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Working on the article about innovation in Cincinnati ["Churning Out Ideas"], I recalled two incidents from when I was a writer at International Business Machines Corp. in the 1980s. One: A heavily annotated memo arrived on my desk asking me to draft an official response to a disturbing New York Times article. The article said that, someday, personal-computer networks could supplant IBM’s biggest revenue generator: its line of mainframes. “Debunk that nonsense,” was the message that cascaded down to me from the loftiest realms of IBM. But after interviewing experts inside Big Blue, I came to the awful realization that the nascent PC revolution was an extremely real threat to the computer behemoth—whose revenue has grown less than 50% in the 15 years since then as mainframes have turned into a declining business. Although I dutifully created a rebuttal, it was lame. I put it in a drawer, hoping no one would ask for it. No one did. Two: I wrote a speech for the head of IBM’s marketing group for the launch of a line of personal computers. To get some grist, I located the product planner for IBM’s original PC, introduced in 1981. Frankie—whose surname I no longer recall—told me that IBM, based on extensive market research, predicted that only scientists and ham-radio-type hobbyists would buy PCs. IBM decided that fewer than 350,000 PCs would be sold during the lifetime of the product. Today, Dell Computer Corp., alone, sells that many every eight days, according to Roger Kay, an analyst at research firm International Data Corp. Based on that first incident, I realized that successful companies have an awful time adapting to change. They’ll deny the obvious until the market changes so much that they reach a crisis. Based on the second, I’ve come to understand how hard it is to predict who will buy a new type of product, how they will use it, and how many they’ll buy. IBM was as good as anybody at interviewing potential customers about their intentions—the technique that is still most commonly used today—and yet the company was as far off as it’s possible to be. My experience in Cincinnati suggests there may be a better way. Companies are inexpensively rolling out real products and services that take advantage of the extensive, high-speed communication network there and then watching how customers react. The copy of Context that you hold in your hands is essentially a discussion on how experiments like Cincinnati’s can help you profit in today’s confusing environment. In the interview ["Mr. Coffee"], Howard Schultz, the fabulously successful founder of Starbucks Corp., explains how he intends to take advantage of developments in wireless. He warns, though, that customers trust ads even less than they used to, making it harder to build a consumer brand. In The Last Word ["Sorting Through the Rubble"], venture capitalists Geoffrey Moore and Peter Fenton say that the vaunted “first-mover advantage” sometimes exists but is mostly misunderstood and relied on too heavily. In the CEO User’s Guide ["Managing in Tough Times"], DiamondCluster International Inc.’s chief executive, Mel Bergstein, offers some general principles for leadership. Several other pieces suggest that, just because many Internet stocks have gone bust, doesn’t mean huge waves of change aren’t coming at you. A feature article ["Breaking the Bank"] says that telephone companies in Europe are starting to invade the financial-services industry. In the Digital Strategy column ["Farming the Future"], Deere & Co. CEO Robert Lane says the Internet will change the farming equipment industry more than anything has since the tractor replaced horses. As my old friends from IBM will tell you, this is no time to be in denial. Regards, Bob Gilbert |
