Fear and Longing

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Fear of the new, longing for the old, all muddled by a desire not to fail-such are the emotions that confuse high-tech novices in any industry, and especially in those confronting X-engineering for the first time. This is nothing new. Progress has exacted a price in perceived danger ever since the first labor-saving loom scared English textile workers into torching their mills. The price of today's technology is clear: Understand its business impact or fall behind, perhaps forever. Accordingly, every manager now realizes that sooner or later he or she will have to accept and adopt the Internet. But the technology is advancing so rapidly that many find themselves nearly overwhelmed by the possibilities. Buried in information, with too little time to absorb and apply it, these managers grope along from day to day in a fog of unanswered questions:

• The Internet is vital to my company's future, but how can I use it? I have already downsized, right-sized, reinvented, restructured, and, yes, reengineered. What else can I squeeze out of the business and my workforce?

• How do I know I'm making the right technology choices? How do I keep up with the constant and rapid evolution of technical products? Where am I supposed to get the money?

• How much of this technology should I develop for myself, and how much can I leave to partners? How much control of my operations can I afford to give up to suppliers and partners?

• If the "networked economy" means getting closer to my customers and suppliers, how can I exert control over my business? Can I still run my business the way I want to? Who's in charge?

• How long can I put off major decisions about changing how I operate? And most troubling of all, why should I change and embrace technology when the Internet seems to do nothing but drive down the price of my products?

The answers to these questions and many similar ones will be found in the chapters ahead, but this much can be said right now: In the real world, a company's decisions about business change that is driven or enabled by new technologies often owe less to logic than to long-established patterns of managerial behavior.

Although managers recognize that the Internet and other technologies will affect their businesses, they aren't sure how, and that uncertainty breeds anxiety. They have only a flimsy grasp of the Internet's possibilities and the operating changes it will demand. Accordingly, they respond with nothing more venturesome than brochure-ware-pro forma, this-is-who-we-are Web sites. Danny Hillis, the legendary cofounder of Thinking Machines Corporation, pointed out a common failing in a recent speech at the Santa Fe Institute:

All companies think of e-commerce as an add-on to their existing business. I call this the drive-in window mistake. When cars first came along, many businesses just assumed that they would add a drive-in window but that the rest of their business would essentially remain the same. [But] the real impact of cars was to move shopping traffic from downtown to the shopping malls. Suddenly, realize it or not, everyone was in the shopping-by-car economy. In the same way, all business is becoming e-commerce. Adding a Web portal to your existing business is like adding a drive-in window to a downtown department store. Instead, information drives the entire process from discovering products to selecting them, transporting them, servicing them, and managing the relationship with the customer. Managers must rethink their entire business.

Many managers choose to disregard Hillis's advice. They remain skeptics, understandably turned off by Web evangelists who spout overwrought prophecies ("be digital or die"). The recent crash of dot-com companies is also cited as a good reason to put off technology initiatives or experiments with new ways of doing business. To be sure, the debacle was real, but the collapse of a Wall Street bubble must not be confused with the enduring technology that inspired investors to inflate that bubble and that will undoubtedly outlive it.

I have met other company leaders who react to the Internet with what I call the not-on-my-watch response. They know or suspect the potential impact of the new technology, but they choose to do nothing about it. They draw denial about their shoulders like a comforting cloak, assuring themselves and their colleagues that nothing major needs to be done for another decade or two.

Five years ago, for example, the executives of a major Southern bank visited me in my office in Cambridge, Massachusetts. They wanted to talk about the future of retail banking. We spent the morning discussing this, and around noon I told my visitors that I was going to give them a glimpse of their future-a demonstration of what a virtual, digital bank looked like. I brought out my laptop and pulled up the site of a British bank that had just gone online.

As the bankers witnessed what services were available and how quickly and easily transactions could be completed, the conversation began to wander. A strange levity filled the room. One man turned to me and said, "Jim, tell me, do we have to fly home in our own plane or are you going to beam us home?"

I could see that my Southern friends were not really up for any more talk about the Internet's impact on their lives and livelihoods. They chose to shrug it off. It might be true that some day the Internet would cause their massive infrastructure of branch banks to crumble, forcing them to fire or retrain thousands of people. But surely it wouldn't happen on their watch.

Eventually, I realized that the unstated reasons why people avoid new technologies are neither simple nor perverse. Indeed, it is human nature to be uncomfortable with the very notion of major change. As Shakespeare's Hamlet put it, we would all "rather bear those ills we have/Than fly to others that we know not of."

Hamlet preferred denial to dread. So do most people. Unless you are dead certain that change will be beneficial, unless you have an unusual degree of courage and sureness in your judgments, you are likely to make one of two choices when confronted by a potentially transforming new technology. Neither response will allow your company to advance.

The first choice is Hamlet's: to dither and ultimately do nothing. The second is to do something small. Most managers have been taught to take an incremental approach to change. Small actions rarely lead to large mistakes. We can easily backtrack. We can defend our actions to our directors and the market. Yes, we can say, we know all about the Internet, and we are moving gradually and prudently in response.

In truth, however, incremental change is fruitless when it comes to embracing a technology that by definition creates radical business change. And even if small steps were useful, as I learned to my dismay while helping businesses reengineer in the 1990s, every large organization has the corporate antibodies to kill any incremental change program.

More than 30 years ago, the U.S. Congress established the Office of Technology Assessment precisely to evaluate the secondary effects of new technologies, including their disturbance of traditional ways of life and business. It turned out to be an almost impossible task. Trying to predict the ripple effects of a new technology is a dubious proposition. In our hubris, we can make grand pronouncements-but in our wisdom we must realize that they are, at best, educated guesses.

The history of Thomas Edison's invention of the electric light is instructive. It turned out to be far more than simply a convenience, an alternative to high-cost manufactured gas. The rhythms and very nature of our lives were forever altered. The lightbulb opened up the night: We could read at all hours, work longer days, party 'til dawn. (At the same time, we learned to get along on less sleep-20 percent less than our counterparts of a century ago, according to the National Sleep Foundation.)

Could any of this have been envisioned by the businesspeople of Edison's day? Unlikely. Edison made his discovery in 1879, but as the economic historian Paul David points out, it took 40 years or so before the nation woke up to the real potential of electricity. Manufacturers, for example, could not see any particular advantage in the new power source. They were doing quite well, thank you, with their basement steam engines sending power upstairs via belts and pulleys to run factories four or five stories tall. Switching from steam to electricity seemed at first to offer no visible gain. It was not until the manufacturers came up with a new vision of their factories that the modern, one-story plant emerged, with each machine run by its own motor.

Arguably, there was plenty of time to digest changes in those days. But today innovations occur at unprecedented speeds, and reaction time has shrunk to what seems like nanoseconds. This creates more confusion and anxiety for managers. How do we understand and capitalize on a new technology before the next best thing overtakes it? And can a company ever be entirely sure that it has chosen the right course when it makes a radical change in its operations?

With X-engineering the fear and longing will be about a lot more than technology. Managers will be pressured to surrender hard-won control to the greater good of business-to-business and business-to-customer integration-to literally share their entire companies with other companies and customers. To some leaders this will feel reckless, a form of managerial abdication. Your reactions will be shaped by years of competitive behavior:

• Do I really want to trust my company's intimate secrets to strangers who may have only their own interests at heart? Are my partners and customers hiding their real agendas?

• My people and I spent our whole lives honing our competitive instincts-that is how we built this great company and that is what keeps it great. Frankly, we are trained warriors and proud of it. Okay, I understand that we now have to turn our guns into plowshares and all become peaceful X-engineers. I know it intellectually. But it is jarring to my sensibilities.

• Everyone in my business can tell you the stories of mergers and acquisitions that failed because of incompatible cultures and leaders. Won't this be a problem in X-engineering? After all, we are unique and indubitably superior to the others. How can we avoid oil-and-water conflicts and an early divorce? Failed mergers typically squander millions on visions that never should have been pursued, much less articulated. Tell me how our X-engineered vision can escape that fate and instead thrive for the common good.

Acknowledging our denials and our fears is the first step to overcoming them. It is also the first step every manager must take on the road to X-engineering. Then, as with any set of new ideas, it is important to understand how they apply to your business. And you will learn how to do that in the next chapter.