"Put yourself in 1980," HBS professor Richard L. Nolan challenged alumni during his spring reunion presentation "The Exploding Internet: Impact on Business and Society." "If you're IBM, who's your major competitor?" Answering his own question, he displayed a photo of a very young Microsoft team. The ragtag "kids" at Microsoft are shown sporting long hair, beards, and T-shirts. Pointing to the still adolescent-looking Bill Gates, Nolan added, "Would you have invested in Microsoft in 1980?" Funny as the photo seems today, the point was clear. "There has been a fundamental shift in terms of what's going on in business," Nolan noted. "We have never lived through anything like this."

With that, Nolan opened his discussion of the profound changes that computers -- and now the Internet -- have wrought on the way business is conducted. Comparing industrial-economy giants IBM and Boeing with Microsoft and Cisco, Nolan said the mature business model of a hierarchical organizational structure with a "make-and-sell" strategy can't be adapted to the virtual, information-enabled world of dot-coms. There, the real-time speed, sense-and-respond approach to customers, and low overhead are paramount.

"When you went to Harvard Business School, we really knew what we were talking about," he told alumni. "But in the new economy, just about everything we accepted about business is being questioned." Nolan, an expert on general management and technology who is studying the shift from the industrial model to the new information economy, said CEOs of incumbent (pre-Internet) companies are trying to compete with dot-coms, "but they get dot-com vertigo. They trust their senses, even after realizing they're wrong, and they get into trouble. We don't know what the business models are."

Blame technology for the dizziness, said Nolan. "The Internet is the fastest-growing technology to ever reach fifty million users, and it did it in four years." In contrast, he said, "television took thirteen years to reach that many people, and the PC itself took sixteen years." The nature of information presents another challenge to the traditional manager. Unlike other resources in business -- workers, money, and materials -- information is far from scarce. "It's exploding," Nolan remarked. "The amount of information we have is doubling every six to eight years. That's what dot-coms are leveraging. This is truly a revolution."

Nolan underlined the advantage that new-economy companies have over their incumbent competitors, using drugstore.com as an example. Taking only a year to build, drugstore.com has become the fastest-growing company to reach $1 billion in market value. It serves consumers 24 hours a day, has a development team instead of a staff, and has no checkout lines. Bricks-and-mortar firms such as Walgreens, on the other hand, must build physical stores and employ and train store staff. Customers have to show up in person to purchase goods and must often wait in line.

"There is a huge difference in economies," Nolan stated, adding that since drugstore.com entered the field, many more health-related Internet companies have followed. "Once a dot-com comes into an industry, the industry is never the same," he said.

Nolan is not suggesting that the old management models be completely scrapped. Traditional practices certainly still work for Boeing, which can't realistically release new airplanes with flaws the way Microsoft can release a new version of Windows with "bugs." Microsoft can serve and respond to consumers instantly and adjust its products in real time; Boeing has to perfect the product first and then sell it. While each company could learn something from how the other operates, Nolan suggested they should stick to their own knitting. After all, he queried, if Microsoft could build an airplane, "Would you want to fly in version 1.0?"

Nolan's latest book is Sense & Respond: Capturing Value in the Network Era (HBS Press, 1998, edited with Stephen P. Bradley).

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