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The new B2B: back to basics
Kellogg keeps pace with the digital economy while still teaching the fundamentals

by Rebecca Lindell

  Paul Conley '01
 
© Nathan Mandell
Paul Conley '01 and friend are headed to a Fortune 500 company.
   

Paul Conley isn't opting for the uncertain life of a dot-com entrepreneur. After he graduates from Kellogg in June, he'll join a Fortune 500 company, and he couldn't be happier about it.

"I've always been a fan of big companies," says Conley, who will start at 3M in a marketing management development program. "You can distinguish yourself and develop your network within the company. Some of my friends want to be entrepreneurs, but I'd rather be entrepreneurial within a bigger company. I'll be getting valuable experience at 3M, just as someone would at a start-up."

Not that Conley, a railroad operations manager prior to enrolling at Kellogg, never questioned his aspirations. As he and his like-minded classmates watched the Internet craze reach a peak last year, they found it hard not to wonder whether they'd made the right career choice.

"For a while there, we were asking ourselves if we were really missing out on something," he recalls. "The equity was a draw, and the stock market was insane. A lot of us thought that maybe we shouldn't be in school; maybe we should be out there making a go of it. But as time has told, maybe that wasn't the thing to do after all.

"An entrepreneurial venture might give you more of a chance to be your own boss," Conley concludes. "But I'd rather have the security and a steady salary than face the risks that come with a purely entrepreneurial activity."

Last year, Conley would have been the exception to the rule. B-school students across the country stampeded toward careers in technology, regardless of whether such work had been their life-long dream. Who could blame them? The compensation packages dangled by well-funded dot-coms and Internet consulting firms were too tempting to pass up.

What a difference a year makes.

Since the tech-stock plunge in the spring of 2000, dot-coms have been folding left and right. B2C and B2B, once shorthand for the "business to consumer▓ and "business to business" Web sites students planned to create, today have a more prosaic translation: "back to consulting" and "back to banking."

Or maybe, many Kellogg experts say, "back to basics" -- real sales, real profits, real people, real cash.

"Student interest in technology and e-commerce was at an all-time high," says Kellogg Professor Anthony Paoni, who teaches technology and e-commerce. "At the same time, executives were trying to rationalize the market interest in new business models versus their business model. Many of them said 'We don't get it. We have an established company and create real value and show measurable profits.' These executives ultimately figured out that it wasn't about business models; it was about how technology was changing their business model."

The bubble bursts

Few alums graduating before the mid-1990s would have recognized the atmosphere at Kellogg until recently. It was a time when students could realistically hope to start and even sell companies before graduation; when plans for new e-businesses could easily earn not only an "A" from a professor but thousands of dollars in venture capital.

Technology and entrepreneurship classes were filled to capacity. Students were stuffing the mailboxes of entrepreneurship professors with business plans for the next eBay or Amazon.com. Many were turning down solid job offers at established corporations to join a hot technology firm -- or to start their own.

Entrepreneurship Professor Barry Merkin remembers the mood at Kellogg and elsewhere as one of "euphoria," inspiring many to take chances they might never otherwise have considered.

"Many students and even older people were saying, 'It looks like a crazy time, but why don't I jump in and take advantage of all the craziness? We know it's a bubble and bubbles always burst, but this bubble doesn't seem to be bursting,'" Merkin recalls.

With last spring's tech-stock collapse, the air began seeping out of the dot-com balloon. "The market expected too much," Paoni says. "The signals that something was going to happen were very clear. When the market goes up 100 points a day, something is not right. Alan Greenspan called it îirrational exuberance,' and was he ever spot-on."

By the time school started again last fall, it was clear that students were operating in a much more subdued reality.

All Paoni needs to do to confirm that things have changed is look at his mailbox. "A year ago, I was receiving three or four business plans every month from students who wanted to start their own businesses -- most of them Internet-related," he says. "Since the beginning of this school year, I haven't received any.▓

Last year, traditional employers, such as consulting firms and investment banks, found it difficult to compete with dot-com upstarts offering graduating students stock options potentially worth millions. That's no longer true, according to Career Management Center director and assistant dean Roxanne Hori. "Traditional companies are definitely back on students' radar screens," Hori says.

"There's still a healthy interest in the technology arena, but it's the people who understand what they're getting into," she adds. "The people who've exited the arena are those who pursued it because it was the 'thing to do.' They've realized that some companies might not take off, or they could be downsized, so they've opted for a more traditional job search. People who are now taking the technology jobs are the ones who really want to do it."

The Internet is here to stay

Josh Daitch ,01  
© Nathan Mandell
Josh Daitch '01 looks forward to a dot-com future.
 
   

Josh Daitch is one of those people. Daitch, who is graduating in June, has accepted a job as manager of business development at Walmart.com. The company, which re-launched its Web site in November, is growing rapidly and playing to win in the high-stakes battle between Internet retailers.

"Obviously, it's risky," he says. "There's been a huge shakeout among e-commerce sites, but I think Walmart will be one of the successes." Daitch worked as an international real-estate acquisitions manager for a private equity fund prior to enrolling at Kellogg. His goal as an MBA student was to learn about technology, and he interned at the dot-com last summer. When the company offered him a full-time position after graduation, he didn't think long before accepting.

"It's a great opportunity to get some experience at a start-up technology company with real resources behind it," says Daitch, who ultimately hopes to work in early-stage venture capital.

Daitch knows he is bucking the trend. "A lot of my friends think I'm crazy," he admits. One told him, "Haven't you heard? Dot-coms are dead."

"I disagreed," he says. "I do recognize the risk, but the Internet is here to stay, and if anyone is going to win in the e-tail game, it's going to be a company like Walmart. My strong belief is that in the long run, this concept will be viable, and I'm going to take the risk and try to prove it."

The dot-com gold rush may be over, but that's not to say the Internet or technology are dead. Both will continue to create new ways for businesses to profit and operate more efficiently. So while many students are shunning the Internet as an employer, many more are continuing to study how technology affects existing organizations -- and how they can use it to create new opportunities.

"The Internet is a tool, not a strategy," says Louis Stern, the John D. Gray Distinguished Professor of Marketing. "The marketing concepts of segmenting, targeting and positioning are still critical. Somehow, a great many dot-commers lost sight of the fundamentals. When all is said and done, superior execution of the fundamentals -- which we have taught at Kellogg for decades -- is essential."

Those basic ideas have always been the cornerstone of Kellogg's e-commerce program, says Dipak Jain, associate dean for academic affairs. "We're not teaching students how to run dot-coms," Jain says. "We're focusing on the basic principles of e-business and on using technology as a strategic tool."

Offerings in this area include Building and Leading High-Tech Businesses; Technology Marketing; and Tech Venture, all of which focus on organizations that use technology successfully. An executive education program, Sustainable Competitive Advantage in the Network Economy, offers much of the same information to non-degree students and is regularly filled several months in advance.

"Our emphasis has always been on using technology to create value," says Mohan Sawhney, the McCormick Tribune Professor of Electronic Commerce and Technology. A prime focus in this area is large, established organizations -- the firms that will fuel the recovery of the New Economy.

Important in this effort is the school's new Center for Research on Technology, Innovation and E-Commerce. Co-chaired by Sawhney and Associate Professor Ranjay Gulati, the center will seek to illuminate the keys to success in the world of e-business.

Among the center's current projects: the assembly of a database that will shed light on the relationship between firms' investments in e-business and their subsequent financial losses. Another project seeks to understand what Sawhney calls "relational equity" -- the relationships, tech-related and otherwise, that add value to an organization.

It's an area ripe for exploration, says Paoni. "The real excitement is around the impact of technology and e-commerce on changing existing organizations," he says.

The New Economy matures

Indeed, those changes have seeped into the very fabric of business and society. Though many e-businesses are struggling, the Internet's legitimacy as a sales channel is no longer questioned. Online business tools are no longer on the cutting edge -- they are widely used and accepted in even the most established firms.

"Everybody of a certain size is using technology to do business," says Shane Greenstein, associate professor of management and strategy. "E-mail, for example, is now a routine sales tool. Similarly, you take for granted in all but the smallest firms things like Web-based accounting and operations tools. These are no longer regarded novel -- they're considered basic tools for business."

More innovations, many of which promise an even greater magnitude of change, are here or on the way. Gulati cites several trends that are certain to open new frontiers for business.

One is the handheld device, such as the Palm Pilot. Gulati predicts these portable computers will hugely accelerate the globalization of the Web, bringing Internet access to regions that lack the electronic infrastructure of the Western world.

Broadband data transmission also will yield new opportunities, Gulati says. "Audio and video transmission will become easier and less time-consuming," Gulati says. "There are a whole bunch of applications in this area that seem very promising."

The evolution of the Web is also creating opportunities for managers within brick-and-mortar companies seeking to use the Internet as a business tool, Gulati adds. "The key things to learn are: How do you buffer the 'intrapreneurial' spirit from bureaucracy and politics? How do you master change-management skills, leadership skills, entrepreneurship skills?"

For managers who can solve these problems, the opportunities are boundless, Gulati says. And for those determined to make their mark in the New Economy, Kellogg experts say the hurdle is higher than it used to be -- but no higher than it ever was.

"The money hasn't gone away,▓ says Gulati. "It has simply become more discriminating, and with more discriminating money, you have to have more discriminating ideas. The payoffs are still there. They just won't be quick hits."

"It's not going to be easy, but so what?" adds Greenstein. "Business never was easy. So we're back to something we all recognize. You have to use good judgment. Nothing wrong with that."

©2001 Kellogg School of Management, Northwestern University