear cataclysmic and rapid to those involved. Historically, they will come to be seen as evolutionary over many decades.

I am pointing out these issues because a great failing of management in general (but their key employees too) is their lack of historical perspective. In the area of computers and networking, historical perspective is even more minuscule. Institutional memories are very weak due to the turnover of IT professionals, their relative youth, and the normal lack of sound knowledge management practices both in IT organizations and across the firms that own them. But let there be no mistake about it, all these technologies and their applications and consequences have a history that go back many years. One of the leading historians of the Internet, Arthur L. Norberg, has shown how the evolution of networking in the U.S. was closely linked to the transformation of earlier technologies and uses among government, academic, and business organizations.^[9] It is the nature of corporate capitalism, set within the context of economies that generally (but not always) supported free trade and minimal government intervention, that made it possible for the vital interactions among technologies, management practices and values, and realities of the market place. It is that set of influences that affects the traditional tasks of management in the Information Age and cuts across the type and volume of resources, processes, and technologies.

That set of historical realities suggests some additional insights about the future of the Internet and its effects on the work of managers. The most obvious, to even a casual observer, is that we are going through a period during which the Internet is being deployed as a basic element in the infrastructure of modern business life. What is also tied to that historic event is the fact that this deployment is at the same time extending beyond society's institutions to the individual home and person. This trend is different from what occurred with earlier communications technologies, which first extended to businesses and government agencies, stopped until their costs dropped further, making it then affordable enough to penetrate homes. While historians would argue that, in fact, this same pattern occurred with the predecessor to the Internet in the 1970s and 1980s,^[10] we are not living then; we are making decisions today about what to do tomorrow. Our reality today is that this technology is extending to the individual simultaneously with the firm. That dual penetration creates new opportunities and problems that we must be sensitive to if we are to exploit what is going on.

A second historical reality is that the merger of telecommunications and computer technology is occurring so rapidly and effectively that we have, in effect, a technological imperative at work. When historians talk about technological imperatives, they think in terms of whether or not a technology almost has a life form of its own, independent of what an individual can do. There is a huge debate about this issue, although most historians come to the conclusion that political, social, cultural, and economic issues affect the nature of a technology, the form of its evolution over time, and the speed of its deployment.^[11] Until the 1970s, telecommunications and computers evolved simultaneously but essentially apart from each other. Then engineers in both camps sharply increased their use of the other's technologies, ultimately linking the two together. That is, in very simplistic terms, how we got the Internet: telecommunications (telephone lines) with PCs instead of just staying with telephones at the end of wires. This mixing and matching of technologies creates new tools and ways of using existing ones. Improvements in one technology then affect the characteristics of another. For example, the historic trend of miniaturization made it possible to increase the amount of intelligence one could hang onto a telecommunications system, thanks to chips, lower costs, and a deeper understanding of how multiple technologies work together. Engineers move from one firm to another—as we are seeing with Silicon Valley programmers—and they read each other's technical literature. So exploitation of technologies is occurring very rapidly within a business and technical culture that embraces the belief that such change has to be constant and urgent^[12]

We can realistically expect that the mixing and matching of technologies, which results in new products and applications, will continue for a very long time because most developers believe they are at the threshold of what they are doing. They are right to believe this because the merger of technologies is often going on for the first time, so maturity in that process has yet to occur. The Internet is an excellent example, but so are all the handheld devices (e.g, PCs and cell phones) just now being linked together. If you have any doubts about the scope of this trend, attend any one of the major computer trade shows, such as COMDEX in the United States, where, using this case, some 20,000 people see thousands of products that did not exist a year earlier. That show reflects the products of only one industry! Other high-tech industries, such as industrial equipment manufacturers, telecommunications, and even book publishers, are porting into their products computer components too.

This extensive mixing and matching means that firms will have opportunities, problems, challenges, successes, failures, and rapid change for some time. When these bursts of technological innovation occurred in the past, such as with the development of steam-driven machines in the eighteenth century, and later, with the introduction of electricity and modern chemistry in the nineteenth, it took well over a half century for these to play out sufficiently for businesses to understand the full implications of what was happening. Then it still took additional time for businesses to exploit fully the technological changes that came along. But what is grounded hard in historical reality is the fact that technological changes had a direct, profound, and reality-altering affect on societies, economies, and individual businesses and industries. The great twentieth century French historian Fernand Braudel often used to advise his students to follow the money to understand how European society was changing. Wherever funds were invested or spent, one could find points of change and cause and effect in history.^[13] The same advice applies to technology. Follow its course and you will get close to the points of change and see their directions earlier than your rivals. As with changes in an economy, victory often goes to the early entrant. During periods of enormous technological change, victory goes to those who come to understand the implications of technological change and then make their investments accordingly.^[14]

What are we to make of the Internet? Is the hype justified? We can reasonably conclude that the role of the Internet is already profound and that for the foreseeable future it will continue to grow. How much and when it will stabilize is anyone's guess. We will not know the answer for many years, possibly several decades. We can conclude, therefore, that we will continue to live in a period of uncertainty and change, one far more complex than even Peter Drucker noted in his classic tale of caution, Managing in Turbulent Times. Our fundamental challenge is to operate simultaneously in two worlds: the one we think we are most familiar with, and which I characterize as pre-Internet, and the new one being created with e-business and e-commerce.

The implications are far reaching. On the one hand, basic management responsibilities and business practices continue to be performed while at the same time innovative ones have to be invented and implemented, and new best practices developed. The keys to doing this well require effective workers (managers and executives included) to become students of the implications of specific technologies (computers, telecommunications, business intelligence tools, and the Internet). The second requirement is that everyone apply process management and knowledge management techniques and practices to organize their work, and that of their enterprises, in ways that ensure that intelligent transformations occur in a timely fashion.

Balance ultimately is what is required. Yes, the Internet and e-business are important. Yes, you will do more electronically than in the past. But these are tools to do the fundamental work of business, which is to develop products and services, sell them to customers, and do all over again, always at a profit. The tasks of businesses, such as strategy, training, selling, marketing, manufacturing, and so on, remain the common elements in the equation. Technology can dominate or, as proposed in this book, managers can leash it to their will. The Internet represents a wonderful new tool for facilitating the fundamentals of work. That is why it has become so attractive to businesses, government agencies, and individuals. We should not lose sight of this obvious fact.

Keeping that in mind is crucial as we now turn our attention to the issue of supply chains and value nets. These have been profoundly affected by the sorts of technologies discussed in this chapter. But they are also examples of how technology can be exploited by managers to do the historic work of businesses. Once again, we will see those immutable laws of sound economics and good management are alive and well.