Thinking Managers

Robert Heller of believes that new challenges await managers in the latest round of the frenzy.

The Boom Rides Again

As it turns out, the boom of yesteryear was simply the first act of a lasting drama in new internet business that is developing all the time.

The Skype phenomenon is a case in point. Such was the company’s reputation for top technology in internet telephony that a mere three years after Niklas Zennstrom and Janus Friis started the company, eBay parted with $2.6 billion for it.

To put this in context, consider that Skype doesn’t break even, generating only $60 million.

The day it is expected to break even won’t come until 2006. If performance targets are met, then those who sold the company will receive $1.5 billion more in 2009.

So why would someone pay 40 times sales for an unprofitable internet business?

It would seem that financial prudence has fallen by the wayside, just as it did in the first act of the boom.

The negative aspects of this revival are apparent. Driven by the momentum of their sectors and with overblown confidence from their own share price and finances, the internet entrepreneurs have decided that there is no price too high to stay ahead of the game.

It doesn’t take Nostradamus to predict that heartache will follow, in a repeat of the first act of the frenzy.

Oracle and the old guard are competing with the new kids on the block like Google and eBay in a contest that will produce its share of disasters unless management adapts.

But has management adapted? We have already established that financial prudence has been discarded.

Back in 2001 I wrote: “The digital revolution is the broadest and most significant change witnessed by managers in the modern era, a tide so powerful that even those who attempt to resist will be swept along. All aspects of running organisations, both profit and non-profit, is or will be profoundly affected.”

Looking at that passage again reaffirms its correctness. The tide is sweeping along faster and it represents an important challenge for those who survived the first wave of the boom.

However, there is a new twist. The new companies rely on ideas and their success in the stock market is dependent on evolutionary change.

As Steve Jobs of Apple says: “We have world-class competitors out there trying to kill us.”

Apple have survived any attempts of assassination, thanks to the innovation of the company, the key to Jobs’ success in sustaining the company’s unique culture.

Jobs, therefore, is unlikely to succumb to the Four Forces of Failure: innovation stagnation, sagging morale, slow product development, bureaucratic red tape.

Microsoft is the surprising candidate that Business Week has nominated for all four. But maybe that’s not so surprising when you consider the company’s stock is worth no more than it was more than seven years ago.

The company’s own technology helped to develop the tool that has become a tool for its disaffected employees – the blog. There are alleged to be over 2,000 blogs produced by Microsoft staff ruminating on why the company has become a “passionless, process-ridden, lumbering idiot”.

Mini-Microsoft, the anonymous blogger with the highest profile, provides that description and insists his criticism is as a result of wanting to make a “difference” to a company that has been “wonderful” to him.

So being at the cutting edge of technology is no guard against decay. Keeping to your original principles is every bit as difficult as developing them from a blank sheet.

Managers need to develop new ideas that give birth to new products and processes or they will struggle to keep up in a market where others do.

About the author
Robert Heller is one of the world’s best selling authors on business management.