Internet & Society: It's not about technology, says IBM chief

The Internet is propelling a restructuring of business equivalent to the productivity and cost revolution of the mid-1980s, according to IBM CEO Louis Gerstner. Creating the technology which enables the Internet is the easy part of the revolution underway, Gerstner said during a keynote address at the Harvard conference on Internet & Society. 'This is not about technology. This is about the CEO thinking of his or her business in very different ways,' he said.

The Internet is propelling a restructuring of business equivalent to the productivity and cost revolution of the mid-1980s, according to IBM CEO Louis Gerstner.

Creating the technology which enables the Internet is the easy part of the revolution underway, according to Gerstner, head of one the world's largest computer companies, during a keynote address at the Harvard conference on Internet & Society.

"The technology is not the hard part. The hard part is what has to be done inside the institution to take advantage of the technology or to avoid losing out to others who take advantage of the technology," Gerstner said.

As in the 1980s, when CEOs wrestled with cutting costs and boosting productivity, today's CEOs must prepare for the growth which the Internet promises those who seize it, according to Gerstner.

"This is not about technology. This is about the CEO thinking of his or her business in very different ways," Gerstner said.

For example, the Internet dramatically reduces transaction costs for most businesses, and a company which ignores that had better be prepared to deal with a competitor who grabs its business, he said. In banking, for instance, a typical bank transaction costs US$1 at a branch office, 50 cents over the phone, 25 cents through an automated teller machine, and a mere 13 cents over the Internet, Gerstner said. "This clearly has the attention of Wall Street," and should also have the attention of any bank that wants to compete, he said.

The Internet also substantially reduces the traditional barriers to entry into a market and thus alters the competitive landscape, Gerstner said. Companies no longer need vast capital to launch a business. "It is a big boom to small and medium-sized companies," Gerstner said.

As for traditional players in a market, the Internet puts the squeeze on established brand names, according to Gerstner. "It places real pressure on brands," he said. Companies are vying to become the aggregator of those brands, though the battle to be the main aggregator of brands and content has not yet been won, Gerstner said. Among the competitors are phone companies, Internet service providers, cable companies and "certainly one large software company," he said to laughter in an apparent reference to Microsoft.

Gerstner's comments go some small distance toward explaining why Big Blue has steadfastly stuck to using the term "e-business" when the rest of the world uses "e-commerce."

"E-business is e-commerce, but it encompasses a whole lot more," Gerstner said.

One conference attendee who heard Gerstner's comments agreed that changing the corporate mindset will usher in growth, cost savings and other changes which can flow from the Internet. "Once you change the mindset, everything else will follow through," said Reginald David, an attorney at Hancock Rothert & Bunshoft LLP of San Francisco.

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