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JW
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http://www.businessweek.com/@@UaGo0mYQSGsRvgAA/premium/00_13/b3674111.ht
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Guest Commentary: Blinded by Dot-Com Alchemy
I was recently with the highly regarded chief executive of a major U.S.
multinational who admitted to me that he has told his executive
committee: ''Do something with the Internet--anything.''
The CEO of a well-known Asian company--call it Acme Inc.--just confided
to one of my colleagues that he was thinking of creating an Internet
spin-off, Acme.com. When asked what he would put into it and what would
remain in the parent company, he had no idea.
Another CEO--this one at a large Japanese company--said recently that he
had agreed to sign up with an online exchange because he thought his
company would look dumb if it did nothing. But he confessed that he
wasn't really sure what he had joined.
Something strange is happening here. Major businesses all over the world
are starting to act in some very unbusinesslike ways. And many CEOs have
an air of desperation about them.
PRESSURE. When you look at their businesses--which, like the overall
economy, are often doing quite well--it's hard to understand why. Until
you look at the stock market. These execs are watching financial markets
that have suspended--temporarily, at least--traditional methods of
investment evaluation. As a result, each of these business leaders is
under enormous investor pressure to do things like spin off a piece of
the business, take the supply chain public, and drive up market value
through some kind of quick strike--demonstrating to investors that
Company X is participating in the New Economy.
I sympathize with their plight, but I think they're on dangerous ground.
I would urge my fellow CEOs to take a deep breath and think hard about
the long-term impact of their plans.
Don't get me wrong. I'm convinced that e-business really is changing the
entire basis of the global economy. At IBM (IBM), we've staked our
future on it. But the point is, the real impact of the Internet is very
different from what has been happening in stock markets around the
world. These are two very distinct phenomena that are being treated by
some as if they were one. They are not.
The first phenomenon--which has been building up over several years
now--is this extraordinary, perhaps unprecedented, selectivity in
investment. Some technology companies are increasing in value at
incredible rates, while everything else is in a bear market. According
to one mutual-fund manager, in 1999, the stocks of companies with no
earnings were up an average of 52%, while stocks with real earnings were
down. As a result, many CEOs of traditional companies are wondering what
to do to give their stock price a boost.
The second phenomenon is, of course, e-business. It really does present
CEOs with an extraordinary opportunity to transform their companies'
competitiveness, to change the industries in which they operate, to fuel
innovation, to open up alternate distribution channels, and to create
entirely new cost structures. It is a fundamental change, one that
occurs at the molecular level of business, making possible a
transformation of the basic building blocks of economics, markets, and
work.
FOCUS. What's fascinating about the past several months is that some
companies seem to be, against all reason, intermixing these two
phenomena. They are confusing doing something--anything--about the
Internet with the real work of transforming their businesses. In fact,
the evidence suggests that even today's overheated stock market is
smarter than that. By and large, it's not giving increased valuations to
traditional companies that spin off their supply chains or launch
e-commerce sites--even while the stocks of their technology partners
(many of them barely past their initial public offerings) go through the
roof.
Yes, the market may well continue to bet extravagantly on tech
companies, and Net-related companies in particular. How long it will
continue, or why it is so often unreasoned, I wouldn't venture to say.
But I'm certain that is not the game for most CEOs--whether their
companies are smokestacks or dot-coms. For us, the game is to do the
hard work of accelerating the transformation of our fundamentals--to
understand that the Net isn't really about short-term stock performance
but long-term stock and business performance.
Of course, not all companies have been seduced by the lure of the magic
market-cap wand. Many are hard at work creating alternate distribution
channels, reinventing--not just spinning off--their supply chains, and
more. This is a period of extraordinary change, with extraordinary
opportunities. But we can't seize them through dot-com alchemy.
By Louis V. Gerstner Jr., CHAIRMAN & CEO, IBM
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