IT in the Cloud Era

JUSTIN FOX: Welcome to the HBR IdeaCast, from Harvard Business Review. I’m Justin Fox, and I’m talking today with Aaron Levie, who is co-founder and CEO of the cloud storage company Box. Aaron also happens to be one of the most entertaining and informative business voices on Twitter. I highly recommend following him. And he’s just written his first piece for hbr.org. Aaron, welcome to IdeaCast.

AARON LEVIE: Thanks a lot. That’s quite the setup on the Twitter side.

JUSTIN FOX: Well, we’ll get to that more a little later. First of all, let’s start with this essay that you’ve written for us. It starts as a look back at Nick Carr’s hugely controversial 2003 HBR article “IT Doesn’t Matter,” and then assesses how IT does matter in a cloud-dominated business world.

Now first of all, you were 18 when that article came out? Were you already reading HBR?

AARON LEVIE: No comment on my age, but, unfortunately, I was not as active of a reader back as I am now.

JUSTIN FOX: So tell us, what was Carr’s big argument in that article?

AARON LEVIE: I think the big argument– and the argument was actually totally fair, and, I think, accurate, which is, that we’re going to a commoditization of technology. And this technology is going to, basically, get lots of businesses ahead. So differentiating through IT is going to be much harder. And we are going to have pervasive technologies, which help us get us there. And I think that that’s still very important to the trend that we’re seeing.

The interesting thing that we see occurring is, what has changed is, we’re no longer going to think of IT the same way. So IT Matters more than ever before in how much it is now everywhere around us and how ubiquitous it is. But what’s going to change about it is, it’s not going to be as much about the technology– so if you think about the information technology– it’s much more about the information, and how businesses are going to take advantage of their information, and their data, to run their business.

And I don’t think that that was something that was even deeply understood in terms of what the possibilities were with that a decade ago. And now we’re finally seeing a lot of technologies come together that allow businesses to truly get ahead of their competition because of their usage of information and data.

JUSTIN FOX: I mean, when that article came out, the reaction from what then was thought of as the technology community was pretty violently negative. But it’s different technology players who are taking advantage of it now, right?

AARON LEVIE: Yes. I mean, it was obvious a very provocative article. And I think it should have and it did inspire a lot of thinking around what the future of this space looks like. And I think the kinds of IT leaders today that are really getting ahead in organizations are those that realize that they’re not going to differentiate their business by buying storage from EMC versus NetApp, or vice versa, or they’re going to buy their ERP system from Oracle, or SAP, or vice versa. It’s going to be, what is the technology that I can implement as quickly as possible to solve the largest problem, but then, more importantly, how do I make sure that my employees and my business is able to get as much out of its information as possible. And so, in many respects, the IT organizations has really become the information broker of the company, not just the technology sort of wizards or system maintenance team.

JUSTIN FOX: Well, and that takes a pretty different set of capabilities, then, right?

AARON LEVIE: Absolutely. And this is what we’re seeing at a lot of organizations. There’s sort of a Darwinian effect happening within a lot of IT organizations where the CIOs and the IT leaders that are coming into the forefront are those that are much more closely integrated to the business functions of the company. And this is something that is often talked about now.

But one great example is, we were talking with a really, really significant IT leader in the space in a Fortune 500 company. He was sharing that, 5 or 10 years ago, IT was sort of an afterthought in the company’s strategy and the company’s goals. And this is a blue chip company.

And today, when you look at their 2020 goals, so what they’re going to be doing over the next seven years, IT is a core part of the strategy of a couple of their major and, kind of, most significant priorities for the business. And that’s what we’re seeing across all industries, across manufacturing, across consumer packaged goods, across marketing, and media and entertainment. It’s no longer that your IT organization is just going to be responsible for keeping the lights of the business. And then, by virtue, the CIOs much more responsible for executing on business strategy, as it relates to information and technology, more than ever before. And that’s a very unique trend that’s occurring right now is, business, effectively, has to become digital and has to be able to have technology much more at the core of their company.

JUSTIN FOX: What are the keys to success for an organization dealing in this world, where the technology is abundant, and the information is abundant, but, I guess, the ability to cut through it, to process it well, to do the right things with it are, probably, as scarce as ever?

AARON LEVIE: Yeah, so that’s what interesting, right? So we sort of have this explosion of tools that should ostensibly help us be more productive. The amount of noise around these technologies certainly precedes how much adoption there is.

So we’re still very early in this transition to the cloud. When we look at most organizations, most data and most information these organizations are still trapped on premise, not made available to people. So we’re not even really at the make sense of your information, yet. We’re actually more at the, let’s reduce the barriers to having people share content, and share data, and share information.

And I think, consistent with that, and in parallel, we’ll see a lot of innovation of companies that help people make more use of their information and more data. That the explosion that we’ve seen in the big data world, obviously. But I think there’s a much lower in the hierarchy kind of set of needs, which is all about how you actually enable people to have access to this information?

We’re seeing a number of very traditional, what we would normally consider pragmatist companies that, all of the suddent, will implement 10,000 iPads for their sales organization, or their remote services organization. And all of the sudden, now you have every individual in that business that, for the first time, is going to be using information technology at the core of their job. So if you’re a field worker, and you work for a construction company, or an industrial equipment company, for the very first time you’re going to have technology be centric to everything that you’re doing.

And so we’re really just in the first wave of this transition, which is all about, let’s enable the end user. Let’s enable the employees to have access to this information from an all new set of devices, an all new set of applications. And the companies that get ahead are going to be those that can take most advantage of their information in that process, that can take advantage of this opportunity to turn everybody into a knowledge worker. And we just have a belief, and we have a lot of visibility in this, we think, that the CIO in the IT organization is going to be the driver, or the most dependent organization, to that strategy. And we think that’s going to be very exciting and very important for the IT organizations that can make this transition

JUSTIN FOX: The rise of the cloud seems to be just one aspect of this broader shift that’s been going through the business world for a couple of decades of, you know not having any more resources or capabilities in house than you absolutely need. Because I would imagine these salespeople out with their iPads are most likely using some cloud-based service that someone else is providing to their employer.

AARON LEVIE: Yep.

JUSTIN FOX: I can remember, going back to the ’90s, various commentators saying that this was going to lead to this sort of atomization of the business world, as didn’t need to be a huge organization to succeed because you could sort of contract out for every important service you need. But we’ve still got all these huge organizations. I’m wondering– is it just still coming or is there some role for large organizations even in this new sort of outsourced, information-abundant business world?

AARON LEVIE: Well, I’d say this is probably where the Harvard Business School probably has two sides that are driving this. On one side, the atomization is being driven by the possibilities now with technology and the ability to break up work in lots of parts. And a big thing that we’re seeing is the ability to sort of have economies of scale that you can now leverage on demand.

So we’re so used to the economies of scale today that you can get in computing, which means that I can go to Amazon.com and use their servers. So the economies of scale that they have created, I can now rent, on demand, in any increment, or any unit, that I want. But were also seeing this in manufacturing. We’re seeing this in the utilization of labor. So when you can break up and sort of get kind of complete elasticity of labor, or manufacturing, or distribution, or computing, it means that you can break up a lot of these businesses into smaller parts.

That’s one trend. But counter to that is, on the other side of the Harvard Business School, is, obviously, the finance side, and the aggregation of companies, and products, and services. And as long as Wall Street demands more and more growth, and larger and larger businesses, we’re going to continue to see a consolidation effect. So even if you can have innovation and new companies emerge that take advantage of these trends, the counter to that is that we’re going to always see some form of consolidation occur because that’s what’s going to be driven by the financial world.

So we’re being pulled from both sides as an economy, or as an industry. And it’ll be interesting to see which one prevails. But I think the really interesting part of this trend is that you actually can finally do this, right? So we’re at least going to see much faster and increasingly larger cycles of innovation because of this ability to atomize our businesses.

There is a really cool case study on this, which is this company called Ubiquity Networks. And they’re out here, and they do industrial and enterprise-oriented wireless and Wi-Fi networks. And so they’re very big in emerging markets. But it’s a highly virtual organization. They have less than a couple hundred employees. It’s a public company worth over a billion dollars, but almost everything they do is outsourced in some way, from manufacturing, to distribution, to they through a network of channel partners.

So it’s a great example of a couple hundred person company whose core asset, and core focus, is on developing amazing IP. and developing a great strategy around that, but they can leverage a network of partners to actually go execute on growing that business. And so this is an unbelievable set of trends that we think is going to change how start ups work, and the kinds of businesses you can create. And if large enterprises take advantage of it, it can be even more profound.

So if you can be having the reverse, which is, can General Electric enable its capabilities, and its services, and its scale to be leveraged by start ups, right? To actually doing the inverse, where now they can be one of the providers of this. And I think there’s a lot of amazing opportunity for large businesses to take advantage of both sides of this trend.

JUSTIN FOX: How many employees do you have at Box?

AARON LEVIE: So we have a little over 800 employees.

JUSTIN FOX: And how many customers?

AARON LEVIE: So we work with about 150,000 businesses globally. And we have nearly 20 million users.

JUSTIN FOX: So that’s at pretty good ratio.

AARON LEVIE: We’re very happy about it. And we actually happen to be even more people centric because we have to go build out a sales organization and people that are going to go work with our customers. But it’s a tremendous amount of leverage to be able to serve that many businesses with a decently or relatively small footprint when we’re going and competing against companies that have tens of thousands, if not hundreds of thousands, of employees. So this sort of ability to have near-infinite leverage, and whether it’s, again, through distribution, through product manufacturing, to marketing, to sales, is rapidly changing right now.

JUSTIN FOX: Now, the NSA spying revelations of late have cast a bit of a new light on the wisdom of storing everything that’s important to you on some internet company’s server. I mean, this is something you’ve commented on. And I’m curious, what are the risks there, both for a user, and a company like yours?

AARON LEVIE: It’s a really interesting topic. Obviously, we’re spending a lot of time thinking about this internally. And this is something that we’ve always generally thought about, and built parameters, and privacy policies to sort of best protect our customers. But as an industry, I think this is coming as a really interesting and important conversation, where we have to better understand what the private sector, and, particularly in technologies, relationship to the NSA and the government, what that is going to look like.

We have, again, very counter demands that the world is asking for. Consumers, obviously, need and want as much privacy as possible. And the government needs and wants to have a certain amount of visibility to be able to protect its citizens in the country.

And so it’s a real big challenge because you have this amazing advance of technology that can be both used for good, which is our consumer tools that let us communicate, and share, and work one another. But it also can be used in a threatening way, obviously, by some of our adversaries.

So the government is in this difficult position where they need to be able to propel and be able to advance their technologies at the rate at which technologies are being used by potential threats. And so what, I think, the big issue is, is that we haven’t had a lot of transparency around that relationship between our data, and our tools, and government access to that.

So it’s a really, really important in a situation. We think it’s going to be less significant in the enterprise space. It tends to not be the kind of data the government is focused on. It’s much more around communication tools in the consumer world. And fortunately, at Box, we’re 100% focused on the privacy and security of our customers’ information. So it’s not a program that we were a part of, obviously, but we do think, as an industry, it’s a very relevant and important conversation to have, in a fairly to public way, actually.

JUSTIN FOX: Yeah, I mean, I think you called it the internet’s doping scandal?

AARON LEVIE: That was– yeah, that may have been a mistake.

JUSTIN FOX: I don’t know if it’s a mistake. Well, actually, and let me start by– as these stories were coming out about the NSA and the media, you were coming up with some very serious comments, but also jokes about it on Twitter. And you’re a CEO cracking jokes in public about a sensitive topic, which I love, but I’m just kind of curious what’s up with that?

AARON LEVIE: I’ll tell you my PR team doesn’t love it. But I made a commitment that my Twitter feed was going to be a slightly different expression than a pure corporate environment. And so sometimes– I have a full disclaimer on the feed, which is that I don’t necessarily agree with anything that I say. So it gives me a little bit of latitude in the stuff that I throw out there. So I’m just trying to be like my generation, you know? I’m just trying to have a good time, sometimes, on the internet.

JUSTIN FOX: Well, do you think it’s important and helpful for your company, though, to have a high profile on Twitter?

AARON LEVIE: No, I don’t think it’s strategically critical. I think that it allows me to engage with customers and people that are following the industry. And I think that’s useful for sure. I get a lot of people that will email me because I’m a little bit more available. And they’ll have technical support questions, or issues, and I try and get back to them as quickly as possible. I don’t do that as much on Twitter, but I think that it’s my availability that at least encourages that. So I think it’s a useful tactic but, certainly, not core to our strategy.

JUSTIN FOX: Because I’ve been thinking about this. And it used to be that business executives, at least in my memory, would wait until they were pretty close to retirement to go off and write a book, or make a big public splash about something, or really show their personalities in public. I’m thinking like Lee Iacocca or Jack Welch. But now, it’s increasingly something people do while they’re still on the rise, like Sheryl Sandberg, and Tony Hsieh, with their books, and, in a different way, you and other people on Twitter. Why do you think that’s happening?

AARON LEVIE: Well, so I mean, the technological reason why it’s happening is that we have these tools. It would have been, probably, a little bit more odd if Jack had his own radio show in the ’90s or something.

JUSTIN FOX: True.

AARON LEVIE: So the tools allow us, at least a more personal level, be able to communicate online. And that’s just a huge enabling reason. And so the friction, and the barrier, has been lowered to such a degree that it becomes a very natural thing to do, without there’s being a lot of structure or work involved.

And then I also think it’s just something that is becoming a little bit more important for consumers and the industry, where you want to be able to see the voice of your company. And whether that voice is coming from representative of the company, or the company directly, we just have a new expectation of communication, and availability, and transparency.

And so I follow guys like Mark Benioff and Michael Dell. I follow Jack Welch on Twitter. And so we see, there’s a lot of really interesting conversations that are being had around those executives that are fun to follow along with and watch. And I think that’s just the changing culture. And it’s a changing set of societal expectations.

JUSTIN FOX: Aaron, thanks again for talking with us.

AARON LEVIE: Cool, thank you so much.

JUSTIN FOX: That was Aaron LEVIE, the CEO of Box. For more, go to Aaron’s Twitter feed, @levie. That’s L-E-V-I-E, and to and hrb.org.