The current crash in the technology market has generated a lot of quite shallow analysis. The dim bulbs of the media, unable to shed much light on the subject, put it down to the dot-com bust, caused by hubris.
For anyone who has studied economics, however, the pattern is a common type of business cycle in technology.
Its analysis is most associated with the Austrian School of economics, whose most famous luminary is Nobel Prize winner F. A. Hayek. He described this type of business cycle as being caused by an excess of investment in "early stage capital," such as electricity generation or railway lines or new types of manufacturing machines. The enthusiasm for new technologies would produce a flood of activity -- with job growth, high wages and an economic boom -- but the bubble would burst when it was found that there was insufficient demand in the economy for the goods produced from the "early stage capital."
For those of us who are marketers rather than economists, another expression for this is "thinking backwards." Instead of asking what the customer wants and then producing it, the technology industry tends to produce first and ask questions later.
In the current cycle, the technology sector invested massively in early stage capital. Some of it was intellectual capital, much of it was infrastructure. But no one asked customers how much of the output from this capital they actually wanted. No one produced demand analyses beyond the sophistication of "the market is big, the market is growing."
This is what technologists do. They are engineers. They love to develop new things, because they can. Invention itself is the goal. One of the leading technology companies even says so in a corporate tag line: "Invent." Don't listen to the customer; just invent. The technology boom was fueled by money rolling in to pay for invention, prior to any research on demand.
The technology boom was fueled by money rolling in to pay for invention, prior to any research on demand.
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Any marketer would tell them they've got things backwards. The marketer's world works exactly the other way around. Ask customers what they want. Meet their needs in a unique and distinctive fashion. Then watch the money roll in.
Instructively, one man in technology did follow the marketer's way as opposed to the engineer's way, and he is just now retiring after the greatest feat of management and leadership in the industry. That man is Lou Gerstner, who came from marketing environments at American Express and Nabisco to turn around IBM. When he got there in 1993, the question was whether or not IBM would survive. Now it is the model for all to follow in the computer industry.
In a recent interview published in The New York Times, Mr. Gerstner repeatedly used a marketer's way of thinking in describing how he made the major decisions to fix IBM's problems and create the new model of industry dominance. At the very beginning, he set the tone by telling IBM'ers, "We are going to build this company from the customer back, not from the company out." In other words, we will reverse the backwards thinking of which the industry (and before his arrival, the company) is guilty, and win by thinking in the right direction.
His first decision was whether or not to break up the company into 13 "Baby Blues," separate companies for separate parts of the operation, as recommended by his predecessor. How did he approach the decision? "As a customer of IBM," he said, "I am not very drawn to that model." Customers want integrated solutions and a single point of contact, and the balkanization of IBM was no way to achieve that. How did Mr. Gerstner know what customers wanted? He went out and asked them. He logged over one million miles of travel in nine years of visiting customers.
Similar thinking propelled him to the idea of IBM Global Services as a product-agnostic services group. "The customer would not accept a services company if all it did was flog IBM products," he said in the interview. IBM Global Services, of course, became the company’s biggest, fastest growing and most profitable business simply because it looked at technology through the eyes of the customer.
Under Lou Gerstner, IBM was not seduced by the "utopian schemes" of the Internet bubble.
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The natural extension of this approach was the commitment to open -- as opposed to proprietary -- systems. Again, this was anathema to a culture built on proprietary control, but, again quoting Mr. Gerstner, "This is what the customer wants." The result was a leadership in networked computing which set the company in good stead when the Internet boom exploded.
Under Gerstner, however, IBM was not seduced by the "utopian schemes" of the Internet bubble; IBM did not become the dot in dot-com. It just kept listening to customers, who saw profit and margin opportunities in using the Internet to conduct business more efficiently. Hence the commitment to e-business, a successful advertising campaign that resonated with corporate customers and a successful theme which propelled IBM to sustainable growth and helped it to avoid the fate of Cisco, Sun and Nortel.
It all sounds simple to the marketing mind, doesn't it? But it's alien to the engineering mind. And of course it wasn't simple; it required the formidable leadership skills and incomparable strategic insight of a giant of management, like Lou Gerstner. However, the underlying thinking is what marketing has been teaching for as long as it has been a legitimate management discipline.
It's a great time to be a CMO, and maybe, given Mr. Gerstner's success, that position will now be seen as the rung before the CEO position.
Hunter Hastings is managing partner of EMM Consulting Group, which advises companies on how to implement Enterprise Marketing Management, a multi-faceted system for global brand management combining marketing knowledge, best practice processes and training with collaborative software, marketing tools and infrastructure. He can be reached at HunterHastings@EMMConsulting.net
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