BUSINESSWEEK ONLINE : DECEMBER 13, 1999 ISSUE
BUSINESS WEEK E.BIZ -- COVER STORY

Gerstner on IBM and the Internet


IBM Chairman Louis V. Gerstner Jr. may not be thought of as a tech visionary, but he was remarkably prescient about the Internet. In a conversation with BUSINESS WEEK's Ira Sager, Gerstner shared his thoughts about IBM and e-business.

Q: What shaped your early thinking about the Internet?
A: I commissioned a task force [that] worked for a year on what it really meant to exploit network-centric computing. Their work came together in September of 1995. And we made a very important decision in October. It was the second bet-the-company [decision] that I made. The first was to keep the company together. We said, ''If we really believe this, we're going to reprioritize all the budgets in the company.'' In a period of four weeks, we reallocated $300 million. We created the Internet division. It became the catalyst for change in the company.

Q: You also made a decision that the Net was about business transactions. How did that come about?
A: Our work concluded that this was all about business: doing transactions, not looking up information. That came about because every time I'd meet with the task force they would present all this wonderful technology to me, and I would say, ''Well, what's a customer going to do with it?'' That's where we really began to believe that every physical transaction in the world was going to be augmented or replaced by a digital transaction.

Q: When you met with Wall Street in May you compared IBM's e-business to the top 25 Internet companies. Were you trying to get analysts to view IBM as an Internet company?
A: If you define an Internet company as [one] that is totally committed to transforming its internal business, and in our case, to also have it [the Net] be the basis of our entire product offering, then I think there's no company that's as much an Internet company as we are. Now, if you say an Internet company is [one] that has rapidly growing revenue and no profits, then I don't want to be classified as an Internet company.

Q: How can companies get the biggest payoff from using the Net?
A: The Internet is ultimately about innovation and integration. Innovation is what your objective is--in cost structures, selling, marketing, sales, supply chain. But you don't get the innovation unless you integrate Web technology into the processes by which you run your business. And that's been the rude awakening for a lot of companies. The true revolution coming from the Web is when the Web can get integrated with business processes.

Q: People talk about the Internet being a landscape-altering technology. Describe how the Net has changed the landscape within IBM.
A:
We discovered what every large company has: When you bring your company to the Web, you expose all the inefficiency that comes from decentralized organizations. Now, when a customer comes to you on the Web, they're expecting to be able to move across those departments. They're expecting to see a common look and feel.

Q: But what will the Net do to traditional markets?
A: All we have to do is watch television, see these guys raising their hands in these financial markets, and you say, ''This is going to end.'' There has to be a more efficient way. And so we'll see the emergence of electronic marketplaces that will have powerful effects, real discontinuities, in the existing structure of markets. What we believe is going to be very important is the delivery of traditional software and services and hardware over the Net. That's a form of electronic marketplace.



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