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height="129" align="left">The business enterprise, over several decades of evolution that
computing has brought about, is facing the Third Wave of Computing. Jeff Papows, President
and CEO of groupware major Lotus Development Corp, expertly details some of the primary
implications of technological advancement, especially the internet, on an enterprise's
life and times. Here is an extract from his book, Enterprise.com: Market Leadership in the
Information Age.
In the midst of our current wave of
economic prosperity, it's diffi-cult to recall the time, not so long ago, when the
conventional wisdom maintained that the American free-market economic model was obsolete.
The true beneficiaries of the global revolution in information and communications
technology were said to be Asian-style partnerships of government and business set up
along the lines of the chaebols of South Korea and the kieretsu of Japan.
Today, Asia is in turmoil while the US, now in its sixth year of steady
sign of providing the new model for the global future. Unemployment is at its lowest level
since the mid-1980s. Inflation, astonishingly, has remained in check. And, perhaps the
best evidence of American competitiveness, there has been an unprecedented stock market
expansion. Indeed, compared with the rest of the world-particularly, of course, Asia-the
US economic position has not looked this strong since the 1960s. To a degree almost
unimaginable less than a decade ago, the American economy has become the envy of the
world.
How do we explain America's extraordinary economic success of the past several years? No
less an authority than US Federal Reserve Board Chairman Alan Greenspan has publicly
stated his conviction that the prolonged, heavy investment by American firms-as much as $2
trillion, by some estimates-in information technology (IT) is the main cause of the
unprecedented combination of low inflation and high GDP growth that we are experiencing.
The visible benefits of this investment are finally showing up on corroborate balance
sheets. A less obvious benefit, but an equally important one, I will argue, has been the
internal, structural transformation of many enterprises and industries in response to the
new advances in IT.
Absurd as it may seem today, not long ago American business was commonly blamed for being
'shortsighted,' 'greedy', and 'hollow.' Fortune 500 multinational enterprises were widely
considered the worst offenders-a collection of bloated behemoths and dinosaurs whose
perverse penchant for restructuring, reengineering, and downsizing was denounced as
exemplifying the worst excesses of an outmoded laissez-faire system. American managers
were widely regarded as being obsessed with Wall Street and with their companies' ever
fluctuating stock market valuations. Their shortsighted fixation on quarterly profit
forecasts and results led senior managers (so it was said) to spend too much time with
investors and traders and, by implication, too little time with customers and partners.
This checkered outlook was widely perceived to be the very antithesis of the broad vision
that US companies needed to compete with the juggernauts of Asia. The decline in US
spending on research and development seemed, at the same time, to provide persuasive
quantitative evidence that corporate long-term prospects were being sacrificed for
short-term gains.
Even the most globally successful American companies were often criticized for being too
small or too 'hollow,' a critique typically accompanied by ominous warnings that our
excessive reliance on offshore manufacturing in Asia and other places would soon come back
to haunt us. This notion of 'hollowness' extended far beyond manufacturing and was, in
fact, most often used to describe America's ongoing evolution toward a service-oriented
economy.
A popular wisecrack of the time captured the mood: If we all charged money for doing each
other's laundry or watching each other's children, our economic growth figures would
surge. For many reasons, high-value services such as entertainment, health care, and
finance were disregarded while fast food, gas stations, and day care were emphasized.
Not only US management took it on the chin. American workers were seen as increasingly
falling behind the standards of the rest of the world. Here, the frequently deployed
epithets were 'unskilled,' 'spoiled,' and 'disloyal.' There was certainly ample evidence
for this view: In math, science, and literacy skills, Americans consistently ranked below
other industrial countries. In view of the widespread predictions that our economy would
be increasingly information driven, it was natural enough to assume that declining
educational achievement would result in an increasingly non-competitive workforce.
Today, the tables have turned. With the Dow Jones over and again hitting new all-time
highs, while Asia sinks into turmoil, it has now become clear that a critical relationship
exists between heavy US investment in IT and the global competitive resurgence of the US.
According to some rough estimates recently published in The Economist, an amazing 42% of
the investment capital base in the US now goes into IT annually. Take a moment to absorb
that remarkable statistic: Nearly half of US capital investment is now spent on enhancing
IT. It might come as an equal shock that according to BusinessWeek, fully 35% of growth in
the US GDP during the present recovery has been associated with growth in IT. That's a
mind-numbing number. Take a quick breath, sit back, and consider its staggering social
significance. Not since the golden age of railroads in the late 1880s and 1890s has one
industry had such a profound impact on the entire national economy.
Web: The accelerator
Since it arrived on the scene as a full-fledged cultural and social phenomenon in late
1994, the internet and its graphical interface, the WWW, have come to dominate virtually
all conversations about the future of technology and, by extension, the future of
business. It is safe to say that the WWW is simultaneously overhyped and undervalued.
Looking back-not very far back-the scope of today's IT revolution is staggering. The
accelerating speed of the evolution of hardware, software and communications easily
justifies the term 'web years'-meaning cycles of change lasting three months at most, in
contrast with traditional business cycles that typically lasted a year or more.
While major media coverage has, understandably, mostly focused on the web's potential for
transforming the consumer realm, the web's real and as yet largely untold story is the
great as yet unmined potential that lies in the realm of business-to-business applications
and commerce.
Undoubtedly, the Web's increasing ubiquity will bring about significant shifts in the
consumer sector. But over the next few years, business-to-business commerce will
substantially outgrow business-to-consumer activity on the internet.
Over the past decade, IT has become a, if not the, defining element in business itself.
Once confined mainly to intracompany activities, computerized interactions now reach
across business, social, political and geographic boundaries, compelling new ways of
working, communicating, and organizing activities in both the commercial and personal
realms. The once arcane realm of IT is drastically redefining all of our core competencies
and helping to construct new visions for the future.
One of the most powerful concepts of the nineties has been the notion of an enterprise's
'value chain.' The 'value chain'-an idea originated by Harvard Business School professor
Michael Porter (the author of books on business competition and strategy, a former Lotus
board member, and also my friend)-is the complex web of links between an organization and
its suppliers, sales force, purchasing and distribution channels, clients, and customers.
As Michael has shown, businesses benefit from enhancing and integrating the links among
and between the key players in their value chains, utilizing a technique called 'value
chain innovation.' But once enterprises have learned to do this, what comes next? In the
next century, the central repository of enterprise value will no longer be a chain but a
space. This amorphous realm is what technologists have presciently dubbed the
'marketspace.'
The very notion of a value chain can be considered, from an evolutionary standpoint, the
last vestige of the industrial era and the beginning of the post-industrial economy, with
the internet and the WWW providing the catalyst for the next stage of enterprise
evolution. The links in these chains are being rapidly broken up and replaced with a
wider, broader, less orderly matrix of relationships, stretching far beyond the
traditional boundaries of the enterprise-in fact, girdling the globe itself.
The MFS and the MFE
The web offers companies the opportunity to deliver either all or substantial portions of
their business activities directly online. However, successfully developing a market
facing system (MFS)-a component of IT that creates a consumer experience defined by being
online-requires an unprecedented blend of business knowledge and technical capability. The
challenge of developing and properly implementing MFS is likely to alter, if not entirely
eliminate, many of the traditional lines between operational and information system
resources. Although a successful alignment of business and technology goals has long been
considered a business necessity, the advent of MFS has meant that forward-looking,
technology-enabled enterprises must move beyond alignment toward integration, creating a
tremendous need for managerial and organizational innovation in order for these web - and
net-based systems to attain their full potential.
Realizing the ultimate promise of business computing over the next decade will mean
enhancing and integrating not only the links, sometimes still remote, between
organizations and their customers, clients, suppliers and partners, but also the links
between the enterprise and the population at large. Most firms' key clients, customers,
suppliers and partners are apt to be located just about anywhere and everywhere in the
world; this fact alone will compel a wholesale shift in organizational resources to an
external and market-facing focus.
The time will come-sooner rather than later-when an enterprise's primary connection to the
outside world will be its web site and its collaborative and messaging-reliant extensions.
This new breed of organization-I'll call it the market-facing enterprise (MFE) with thanks
to IBM's Senior Strategist John Landry, who coined the term-will have radically evolved
from the old industrial and early post-industrial style of business model into something
entirely new and different.
Before any such radical transformation can be completed, however-and there is no reason to
think that it will happen any time soon-the competitive implications of such a sea change
in the global communications and business environments are likely to outstrip any
challenges that the IT industry, or indeed private enterprise itself, will have faced up
to by that time.
The three waves
Without confronting the significant changes that IT has recently wrought in the operations
of large and small organizations, it's become nearly impossible to comprehend the roles
that network computing the web, and internet-based communications will play in redefining
the modern enterprise. The IT industry has rightly been accused or making many dramatic
claims for business benefit. And the long anticipated, much discussed return on investment
(ROI) has often failed to materialize. Nonetheless, we have seen a significant impact of
one form or another through what I believe have been three distinct waves of change in our
industry. Let's spend a minute getting a sense of these three waves, because the current
wave is changing our lives.
Wave one: The back office
The first wave, which lasted through the late 1960s and even the mid-1970s, was
characterized by the then radical deployment of mainframe and minicomputers to automate
and organize a wide range of back-office functions, including customer accounts, payroll
accounts and rudimentary database management.
During this 'back-office' wave, computers served business as highly efficient calculators
and record keepers-in short, automated accountants. To perform these essential and
previously labor-intensive functions, the first generation of IT managers employed
centralized mainframe computer systems and hierarchical database management systems to
track inventories, compile human resource data, and perform other basic accounting and
general ledger tasks.
Since many of these 'legacy' systems automated manual tasks-and were employed almost
exclusively for internal administration-their overall impact on a company's competitive
position was relatively slight. Any enhancements in productivity that derived from this
mode of office automation were largely ignored by senior management, whose decision-making
processes remained almost entirely unaffected by the technological revolution taking place
in the back office.
Wave two: The front office
With the advent of PCs in the 1980s, however, computing leapt from the back to the front
office, where it began to automate a large number of clerical white-collar tasks. This
shift was still of minor concern to senior management-except insofar as eliminating and/or
streamlining clerical functions helped the bottomline. However, during this second great
wave of IT innovation, the foundation of today's 'integrated enterprise'-heavily reliant
on networking and 'groupware' culture-were laid. This would later explode into the third
and current wave of computing.
Once company-wide office computing was handled by so-called 'client server
systems'-consisting mainly of interconnected LANs, organization-wide email and document
management systems, as well as corporate and departmental database systems-the
efficiencies attained and the reorganizations required by these systems began gradually,
if inconspicuously, to alter the fundamental nature of work, and of organizations
themselves.
Applications directed at so-called 'knowledge workers'-successors of the old 'white-collar
workers'-tended to concentrate on personal productivity enhancement products such as world
processing, spreadsheet, desktop publishing, and graphics presentation. It was, in fact,
Lotus's own '1-2-3' spreadsheet that became the industry's first killer application,
detonating the PC explosion that generated this second wave. At the same time, the
business impact of office productivity was-self-deprecating as this may sound-a virtual
drop in the bucket compared with the impact of the current and next (third) wave of
computing.
While an individual knowledge worker's experience on the desktop might have been enhanced
by the first and second wave of systems, it was not till the widespread deployment of
email, voice mail, databases and other forms of information infrastructure that these
often controversial, often under-appreciated IT investments bore fruit. These innovations
prepared the way for the '7x24x365 enterprise,' the seven-day-a-week,
twenty-four-hours-a-day, 365-days-a-year corporation, which was obviously a major leap
forward.
Wave three: The virtual office
The rise and global spread of the internet and the World Wide Web, beginning in 1994,
launched the third wave of the IT revolution-the virtual office wave. The net and the web
(in combination with the newly-enhanced networking capabilities of the integrated
enterprise) have resulted in a quantum leap in the evolutionary pace of organizational
change.
The web and the internet are accelerating the transformation of enterprises, both large
and small into global-spanning MFE, even as these same firms ceaselessly confront (whether
they like it or not) the competitive realities of constant, universal access to the global
marketplace.
Knowledge nodes
Like a movie star who is catapulted to fame and fortune by one big hit movie after a
decade of laboring in obscurity, it was the huge success of the WWW, the graphical
interface for the internet, that caused the internet to explode into public consciousness.
Consider these four terms, today in constant use but either little known or nonexistent a
few years ago: intranets, extranets, the internet, and the WWW. These four elements, which
combine to form the cyberspace world, are all of immense strategic importance in defining
the competitive position of companies today and tomorrow. A closer look follows:
* An intranet is a secure, internal network that employs the power of digital IT to
promote the sharing of information and knowledge among employees of a single company.
* An extranet employs similar technology to reach beyond the walls of the corporation
outward to external communities in order to link businesses with suppliers, customers and
other businesses.
* The internet is the public information highway, a vast network of interconnected
computers. Originally developed by the US government to protect military installations
from nuclear attack, today it is open to anyone with access to a computer equipped with a
modem.
* The WWW, the fastest growing entity on the internet, was created in 1989 at the European
Laboratory for Particle Physics to provide easy access to pages of information through
'hypertext' links. These provide any computer linked to the web with instant access to
information published on any other computer on the internet, whether it be down the hall
or across the world.
It's critically important to recognize that each of these four 'knowledge
nodes'-intranets, extranets, the internet and the web-is not a separate area of IT but an
integral component of the same great wave of the IT revolution. All four are in constant
collaboration (not competition) with each other. And the continual interaction among all
these domains is rapidly creating today's and tomorrow's global cybermarket or
marketspace.
Whether their products are books, cars, PCs, financial services, health care or travel,
industries across the board have been forced to rapidly reinvent themselves to be able to
survive and thrive in this brave new environment. Long-established and well-established
'value chains' are being suddenly thrown into chaos and flux. Companies will need to
compete and adapt, or wither away. The wealth of information being managed by today's
IT-whether the network be inter-, intra-, proprietary-, or net-and web-based-now ranges
from raw data and simple text to in-depth expertise and complex workflow systems.
The marketspace
To remain competitive in the cyberspace market-from now on, I'll call it the marketspace,
as do some technologists-enterprises will need to maximize their organizational know-how.
This will require a new culture of information discovery, distribution and application.
Establishing a culture of effective knowledge management goes to the heart of such issues
as individual and management incentives, merit recognition and rewards, and job definition
and description.
Knowledge management requires an entirely new level of workgroup and even company-wide
cohesion. Collaboration, or rather collaborative technology, is the fundamental DNA, if
you will, of knowledge management. Messaging is still the killer application of
collaboration, so it's fair to say that knowledge management is messaging-centric.
Nonetheless, knowledge management is about broader technology-enabled capabilities
centered on three elements: creation, discovery and distribution. Each of these elements
is central to the successful implementation of knowledge management practice.
Over the next decade, the historically internal focus of most information systems will
shift toward more of an external-market-facing-emphasis. But the cultural changes that
this trend will impose on organizations and cultures are likely be at least as profound,
challenging business and government leadership at nearly every organizational level to
keep up with the new environment.
A growing need to work closely, cooperatively and collaboratively with customers,
suppliers, partners, and other allies will become the defining factor of enterprise
innovation. Meeting this challenge will raise new challenges of trust, security and
openness, particularly when it comes to sharing intellectual capital and other forms of
corporate know-how.
The corporate restructuring of the last decade is likely to have been merely a first
stage-an opening salvo-signaling far greater changes to come. The critical need to
effectively integrate IT with more streamlined information flows will reshape the
boundaries in many industry sectors.
Over the last decade, most companies focused on refining their specific value
propositions, typically through restructuring or reengineering themselves into leaner,
flatter, smarter organizations. But over the next decade, many of these strategies will
need to be substantially updated. In the coming years, adaptability and flexibility are
likely to replace restructuring as the core necessity in industry.
In the past decade, developing a robust internal network became a mission-critical
infrastructure issue for most organizations. Although enhancing such internal capabilities
will still be an indispensable requirement, over the next decade the development of an
overall national and global information infrastructure will become an even more important
factor than internal information system upgrading-due to the demands of rapid industry
convergence. When the most important new network usages are external to the organization,
companies will be increasingly dependent upon the capabilities of a public infrastructure
likely to vary greatly by country.
Networks have powerful critical mass effects, in that the more people who use them, the
more valuable they become. Thus, the value of any one company's technology investments is
directly dependent upon those of the related information technology ecosystem they
participate in externally. In other words, the broader use and ubiquity of the
connections, the more powerful the benefits.
Even as companies have been compelled to redefine themselves and their core activities in
the context of digital networks, whether they be intranets (internal corporate networks)
or extranets (networks that reach beyond the traditional boundaries of the organization) a
broader message has by now become clear: What your company can do with technology is
inseparable from what your customers, suppliers, and partners can do with technology.
Social integration
Over the last decade, individual companies more or less controlled their own technological
destinies-which for all practical purposes meant that each could define its own strategy.
But over the next ten years, as web usage becomes more pervasive, companies will need to
adapt their technology strategies to external, national, regional, and even global social
norms. Transaction processing, taxation, privacy, security, and cross-border concerns will
be only a few of the areas that will require clear and cohesive social and government
support.
All these issues have one great theme in common-interdependency. Consider the following:
* Implementing MFS requires a seamless merger of business and IT leadership.
* Knowledge management will demand that an organization reward and incentivize formalized
sharing, and perhaps even penalize information hoarding.
* Organizational collaboration will see to it that no company will stand truly alone.
* Industrial convergence will create conditions where key capabilities for meeting the
needs of one's clients and customers may lie outside a current industry's core
capabilities.
* Public infrastructure requirements will mean that any one company's market-facing
capacity may be only as good as the means that society provides for its competitors.
* Critical mass means that what you can do is dependent upon what everyone else can do.
* Social integration means that conducting business electronically will require new laws,
customs and procedures that no one company could ever hope to establish on its own.
The global picture
Contrary to utopian claims heard in the media, as well as on the internet, neither the web
nor the net are likely to change the world overnight. Among many features of modern life
not likely to be radically altered any time soon are the integrity of national borders and
the pervasive power and influence of sovereign states.
Every day, up-and-coming universal technologies are touted as bringing about a
'borderless' world. Even a truly and fully integrated global marketplace, however, will be
forced to accommodate a rich diversity of national and regional laws and customs.
Personally, I don't consider this a terrible prospect. The internet is, after all, only
the latest link in a long chain of critical technology innvations-from the industrial
revolution to the discovery of electricity to the more recent inventions of the
automobile, the telephone, and TV-that have exerted tremendous global impact without
altering the fundamental divisions among nations and cultures. The nearly universal desire
to maintain a diversity of commercial, governmental and cultural institutions is, I'm
convinced, not likely to evaporate, nor will these age-old distinctions be eroded any time
soon.
In many key areas-security, encryption, taxation, censorship, ownership and regulation are
a few examples-the need for effective cooperation among local, state, national and
international governments will provide a critical challenge to the new and rapidly
evolving breed of global, MFEs. Given the vast differences in expectations between the
full-speed-ahead IT industry and the more cautious, bureaucratic public sector,
significant conflicts are not only likely but even desirable. In the ongoing give-and-take
between public and private sectors and between regions and nation states, the much vaunted
'localization' of the global marketplace is likely to occur. From my point of view, that
localization will be a net plus for the planet.
More worrisome than any financial and/or political conflicts that may lie ahead are the
deep divisions and schisms within the IT industry itself. The technologies involved are so
powerful and so pervasive, and the competitive stakes so unimaginably high, that IT
vendors undoubtedly feel compelled to position themselves to maximize profits as best they
can from the growing importance of their products and services.
Looking back, we were fortunate to have inherited today's universal internet standards and
protocols from government and university initiatives not concerned with generating
profits. In contrast, even though IT industry efforts-Unix is one example-often operated
under the banner of open standards, they often resulted in frustratingly incompatible
systems and disharmony all across the communications spectrum.
As an industry, our current challenge in the near term will be to combine the competitive
drive and high levels of innovation in the IT industry with the net's culture of open
standards and 'interoperability,' that is, with the capacity for separate information
systems and networks to seamlessly communicate with each other, regardless of proprietary
nodes of protected knowledge. Given the 'type A' personalities that drive our industry,
myself included, this combination of competitiveness, innovation and openness is not a
given.
As with any period of major social, cultural and technological change, significant shifts
in competitive leadership are likely to occur over the next few years, even months. Just
look back at what has happened in financial services, retailing, transportation, telecom
and most other major sectors over the past 15 years! Is there any doubt that the next
decade will be even more turbulent?
Future business leaders will undoubtedly use computers to create new businesses, transform
existing ones, and restructure many of today's long established industry practices. Just
as the computer, telecom, and consumer electronic industries are rapidly converging (due
to their shared digital foundation), so will a common cyberspace create new over-laps
among the major non-IT sectors, including manufacturing and distribution, banking and
financial services, wholesale and retail sales, publishing and media, entertainment,
insurance, and health care.
As we enter this third, web-enabled wave of IT innovation, 'the virtual office wave,' the
list of new challenges to business is so long that it's possible to overlook the important
role that nations and governments will play in the coming transformation. The IT industry
will be compelled to accommodate and anticipate as never before the needs and desires of
government entities and other industries-in particular, the telecom industry-in the
construction of the infrastructure for this wired and wireless world. Here are some key
questions that lie ahead on the road to a true global marketplace:
* Which countries will develop inexpensive, high-bandwidth systems?
* Which nations will provide or enable nearly universal citizen access?
* Which states will do the best job of updating existing bodies of law to accommodate new
technological capabilities?
* Which states will have the most capable, creative, and enthusiastic citizens and
entrepreneurs?
Over the next decade, the answers to these questions are likely to determine who will be
the global leaders of tomorrow. Recent history has shown that technology leadership and
global economic success are often inseparable, whether the players be nations or
enterprises. Although it may take a decade or more (not that long, in my view) to fully
resolve these questions, the internet and the web have already taught us the enormous
benefits to be derived from early market leadership.