Feeds

Lou Gerstner Memo

LVG spills his guts

  • alert
  • submit to reddit

Remote control for virtualized desktops

To: XXXXXXX
cc:
From: XXXXXXX
Subject: Lou Gerstner: Guest Commentary: Blinded by Dot-Com Alchemy

I was recently with the highly regarded chief executive of a major U.S. multinational who admitted to me that he has told his executive committee: "Do something with the Internet--anything."

The CEO of a well-known Asian company -- call it Acme Inc. -- just confided to one of my colleagues that he was thinking of creating an Internet spin-off, Acme.com. When asked what he would put into it and what would remain in the parent company, he had no idea.

Another CEO -- this one at a large Japanese company -- said recently that he had agreed to sign up with an online exchange because he thought his company would look dumb if it did nothing. But he confessed that he wasn't really sure what he had joined.

Something strange is happening here. Major businesses all over the world are starting to act in some very unbusinesslike ways. And many CEOs have an air of desperation about them.

PRESSURE. When you look at their businesses--which, like the overall economy, are often doing quite well -- it's hard to understand why. Until you look at the stock market. These execs are watching financial markets that have suspended -- temporarily, at least --traditional methods of investment evaluation. As a result, each of these business leaders is under enormous investor pressure to do things like spin off a piece of the business, take the supply chain public, and drive up market value through some kind of quick strike -- demonstrating to investors that Company X is participating in the New Economy.

I sympathize with their plight, but I think they're on dangerous ground. I would urge my fellow CEOs to take a deep breath and think hard about the long-term impact of their plans.

Don't get me wrong. I'm convinced that e-business really is changing the entire basis of the global economy. At IBM (IBM), we've staked our future on it. But the point is, the real impact of the Internet is very different from what has been happening in stock markets around the world. These are two very distinct phenomena that are being treated by some as if they were one. They are not.

The first phenomenon -- which has been building up over several years now -- is this extraordinary, perhaps unprecedented, selectivity in investment. Some technology companies are increasing in value at incredible rates, while everything else is in a bear market. According to one mutual-fund manager, in 1999, the stocks of companies with no earnings were up an average of 52%, while stocks with real earnings were down. As a result, many CEOs of traditional companies are wondering what to do to give their stock price a boost.

The second phenomenon is, of course, e-business. It really does present CEOs with an extraordinary opportunity to transform their companies' competitiveness, to change the industries in which they operate, to fuel innovation, to open up alternate distribution channels, and to create entirely new cost structures. It is a fundamental change, one that occurs at the molecular level of business, making possible a transformation of the basic building blocks of economics, markets, and work.

FOCUS. What's fascinating about the past several months is that some companies seem to be, against all reason, intermixing these two phenomena. They are confusing doing something -- anything -- about the Internet with the real work of transforming their businesses. In fact, the evidence suggests that even today's overheated stock market is smarter than that. By and large, it's not giving increased valuations to traditional companies that spin off their supply chains or launch e-commerce sites -- even while the stocks of their technology partners (many of them barely past their initial public offerings) go through the roof.

Yes, the market may well continue to bet extravagantly on tech companies, and Net-related companies in particular. How long it will continue, or why it is so often unreasoned, I wouldn't venture to say. But I'm certain that is not the game for most CEOs -- whether their companies are smokestacks or dot-coms. For us, the game is to do the hard work of accelerating the transformation of our fundamentals -- to understand that the Net isn't really about short-term stock performance but long-term stock and business performance.

Of course, not all companies have been seduced by the lure of the magic market-cap wand. Many are hard at work creating alternate distribution channels, reinventing--not just spinning off -- their supply chains, and more. This is a period of extraordinary change, with extraordinary opportunities. But we can't seize them through dot-com alchemy.

By Louis V. Gerstner Jr., CHAIRMAN & CEO, IBM

Secure remote control for conventional and virtual desktops

Whitepapers

Why and how to choose the right cloud vendor
The benefits of cloud-based storage in your processes. Eliminate onsite, disk-based backup and archiving in favor of cloud-based data protection.
A strategic approach to identity relationship management
ForgeRock commissioned Forrester to evaluate companies’ IAM practices and requirements when it comes to customer-facing scenarios versus employee-facing ones.
5 critical considerations for enterprise cloud backup
Key considerations when evaluating cloud backup solutions to ensure adequate protection security and availability of enterprise data.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Protecting against web application threats using SSL
SSL encryption can protect server‐to‐server communications, client devices, cloud resources, and other endpoints in order to help prevent the risk of data loss and losing customer trust.