04 Jun 2001  Research & Ideas

Why dot.coms Will Rise Again

Think dot.coms are down for the count? Think again. Dot.coms will exert an ever-greater impact on business, according to HBS professors F. Warren McFarlan and Dorothy A. Leonard.

 

Unenlightened senior executives, says HBS professor F. Warren McFarlan, have been known to make exultant but uninformed remarks about the dot.com demise. Among such comments: "Thank God that disease is over! It's back to business as usual."

Such a sentiment, says McFarlan, is dead wrong.

In separate sessions at the 2001 Global Alumni Conference, HBS professors McFarlan (HBS MBA '61 and DBA '65) and Dorothy A. Leonard dissected the dot.com disaster and found much worth salvaging. In fact, they insisted, the Internet explosion is far from over; in their view, it's barely begun.

McFarlan's high-spirited session, called "Global Internet and E-Commerce Strategies in the 21st Century," stressed the creative approaches four companies—Li & Fung, Cisco Systems, Charles Schwab & Co. Inc., and Merrill Lynch—have taken vis a vis the Internet. The year 2001 is McFarlan's 43rd in the field of information technology, and the Internet, he argued, is more important, exciting, and relevant in 2001 than it was in 2000, 1999, and 1998. "It is a Fortune 1000 burning priority," he said.

Though extranets have become "non-optional" for most companies, almost all current Internet, intranet, and extranet applications will disappear "in the dustbin of history" in four or five years, according to McFarlan. And given the undeniable rate of Internet growth in China, for example—10 million users in 1999, 28 million in 2000—China will overtake the United States in Internet use by mid 2004, he predicted. By 2007, the predominant language on the Internet will be Chinese, he said. As a frequent traveler to Asia in his role as director of the School's Asia-Pacific Initiative, which tries to expand teaching and in-depth case research abroad, McFarlan said, "There is no application gap at all. What is going on in Beijing, Shanghai, and Hong Kong is at the same rate of speed as what has been going on in Silicon Valley and Boston."

In all of this, there's a hair's breadth difference between a genuine strategic coup and a harebrained scheme.
—F. Warren McFarlan

He offered the case of the Hong Kong-based global trading company Li & Fung as one example of a company that has virtually dissolved its boundaries and embraced technology as a tool for charging forth into an increasingly borderless world. Founded in Canton in 1906, Li & Fung is a publicly traded family company that McFarlan reckoned would clock $5 billion in US sales by the end of 2001. The company operates a supply chain network involving "thousands" of factories across China, Southeast Asia, India, Africa, and the Caribbean, and it targets their products at medium and small retailers.

photo of F. Warren McFarlan

F. Warren McFarlan

"[Li & Fung's] expertise comes in managing all customer relationships, knowing who is good at what, who has high quality, who has low quality; and they are specialists in putting together multilevel deals," said McFarlan.

Summing up the Internet's impact now and in the future, McFarlan told the group, "The gold standard has moved. What is in fact acceptable infrastructure, what is acceptable customer service, has changed—completely and powerfully and suddenly. Four years ago today, no one had heard of the word extranet. It's that new. And now we talk about it as though it was like the air we breathe."

For companies trying to twist and turn technology to suit their changing needs, he added with a weary smile, "In all of this, there's a hair's breadth difference between a genuine strategic coup and a harebrained scheme."

Mentors in the garage

According to Professor Dorothy Leonard, Silicon Valley has crucial lessons to teach big corporations, and the lessons are not necessarily about which Internet business models to avoid. Rather, she said, large organizations might think seriously about how to adopt mentoring habits that have been key to the Valley's success over time, despite the recent fallout.

So-called "mentor capitalists," in Leonard's view, are "smart angels," distinct from venture capitalists and angels, who are cashed-out entrepreneurs, familiar with both success and failure. Mentor capitalists put their own money into a startup and try to provide coaching and expertise. "They want to give back," Leonard said, "but mostly they're people who don't want to live the 24/7 CEO lifestyle."

Mentor capitalists and venture capitalists commonly reach into their network of contacts for the expertise they need for a given company, she observed. Based on her interviews with around seventy people—VCs, MCs, and entrepreneur teams they were coaching—and several HBS case studies she has written as a result, Leonard argued, "Mentoring and coaching are more important to the economy than has been realized. We talk a lot about the venture community, we talk about angel money, [but] we don't talk about the expertise, the coaching, the teaching that goes on. And that's surely incredibly important."

In large companies, she said, people are not encouraged to use their networks. Rather than stretch a hand outside the organization to get advice for a startup within the organization, they tend to stick within the four walls of the office.

"Even though the bubble's burst," Leonard added, "there's still a lot of innovation going on. The fact that the Internet bubble burst should not make us swing all the way over to say that nothing new is happening, or nothing new is worth happening."

Photo by Martha Lagace