CM: To meet the challenges posed by the information economy, you have urged corporate leaders to examine any breaks in what you call the embedded compromises between information and things. What exactly are you referring to?
Evans: The key thought here is that no matter what your business is, it is in fact an information business, and therefore the idea is to look at the nature of information flows inside the company and between the company and its own suppliers and distributors. And these information flows are actually gluing the business together. What needs to be examined here is whether the information revolution will change these flows and break them apart from the physical flows and therefore cease to glue the information flows to the physical flows. If this is the case, the CEO has a real issue that needs to be thought through. This is not just an issue of a new channel or a new way of communicating with suppliers. Very often it is an issue that poses a challenge to the definition of the business itself, because these embedded information flows are what hold the business together.
CM: In what sectors do we see these breaks occurring between the information flows and physical flows?
Evans: One industry that poses an interesting challenge is the automotive industry. Whether you look at the supply side or distribution side, there have been a lot of information flows and physical flows that have been coincident, and over the next 5 to 10 years we are going to see a lot of these separating. I think this will be true particularly when we look at the way you and I buy a car. Already, over 40% of the people who buy cars today are getting their information off the Internet before making the purchase. So, here we see that the information gathering has been separated from the purchase in a rather critical way. This has some interesting implications for the car dealer, for the sophistication of the customer, for the pricing of extras, and so forth. And we see players like Microsoft Carpoint or edmunds.com devoting an entire strategy around the idea of empowering the consumer. Obviously, Amazon is a good historical example, where it has separated the information flow from the physical flow in the book business.
CM: As you explained earlier, "the incumbents," whether they sell cars or books, will need to view the Web as more than just an alternative sales channel.
Evans: If you want to get the benefits of incumbency and a high level of entrepreneurialship simultaneously, I think you have to consider a greater degree of separation as well as a greater degree of integration. For example, Barnes & Noble has gone all in one direction, to the point where its Web site is no longer called Barnes & Noble. It's BN.com, and it's run essentially as an independent company. If you buy a book from BN.com, you actually can't return it to a Barnes & Noble store, so they get almost zero synergy for the way they do things.
CM: Should incumbents determine their dot-com strategies based on whether they spin out or don't spin out their dot-com offerings into a stand-alone business?
Evans: Think of this as a continuum and not as "yes, spin out," "no, don't spin out." Think of it as a spectrum, and you're positioning the company somewhere along that spectrum. If you don't have some measure of integration, what's the point? If you believe you have brand and infrastructure, if you believe in clicks and mortar and the synergies between the old and the new, then you are not going to be able to achieve this if you totally dot-com the business. On the other hand, if you don't create something pretty different, it's going to seem like business as usual to the internal organization. So, it's a real trade-off, and just as Schwab went back and forth and Citibank is going back and forth now, I think companies will have to be quite dynamic and not think of a single static structure, but keep it moving over time.
CM: What else is needed to build an Internet business?
Evans: You need a big infusion of new people into the business. It's very striking how every company that I know that has been really successful in establishing Internet-based businesses is doing so under new executives and very often executives from outside the business. Most of the leadership team at Citibank, for example, came from outside banking. The leader of the Internet effort at Ford Motor Company comes from a consumer branding background, and it goes on and on. And this is because there are so many things that need to be rethought from the first principle. The second principle has to do with reporting relationships. As long as the new business continues to exist within your company, it needs to report in at a much higher level within the company than would normally be the case. At Ford, the dot-com management reports directly to CEO Jacques Nasser. The head of Citibank's dot-com business reports directly to one of the top four or five people in the company. That level of sponsorship from the top needs to be totally disproportionate to the actual size of the business itself, because what these people face is an enormous amount of politics and an awful amount of opposition from the established organization.
CM: Consultancies have also begun to reward their own consultants with equity.
Evans: At BCG, we thrive on uncertainty, and the greater the level of uncertainty in the world, the greater is the need for our consulting services. So, in that sense the dot-com revolution is an enormous driver. And precisely because the impact on the economy is so uncertain, the value placed on the insights we might give clients is disproportionately high. So, in that sense it's very positive. There is a second change, however, on the buy side of the equation, or let's say that when we're hiring it poses a new issue. The kinds of people whom we hire and retain are the same people whose profiles and risk attitudes make them well-equipped to participate in this revolution. So, we basically have to make sure that with anything we do at BCG, we make sure that the options we offer collectively at BCG are better than the options to any one individual.
CM: By accepting equity, are you parting with consulting's principle of independence?
Evans: I wouldn't say we have parted with it. I think it means we have to manage it much more explicitly than we have in the past. It has always been an issue, as far as when consulting firms are working for competing companies goes and when individual consultant engagements are sequenced over their career. There's the question of how long before they can work again in an industry from when they worked in the same industry in the past. It's never been a black and white thing, where there have been zero ambiguities. I think what's happening is that these ambiguities are becoming much more prominent than they have been in the past, and we are gong to have manage that much more explicitly and more carefully. I think there is a shift going on in industry leading people to recognize the logic of that, because many industries do the same things themselves. I know so many examples of companies that are collaborating and competing. Take Ford, GM, and Chrysler to create Corvisant, which is this procurement platform that in the long term could be more valuable than Ford, GM, or Chrysler themselves — it's a very big deal. And that kind of complexity is something these players are dealing with every day. So, what they see in us is not that we are walking away from some kind of principle. What they see is that we are being subjected to the same kind of ambiguities and are needing to adapt to them in really precisely the same ways that they are.
CM: Will we see companies like Ford look to outsource their supply chains and become more brand managers than traditional manufacturers?
Evans: Well, it's interesting that Ford's Nasser has begun speaking publicly about that as a real possibility in the last few months. Seriously, I think this is probably overstated. There are tendencies in that direction. It's going to happen a lot slower than many people would think. I think that the more likely kind of evolution will be the breakup of companies that are currently constituted, just as America Airlines broke off SABRE and made the fatal mistake of keeping the airline and selling the booking system — of course, what they should have done is kept the booking system and sold the airline. So, I think we will see a similar kind of shift in other sectors. We will see companies creating information businesses after realizing that the information business is often more valuable than the physical one. Now, who keeps the brand name really doesn't matter. The key thing is that there is the big new information business — one that radically transforms the efficiency of and the power balance in the selling process.
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