15th March 2019
Outside Fortress Europe Excerpts
This Global Business Strategy Blog post is based upon unabridged excerpts from Chapter One, Ten Years That Shook the (Capitalist) World: 1988-1998, in Outside Fortress Europe: Strategies for the Global Market (1st edition).
Economist. (2019, March 9th). Putin tries to build an internyet: As Russian TV viewers shift online, the state tries to maintain control. economist.com.
Economist. (2019, 15th March). An atrocity in Christchurch: Terrorists kill 49 in an attack on mosques in New Zealand. economist.com.
Hern, A. (2019, 12 March). Tim Berners-Lee on 30 years of the world wide web: ‘We can get the web we want’. theguardian.com.
Thornhill, J. (2019, 14 February). Boldness in Business person of the year: Sir Tim Berners-Lee: Pioneer of the online age is out to reclaim the internet and give people control of their data. ft.com.
Zolfagharifard, E., Boland, H., Field, M., & Cook, J. (2019, 15 March). The mass shooting tailor-made for social media – and how it spread its message of hate to millions. telegraph.co.uk.
Outside Fortress Europe Excerpt
The Web as I envisaged it, we have not seen it yet. The future is still so much bigger than the past.
Sir Tim Berners-Lee, Inventor of the Internet.
Apparently, Bill Gates is a huge Rolling Stones fan. (Urban) legend has it that when Microsoft was planning the spectacular launch of Windows ’95 (sexily labelled Chicago internally, a name subsequently dropped by the engineers who ran the marketing department) Bill invited Mick to his Xanadu 2.0 mansion in Washington State to discuss using the Rolling Stones’ 1981 single Start Me Up for the 24 August mega-event and beyond.
The reason for wanting to use that specific ditty was to emphasise the redesign of the messy user-interface of previous Windows incarnations, primarily focusing on the all-new ‘Start’ button (which, oddly, you also had to click to ‘Stop’ the system, a point made to soon-to-be CEO Steve Balmer by his elderly mother). When clicked, the PC would burst into life, just like the song itself following its opening riff. But the Rolling Stones didn’t do jingles or allow their music to be used for such trivia: they were a blues band, cats, not a hippy-happy-bursty pop-tart group. But the song was used, so what happened?
Gates was famous for two things while studying at, and before dropping out of, Harvard University:
- He didn’t attend any lectures remotely related to the subject he’d enrolled for (law), preferring instead to play with the university’s computers and to read advanced math texts for further fun.
- Playing poker.
- Jagger, meanwhile, is famous for many things over and above singin’ the blues and, like Gates, he has a passion for poker. Other than the protagonists, nobody knows exactly what went down during that brief Seattle sojourn apart from the playing of a legendary poker game between the two venerable poker-faces. The subsequent spin from the two parties’ publicity machines suggested that a fee was agreed for using the tune, the actual figure paid ranging from $15m (the Stones) to “a fraction of that amount” (Microsoft). Someone was bluffing, but the song played on, ad infinitum.
(As a brief aside, a more recent ‘battle of ballads’ raged between the Rolling Stones and Donald Trump over his persistent use of the band’s hit You can’t always get what you want during his 2016 presidential campaign. The brutal irony arising when juxtaposing the song’s title with its use by a man who tends to get exactly what he wants, all the time, is surely lost on The Donald?).
The poker fable outlined above may seem somewhat remote from the didactic themes of this book. But it’s not and, as we’ll see when discussing the central theme of communications as an accelerant of globalization, it represents one of many ‘step-changes’ en-route to the ‘Internet-of-Things’ and the world of social networks, social media and ‘Big Data’ which characterise the contemporary era (see End Note Two, Milestones in the History of Globalization, for key drivers and events in the process of globalization from Ötzi ‘the Iceman’ 5,300 years ago to the Trump tweets of the present day).
When developing Windows ’95, Microsoft’s original product development programme was based on a closed system for internet access, creating Microsoft Network (MSN) to compete with CompuServe and America Online (AOL). These were known as portals and the business model was firmly rooted in effective supply chain management based upon ‘push’ strategies. But Sir Tim Berners-Lee had ‘invented’ the internet, i.e. www, and Silicon Valley start-up Netscape offered a free web browser. The business model had become ‘open systems’ overnight, consumer ‘pull’ and freedom of choice being the key operational driver.
Knowing full-well the legal challenges they were likely to encounter by ‘bundling’ Internet Explorer free with Windows ’95, Microsoft brazenly ignored them and executed an extraordinary strategic U-turn, essentially creating an open-system, completely ‘free’ global internet platform on its huge installed base of networked PCs worldwide. This is arguably the single biggest ‘step-change’ communication breakthrough in the history of globalization and without a doubt the quickest in terms of global impact. The list below, extracted from EndNote Two, Milestones in the History of Globalization, presents other key step-change communications technology breakthroughs and developments in the history of globalization.
Early Nineteenth Century.
# Railway boom financed by the creation of equity (stock) markets.
# Ocean-bed cables laid.
# Internal combustion engine refined and Henry Ford creates automobile mass manufacturing
# Early flight machines built.
# Luxury cruise-liners (plus freight) expand, especially on transatlantic routes linking the Americas
# Aircraft manufacture scaled up and accelerates as war approaches.
# American Inter-State Highway network.
# Luxury commercial air travel.
# Early development of RADAR.
# Containerization: American transport entrepreneur Malcolm Purcell McLean introduces the
intermodal (rail/road/sea) shipping container which revolutionises freight transportation and the
logistics of international trade. He was persuaded to give patented designs to industry, bringing
standardisation of shipping containers, improved reliability, reduced cargo theft, lower inventory
costs, shortened transit times.
# Commercial jet airline and global airport infrastructure developed.
# IBM develops commercially viable mainframe computer and supporting software and services.
# Apple launches Macintosh personal computer.
# Feeling threatened, IBM launch initiative ‘PC in a Year’; partners with Intel, Microsoft; presents
open systems architecture, fostering IBM-compatibles (e.g. Compaq) and ‘clones’ (‘Made in
# ‘Natural monopoly’ status of national telecommunications infrastructure dissolves; AT&T
(Ma Bell) broken up in the US in 1984, Baby-Bells are born; privatisation of BT in UK, 1984; scene
set for further privatisations including direct competition (e.g. Cable & Wireless in the UK) and
# First generation cellular infrastructure developed.
# Rapid development of distributed networked computing: Local Area Networks (LANs) and Wide
Area Networks (WANs), laying foundations for www revolution which followed.
# Cisco Systems develop mass-market internet infrastructure networks.
# Tim Berners Lee (not Al Gore) ‘invents’ the internet: creates HTML and integrates internet
protocols at CERN laboratories, Switzerland.
# Global Positioning System (GPS) started by (and under control of) US Military in 1973 becomes
fully operational and accessible.
# Windows ’95 and rapid, open systems WWW global expansion.
# Open skies deregulation and rise of the low-cost airline industry.
# Rapid development of fibre-optic telecommunications networks in ‘developed’ countries.
# The dot.com ‘economy’ falters, but its global infrastructure is installed.
# Household penetration of broadband expands rapidly, creating global communications
# 3rd and 4th generation cellular infrastructure developed.
# Widespread adoption of cellular technology in emerging markets.
# iPhone, Android and smartphone revolution.
# Social media and social networks develop, e.g., Twitter, Facebook, Snapchat, LinkedIn, Tencent.
Chinese giant Baidu has 2bn active users worldwide by 2018.
# ‘Big Data’ and ‘Cloud’ computing creates impact.
# ‘Virtual’ global marketplaces created by eBay, Amazon, Google, Facebook, Alibaba. The smallest of
small firms can now access global markets.
# 5th generation cellular technology in development.
At this point, the author needs to take a brief side-step to share his experiences of working worldwide with IBM between 1994 and 2002, an extraordinary period of technological transformation rivalling anything arising during previous epochs of industrial revolution and post-industrial societal mutations (see Giddens and Sutton, 2017, for a critical assessment of the current information era in the context of long-term Sociological processes).
In 1992 IBM posted the largest company losses in American history, a landmark moment-in-time which sent shockwaves throughout corporate and business school communities worldwide. Affectionately known as ‘Big Blue’ (a metaphor reflecting the reliability of the company’s earnings and its relentlessly generous dividend distributions) IBM was the most excellent of the ‘excellent’ companies which featured in McKinsey’s blockbuster business book In Search of Excellence (Peters and Waterman, 1982). The company offered ‘jobs-for-life’ to its devoted and loyal employees and its managers had a small placard on their desk with the motivational expression ‘Think!’ printed on it, suggesting ample time for creativity. And IBM was also a paragon of virtue in corporate etiquette and squeaky-clean in its conduct of global business. (Or so it seemed, but that’s another story for a different book). But by the early 1990s, although it was financially strong (courtesy of past glories) it was commercially bankrupt, riddled with organizational malaise. What could possibly have gone wrong? It’s strong again now; how so?
The Board of IBM reverted to ‘How-to-fix-a-Company 101’. They recruited an industry outsider as Chair and CEO, a change agent, a fresh-pair-of-eyes, a fixer: Lou Gerstner. Gerstner was an ex-McKinsey consultant, a renowned company doctor who’d previously healed a very sick American Express and put back the pieces of the RJR Nabisco fiasco mentioned earlier in the chapter. He recruited IBM’s first Chief Marketing Officer (CMO) to this famously ‘hard-sell’ sales organization, a female called Abby Kohnstamm, formerly of American Express where the two had worked together.
Huge swathes of previously decentralised marketing operations were centralised by Kohnstamm in pursuit of efficiency; for example, hundreds of devolved country advertising agencies were sacked and a central New York agency, Ogilvy & Mather, was given sole-supplier status and privilege. Companies were bought, others sold, yet others re-branded: remember Lotus? IBM’s reputation for offering a ‘job-for-life’ became tarnished as numerous voluntary schemes for a variety of end-of-job initiatives were deployed. There was to be no more time for thinking, it seems, as Gerstner circulated a company-wide memo with the terse message: ‘Don’t think, execute!”.
(A cruel but very funny Harvard Business Review cartoon at the time featured the manager’s Think! placard being taken away by a workman, to be replaced with a new one: Work!).
At first, not much happened and IBM seemed doomed to a vicious cycle of decline-restructure-decline-restructure ad nauseum. But then they got lucky. All will be revealed below but a little history first. IBM’s vast wealth was built around the mainframe computers they sold and the global market share these monolithic big-data crunchers enjoyed. The real cash for IBM came from the software and services which these machines required to function, but by the early 1990s the technology was, to use a contemporary phrase, being disrupted on multiple fronts. Mainframes were no longer mainstream as powerful networked PCs (courtesy of Cisco Systems, Compaq, Dell et al.) began to dominate enterprise computing. New hardware entrants (e.g. HP, Apollo, Sun Microsystems, EMC2, Amdhal, Hitachi Data Systems), substitute software technologies (e.g. SAP ERP solutions, Oracle databases) and ‘full-service’ service providers entered IBM’s enterprise ‘space’, companies who offered better value and customised solutions (e.g. EDS, Anderson Consulting and KPMG).
The technology here per se is irrelevant. In the lexicon of strategic marketing, IBM had been ‘cherry-picked’ on a segment-by-segment basis by sharper, more agile, customer-focused competitors. The ultimate driver of the market fragmentation process was, and always will be in competitive markets, consumer sovereignty (see Chapter Six, Strategic Marketing and Global Brand Management, for detail and insights).
As we saw in the Prologue, the theories of Adam Smith, written in 1776, could have predicted the demise of this colossus of twentieth-century international business corporations. In a nutshell, and to paraphrase the great sage: allow producers the freedom to choose what they wish to produce and where to peddle their stuff; allow consumers the freedom to choose what they want to consume and which peddlers to procure it from; keep government out of the business of business, with the exception of such niceties as property rights, financial liquidity and gentle regulation. Under these conditions of supply and demand amidst minimalist government interference, there should be two generic outcomes according to Smith:
- The invisible hand of the market will lead to the most efficient allocation of scarce resources.
- Consumer sovereignty (the customer is king) will determine competitive outcomes.
- So, there you go: it was the dissatisfied customer and aggressive rivals that did for IBM. And, as a consumer of these words, you can rightly demand further elaboration from your author.
Earlier we mentioned organizational malaise, and malaise suggests debate relating to cause and effect. Such debate is a good thing, especially regarding general management theories as applied to specific business cases. But, more often than not, there is a core explanatory factor that impacts upon all else. It could be argued that the essence of management, in general, is to identify and address such a challenge but that process, as managers would say, is easier said than done. But time and time again we see companies and even industries disappearing as a consequence of their fundamental misunderstanding of buyer behaviour, consumer motivations and competitive dynamics (see the discussions relating to the ‘customer preference life cycle’ and ‘disruptive technologies and tipping points’ in Chapter Five, Analysing Global Markets and the Intelligent Company).
Through the lens of strategic marketing, IBM was out-flanked by nimble rivals, many unfamiliar to the company, others naively aided and abetted by it. IBM had previously created the open-system PC market in response to a perceived threat from upstart Apple. In its race for a ‘PC in a year’, the company outsourced key PC technologies, including microprocessors from Intel and an operating system from Microsoft, PC DOS. The poker-minded genius of Bill Gates negotiated the rights for Microsoft to sell the operating system in wider market spaces; they branded the software MS-DOS (Microsoft Disk Operating System), a name widely and pejoratively labelled QDOS by technologists: Quick and Dirty Operating System! And it was exactly that, as early adopters of PCs in the 1980s will testify, with venom. A key point to note here is that, inadvertently, IBM, famous for its proprietary closed-systems business model, laid the foundations for a global, accessible, scalable, affordable communications infrastructure, in the first instance because they were afraid of a small bunch of hippies from California!
The good news for IBM – the lucky bit – was that mainframes were back in vogue as the internet explosion was set in motion by the circumstances described above. In 1994 IBM had begun the dismal task of dismantling/mothballing its mainframe manufacturing facility in Poughkeepsie, upstate New York, believing the market was dying; all that changed with the advent of www and the launch of Windows ’95, the new operating system now ‘bundled’ with Internet Explorer. The mainframes were renamed ‘servers’, demand for them grew rapidly, the factory was expanded, workers re-employed and the infrastructure for what we now know as cloud computing was established in ‘server farms’ worldwide.
Considering all of the above, this was an unprecedently intense period of technological convergence, especially in telecommunications and IT more generally, and it was remarkable for two key characteristics:
- It wasn’t orchestrated by any single ‘conductor’ – it just ‘happened’ by the ‘invisible hand’ so presciently observed by Adam Smith.
- And it happened at lightning speed from a commercial perspective (superbly observed at the time by technology writer Geoffrey Moore in his best-selling 1995 book Inside the Tornado: Marketing Strategies from Silicon Valley’s Cutting Edge). And, for the record, in amidst all of this technology turmoil the world’s first online retailer was quietly born on July 5th, 1994: Amazon.com.
As a final remark, Windows ‘95 was not just a symbol of the internet as a step-change-communications factor in the progress of globalization. It was a communications catalyst, bringing ‘overnight’ global online access to anyone, anywhere in the world so long as they had access to a PC, whether at home or at work. If the global telecommunications infrastructure was the internet highway, Windows ‘95 was its traffic management system. That was some poker game between Bill and Mick; and uber-symbolic: the dawn of a new era in the history of globalization, not because of what happened then per se, but because of what happened next, writ large.
In the next section, we return to the complex world of geopolitics and financial markets: “Oh! What a tangled web we weave”. But, in truth, weave it we must…
Outside Fortress Europe Excerpt References
Giddens, A., & Sutton, P. W. (2017). Sociology (8th ed.). Cambridge: Polity Press.
Hern, A. (2019, 12 March). Tim Berners-Lee on 30 years of the world wide web: ‘We can get the web we want’. theguardian.com.
Moore, G. A. (1995). Inside the Tornado: Marketing Strategies from Silicon Valley’s Cutting Edge. New York: HarperBusiness.
Peters, T.J. & Waterman, R.H. (1982). In Search of Excellence: Lessons from America’s Best-Run Companies. New York: Harper & Row.
Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. Edinburgh: Strathan & Cadell.
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