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| I LINK, THEREFORE I AM
Thomas Petzinger Jr.’s article [CEO User’s Guide, June/July 2000] about how the "open-source" software model can be applied to other business problems is both right-on and egregiously wrong. It is right because the scientific method’s peer-review process, now called open source, is applicable to many more kinds of activities—even business activities—than scientific research (or software development). But the subtitle’s claim that the method "works for all business activities" is wrong on its face. The reader finds out later that the author thinks it is OK to keep activities like the Normandy invasion secret. Still, this point gets short shrift. In today’s networked environment, sometimes a secret is the only competitive weapon, and a first-mover advantage is everything. When time-to-market is measured in weeks, a leak, even from a company with a genius breakthrough, can mean the difference between success and failure. Furthermore, while the article is well-motivated, it is also badly confused. It is well-motivated because there is too much secrecy in business, and much of the time the business reasons for secrecy are merely dodges to enhance an individual’s power, protect a company’s reputation, or shield poor performance (or outright malfeasance) from the light of day. Sunlight is a great disinfectant, and companies with more of it will, in general, have cleaner products. But the article does not draw any distinction between open processes within companies and open processes that breach company boundaries. In fact, most of the article’s examples are about within-company processes. Take the article’s story of rank-and-file contributions to the design of Lucent’s cellular plant. Under the theory, "nobody is as smart as everybody," Lucent’s designers could have asked folks from Nokia and Motorola to contribute. They might have had some suggestions that Lucent employees hadn’t thought about! (Surely their employers wouldn’t mind.) I have a bunch of other comments, too. But I’m not going to tell you because I’m working on my own article about when to use open processes and when to keep your eyes on the prize, your cards close to your vest, and your mouth shut. —David Isenberg
As usual, Petzinger has a way of stating things that most people think about but can rarely express as well as he can. Whether Petzinger knows it or not, his remarks resonate with the now conspicuous arrival of so-called second-generation thinking in the field of knowledge management. Unlike its first-generation ancestry, second-generation knowledge management focuses not only on the question of how organizations can improve knowledge sharing, but also how they can improve knowledge production, or innovation, as well. A whole new branch of theory and practice has emerged around the distinction between supply-side and demand-side knowledge management. While supply-side thinking focuses on the sharing of existing organizational knowledge, demand-side strategies focus on satisfying the need for new knowledge—the need to continuously innovate to succeed. When Petzinger uses the words, "nobody is as smart as everybody," he not only spins a clever phrase with the ring of truth to it, but he also brings up an idea that is just now beginning to capture the imagination of knowledge managers in business: People don’t innovate, organizations do! Knowledge-making is a social process, not an individual one. That’s why in all of Petzinger’s examples, you get the impression of large social systems (businesses and other organizations) engaging in the collective process of producing new knowledge. Peer review, in particular, summons up the image of groups engaging in the act of knowledge validation—a social act, not an individual one. Managers interested in increasing the rate or quality of innovation in their organizations would do well to heed Petzinger’s words of wisdom. —Mark W. McElroy
THE MORE, THE MIGHTIER Roger Fillion has hit the proverbial nail on the head, showing how small businesses in different industries can compete, survive, and prosper in the new Internet economy [The More, The Mightier, June/July 2000]. While many huge—mostly new—Internet companies are spending hundreds of millions of dollars on marketing to establish new brand names, the key to survival for the smaller, traditional retailer will lie in its ability to offer consumers a familiar name on the Internet. Because of modern technology, thousands of small businesses can have a common Web appearance and yet make it personal, so they can provide information about what they, specifically, do and can handle transactions with their customers. The businesses share the expense of building the site and securing content. In one example that Fillion cites, CornerDrugstore.com, each independent pharmacy will have a site with its own identity and Web address. Does the end customer really care that other pharmacies share the same content, technology, and e-commerce capabilities? I don’t believe they do. Small, established businesses will have a great advantage because of the marketing dollars they will save. After all, they have been in business for many years, and customers already know their names. How long can the big dot-coms pour money into marketing? At some point they need to make a profit! —Richard Ost
YOU’RE THE DOCTOR David Whitehorn-Umphres’s article [Man and Machine, June/July 2000] about how he used the Internet to research his illness brings up an interesting point—that of the layman’s access to information that he really can’t understand. I know a cardiac surgeon who says she dreads people doing exactly what Whitehorn-Umphres did. They haul in a stack of printouts an inch high and demand that she select, interpret, and analyze the information. Her training is being bypassed, and she doesn’t like it. But, what’s the alternative? It sounds like Whitehorn-Umphres applied serious thought and insight to the materials he found, possibly with help from people who could interpret some of the more obscure areas. It gets trickier for people who don’t have the time or experience to pore through the material thoroughly. Some people don’t want to, or can’t afford to, go to a real specialist as Whitehorn-Umphres did, and the Web is a substitute. With luck, these people will find a user group with knowledgeable folks (but they will have to be able to weed out the strident know-it-alls along with the misinformed). Or, perhaps they’ll find one of the newer sites that supplies medical information from people who genuinely know what they’re talking about. The practice of doing your own due diligence is most urgently needed in medicine, but there are parallels in any industry where there is specialized technical knowledge and people who went through complex training to get it. If you want to approach these people forearmed with true insights rather than undigested information, you need a crash course in the topic. My guess is that this is why sites like Experts.com, and others, are popping up. Yet, even they don’t provide the constant authoritative filter that you’d need for instant—though impermanent—competence. Sounds like a market opportunity to me. —Bill Reith
When the Internet first took off, some people claimed that it meant the death of human contact. Face-to-face interaction would be replaced by the cold exchange of bytes. Communities would disintegrate. People would become isolated. The very essence of communication would mutate into an ugly shorthand of emoticons and acronyms. It’s good to see that the opposite has come true. Whitehorn-Umphres’s case is just one example of the growing importance of organic communities, sharing specific (and in many cases, vital) interests. We shouldn’t be surprised. Human interaction has always been one of the driving forces of the Internet. Forums, for example, were always the most popular places on CompuServe. Certainly the Internet isn’t a perfect structure for communication. You can waste a lot of time surfing the Web. And the state of connectivity technology is still analogous to rotary-dial, party-line phones. But dross will always be with us, and technology will always evolve. We spend most of our time focusing on the business use, and abuse, of the Internet. It’s good to keep in mind that, if every e-commerce site were to suddenly vanish, we would still be left with the heart of the system—a network for people to make contact. —Lizzie Parker
A TAXING QUESTION Any discussion of tax equity and simplification should include a resolution of the tax discrimination that exists for telecommunications companies. [The Last Word, June/July 2000]. Telecommuncations networks make up a significant part of the Internet’s backbone, and they are also the means by which most consumers access the Internet. Even though the telecommunications industry is competitive today, the consequences of its history as a monopoly still linger. State and local governments have come to rely on telecommunications taxes to finance themselves. Consequently, telecommunications companies bear a much higher tax burden than general businesses. A recent study by the Committee of State Taxation documents numerous examples of taxing practices that discriminate against telecommunications companies: two to eight local taxes apply to telecommunications companies in 33 states; taxes are imposed on telecommunications in 10,857 jurisdictions; state and local rates exceed 15% in 26 states; and telecommunications companies in 15 states have a higher property tax rate than general business. —Robert Landau
FASHION FORWARD "Fashion Forward" [April/May 2000] is a well-balanced article that reveals the strengths of the Internet business model, while underscoring the mixed benefits of maintaining a traditional retail catalog operation. The future of Lands’ End’s business relies on its ability to leverage its traditional "back office" infrastructure (order entry, order customization, fulfillment, customer service, etc.), while taking advantage of emerging Internet technology and business models. At the same time, the company finds itself encumbered by its traditional business. Pure-play Internet retailers are receiving much higher stock-market valuation multiples because of the tremendous leverage they get from the Web. Fogdog Sports, a leading Internet sporting-goods retailer, supports a single on-line store that has tens of thousands of independent "sales agents" (its affiliates). Each, in turn, is visited by hundreds to millions of individuals. While catalog retailers also have the luxury of only having to support a single store, it’s hard to imagine them recruiting independent agents to send out catalogs on their own nickel to drive customers back to the cataloger. This type of leverage only exists on the Internet, where the cost of moving information around is essentially zero. This is why pure-play e-tailers, such as Amazon and Fogdog, have valuation multiples orders of magnitude larger than Lands’ End. So does this mean that Lands’ End should do anything different from what it is doing now? Should it dump its catalog business and adopt a pure Internet business model? Absolutely not. The catalog business is much too valuable to throw away. However, the future lies on the Internet, and Lands’ End should embrace it aggressively. As Howard Wolinsky points out, Lands’ End has been using the Internet quite extensively over the past few years. As a consequence, the company will ultimately be rewarded by both its customers and the marketplace as time goes on. —Warren Packard
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