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Guild: It comes as welcome news that you say that the technology industry will recover. How will customer demand revive the suffering industry? And when do you think it will stabilize?
Moschella: The information technology industry has always grown in cycles. Over the last twenty or so years, there have been two major periods of growth and two of stagnation. The last downturn in the United States lasted from roughly 1986 to 1991. (I use the U.S. only because international markets often exhibit countervailing cycles.)
From a forecasting perspective, the key is to understand what forms of usage will comprise the next major driver of new IT demand. Consider that transaction processing and databases drove the mainframe era, just as word processing and spreadsheets spurred the PC business, and e-mail, search, and Web surfing created much of the initial Internet boom.
| Today, most of the things that will bring about the next recovery are the responsibility of IT customers. |
| — David Moschella |
Today, most of the things that will bring about the next recovery are the responsibility of IT customers. (Read an excerpt from the book.) For example, only the entertainment industry can fulfill the potential of online music and video, just as only advertisers can develop online marketing approaches that really work. The same can be said for a wide range of Internet applications, everything from robust business exchanges, efficient online health care, compelling e-learning services, and advanced public sector applications such as voting, registration, identity cards, and traffic management. In most of the areas that really matter, IT suppliers will play a clearly subordinate role.
When this next cycle of growth will occur is largely dependent upon the international situation. I would say that a real IT industry recovery is likely to begin about six months after the current international tensions are significantly reduced, whenever that might be. The long term confidence and investment needed for many advanced IT projects requires a more stable economic climate than currently exists.
Q: How do you see the Internet growing? What will it become and what will be its uses?
A: The key point is that the IT industry is by no means mature. Those who say that the IT industry is now so large that it can only grow at the rate of the overall economy are mistaken. First, the history of other technologies and media such as electricity, telephony, and television suggests that the true capability of any new technology does not become fully evident until societal usage becomes pervasive. The IT industry is still a long way from that, even in the U.S., let alone most of the rest of the world. Other than perhaps e-mail, very few Internet applications are even close to achieving their full potential.
Secondly, and probably more importantly, the IT industry should not be viewed as just another economic sector such as retail or health care. Instead, IT should be viewed as an ever more important part of just about every industry. From this perspective, for the foreseeable future, growth is, at least theoretically, virtually unbounded as more and more business processes become inseparable from their underlying technology, and many new forms of business value-added have an essential technology component.
Q: We've heard a lot in the past about "delighting the customer." How can IT companies make themselves more attractive to IT users and accessible to their demands and insights?
A: First, when I talk about a customer-driven industry, I am not talking about it in this sort of "listen to the customer" sense. It goes without saying that no company deserves to succeed unless it pays close attention to the needs of its customers. What I am referring to is an environment where customer leadership, risk-taking, and perseverance are required to overcome the key barriers to overall IT industry progress during the next five years.
So to me the key question for IT suppliers is how to adjust to this changed reality. The main point is that IT market leadership is migrating away from its traditional focus on hardware and software products, and toward IT services. It is these services that will prove most beneficial to those companies trying to use technology to create important new value for their customers and/or industry. Implicit in this is a greatly increased emphasis upon so-called vertical (industry-specific) markets and solutions.
Q: Can you describe the process by which customer-driven change manifests itself into spawning new IT innovation and companies?
A: This is a very important question. Historically, IT industry innovation has been heavily driven by the efforts of individual suppliers—IBM, Intel, Microsoft, Cisco, etc. But as part of the research for the book, I studied a number of previous examples of customer-led IT innovation, including barcode scanning, ATMs, credit cards, and EDI. What I found was that effective industry-wide cooperation has often played an essential role in the successful acceptance of these technologies. For example, the banking industry now owns and operates the major credit card and ATM networks, just as the retail industry manages the barcode standard. In fact, Visa, MasterCard, Cirrus, Plus, NASDAQ, and others are all examples of companies that are the result of customer-driven change, not the cause.
| Product markets still have a bright future, but one increasingly dependent upon derived demand. |
| — David Moschella |
Looking ahead, it would appear that this cooperative model will also play an important role in many of today's customer-driven frontiers. Think about the cooperation needed for successful business exchanges, interoperable health care, effective copyright protection, and all manner of emerging industry-specific metadata and standards. The strong de facto leadership that has determined so much of the IT industry's past is becoming steadily less important, although it will never fade away altogether. Once again, new cooperative entities are emerging. The control of these entities will be one of the great opportunities of the next few years.
Q: How can an IT company prepare itself for the change of being primarily a hardware and software supplier to becoming more of an industry-specific or IT service firm?
A: I wouldn't take this point quite so far. I am not saying that services companies will grow and that hardware and software product companies will suffer. What I am saying is that services companies will be closer to overcoming the barriers to industry progress than most product companies. However, should many of the customer-led systems I have mentioned come to fruition, the benefits and growth will clearly flow back to product suppliers. Product markets still have a bright future, but one increasingly dependent upon derived demand.
That said, many product companies have come to realize that their business needs a stronger services component, either through their own efforts or through their partners. My basic advice to product companies is to try to identify the major sources of new customer demand, and make sure their sales, distribution, and service capabilities are aligned with them. If they are, and if they become a real partner in helping customers deliver important new value, their core product business will benefit whenever the next big industry expansion begins.
The Importance of the Top of the Chain
What exactly does it mean for customers to begin to think and act more like IT suppliers? While in some ways, information technology is just another industry sector, it has, as does every industry, its own distinct requirements, patterns, tendencies, and emphases. Below are seven of the more important aspects of IT industry leadership over the last few decades, all of which remain significant today:
1. Risk. For nearly forty years, the IT industry has been defined by the willingness of companies and especially of entrepreneurs to take substantial risks. IT suppliers know that most new companies and products will not succeed, and a high tolerance for failure has been part of the industry's entrepreneurial culture. IT customer organizations have often been much more risk-averse in their IT activities. This has been especially so in the 2001-2002 climate.
2. Reward. One reason that the IT industry has been willing to assume relatively high levels of risk has been the potential for huge rewards. Many IT segments have exhibited strong winner-take-all, or at least near all, tendencies. The industry has also showered its winners with high non-monetary rewards in terms of publicity, reputation, and influence. These rewards have historically been harder to replicate with customer-driven IT activities.
3. Perseverance. As shown throughout this book, building useful computer applications has often proved difficult, and therefore considerable time has been required in even basic areas such as databases, transaction processing, and customer service systems. In many cases, demonstrating substantial payback can easily take several years, necessitating high levels of confidence and perseverance. This certainly conflicts with the short-term IT strategies of the post-bubble era.
4. Hype. Although this term is usually used in a pejorative fashion, a considerable amount of industry, media, and investor hype is often necessary to mobilize customers and resources. This is especially true given that many IT products are initially immature and take time to establish themselves. During these early stages, effective public relations is very important to maintaining momentum through the often long product adoption cycle. Ultimately, there is a fine and sometimes indistinguishable line between hype and true faith and enthusiasm, but whatever one calls it, active marketing will be required for many of the industry-specific systems.
5. Cooperation. As the very different stories of the minicomputer and PC industries have shown, the ability of an industry to coalesce into an effective value chain has often spelled the difference between growth and decline. Looking ahead, many forms of IT industry advancement and restructuring will require extensive customer cooperation.
6. Standards. History clearly shows that many IT markets are primarily defined by how standards are set, who controls them, and how effectively they evolve. There is little reason to expect that this will change. However, whereas most IT standards were once set by suppliers and are now set by standards bodies, in the future many will also need to be set by customers themselves. How effectively this process evolves will say a great deal about the speed of IT industry advancement.
7. Start-ups. For most of the IT industry's history, new technologies have been pioneered by new companies, and the threat from new rivals has often been an essential part of overall industry change. With the demise of so many dot-coms, the strength of this challenge has been considerably weakened. In theory, this could significantly slow future rates of change. The establishment of major new customer-driven platforms will often require difficult reengineering and restructuring, which may not happen unless there is serious pressure from somewhere. More than any other single issue, it is this potential lack of start-up pressure that could allow overall technology usage to stagnate. It's one of the often-unrecognized downsides of the dot-com collapse.