That Was Then, This Is Now

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I was at a meeting recently and someone asked, “What happened in the late 1990s…what the hell was everyone thinking and why did we all lose our minds?”

Just in case anyone’s forgotten, we overspent on technology, deployed questionable killer apps, and generally suspended the use of due diligence, business cases, total cost of ownership analyses and return on investment requirements.

It was a great question. Here’s an answer — and some thoughts about what we may have missed while we were intoxicated.

The Perfect Storm

Three storms collided in 1995-2000, storms that most of us misinterpreted as the launching of the new digital economy. It was, as George Cloony discovered in the movie of the same name — the perfect storm:

Our absolute need to make our computing and communications technology Year 2000 compliant triggered a ton of spending to remediate old code, buy new PCs and install huge enterprise resource planning (ERP) applications, among other applications and gear.

The eBusiness frenzy got to just about everyone: companies spent uncontrollably on Internet projects that sometimes made sense, but sometimes didn’t. Just like Y2K budget lines, excessive eBusiness spending was “protected.”

Capital was essentially free during this period. Bad business models from start-ups solving Y2K and eBusiness problems were financed by (professional and amateur) private equity venture capitalists that shoveled cash out the door as quickly as they could find sometimes good but mostly goofy business models; stuff was cheap back in those days largely because the companies’ (non-existent) revenues were subsidized by venture funding which was playing the new-economy momentum for everything it was worth. This distorted the companies, the technologies and the business models. On the other side of the cost-of-capital equation was the ease with which public and private companies could raise money based on bloated valuations: who wouldn’t raise money at 100 times earnings — or with no revenues? Unfortunately, the corporate wealth effect drove companies to do technology deals that didn’t make too much sense, deals that were interpreted as validation of the new economy and its fledgling technologies.

All of this contributed to a massive misinterpretation of events that made too many of us believe that the world had indeed changed, that the “old economy” had collapsed under the weight of the “new economy.” We were off and running. Or so we thought.

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The net effect of all this was one of the deepest retrenchments of capital technology spending we’ve ever seen. Way, way overdone.

The Glass is Half Full

But there’s another way to look at the perfect storm. While many eBusiness models failed (at least in the short-term), the storm got everybody thinking hard about how to exploit a new communications and transaction channel. We also averted any major Y2K catastrophes; and finally, the bear market scared most of the amateur venture capitalists off the playing field (to the chagrin of their investors still searching for returns on their investments).

But it’s also important to understand the period from 1995 to 2000 as the period that built the foundation upon which serious technology integration and interoperability now rests. Many of us missed a new generation integration/interoperability technologies that enable new collaborative business models. What began in the form of published applications programming interfaces (APIs) evolved to generic enterprise application integration (EAI) tools, and now we’re making significant progress in uber glue: Web Services.

Computing and communications technology is actually starting to work; the stuff is coming together in ways we couldn’t imagine 10 years ago and had trouble describing even five years ago. Business models are morphing toward collaboration, supply chain integration, personalization and customization, among other connectivity-based processes. There’s a rhythm to these trends: collaborative business models moving nicely with integration technology.

The inertia of old business technology management practices is still, however, driving too many of our technology investment decisions, still driving us toward piecemeal applications, ill-conceived sourcing and staffing strategies, crazy organizational strategies, and metrics that measure the wrong things.

It’s time for a second look. Shake off the hangover and look at the collaboration and integration possibilities around you. The frenzy of the mid- to late-1990s shouldn’t paralyze us. Isn’t it amazing how we over-react — and then over-react? The pendulum never seems to adjust to reality. Just as we lost our minds in the 1990s and did some really stupid things, now we’re not doing any smart things, which of course is stupid. When will we get it right? Let’s just hope that in five or 10 years when the frenzy returns (over god knows what) — we’ll recognize it for what it is.

What do you think? Will we be smarter next time?

Steve Andriole is the Thomas G. Labrecque Professor of Business at Villanova University where he conducts applied research in business/technology convergence. He is also the founder and CTO of TechVestCo, a new-economy consortium that focuses on optimizing investments in information technology. He can be reached at stephen.andriole@villanova.edu.