In Franz Kafka's famous novella The Metamorphosis, a traveling salesman named Gregor Samsa "awoke one morning from uneasy dreams" and "found himself transformed in his bed into a gigantic insect." Kafka doesn't say what kind of insect, but the description (brown belly divided into stiff arched segments, numerous pitifully thin legs flailing around) leaves little doubt that Gregor had become a cockroach. One day, like Gregor, you will awake to find your business utterly transformed - alive but unrecognizable. Gregor never learned what caused his metamorphosis, and the shock left him depressed and disgusted. If, on the other hand, you understand how your own change has taken place, you might even begin to see the advantages of your new form. Cockroaches have been around a lot longer than people, after all, and will likely be here well after we are gone.
Information technology is the cause of metamorphosis in business. People who have spent their careers in financial services, media or even manufacturing will tell you how little the structure and operation of those industries resemble what they were when they were young. They'll probably also tell you it was information technology that broke down the old structures and built them back up into something new. And the more honest of them will add that the process was clear only in hindsight. (They awoke one morning ... )
Take manufacturing. Back in the 1980s, inventory control applications had the modest goal of making production more efficient by giving companies a better idea of what raw materials they had on hand. At first, that's exactly what they did.
Then someone got the idea of hooking the suppliers' applications to the manufacturers' applications, and it became possible for vendors to manage inventories of raw materials for their customers without having to deliver the goods until the last minute. Just-in-time delivery was born and fortunes were made.
After a few years and more improvements, some suppliers realized they could not only consolidate demand for their customers; they also could consolidate it for everybody. They would make more money selling inventory management services (or credit management or quality management or logistics management) than they ever did producing raw materials.
GE Capital (dossier), for example, started in 1932 as an "application" to help smooth out the payment process for General Electriccustomers, but has grown into something much bigger, providing a full range of business finance services. (Current offerings are private-label credit cards and software to automate procurement, far cries from GE's "real" products.) Similarly, GMAC, the finance arm of General Motors (GM), finances mortgages as well as cars. John Deere Credit holds a banking license.
Throughout the process, change is often led by software firms that quickly mutate from providing applications to the industry to being industry players themselves. That's what happened to Oracle (ORCL) and Microsoft (MSFT) 10 years ago, once their software became integrated into the industry structure. The same thing is happening now with new leaders like Ariba (ARBA), CommerceOne and eCredit.
This sort of change is happening in one industry after another. The specifics vary considerably, but each transformation has occurred in three recognizable stages. Understanding how those stages differ, and why, will help you avoid a Kafka-esque nightmare.
The first stage, and the one we are most familiar with, is efficiency. Information technology is focused on reducing inefficiencies (some of them enormous) that exist between sellers and buyers. The new efficiency generates value in the form of lower costs, and the savings are shared between incumbents (including customers) and the owners of the new technology. Priceline, in its initial incarnation as an alternative method for selling seats on airplanes, is a good example.
