"Harvard Business Review" Executive Editor Nicholas Carr talks about why the dot-com bubble burst and how technology is changing the hidden levels of business.
UBIQUITY: Let's start by talking about the bursting of the dot-com bubble. Why did it happen?
NICK CARR: The bubble burst because it was a bubble, and that's what bubbles do. The real question is, why was there was a bubble to begin with? In retrospect, we can see it as a run-of-the-mill mania in which the expectations of many people became detached from reality -- about both the role of the Internet and the speed of its evolution. A lot of projections were based on the outlooks of techies and early users -- people who are adept at technology and fascinated by it. They and a lot of others extrapolated too much from their viewpoints rather than standing back and looking at the way people and companies really act and the slowness with which they change. As a result you had a cycle of investment and forecasts that kept spinning around amplifying the unrealism of the whole thing.
UBIQUITY: There are some techies who would say it's not their fault. It's the fault of what, for example, Steve Perlman, a computer scientist and co-developer of WebTV, said were the carpetbaggers in Silicon Valley.
CARR: I assume you mean the investors and professional managers who rushed in and tried to get a piece of the action. I suppose I'd agree that much of the culpability, if you want to place blame, lies more with money manipulators such as venture capitalists and maybe even more so with Wall Street analysts than with the techies. But I think the technologists revealed that they're as susceptible to greed as anyone else. You have to remember, though, that the techies are following their own passions and passions are always outsized. Entrepreneurs are almost by definition unrealistic or else they wouldn't take the chances that they take. It's when everybody else starts to buy into or promote that point of view for their own profit that you get into trouble, and I think that's what happened.
UBIQUITY: Tell me how Harvard Business Review has responded in recent years to technology? How has the magazine changed?
CARR: Over the last three years we have paid a lot more attention to technology. We used to occasionally run articles on technology and quite frequently run articles about how companies manage information and use information technology. But we hadn't published a lot about how technology can actually change business. I think that's because up until the introduction of very high speed personal computers and networks -- and ultimately the Internet -- we were in a long period of stasis in the underlying technologies that determine the shape of business. Although there were technological developments coming out in the form of new products, there weren't a lot of technological developments that really changed the underpinnings of business in the way we've begun to see with the new information technologies. We recognize that technology should be a fundamental concern of managers; rather than business shaping technology, we are seeing more instances of technology shaping business. There are a lot of practical implications of that. I think the role of, say, Chief Technology Officer, which used to be pretty much a support function, has in many companies become a strategic function. At The Charles Schwab Corporation, for instance, a great deal of the basic business and strategic decision-making has a very strong technological bent to it.
UBIQUITY: Does the Harvard Business Review have much of an audience with techies? We at ACM have a mostly technical audience.
CARR: We have a growing audience among entrepreneurs, some of whom come obviously with a very strong technology or engineering background. Do we have a strong readership among technologists per se? Other than those who also have a business role in terms of being entrepreneurs or managers, I'd probably say no. We'd like to have more technologists reading us and we think we have something to offer to them but we're not geared to pure technology. When we cover technology it's always about the business implications. We rarely run an article purely on an interesting new technology unless the author can tie it very practically to business.
UBIQUITY: Do you think that the gap between the technologists and the entrepreneurs and the business people is bridgeable?
CARR: I don't draw a distinction between technologists and entrepreneurs because a lot of entrepreneurs are technologists. Once you get to the question of whether technologists make good business people, drawing generalizations isn't all that useful. My answer would be that some do and some don't. The more important concern is, can you tell the difference between whether you're a technologist who can also be a good businessperson or not? Troubles arise when the technologist/entrepreneur tries to hold on to the reins too long and takes on business responsibilities for which he or she is not well suited. As in most things, self-knowledge is very helpful.
UBIQUITY: The title of your book is "The Digital Enterprise: How to Reshape Your Business for a Connected World." What is the main difference between the pre-digital enterprise and the digital enterprise?
CARR: This book is a compendium of Harvard Business Review articles about this subject by many different authors. When I look across all of those articles, as well as when I think about it on my own, I think the key difference is a blurring of the traditional boundaries between individual companies. It used to be that those boundaries between companies were quite well defined because the information within the company stayed within the company, for the most part. It was either protected, seen as proprietary and important to maintaining the business advantage, or there was just no efficient way to share it. What happens when all information takes a digital form and can be easily and immediately shared -- through the Internet or through other types of more proprietary connections -- is that inevitably it becomes harder to draw clear lines between yourself and the other companies you interact with, whether they're your suppliers or your customers or even your competitors. To me the real challenge in business as we move into this digital age is figuring out what will be the shape and scope of your company. How closely do you merge your processes and information with those of other companies? When should you try to maintain a certain proprietary-ness to your information. We're only at the beginning of the process of answering those questions. There's kind of a general assumption that because the Internet makes it easier to partner, every company should be aggressive in creating ties with others. I don't think it's that simple.
UBIQUITY: Do you think the bricks-and-clicks combination is the wave of the future? Will pure-play Internet companies be a distant memory?
CARR: It depends on what kind of business you're talking about. If we look at consumer retailing, I think the leading retailers will have both an Internet presence and a physical presence. Even if you look at Amazon.com, which is the dominant pure-play Internet retailer, you already see that they are moving toward a bricks-and-clicks model. For instance, they have a relationship with Toys "R" Us for their toy store. Obviously to Amazon one of the key benefits is that it gives them a physical presence to tie to the Web presence. They're entering into a similar relationship with Borders. My sense is that there will be many small retailers that have Web businesses that specialize in a particular product that a fairly small but passionate group of customers is interested in; for example, birding -- books on birds and all of the paraphernalia. You're not going to have those on every street corner. So it makes sense to have a consolidated online operation for some narrow retailing segments. I think they will do quite well in a small way. But for any general retailer I think you'll see them have both bricks and clicks.
UBIQUITY: What kind of agreements and disagreements are prominent among the authors in the book?
CARR: The most interesting common thread in the articles is that the authors look beneath the surface of companies. A lot of the hype we've seen about the Internet is superficial hype. It looks at the visible things like Web sites and e-tailers and big business-to-business exchanges. But it doesn't get down beneath that to the level of the technologies that connect different companies and how those connections change the economics of transactions among companies. The most important common thread about the articles is that all of the authors agree that some fundamental changes are happening at the hidden level of business where transaction costs and other economics determine what companies do and how they make money by doing it. That is changing in some fundamental ways. Companies will need to think about that clearly or they'll risk seeing their traditional strategies attacked or their traditional businesses or profit-making activities evaporate. They all agree that there are fundamental changes going on. I don't think they all are on the same page with what those changes mean.
UBIQUITY: Such as what?
CARR: The first article in the book, "Unbundling the Corporation," is by John Hagel and Marc Singer. They argue that almost all companies are actually unwieldy bundles of three very different businesses. There's the business of managing your customers, there's the business of creating new products, and there's the business of running the infrastructure necessary to keep your operations going. When you look at those three businesses, the way you succeed at any one of them is very different from the others. If you're a product developer you want to focus all of your energies on getting the top talent -- the top engineers, the smartest people -- and pampering them and letting them be as creative and innovative as possible. If you're in the business of managing customers, you want to focus externally on your customers and you want to optimize your operation to make them happy. Managing the infrastructure is basically just a scale business. You want to be as efficient as possible and push as many transactions or products through your system as you can. So there are three very different businesses with different competitive necessities. And yet, they're all yoked together in a traditional company because the cost of coordinating the three would be too high to separate them. So you live with your trade-offs and your lack of efficiency and your conflicts that everyone in a big company feels because it's cheaper to keep them together than to separate them. Hagel and Singer argue that the Internet allows you to share information and processes efficiently between these different types of businesses. The traditional logic holding together the traditional company will go away and we'll see a splintering of companies into these three very different businesses. You'll get a set of customer management companies, a set of product development companies, and a set of infrastructure companies, and they'll look very different. The customer management businesses will want to consolidate because they want to own as big a chunk of customer purchases as they can. On the other end, the infrastructure businesses will get very big too because they're purely scale businesses and will want to push as much through their infrastructures as possible. In the middle, the product development businesses will probably stay small and very boutique-like because that's what you need to keep talented people happy and give them the rewards that they need to stay with you and be creative. So that's one fairly radical vision of how the digitization of information can change the fundamentals of business.
UBIQUITY: Let me ask you to end with a discussion of your philosophy as executive editor of Harvard Business Review. What do you look for in articles? Diversity?
CARR: We do look for diversity in the ideas and subject areas we cover. There are a couple of points that should be made. One is that our readers are curious, idea-driven people, but they're also very practical-minded people. Ninety-five percent are managers, people who are involved in the day-to-day running of businesses. When we look at an article, we want it to do two things. We want it to enunciate clearly a new or different idea or perspective on business. Then equally we want it to make the idea real for the reader -- to show how companies are actually using the idea or to walk through some hypothetical but concrete cases of how the idea will be put into use by companies and how it will shape the way they do business. When we evaluate submissions and proposals, we try to get both because we think that's what's of value to the reader. Another thing we're seeing is that three or four years ago each editor used to have a beat that he or she covered. We'd have an editor who focused attention on marketing, another on operations, et cetera, et cetera. We've moved away from that in the last couple of years because while we still value specialized expertise and we still try maintain it on our staff, articles no longer fit neatly into the old, well-defined categories. An article that once would have been about marketing is now about marketing but it's also about operations and strategies. The old categories have started to disappear. We're spending a lot more time developing cross functional or cross discipline articles. We really look more, not less, for generalist authors rather than specialists, which is slightly counter to the common wisdom that things are becoming ever more specialized. We're actually seeing more value in the generalist perspective.
UBIQUITY: How does technology fit in? Do you find more and more focus on technology as part of the article? Or is about the same as it's always been?
CARR: There's definitely more. Obviously there are still a lot of articles that don't have a big technology angle. Pieces on leadership or people management often don't. But a lot of articles that used to not mention technology now mention it very prominently. For instance, I recently worked with a professor at the Wharton School named Peter Cappelli on an article about the new shape of human resources management. A lot of that article focused on how you deal with online recruiting. So, technology is changing the way companies deal with human resources. And it's changing the way they do marketing because you suddenly have a new online channel where you can do different kinds of market research and marketing communications. Technology is central to almost all of the traditional business functions in a way that it did not use to be. You can't ignore it.
A Ubiquity review of Nick Carr's "Does IT Matter?" can be found at: http://www.acm.org/ubiquity/book_reviews/v5i18_stuckey-carr.html