The Technology Industry Summit at CeBIT
March 9, 2005; Hannover, Germany
Good morning and
welcome.
In todayÕs Financial Times, Bill Gates of Microsoft has written a short
commentary in which he discusses the spread of computing technology into all
dimensions of life, from embedded chips in cars to mobile phones in coat
pockets, yet returns to how -- and I quote: ÒÉthe incredible flexibility of PC
technology can help business connect people and teams, catalyse and connect
their processes, and empower workers with true business intelligence.Ó
End-quote.
What strikes me about his
comments is not the liberal use of vacuous business jargon; it is his reference
to ÒPC technology.Ó The personal computer is an old invention. If one were to
alert reader of the FT on the eve
of CeBIT about what is to come, it is odd that the PC would be singled out as
the centerpiece of modern technology. Instead of stepping forward into the next
iteration of technology, it seems as if Mr. Gates is stuck in a previous one.
The primacy of the PC is
being replaced by a number of forces that we will consider throughout the
conference today, such as the role of devices and mobile phones as a locus of
computing and personal IT tools; how voice-over-the-Internet overturns the
classic economics of telecoms; how new sources of innovation are happening away
from corporate hierarchies (such as with open source software) and even away
from the traditional geographic centers (such as with business process
outsourcing in India).
Of course, Mr. Gates can be
forgiven for trying to see that the center holds for his PC-centric universe as
long as possible -- he has a monopoly on operating system software, after all
-- so it is only a matter of rational financial self-interest to preserve the
status quo. But we donÕt need to bear such limitations in our own thinking. And
when we look around, we can see that the primacy of the PC is over. In fact,
this reality is well understood by Microsoft, too. It helps explain why they
have for so long sought to get into other areas of computing software, from
television set-top boxes, to mobile phone handsets and personal-digital
assistants, to the Xbox gaming system. The .NET initiative is about Web-based
services when applications arenÕt on a desktop or loaded onto in-house servers
(from which Microsoft derives licensing revenue), but delivered online. Even
MSN Search technology is a move, essentially, towards remotely-hosted
applications.
That said, we should also
thank Mr. Gates for his incredible achievement. Much of the new IT world
happening around us is because of his companyÕs work -- it standardized IT
(though we can rightly argue about the adverse consequences of how they did
this). In standardizing IT, Microsoft set in motion forces that now threaten
it. Prior to Microsoft, the software and hardware of computing was linked --
you had to buy the software from the same company that sold you the hardware,
and you were locked in. It was an era when computers were mainframes, and
later, minicomputers.
MicrosoftÕs great achievement
was to separate software from hardware. This gave customers freedom from the
hardware makers (though not so from Microsoft, we would later learn!). And it
allowed parallel -- but independent -- innovation in software as a sector in
its own right. Because of MicrosoftÕs dominance, the issue of common standards
became largely moot. Things worked together. And if you think compatibility
issues are bad today between Microsoft and its rivals, it was far worse in a
world where every hardware manufacturer had its own operating system!
Bill GatesÕ commentary for
CeBIT attendees is an ideal starting point to consider the current state of IT,
because it evokes what I regard as the three ironies of modern business
technology:
* First -- The Geology of IT:
how new technologies emerge and dissipate.
* Second -- The Geography and
IT: how the notion of place is changing due to linking new suppliers on one
hand, and the ability to reach new customers on the other.
* Third -- The Generality of
IT: how technology has become so commonplace that what is most critical are the
rudimentary things rather than the novel or sophisticated ones.
I.
Regarding this notion of ÒThe
Geology of ITÓ -- that is, how technologies evolve and disappear -- let me make
a prediction: in seven yearsÕ time, 50% of the technology that will be used has
not yet been invented today. It will be a world of different companies,
different products and services. Entire industry sectors will be gone -- and
new ones that donÕt exist right now will be flourishing.
Think about it. Imagine weÕre
back in 1998: We are buying fax machines and there is no such thing as an iPod.
Blogging isnÕt around, nor social software. Internet telephony is difficult to
do. Google barely exists.
If half of our IT will be new
-- what does this mean for us today, as technology users? What does it mean for
businesses that have to make IT investments over a ten-year lifecycle? Or as
professionals in the tech industry that have to chart our future activities?
The challenge for us, is:
What 50% will remain?! That is the question. WeÕre stuck in the same
predicament as the British retailing baron in the 1920s, who quipped that he
knew that of his companyÕs newspaper advertisements, only 20% of the ads were
effective -- but the problem was he didnÕt know which 20%!
Despite the constant upheaval
in the IT industry, the key point is that IT never actually gets replaced.
Instead, newer technology gets layered on top of older infrastructure. It
creates a sort of sedimentary layers, like the EarthÕs geology. Legacy systems
are persistent. We have to somehow find a way to get it all to work together.
And managing that complexity will be one of the biggest IT tasks going forward
-- the one part of technology that wonÕt go away, but will only become bigger
and messier. It will lead to a lot of opportunities, for companies such as the
Indian IT consultancies, some of whom who are here today.
II.
The second irony I see is the
idea of ÒThe Geography and ITÓ -- that is, how the notion of place is changing
due to the ability to reach new customers anywhere, from anywhere, and the ability
to link up internal operations, new commercial partners and to manage supply
chains globally. This has meant that the traditional geographic loci of
technology -- mainly Silicon Valley and BostonÕs Route 128 near MIT (and
perhaps New York as their financial centers) -- is shifting. The power of
location is being diluted; the competitive advantage it offered is reversing,
away from the most popular (and thus expensive, like Silicon Valley) and
towards the less chic (and thus inexpensive, like Bangalore).
This is a natural evolution. In the 1970s and 80s, IT was about automating a single companyÕs internal processes. General ledgers were computerized. Basic business activities went digital. Employee work processes changed as spread sheets emerged. But the next big change happened in the 1990s, driven in large part due to the Internet. It was the ability to link to others outside the company more easily than was possible before. Earlier, the only way to do it was through Electronic Data Interchange, or EDI, systems. But they didnÕt work very well: it was very expensive (relying on telecom providersÕ leased lines and proprietary data-networking protocols), and EDI software standards were imperfect.
With the Internet and the
Web, that all has now changed. The open standards mean that linking up
suppliers and partners is easier -- and in fact, entire new business models and
commercial relationships are emerging to exploit this ability. And since the
same technology has wormed its ways into everyoneÕs homes, offices and even
mobile phones, business can reach customers in ways they couldnÕt before, too.
This much is obvious.
Yet what this means,
ultimately, is that geography doesnÕt matter in the same way. The separation of
location and IT makes it so place is less important, new business models can
emerge and new opportunities can be created -- but also that new competitors
can crop up from anywhere, almost overnight.
At first, the competition of
location occurred in manufacturing. In the 1970s and 80s, it was a surprise to
many Americans that one could make a car in Japan and ship it all the way to
the US and still sell it for less than one made in Detroit. Today, it is rather
remarkable when you stop and think about it, that it is cheaper to make steel in
Japan, an island with no natural resources, and send it across the Pacific
Ocean and half-way across the continental US to Detroit, than it is to make it
in Pittsburg. Technology, and sophisticated business processes, are to credit
(or blame).
Now this phenomenon is moving
to white-collar jobs -- and became a hot-button political issue during last
yearÕs presidential election. Candidate John Kerry admonished ÒBenedict Arnold
CEOsÓ (evoking the name of a traitor to the young republic during the Revolutionary
War). But what Òoff-shoringÓ actually means in a globalized economy is unknown.
What is Ònear-shoringÓ? IsnÕt it simply a question of ÒshoringÓ -- placing
activities nearest to where the customers or suppliers are, or where it is most
logical to perform an activity?
Consider McDonalds in France.
Is it an American company? It seems the absolute archetypal one. The
anti-globalization protestor Jose BovŽ rose to prominence for trashing a
McDonalds restaurant outside of Paris in 1999. But when you scratch the
surface, things start to look a lot more complex. The restaurant was based in
France and paid French taxes. It employed French workers. It bought its
ingredients from French farmers; potatoes from nearby fields, beef from French
cattlemen. So is it American or French? It is tough to say for sure.
Now, if an Indian firm buys
the large technology systems integrator EDS, what does the company become; what
is it? Is it an American company? An Indian company? The majority of its
workforce might be based neither in India or America but in other countries; it
might be listed on a US stock exchange; it might have a board of directors that
speak 10 different languages and hold 20 different passports (because some
directors may have more than one). What is it? It is getting harder and harder
to say.
The shift of employment
patterns due to technology has a long provenance. Indeed, we ourselves are
probably emblematic of Òemployment-replacingÓ trends in our own careers. We
type our own memos, speak different languages and use Excel spreadsheets --
things that once required typists, translators and accounting departments.
These were all once separate occupations, but now are generally done by the
same professional, trained in another specialty -- like law or business -- in
which one makes a living primarily.
So technology eliminating
jobs is nothing new. The Luddites in 19th century England tried to sabotage
machines because they blamed it for taking away their jobs -- and it did. The
nature of technology to cause dramatic shifts in employment has existed for a
long time. It is often forgotten in the current discussion about outsourcing
and off-shoring, but a key factor today, when we talk of the Geography of IT.
III.
The third and final irony of
modern business is ÒThe Generality of ITÓ -- that is, how technology has become
so normal and a part of everyday life and business practices. So much so, in
fact, that it leads to a curious series of shifts: what is innovative rapidly
becomes commoditized, and what is a commodity ultimately becomes most vital.
For example, companies, such
as airlines, can derive competitive advantage from letting Internet users
select their seats on a plane -- but then every airline enables this, and it
becomes a basic feature. What was at one time a selling feature turns into
something customary, in fact, indispensable for all firms.
What is significant about
this is that it leads to an ironic reversal about the value of IT. As
innovation becomes a commodity such that businesses constantly invest in new
technology for new innovations, customers come to depend critically on the
basic services, not the razzle-dazzle stuff. I would suspect that most
customers would prefer that businesses were better at the 80% of IT things that
constitute the basic aspects of running a company, rather than the 20% of IT
things that the company felt it needed to do in order to be competitive.
The 20% of things that are
leading edge are important -- but the regular, plain, old 80% of boring
technology are the things that create the most problems for companies, and
frustrations for consumers, when they fail. This leads one to re-formulate the
question that Nicholas Carr posed in a Harvard Business Review article in 2003:
ÒDoes IT Matter?Ó We can go one step further and ask: ÒHave we become such a
mature industry that newness is less important that getting the old stuff to
work right?Ó
I leave that as an open
question, for us to consider throughout the day.
* * *
These are the sorts of
thoughts I have, that I hope set the groundwork for todayÕs speakers and
panels. It goes far beyond what Bill Gates had to say in The Financial Times this morning. So be it. With that, I am sure we will
learn not only from our guests on stage, but from each other.
Thank you.