Does Business History Repeat Itself?

During my academic days, one of my fields of study was Business History. If the mantra of regular historians is “those who cannot remember the past are condemned to repeat it,” the maxim of business historians is “those who do not study the past will have to figure things out for themselves.”

In most areas of business, this advice requires little conscious effort. Engineers naturally build on previous inventions, and managers naturally learn from their bosses’ actions (both good and bad). The natural learning model breaks down, however, in the case of business transformation, which happens so infrequently that leaders generally don’t have the opportunity to absorb lessons by osmosis.

As EMC’s CEO, Joe Tucci, has noted, the IT industry has experienced three major waves of transformation, at fairly regular fifteen-year intervals:

  • In the mid 1960s, the vertically integrated mainframe stack made computing accessible and economical for commercial enterprises.
  • In the early 1980s, personal computers based on microprocessors and horizontal industry standards allowed computing to spread beyond the glass house to desktops and laptops.
  • In the mid 1990s, the rise of the web let applications like search and CRM transcend traditional computing boundaries.

Now, a decade and a half later, we face the next wave of transformation, as the confluence of Cloud computing, Open source software, Mobile devices, Big Data, and Social media change both the business value and the operating model of IT. (As suggested by the capitalization in the previous sentence, this combination of forces can be remembered by the acronym COMBS.) If we could reach back across time and enlist as our mentors the CIOs who lived through the earlier waves of change, what guidance would they offer us as we face today’s transformation?

As a business historian, I recently studied the companies that capitalized on earlier transformations, and extracted the lessons from these historical mentors for today’s IT leaders. Across the waves, the winners were the CIOs who could drive transformation at three levels:

#1: Use new information technologies to transform the operating model of the business. 

For example, in the 1950s, the growth in air transportation put a severe strain on airline sales systems, which were labor intensive and non-scalable. From 1950 to 1958, the average number of passengers boarded annually per reservation agent dropped from 5100 to 3100. Growth wouldn’t solve the problem, it would make it worse. The airlines used the new technology of the mainframe IT wave to develop automated reservations systems that could scale with industry growth. Lesson: Look at your company’s productivity drivers and identify where new IT can solve operational barriers to profitable growth.

#2: Partner with the business to transform the competitive business model.

Once the airlines automated reservations, they expanded their systems to enable yield management (critical once industry pricing was deregulated) and loyalty management (critical as travel agents acted as intermediaries in customer relationships).

As another example, during the later microprocessor wave, a leading packaged food manufacturer gave its drivers handheld computers to permit daily analysis of sell-through trends at retail and to allow store-level micro-segmentation. Later, during the early distributed computing wave, a CIO at what became a major national bank developed CRM systems to retain customer intimacy as neighborhood banks were consolidated into national institutions. Lesson: Think beyond operational improvements and partner with the business to identify ways in which new IT can transform your company’s competitive strategy.

#3: Transform IT itself.

Even the best executed operational and strategic moves will be copied by competitors eventually, which means that successful CIOs in previous waves of change also focused on transforming IT to provide an ongoing executional advantage. Lesson: Focus on building an IT model and organization that are operationally efficient and strategically agile enough to maintain a lead over competitors that are late in catching the wave.

In a nutshell, the CIO heroes who distinguished themselves during earlier waves of change in IT did so by seeing transformation on three time scales: Today, improve the operations of the business; tomorrow, transform the business model; and beyond, build an IT organization that’s agile enough to hold a lead.  Looking at these lessons within the context of cloud, Big Data, mobile, social, etc., one is reminded of Mark Twain’s quip: “History doesn’t repeat itself, but it does rhyme.”

About the Author: Jon Fay