Life for IT directors A.D.(after dotcom)

The bursting of the dotcom bubble means that IT directors and managers can expect to see is a rise in the availability of...

The bursting of the dotcom bubble means that IT directors and managers can expect to see is a rise in the availability of e-commerce staff from post dotcoms

Dan Remenyi


No one wants to be a killjoy, but the deflation of the dotcom bubble looks set to continue. In "bubble speak" we were told that we are in a new economy. The old industrial and business models that have served us well are no longer valid.

Of course there is no new economy. There are new applications of improved information technology which promise to make our economies much more efficient and effective than they were previously.

The sort of "bubble speak" we now hear is the same sort of thing that was said during the early months of 1929 as Wall Street went madly out of control and set itself up for the greatest stock market crash ever known. It is, after all, too easy to assert that the economic rules have changed when, in fact, what is really happening is that the market is caught up in a wave of super and eventually unrealistic enthusiasm.

At the end of the day the industrial and business models that we use are largely constrained by physical and political realities. There is no magic in them and no magic can be brought to bear on them.

Business is largely about very down to earth things like having a bundle of resources and through some resource conversion process adding value to them so that the marketplace pays more for the end product than the cost of the initial resources and their processing. And the political reality is that in a capitalist system all the factors of production have to be paid for with real money, which has to come from real profits.

In some start up situations there can be a period of initial losses while the business gets going, but businesses cannot make losses and continue, except in the short term. The market value (ie, the share price on the stock exchange) of a business is primarily pegged to the amount of profit it can generate. Again there can be brief deviations from this, but if an organisation cannot pay its own way then it will not be seen as valuable and fewer people will be inclined to buy the shares which as a result will push the share price downwards.

So, what will our post-bubble hi-tech share world be like? There will be major adjustments made and many dotcom companies that have not established their own solid profit and cash streams will get into a pile of trouble. If they don't go out of business then they will need rescuing. What will these dotcoms be worth then? At this stage hard, established economic reality will really kick in. We will see that we don't really have a new economy or a new economic reality.

In fact, those dotcoms that are not making profits will be worth very little indeed. Those that are making money will perhaps be valued at five, 10 or 20 times the profit they are then earning. There are well established techniques for valuing businesses and there will be little problem in understanding how the market prices will eventually settle.

The traditional businesses that have applied e-commerce thinking to expand or re-engineer their organisations should not be materially affected when the bubble bursts. These are not dotcoms.

The effect of the shake up on IT directors or managers is that they will see greater availability of e-commerce staff as they become available from previous dotcom organisations. They will see a more cautious corporate view about e-commerce in general. They will see fewer firms wanting to hive off part of their businesses into dotcoms.

Some IT directors or managers may unfortunately experience an ill informed backlash from other managers and directors who may incorrectly perceive that the misfortunes of some dotcoms have been due to technology rather than to the misconceived business ideas behind it.

My aim is not to spread doom and gloom. Both dotcom companies and the e-commerce arms of established businesses hold out great potential for a substantially improved society that is more efficient and effective than we have seen before. But there are many challenges to be handled on the way and one of these is to face the opportunities with a realistic sense of what can be achieved and what real value these e-investment are creating.

Professor Dan Remenyi is an e-business consultant. His latest book is in the Computer Weekly - Butterworth Heinemann IT Professional Series and is called The Effective Measurement and Management of IT Costs and Benefits. To order tel: 01865-888180

Read more on Business applications