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Is this the article you're looking for?The Outlook
Cambridge, Mass.
Most executives -- barring any lingering Luddites -- know that the Internet could change almost everything. That has become the conventional wisdom. What they want to know is how.
For an answer, many are looking to Michael Dell of Dell Computer Corp., the leading architect of the Internet-enabled, thoroughly digital business enterprise. They believe that what Mr. Dell has done to the computer industry, someone else will do to autos, chemicals, banking and plenty of other sectors.
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That was the starting point one day last week, when 15 executives, plus a few consultants and professors, spent a day holed up in the faculty lounge here at Harvard University. As they talked among themselves about the opportunities and threats posed by the inexorable rise of the Internet, they began using the word "Dell" as a verb. They concluded that Compaq Computer Corp., whose chief executive was forced out April 18, is suffering partly because it has been "Delled" -- outflanked by cheaper products from a thoroughly digitized Dell.
"You want to be the Deller rather than the Dellee of your industry," said Ted Rybeck, chairman of Cambridge consultancy Benchmarking Partners Inc. and host of the meeting. Moreover, it isn't just this group up in Cambridge that is going to school on the strategies of Dell, which is based in Round Rock, Texas. Chief executives, including Lawrence Bossidy of Allied Signal Corp., have sought out Mr. Dell for conversation and counsel.
What the admirers see isn't so much Mr. Dell's fairy-tale rise from a few notions in his dormitory room in 1984 to $18.2 billion in revenue last year. It's more that Dell has bypassed traditional distribution channels and gone directly to customers. Most important, perhaps, like Amazon.com Inc., Cisco Systems Inc. and a few other companies, Dell helped pioneer the almost end-to-end use of digital networks to communicate with its customer, take orders and then pull together products from suppliers.
In truth, at the end of last year, Dell was completing only about $3 million in transactions a day -- or just over 5% of total revenue -- over the Internet. But the idea of putting digital networks at the heart of their company is the vision that has excited senior executives across the U.S. Last year, they spent about $40 billion just on "enterprise technology," designed to streamline the flow of information around companies.
A fair amount of this has been disappointing. Senior executives regularly discover that they have spent tens of millions of dollars fixing their year-2000 computer problems with the new systems, but have often failed to transform their companies into digital powerhouses. But the spending is likely to continue and expand into the overseas operations of suppliers and customers.
Even traditional companies are starting to defend against Internet-based competition. They often have a strategy or a budget for a digital backbone that will connect the company to suppliers and end consumers.
"We need to have a defensive strategy" says Peter Burrows, vice president and chief technology officer at Reebok International Ltd., Stoughton, Mass. Reebok has to be prepared if someone tries to do in shoes and clothing what Dell has done in computers -- eliminate the middleman and sell direct.
The lesson of the mouse didn't click right away with Barnes & Noble Inc. The book-retailing giant failed to respond to the arrival in 1995 of Amazon.com until two years had passed. Barnes & Noble launched its Internet site, a joint venture with German publishing giant Bertelsmann AG, in 1997.
What all these companies know is how powerful the Internet can be as a tool to learn about customers. For auto companies, much of that customer information resides with the dealer. How to keep the dealers happy but still make contact through the Internet is the delicate but important strategy for many companies.
As companies collect more information about customers, they see patterns emerging. Wal-Mart Stores Inc. has used data collection to formulate "market baskets" of typical shopping trips. Reebok's Mr. Burrows notes the way an Internet site allows companies to track how customers scrutinize a product, down to a fabric preference. An Internet site lets companies watch how customers focus on various features of products, and they can see when people buy, and when they just browse and leave.
At the moment, the U.S. is barely in the infancy of this trend, while Europe, Asia and Latin America are in the embryonic stage. To some, it heralds the dawning of the new economy, but some wince at the idea that it spells the end of inventory, business cycles and inflation.
Says Paul Romer, professor of economics at Stanford University's business school, "It isn't so much that we have a new economy, as we have a new understanding of the importance of technology in the economy."
--Bernard Wysocki Jr.
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