Why customers will create IT's future

Still waiting for the IT industry slump to end? Look to your customers, says David Moschella in his new book, "Customer-Driven IT."

In an interview, he tells Harvard Business School Working Knowledge that it is up to technology users to come up with the next great IT innovation.

Q: It comes as welcome news that you say that the technology industry will recover. How will customer demand revive the suffering industry? And when do you think it will stabilize?
A: The information technology industry has always grown in cycles. Over the last 20 or so years, there have been two major periods of growth and two of stagnation. The last downturn in the United States lasted from roughly 1986 to 1991. I use the U.S. only because international markets often exhibit countervailing cycles.

From a forecasting perspective, the key is to understand what forms of usage will comprise the next major driver of new IT demand. Consider that transaction processing and databases drove the mainframe era, just as word processing and spreadsheets spurred the PC business, and e-mail, search and Web surfing created much of the initial Internet boom. Today, most of the things that will bring about the next recovery are the responsibility of IT customers.

Today, most of the things that will bring about the next recovery are the responsibility of IT customers.

For example, only the entertainment industry can fulfill the potential of online music and video, just as only advertisers can develop online marketing approaches that really work. The same can be said for a wide range of Internet applications, everything from robust business exchanges, efficient online health care, compelling e-learning services and advanced public sector applications such as voting, registration, identity cards and traffic management. In most of the areas that really matter, IT suppliers will play a clearly subordinate role.

When this next cycle of growth will occur is largely dependent upon the international situation. I would say that a real IT industry recovery is likely to begin about six months after the current international tensions are significantly reduced, whenever that might be. The long-term confidence and investment needed for many advanced IT projects requires a more stable economic climate than currently exists.

How do you see the Internet growing? What will it become and what will be its uses?
The key point is that the IT industry is by no means mature. Those who say that the IT industry is now so large that it can only grow at the rate of the overall economy are mistaken. First, the history of other technologies and media such as electricity, telephony and television suggests that the true capability of any new technology does not become fully evident until societal usage becomes pervasive. The IT industry is still a long way from that, even in the U.S., let alone most of the rest of the world. Other than perhaps e-mail, very few Internet applications are even close to achieving their full potential.

Secondly, and probably more importantly, the IT industry should not be viewed as just another economic sector such as retail or health care. Instead, IT should be viewed as an ever more important part of just about every industry. From this perspective, for the foreseeable future, growth is, at least theoretically, virtually unbounded as more and more business processes become inseparable from their underlying technology, and many new forms of business value-added have an essential technology component.

We've heard a lot in the past about "delighting the customer." How can IT companies make themselves more attractive to IT users and accessible to their demands and insights?
First, when I talk about a customer-driven industry, I am not talking about it in this sort of "listen to the customer" sense. It goes without saying that no company deserves to succeed unless it pays close attention to the needs of its customers. What I am referring to is an environment where customer leadership, risk-taking and perseverance are required to overcome the key barriers to overall IT industry progress during the next five years.

A real IT industry recovery is likely to begin about six months after the current international tensions are significantly reduced, whenever that might be.

So to me the key question for IT suppliers is how to adjust to this changed reality. The main point is that IT market leadership is migrating away from its traditional focus on hardware and software products, and toward IT services. It is these services that will prove most beneficial to those companies trying to use technology to create important new value for their customers and/or industry. Implicit in this is a greatly increased emphasis upon so-called vertical (industry-specific) markets and solutions.

Can you describe the process by which customer-driven change manifests itself into spawning new IT innovation and companies?
This is a very important question. Historically, IT industry innovation has been heavily driven by the efforts of individual suppliers--IBM, Intel, Microsoft, Cisco, et cetera. But as part of the research for the book, I studied a number of previous examples of customer-led IT innovation, including barcode scanning, ATMs, credit cards and EDI (Electronic Data Interchange). What I found was that effective industrywide cooperation has often played an essential role in the successful acceptance of these technologies. For example, the banking industry now owns and operates the major credit card and ATM networks, just as the retail industry manages the barcode standard. In fact, Visa, MasterCard, Cirrus, Plus, Nasdaq, and others are all examples of companies that are the result of customer-driven change, not the cause.

Looking ahead, it would appear that this cooperative model will also play an important role in many of today's customer-driven frontiers. Think about the cooperation needed for successful business exchanges, interoperable health care, effective copyright protection, and all manner of emerging industry-specific metadata and standards. The strong de facto leadership that has determined so much of the IT industry's past is becoming steadily less important, although it will never fade away altogether. Once again, new cooperative entities are emerging. The control of these entities will be one of the great opportunities of the next few years.

How can an IT company prepare itself for the change of being primarily a hardware and software supplier to becoming more of an industry-specific or IT service firm?
I wouldn't take this point quite so far. I am not saying that services companies will grow and that hardware and software product companies will suffer. What I am saying is that services companies will be closer to overcoming the barriers to industry progress than most product companies. However, should many of the customer-led systems I have mentioned come to fruition, the benefits and growth will clearly flow back to product suppliers. Product markets still have a bright future, but one increasingly dependent upon derived demand.

That said, many product companies have come to realize that their business needs a stronger services component, either through their own efforts or through their partners. My basic advice to product companies is to try to identify the major sources of new customer demand and make sure their sales, distribution and service capabilities are aligned with them. If they are, and if they become a real partner in helping customers deliver important new value, their core product business will benefit whenever the next big industry expansion begins.

 
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