BILL GATES, CEO, MICROSOFT CORP.

Two decades ago, when
Microsoft first got started, computing was a million times more expensive than it is
today, and far less powerful. Only the largest organizations could afford to use
computers, and even then, the range of tasks they could perform was quite limited. Over
the next 20 years, the cost of computing will likely fall again by a factor of a million.

But these changes in computing-past and
future-are about more than just cost, or speed, or the size of a computer’s memory or hard
drive. Over the course of just one generation, the personal computer has changed the
essential character of how organizations large and small operate today, and it will
continue to have a major evolutionary impact in the years ahead.

Today, using the personal
computer, there is an opportunity to do almost anything businesses are interested in doing
with information. If you can imagine how information would flow in your company, how it
could automatically be analyzed and summarized and brought to the attention of the people
who need to know about it, it’s possible to build a system that fulfills your wildest
dreams. And it no longer takes years to achieve such a goal. Today, customized systems can
be built in a matter of months.

Exercise The PC Power
In the modern organization, we are seeing the creation of what I call the ‘digital nervous
system’-the increasingly sophisticated ways that businesses function, using computers to
manage and implement critical levels of internal and external communications, scheduling,
budgeting, customer information, commerce, and inventory.

In the past, companies managed
these tasks through meetings, memos, and managers. The pace was slow, and there was paper.
Lots of paper. Recently, I had one copy of each paper form used at Microsoft gathered and
delivered to my office. There were hundreds of them. I looked at them and said, “Why
do we have these? Everybody here has a PC. Why aren’t we using electronic forms on our
email system to replace all this paper?” It didn’t take long to get rid of most of
the company’s paper forms, and we’re still cutting. At last count, we were down to just 56
forms, plus another 34 required by law. That’s pretty amazing, when you think about the
fact that Microsoft has more than 23,000 employees. But it illustrates the power of the
PC.

We’ve moved an incredible
amount of information to the corporate intranet, where employees can access information on
their own, when they need it. They communicate with one another over email. They
collaborate in realtime on documents. They adjust how much they contribute to their
retirement program from each paycheck. They research sales data to prepare marketing and
budget reports.

Another example of how the
power of software has changed the way things function is illustrated by Microsoft’s
budgeting process, past and present. It used to take up three months of every year. During
this phase, events would occur and new information would come to light that would require
people to go back and make more changes. You could never really tell what was going on.
And even after the budget cycle was over, people were still trying to get in there and
change a few things. The length and complexity of the budgeting process took us away from
thinking about products and customers.

When we put the budget into an
electronic form and had templates driven in a digital way, we were able to reduce the
budgeting cycle down to three weeks. It’s a very intense three-week period now, but we’re
much more up-to-date about what’s going on as we do it. And during that process, everybody
can immediately see what is going on, so no one is ever caught by surprise.

These kinds of changes have
created major efficiencies at Microsoft and are indicative of the kinds of steps every
business will need to take if it wants to remain competitive in the 21st century. In a
Darwinian business world, the quality of an organization’s nervous system helps determine
its ability to sense change and quickly respond, thus determining whether it dies,
survives, or thrives.

One test of any nervous system
is how it deals with surprises. At Microsoft, we were presented with an opportunity to
find out how well our nervous system reacted when the Internet phenomenon arose more
quickly than we had expected. We knew we had to act to turn the company’s focus toward the
Internet, and by using the digital nervous system, we were able to immediately communicate
to everyone in the company how project plans were going to change, including new schedules
for the next versions of software. All of this was compressed into about a 45-day period.
That couldn’t have happened if we’d had a classic corporate nervous system.

Perhaps, the single most
important element of a digital nervous system is a well-designed and organized customer
database. Having all the information about customers in one place is vital. It enables you
to be responsive to customers and to analyze and make decisions based on comprehensive
information about them. At Microsoft, our customer database drives new product
development, it helps us improve existing products with new features and functions, and
enables us to predict trends for the future.

A productive digital nervous
system assumes a basic infrastructure for the knowledge worker-a personal computer that’s
reasonably up-to-date and common productivity tools for spreadsheets, documents, and
presentations. It assumes there is a very reliable email system, so people can count on it
to send everything from simple text messages to rich compound documents. And, of course,
it assumes these machines are connected to the Internet, so people can be connected to
customers and to the entire world of information developing on the Web.

The Central Powerhouse
One great example of how companies are implementing the digital nervous system is
Westinghouse. Several years ago, the company looked at the fact that it had a whole
variety of different email systems, different Unix systems, 35 different support
centers…. They decided that what made the most sense was to focus on one productivity
suite, one email standard, to get their hardware up-to-date, so everything was common and
worked together. The investment paid itself back in a year.

Another good example is what
the insurance company, AIG, did in terms of interfacing with its brokers and agents. They
used to use paper systems to send out reports, pricing information, and commission
structures. There was a huge amount of overhead getting the information moving back and
forth, and correcting errors. When they moved to a purely electronic system on the
Internet, the cost of running the system was much lower and the error rate went way down,
while the ability to target information and get it to the broker in a timely fashion
improved. It was a whole new capability that the paper system never would have allowed to
occur.

Another pioneer in the use of
technology is the healthcare company, Columbia/HCAA. They are capitalizing on the ability
of the Internet to send video and audio information inexpensively. With Microsoft NetShow,
they can have a doctor doing an operation while professionals in their other medical
centers watch the operation live and even ask questions. Columbia also is using
NetMeeting, which allows people to share a document, spreadsheet, or presentation in real
time, over the Internet, no matter where they are. Both of these products, NetShow and
NetMeeting, are free software which can be downloaded over the Internet from the Microsoft
web site.

Looking ahead, the rapid pace
of change we have seen in technology over the last 20 years is going to continue. There’s
no doubt about that. Having said that, there’s a tendency for people to overestimate how
much things will change in the next two years, and underestimate how much things will
change in 10 years. In 10 years, the majority of adults will be using email and living
more of a ‘web lifestyle’. By that I mean they will begin to think in terms of filing
their tax return on the Internet, scheduling an appointment electronically, or emailing a
question to their doctor, rather than using the telephone. In the corporate world, the
traditional structure and definition of companies will change as they gravitate to the
digital nervous system. Increasingly, executives will see an opportunity to reduce costs
by hiring the skills they need over the Internet and allowing employees more flexibility
in terms of where they work.

There’s still a great many way
to go, of course. It’s difficult to sit down at a computer hooked up to the Internet today
and say, "I want to find somebody who has a product of a certain type." But as
we bring linguistics-speech recognition-and richer data structures online, the ability to
match buyer and seller over the Internet will become much more effective and efficient.

As we see these changes in the
corporate environment, it’s important that businesses think about the environment they are
creating for their knowledge workers. Knowledge workers are not like factory equipment.
When you give them empowering tools, let them see and understand important information,
let them understand the context of knowing what your company is planning to do and how
their job relates to that, it can make an incredible difference in their creativity, their
enthusiasm, and their commitment. Because there will be a shortage of good knowledge
workers in the years ahead, those companies that create the best work environment, offer
the best productivity tools, and empower their employees will have the most success
capitalizing on the digital nervous system to operate at top efficiency.