CONFERENCES.

FEI's annual conference, "Finance 2001: Gateway to the New Global Economy," kicked off May 7 in Scottsdale, Ariz., with a bracing talk about change and thoughts about how to manage it. Author and consultant Ian Morrison, who wrote "The Second Curve: Managing the Velocity of Change," outlined a view of the business world in which there are two basic models -- a "first curve" dominated by old-line industries and established ways of doing business, and a "second curve" involving radically new methods that represent the primary source of future growth. The Internet, Morrison said, is a perfect example of this second curve.

Morrison argued that the "second curve" is often overestimated in the near term and underestimated in the long term. New technologies and new, more educated and skeptical consumers will drive the second-curve strategies, he said -- making brand loyalties often a thing of the past. Knowledge is now the key to value, he argued, and that it will become more and more critical as more of the world's population goes online in the coming years.

Morrison dubbed the Internet "the Mother of all commoditizers," arguing that over time, products sold or distributed over the Internet tend to have their margins captured by the consumer, not the innovator. Eventually, he said, business-to-business models will evolve so that there will be re-intermediation opportunities along the value chain -- i.e., middlemen will be able to add value at different positions between buyers and sellers and get paid for that service.

In a second keynote session, James A. Parke, CFO of GE Capital Corp., outlined GE's approach to converting its existing businesses to the Digital Age. GE is "on a journey," he said, and has been working long and hard to adjust to the hundreds of acquisitions it has made in recent years and to the fact that much of its revenue stream now comes from overseas.

Realizing the growing impact of the Internet a few years ago, Parke said, GE at first tried to "dot-com" its various business lines. But that proved largely ineffective, and the industrial giant decided to retool that approach. Instead, he explained, GE decided to take a three-pronged approach to its business processes -- eliminate them, digitize them or relocate them overseas to far cheaper sites. Much of that relocation has involved India, where Parke said the intellectual capital is very high but costs are only 30 percent of what they are in the U.S. or Europe.

Parke detailed how GE has reduced staff, cut process time or saved money from reengineered methodologies. GE now does all its administration, such as travel and leisure expenses, online, and line managers must present potential mergers or other transactions electronically, via an "electronic boardroom." "We want to digitize the normal flow of information," he said, noting that famed CEO Jack Welch has been spearheading the effort to re-create the infrastructure for the Internet.

One ambitious project involves creating "digital cockpits" on the company Intranet that would allow managers throughout GE to look at sourcing. This, he said, will enable the company to consolidate buying for better pricing and sharply minimize contract problems. GE hopes to have these cockpits fully operational by the end of the year, he added.

In a third keynote talk, Jeffrey Sampler, a professor at the London Business School, offered a fast-moving, interactive look at how the Digital Age is changing business practices and strategic thinking. "For the first time in history, information is a scalable resource," he said. Scalability, he added, brings exponential growth with minimal additional resources.

Sampler reminded his listeners that "fools and geniuses sound identical" when their ideas are first presented, but that businesses need to sort out the far-fetched from the farsighted. Technology tends to leech away the value of a business model, he argued, and companies that find themselves losing a couple of percentage points of sales to different channels each year will eventually go out of business.

When decision-making moves "outside the channel," a process hastened by the Internet, profitability tends to move toward zero, he said. Companies need to develop "real-time, granular cost systems" that enable them to understand the dynamics of their businesses quickly and thoroughly, and be able to adapt quickly. The place to start, he said, is by capturing information digitally at the point of origin. If you can't do that, the information is not scalable and has little advantage, he said. (See interview with Sampler on page 26.)

DAY TWO

The second day opened with a keynote speech by Steve Forbes, editor-in-chief of Forbes magazine, former Republican presidential contender and a noted conservative thinker about economic issues. Forbes, who was warmly received by the attendees, argued that the country is at an economic crossroads, and that decisions made in the next few months will set the tone for years to come.

Forbes argued that the economy has "the economic equivalent of the flu" that is not just the result of the dot-com bubble collapsing but the product of errors of "commission and omission" by government regulators and others. He directed much of his criticism at the Federal Reserve Board and its chairman, Alan Greenspan, saying the Fed's efforts to slow the economy stems from "the peculiar notion that prosperity causes inflation" and that consumer happiness is a bad thing. Forbes argued that the Fed has erred by "dribbling" out its rate cuts, which he thinks should be done all at once to eliminate economic uncertainty.

A particular concern, he said, is liquidity: Without it, the U.S. economy could suffer the fate of Japan, where nominal interest rates went toward zero in recent years but there was no monetary supply to support growth. Forbes ran through a list of other ills he said could prevent the economy from realizing its potential. These include: taxes that are too high, and old ones that are never repealed; heavy regulation, especially on innovative areas like high technology; insufficient efforts to develop new energy sources or create incentives to find them; and a legal system that has institutionalized mass torts and a fee-hungry plaintiffs' bar.

In a second keynote address, Jeff Rodek, CEO of Hyperion, spoke about ways to develop corporate commitment and improve execution. Rodek said he is a big believer in the management theories of Peter Drucker, one of which says that businesses exist to create customers and make profits. Companies continually struggle with issues of control and freedom and how that translates into job performance and commitment. Only commitment, Rodek said, can create the "discretionary" effort by employees that companies need to succeed. Leaders need to communicate why something needs to be done, he said, and even spending minimal time doing that can pay big dividends at a time when the company needs a commitment but can't afford to explain why.

A company's culture involves its shared commitment and values, Rodek said, while its process involves building habits and approaches that result in success. He argued that companies should concentrate on simplifying their messages, perhaps by focusing on only three to four performance items in each quarter.

A third keynote speaker, Paul Brotto, executive vice president of planning and cost management for Air Canada, walked the audience through the current airline environment and Air Canada's competitive position, which he called very strong. Brotto said Air Canada, now the world's 12th largest airline, has successfully completed its merger with smaller rival Canadian Airlines and hopes to wring out $700 million in cost savings by the end of this year through a series of operational and scheduling changes. The key to a successful merger is speed, he said, and Air Canada aimed to complete 90 percent of the integration in nine months, a process that stretched to 11 months.

Brotto argued that Air Canada has considerable competitive advantage over other airlines in the cross-border market with the U.S., where it not only has the most market share but the highest fare structure. He also argued that the airline stands to gain from relative labor peace -- all but one of its unions has agreed to long-term contracts through at least 2004 at comparatively minor increases -- compared to labor unrest at U.S. rivals, who are likely to struggle in the months ahead.