Book Review: FutureWealth

IT does not matter, but how a company handles information determines whether it succeeds or fails. It's all in a prescient book written four years ago.

by Alex Goldman ISP-Planet Managing Editor [June 7, 2004]

It's refreshing to find a book that is still relevant even though it was written four years ago. At least, that's certainly the case in the tech industry.

Futurewealth, by Francis McInerney and Sean White, two venture capitalists at New York firm North River Ventures, is about where money will be made in the tech economy. The main insight of the book is about how information is powerful.

Everybody understands that information is powerful, but few people argue, as the authors do, that information is so powerful that it can replace raw materials in business processes. It does.

Think of a photo lab. The analog photo lab uses expensive chemicals and a dark room to develop pictures. All the chemicals, and even the dark room itself, can be replaced by a digital computer. Information replaces raw materials.

Buying information, at ever lower prices, is, however, only part of the equation.

The authors coin the term "information velocity" to describe the efficiency of the use of information within an organization.

Surely one of the most important pieces of information to an organization is a purchase order. Dell has the biggest advantage here. It sells a product several weeks before delivery. Contrast this with, for example, Compaq. The authors say that in 1997, when Dell got paid ten days before incurring an expanse, Compaq was buying DEC. Combined, the DEC and Compaq were 48 days behind Dell.

That's almost two months' worth of cash. But it's even worse than it sounds. Changing the company to catch up with Dell would have taken years, because the Dell advantage is about the structure of the whole company, not just about how a department works. Compaq sold PCs through stores, but Dell used the Internet. Information replaced the physical storefront.

During the boom, we were told the Internet would change everything through disintermediation. The authors' key insight is that the internal structure of a company also has to be disintermediated.

Think of Wal-Mart. The company has a very advanced internal IT network that its suppliers must use. Goods move more efficiently through Wal-Mart than they do through the networks of its competitors. Information replaces warehouse space.

The authors have summarized their insight into what they call the Iron Laws of Information (p.26):

1. Cheap information always chases out expensive information.
2. Disorder always increases.
3. Profit always flows to the least regulated company or market.
4. The first three laws always operate simultaneously on any organization.

That's in Chapter 2. Another set of rules in Chapter 9 explains how to handle the problem, the Four Keys to Value Creation (p.58). Companies must be:

1. Vertically and horizontally disintegrated
2. Decentralized
3. Flat, with no more than four layers
4. Designed to deliver customer service

You can flip that around and say that any company that is not disintegrated, delayered, and decentralized cannot deliver customer service (think of the RBOC).

Exporing all of the implications takes up the remaining 51 chapters, as the authors examine a variety of industries and even nations. Each chapter is short and punchy, like a presentation to a corporation's CEO.

When we spoke to McInerney, we asked him about the book's structure.

"When I wrote the book, the biggest problem I had was that there were too many pieces," explained McInerney. "The book is an endless set of rules. I know how it hangs together but when I write it it comes out almost like a laundry list."

The short chapters and effective index do, however, make it easy to find something in the book. Look for a related article today on McInerney's observations about the wireline industry, and an article tomorrow on his observations on the wireless industry. The book covers many more industries, and has many useful observations. Whatever your industry, you will find a useful insight somewhere in the book (and investors, to whom the book is primarily directed, will find myriad insights).

If you run an ISP, and you're curious about the book, just find it in a bookstore and read chapter 48, on AT&T. It's about seven pages long. We suspect that if you read that one chapter (or almost any other), you'll buy the book.

— End