CAMBRIDGE, ENGLAND SUMMER 1687
Vaulting beyond Copernicus, Kepler, Galileo and Descartes, Isaac Newton publishes Philosophiae Naturalis Principia Mathematica. Through 550 pages, Newton defines a cosmos governed by laws of motion and gravitation in which distance (space) and time are absolute and where velocity depends upon the velocity of the observer relative to the object observed. Hailed as a "Divine Treatis," Newton's laws stand as absolute truth for two and one-half centuries.
CLEVELAND, OHIO SUMMER 1887
In apparent contradiction to Newton's principles, Michaelson and Morley inadvertently discover that the speed of light is independent of the velocity of the light source and the direction from which the light is coming. Trying to reconcile this unexpected result with Newton, three unorthodox thinkers begin to wrestle with the seemingly bizarre notion that perhaps distance itself is not absolute, and that a body or particle in motion actually could become smaller, at least relative to a stationary observer. Though on the right trail, neither Fitzgerald, Lorentz nor Poincaré is able to unlock the mystery.
BERN, SWITZERLAND SUMMER 1905
The key comes from a young patent clerk, in twenty pages entitled "On the Electrodynamics of Moving Bodies." In his Theory of Special Relativity, Albert Einstein postulates that not only distance (space) but also time is relative, appearing to be different to observers moving uniformly relative to one another in separate frames of reference. Einstein's essential cosmic link is the speed of light, absolute and constant. The mystery's ending is Newton with a surprise twist.
Some have called the Internet the most transforming technological event in history. That might be a bit much -- certainly Newton and perhaps Einstein might take issue, as could some in other fields. Nonetheless, what must be clear by now is that the Internet is one of those rare discontinuities that alters fundamental rules and thus simultaneously embodies both the scariest of threats and the brightest of opportunities to businesses everywhere.
Furthermore, there is a defining characteristic separating the Internet from other disruptive technologies of the 20th Century. It is speed; and in particular, the speed at which benefits are delivered (i.e., information and communication) to Net users around the world. That "Net-speed" is governed by a physical constant -- the speed of light. Consequently, reaction times traditionally available for making business decisions are shrinking from "years and months" to "weeks and days," sometimes even less.
Andrew Grove states that any company not an Internet company in five years is not likely to be a company at all. Large and small businesses alike are in overdrive to respond, spurred on in part by the extraordinary speed of change, a speed increasing toward its natural limit.
Jack Welch orders all senior GE executives to create a "dyb.com" task force within their businesses. The charge is simple -- create the model to "destroy your business" before someone else does. Hewlett Packard names as its new CEO Carly Fiorina, a company outsider recruited to transform a bureaucratic, consensus-style culture into a more free-wheeling innovator that can prosper in the Net-speed era. Wal-Mart prepares to do battle with eToys in announcing a radically redesigned Website; while Nordstrom, a legendary "customer relationship" practitioner, announces it will form "eNordstrom.com" on a compressed schedule. Business Week chronicles three smaller companies that have closed down their traditional bricks and mortar businesses to re-emerge as e-businesses. Each sees the Net as a way to be something more than a bit player struggling to survive. Angered by slow internal progress and increasingly threatened by eToys, Toys'R'Us CEO Robert Nakasone spins-off his online business into a separate entity, brings in venture capital partners and moves the entire business to California. He comments later, "Over time we could have gotten it right… but we don't have the time."
VALUE CHAIN IN REAL TIME
There is a little time to catch one's breath, stand back, and realize that all the e-business frenzy is about nothing more than enhancing and/or extending a business's value chain, in ways made possible by the near instantaneous availability of information across all links of the chain. Creative companies are exploiting this phenomenon, either by wringing cost and inefficiency from and improving service within their existing businesses, or redefining their businesses and markets served altogether.
Things were stable at Construction Solutions. The Company, a long-standing U.S. manufacturer of basic products used in interior and exterior construction, had successfully defended its market position with the introduction of a lower priced product line, and margin erosion from its flagship brands had finally stopped. But there had been no real innovation in the industry for 25 years. The traditional value chain, from suppliers through reps and distributors to contractors, had settled into a complacent, commodity-like mentality where price dominated and product differentiation had lost its meaning.
The CEO saw the Internet as a once-in-a-lifetime chance to reposition his company. Despite growing sales and profits, he issued a Welchian edict to his management team -- destroy the existing business model and replace it with one that extends the market by including in a new value chain all those with a real interest in enhancing the economic value of structures built with Construction Solutions' products. Thus, architects, engineers, building owners and property managers, insurance companies, lenders and independent testing labs were no longer to be unconnected entities outside the boundaries of the core business, never knowing at the same time what is happening on the inside. Able to communicate with the right people at the right time at very high speed, Construction Solutions began its transformation from manufacturer of commonly available products with mediocre margins, to forward and horizontally integrated problem solver creating economic value for stakeholders.
From roots in central Germany, Rhein-Main-Pharma had expanded its specialty chemical and over-the-counter pharmaceutical business into Switzerland and Italy, albeit with only modest success. Despite a good reputation, RMP's attempts to accelerate sales growth through product innovation had sputtered, plagued by faulty implementation in the field and R&D efforts that always seemed a step behind and a year late. An assessment of RMP's innovation process uncovered chronic communication breakdowns at the interfaces between value chain activities both inside and outside the Company.
Exploiting the Internet's capabilities, management boldly reorganized, creating new project and product management functions and providing new information links to strategic partners in Europe, the U.S. and Asia, including university R&D labs, material suppliers and sales agencies. The final link in the new e-business chain was a unique competitive intelligence early warning system, called NetRaderâ made possible by the worldwide web and customized for RMP's specific needs.
Distance and communication barriers disappeared as product development cycles shortened and coordination in the field improved. Expansion to the U.S. was not far behind.
MATHEMATICS AND PHILOSOPHY
Newton and Einstein clearly appreciated that historic technical achievements were often accompanied by human implications. In that spirit, consider what some messages might be regarding the Internet and its continuing impact, and innovation in general.
- When the frame of reference changes profoundly, what used to appear to be true (and maybe was) no longer is. At comfortable everyday speeds, the world looks one way. At exceptionally high speeds, the world not only looks much differently, its behavior in fact is governed by a whole new set of relationships (including the mathematical kind). In a Newtonian style world, a business could gauge its position based on competitive and market factors it could see, measure, monitor and even anticipate. If neither competition nor the market was moving or changing that rapidly, then one could make relative gains simply by moving just a little faster, and perhaps feel safe for a while.
- But in a business world where the only reference speed has become 3x108 meters per second -- and it's a constant -- one can't make the world appear to slow down by inching ahead a little faster. There is no room for complacency nor time to relax. Boldness must reign -- the old "if it ain't broke…" cliché is dead.
- In a system moving at exceptionally high speed, distance does shrink as seen by an observer moving much more slowly. A fundamental consequence of the Internet is that geography disappears as a barrier to, and shield from competition.
- No paradigm or formula for success, no matter how strong, lasts forever. Even something as monumental as Newton's Principia left room for someone else to add knowledge, to take it to another level.
- Signals that old rules are breaking down often come unannounced. Michaelson did not set out to prove the speed of light was invariant -- in fact, quite the opposite. Give credibility to offbeat information that initially appears impossible.
- Companies must not turn off those who can think outside the box. It doesn't get much quirkier than the idea that distance and time might not be absolute. Incremental thinking will not be enough at Net-speed.
- The benefits of thinking globally may not be that modern. The list of names mentioned earlier, from Copernicus through Newton to Einstein, represents at least eight countries.
The need to forge a link between the technical and human components to face an Internet world successfully is a fact not lost on some insightful companies. Consider HP's selection of a Medieval History and Philosophy major to lead a legendary engineering driven culture, and GE's relentless quest to develop its people and transfer knowledge across all parts of the Company. The next Strategy FOCUS will explore this link further.
The vignettes are fictionalized adaptations of true situations.
Norelli & Company thanks the consulting firm of Dr. Böhmer, Uhrig & Partner ("BUP") of Frankfurt, Germany for the material on which the "Rhein-Main-Pharma" vignette is based. Norelli & Company and BUP have recently announced a strategic alliance. NetRadarâ is a registered trademark of BUP in Germany.
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Byrnes, Nanette and Paul C. Judge. "Internet Anxiety." Business Week 28 June 1999: 79-88.
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