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During a recession 20 years ago, the technology consulting company where I worked decided to cut costs by not hiring M.B.A. graduates. It seemed like a good idea: We simply would postpone investing in the future. But the decision hurt morale and crippled our relations with graduate schools. It also left a gaping hole in the organization, because we were missing a whole class of recruits. We struggled for years to remedy our disastrous decision. I recently mentioned this bit of history to Paul Otellini, the executive vice president who runs Intel Corp.’s $25 billion-a-year microprocessor business, and he had a shock of recognition. In the same early ’80s slump, the chip maker cut research and development in memory chips. Intel’s Japanese competitors pushed on. When the inevitable upturn came, Intel found itself a full generation behind in technology and almost went out of business. Otellini said Intel has resolved never to be so shortsighted again. "You can’t save your way out of a recession," he said. My experience has led me to adopt the same attitude. I think you should, too. Now, I realize as well as anyone that we need to be extra careful about costs during a recession. I’m not suggesting you let cash flow from operations become negative, even to finance investments in your future. But, you need to cut certain investments only as a last resort or you’ll find yourself at a serious disadvantage when the economy recovers. In particular, you need to try to protect the strategic investments you are making in technology, because those are the ones that will let you innovate and ensure your growth. General Electric Co. Chief Executive Jack Welch has it right when he says he is going to double down on the bets he has made on technology. Just because the stock market stinks and the economy is in lousy shape doesn’t change anything about the strategic possibilities of technology. Moore’s Law—which says that the cost of computing power falls by 50% every 18 months—hasn’t been repealed. Even though many of the dot-coms have fallen by the wayside, the Internet and wireless devices are improving at a furious pace and are generating opportunities for ever-more innovative products and services. Technology will continue to generate options for reinventing the supply chain and finding operational efficiencies, largely by letting us share information in new ways. Meaning that, if you know where to invest, you will be able to make hay while the sun doesn’t shine. Maybe you will even be lucky enough to have competitors that stop paying attention to technology during this economic slowdown. The big question is exactly where to invest. For my money, technology will continue to create extraordinary value in four areas. I call them the four C’s: control, conversation, capability, and capacity. CONTROL. This means financial control, which can be improved by driving out physical assets. Ducati Motor Holding SpA, the Italian motorcycle maker, has slashed its working-capital needs because it generates about 15% of its revenue online, where customers put up a 10% deposit before Ducati even has to start ordering parts for a bike. [For more on Ducati, see "On the Fast Track."] GE says it will be able to cut tens of thousands of jobs by dealing with customers over the Internet. CONVERSATION. Companies can pull together more information on customers than ever before and have interesting new conversations with them. Personal-finance concern Intuit Inc. and mutual-fund giant Fidelity Investments, for instance, can design their Web sites to interact with customers based on understanding their whole portfolios—the sort of view that in the past would have been available only to a broker or personal financial adviser. A young friend of mine recently had a new, intriguing kind of conversation with a company. He was trying to buy some teak outdoor furniture at a Crate & Barrel store but couldn’t keep a salesman’s attention. He remembered that his mother had told him that Smith & Hawken had good outdoor furniture. So, my friend pulled out his personal digital assistant and used his cellular modem to check the Smith & Hawken Web site. He found that the company had a store just down the street. He went there, got prompt attention, and bought his teak furniture. That is just the beginning. Soon, he will be able to check prices and availability on his PDA. So, he will be able to stand in that Crate & Barrel store and compare its products against those of its competitors. Being able to have that kind of conversation with customers will either be a great opportunity, if you are pulling people out of competitors’ stores, or a horrible threat, if they are pulling people out of yours. CAPABILITY. By this, I mean a new way to differentiate your product or service and change the rules of the game. General Motors Corp., having built an impressive technological backbone for a concierge service by installing the OnStar communication system in so many of its cars, can easily add new capabilities. For instance, GM recently announced that Fidelity will let OnStar users check their portfolios, and even trade stocks and mutual funds, while driving their cars. Every major home appliance soon may come equipped with a help button that would let users communicate wirelessly with a manufacturer’s service desk. CAPACITY. Technology also lets companies generate greater—and more flexible—capacity that will let them deal with the peaks and valleys of demand. Cemex, the Mexican company that is the world’s third-largest cement producer, made itself into a sort of river of fresh cement. It connected all its offices through a global satellite communications system in 1995. The company then outfitted trucks with computer terminals and began tracking them via the Global Positioning System. Today, with a central dispatcher constantly rerouting Cemex’s wide-ranging fleet of trucks, the company can specify a delivery time to within 20 minutes, down from three hours a few years ago, even while slashing its fleet by a third. Cemex achieves pretax profit margins of 37%, compared with 23% at its largest competitor. It generates 50% greater cash flow than that competitor. As Cemex shows, technology, managed strategically, can create stunning returns on investment. Back in the ’70s, when Otellini joined Intel as a freshly minted M.B.A., he heard Intel’s then-Chairman Gordon Moore say something that he initially discounted but has since embraced as his mantra. Moore, who promulgated Moore’s Law, said: "Change is our ally." Moore was right then, and he is right now. We just have to find the courage and the insight to take advantage of this period of disruptive change.
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