Academic journal article Federal Reserve Bank of New York Economic Policy Review

All the Answers Are Different

Academic journal article Federal Reserve Bank of New York Economic Policy Review

All the Answers Are Different

Article excerpt

I want to begin by sharing a quick story about Albert Einstein at Princeton. Einstein was renowned throughout the campus for his teaching of postgrad physics, and particularly for the nature of his questions on the year-end exam, which were so cerebral that they would be passed around the campus when the test was over. One year when he handed out the exams, one of the students in the class raised his hand and said, "Professor Einstein, I think there's a mistake. You've handed out last year's exam questions."

Einstein turned and said, "That's okay. All the answers are different."

And that's what this New Economy is about. All the questions are the same: how to develop a compelling value proposition for customers, how to deliver it in a convenient and efficient way, how to provide consistent service quality, and how to do all that and make a return for your shareholders. But now, all the answers are different.

What I want to talk about today is what I call five points of light. The first is a quick thought about business architectures moving forward. The second concerns information-based businesses and what they do. The third is some thoughts on magic at the "point of touch" between a customer and a business, which is where the real excitement of technology is going to take hold. Fourth, I'll talk about some of the trends that are happening in "dot-coms" and in the New Economy. I'll then close with a few thoughts under the title of "Where's Waldo?" which are targeted at anyone in the audience who is working in a regulatory capacity.


Business architectures are driven by technology, and the basics of the design are changing. We are moving to a system in which technology makes industry structure irrelevant. Doesn't matter if you're a bank. Doesn't matter if you're an investment bank. Doesn't matter if you're an insurer. Doesn't matter if you're a manufacturer.

What does matter is the competencies that you have mastered and your ability to bring them to the right places in the market. And that makes life very confusing going forward. So all the talk about regulatory change in financial services won't matter much because the markets have moved way past it already. The changes occurring now were facilitated by technology, not regulation.

Let me describe the business architecture of a large U.S.-based bank. While what I'll describe is for the consumer business, you could create one of these for any area. To begin, we have the distribution of services to customers through many different channels: the Internet, ATMs, a branch, a phone center, a physical person doing sales. These channels differ, but the essential competence is distribution, and the goal today is ubiquitous branded touch. At any time, at any point, convenience for the customer. Our goal is device-independent, branded, secure, private, reliable, self-service for our customers.

The second aspect of the business architecture is competence in manufacturing: huge digital factories that can squeeze the last nickel out of a scale curve. We want flexibility, very high efficiency--ruthless efficiencies--and quality. A platform that is robust enough to support and manage transaction volumes on a seven-by-twenty-four, fault-tolerant basis.

But everyone is building manufacturing and distribution. They are critical, but both are becoming commodities. Competency in these areas is taken for granted. It's an assumed mastery and Darwin will kick out of the system the firms that are not masters.

So where is the competitive value-added in the future? It's in a third area of competence, which is information mastery. Knowledge management is the dance floor where mass customization on the manufacturing side is meshing with segments of one on the distribution side: the architecture is being built so that information and transaction capabilities can be welded together in a way that creates exceptional value. …

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