Online Extra: Q&A with Strategos' Gary Hamel

Gary Hamel is chairman of the San Francisco office of Strategos, an international strategy consulting firm, and author of Competing for the Future, a former BusinessWeek management book-of-the-year award-winner.

Like everyone else, he's keenly aware right now that e-commerce is not all skittles and beer. But he says the Internet's payoff will come in ways that are less obvious to casual observers: A few new companies will grow to be enormous, while the widely dispersed benefits of information technology contribute more to product quality and consumer standards of living than to extra profits at most big corporations. Hamel recently talked with BusinessWeek's Timothy Mullaney. Here are edited excerpts of their conversation:

Q: We've seen enough of the Internet to know a lot about what we now think won't work online. What will the Internet end up meaning to consumers once the current confusion clears?

A: The Internet will inevitably erase friction-based advantages in the marketplace. That means the premium for real innovation will go up. There will be no place for mediocrity to hide. But the Internet is the friend of companies making products that are truly unique and different.

I went to buy my wife a BMW X5. I had all the information and went in prepared to do battle. The salesman said, it doesn't matter what you know: If you want this car, it's $10,000 over sticker because that's what people will pay. If you make BMWs, the Internet is your friend. It will tell people how great your product is. If you're making Chevy Luminas, you're screwed.... E by itself is not enough. E complemented by real innovation will create new wealth.

Q: People are talking a lot about whether spending a lot of money on information technology makes businesses more profitable. Many will even contend that low returns mean that these investments aren't worthwhile or won't continue to be made. Is that true?

A: Look at electricity, the original e. The people who made money were equipment providers like General Electric. The people who will make money this time are, guess what, the equipment providers.

The profits of companies that electrified their business processes actually went down, over a period of 30 years. All the efficiency gains they reaped by electrifying their businesses were passed on to consumers in the form of lower prices and higher standards of living.

[Federal Reserve Chairman] Alan Greenspan and the average CEO should have different views of e-business. For Greenspan, it means higher productivity. For the average CEO, it means diminishing profits. It's going to be the rare CEO who can go to shareholders and say, here's our return from e-business (because their competitors will buy the same technology and make the same changes). For the economy, the return on IT investment is terrific. But for companies, how do you put a value on just being able to stay in business? Because that's what it is about.

Q: What have we learned about the discipline of management from the dot-com boom and bust?

A: George Shaheen of Webvan was quoted as saying the in the current business climate, flawed business models would disintegrate. In actuality, in every business climate, flawed models will disintegrate. The recent dot-com fiasco represents the most expensive business education in history, given to the smallest number of people. A few hundred entrepreneurs learned that competitive advantage still matters.

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