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This Changes Everything

Although the subject of the implications of the Internet tend to be hyperbolic—to say the least—two consultants spell out how those implications are undoubtedly going to change the way both you and the organization you work for operate—and in the not-to-distant future (i.e., approximately right now)

Unquestionably, the business book of 1999 is, in my estimation, Blown to Bits: How the New Economics of Information Transforms Strategy by Philip Evans and Thomas S. Wurster (Harvard Business School Press; $27.50). The authors, both with the Boston Consulting Group, have written a text about the consequences of the Internet that is both provocative and practical without being gushing or requiring a working knowledge of TCP/IP. Although the fundamental message is that the `Net changes everything, Evans and Wurster have not created still another tome extolling the virtues of, say, Amazon.com. It is not that Amazon.com shouldn't be of interest to all of us from the standpoint of how its business model knocked traditional sellers for a loop: after all, the same can happen to all businesses, whether it is an issue of selling books or shipping brakes.

Chains of Info. The authors note, "Toyota built powerful competitive advantages through simultaneous engineering, kanban, and quality control—all technologies of processing information." And they also point out, "The concepts of value chain and supply chain focus our attention—quite usefully—on the physical sequences that define a business or an industry. But it is information, flowing in the interstices of these chains, that really links them together and generates most of their competitive advantage and profit potential."

It's all about information. Yes, things have to be made, but the making is a consequence of information. Evans and Wurster acknowledge, "Information...may be the end product of only a minority of businesses, but it glues together value chains, supply chains, consumer franchises, and organizations across the entire economy. And it accounts for a grossly disproportionate share of competitive advantage and therefore of profits." So whether the issue is supply chain strategy—which I've got to believe is one of the most important competitive advantages that any company should be working right now—or that of brand management, information is at the heart of it.

Combined Resources. The authors point out that historically, there were two essential aspects of information: richness and reach. There was an inverse relationship between the two: if you had rich information—highly detailed—you probably required intimacy to communicate it, which means that you had limited reach. If you had broad reach, had limited richness.

Evans and Wurster explain that one of the things that Japanese companies became known for during the 1980s—something that North American manufacturers replicated in earnest during the 1990s—was "deliberately narrowing their supply base...and then closely collaborating with their suppliers to maximize quality and minimize inventory and delivery time. They gained richness at the sacrifice of reach."

Reach Out. The key thing to recognize is that the `Net facilitates (a) connections and (b) communication in a way that literally obliterates the barriers of (1) space, (2) time, and (3) organization. That is, (a) because of search engines, you are able to fairly readily find both people and companies and (b) deal with them in either real time or by exchanging messages. It doesn't matter if the person you are trying to reach is on the other side of the world, in a different time zone (1, 2), nor are there issues related to the person's position within the organization (3): the person may not respond to your email, but you can get to his or her inbox. And more than just a "person," the `Net facilitates reach out to people whom you have never met, people who may have a resource that is extremely valuable for your business. There can be both richness and reach in an efficient and economical manner. And that changes the status quo. This new capability will cause what the authors call "deconstruction."

Virtual Is Now Real. There is the possibility that all of the consolidation that is going on in the supply base may be made irrelevant. People haven't talked about the "virtual corporation" for a number of years (a book with that title first appeared in 1992). When it was the buzz, it wasn't a practicality; now the `Net makes it possible. One of the reasons for supplier consolidation is because it minimizes the interfaces between organizations, which is unwieldy in paper space. But the `Net's reach and messaging capabilities eliminate much of the trouble. Isn't it possible that companies may be able to find those with complimentary resources on the `Net, be it specific capabilities or capacity (e.g., a machine shop with idle equipment), then pitch a project with the loosely confederated companies as a single entity? If this group gets the contract, then they work on in a seamless manner. Once it is complete, then they can go back on the `Net and post their availability for new programs. Ownership of bricks and mortar isn't what it once was. Evans and Wurster posit, "A sales force, a system of branches, a printing press, a chain of stores, or a delivery fleet—which once served as formidable barriers to entry because they took years and heavy investment to build—will suddenly become expensive liabilities." The same may be true of owning machinery, equipment, factories...The old model is blown to bits: deconstructed.

Although they claim, "Readers looking for Ten Rules for Succeeding in the Information Economy will be disappointed: we believe with some passion that the task of rethinking strategy is specific to each business and cannot be short-circuited by simplistic formulas," they do provide 12 guiding principles that should be taken to mind and heart by everyone in business. These are:

  1. No business leader today can presume that the business definitions in his or her business will still be valid a few years from now.
  2. Deconstruction is most likely to strike in precisely those parts of the business where incumbents have most to lose and are least willing to recognize it.
  3. Waiting for someone else to demonstrate the feasibility of decon-struction hands over the biggest advantage a competitor could possibly wish for: time.
  4. Leaders need to wrestle with the full range of possible patterns of deconstruction.
  5. Strategy really matters.
  6. The value of winning will escalate, as will the cost of losing.
  7. The reconstructed business definitions will rarely correspond to the old.
  8. The hardest step for an incumbent organization is the mental one of seeing the business through a different, deconstructed lens and then acting on this insight.
  9. The subtler pitfall is co-option and passive resistance by a skeptical and self-preserving organization.
  10. Strategy in a deconstructing world has to be generally right, but need not be specifically right, as long as the organization maintains a capacity to learn from its mistakes.
  11. The value of incumbents' best assets is all too often destroyed by the organization, behavioral, and personal baggage that they insist on bringing to the new venture.
  12. Incumbents can be the insurgents, if they choose.

And each of us can choose to try to hang on to the status quo, or we, too, can recognize the changes and work them to our advantages. And we'd better work them fast. In today's environment, there are the quick—and the dead.

Blown to Bits is required reading for anyone who wants to be igniting the fuse for their competitive advantage.