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Spider vs Spider

Spider vs Spider

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Published by prakhar singh

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Published by: prakhar singh on Nov 10, 2009
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03/06/2013

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STRATEGY
4 THE McKINSEY QUARTERLY 1996 NUMBER I
 
Are "webs" a new strategy for the information age?The key question: should you adapt or shape?How much ofthe wealth do you share?Managing the dynamics of increasing returns
John Hagel III
I would like to thankEric Beinhocker.Dick Foster, Joe Heel.Will Lansing. TetsuyaMori, Mike Nevens,Patil Sagawa. OlivierSibony, Jayanl SInha,Chuck Stucki. andSoimi Subtamaniamlor their contributionsto the thinking on webstmlcgics. In addition.McKinsey's StrategyTheory Initiativeand the MultimediaPractice have activelysupported thedevelopment of theideas presented inthis article.
1
havealso benefited fromthe writings of, andconversations with,Brian Arthur andStuart KaulTman ofthe Santa Fe Institute.
John llafivl
is aprincipal in McKinsey'sSilicon Valley office.Copyright 'C 1996McKinsey & Company.All rights reserved.
W
HAT DOES IT MEAN when oiie
of
theworld's biggest matiufacturers of
personal computers fitids it difficultto stay itidependent? In the old days, biggermeant more powerful - and often a highmarket multiple too. Butnow,just the oppositemay be true.Think of Netscape, a company that barely existed18 months ago, and even today numbers onlya couple of hundred employees. Is Netscapeovervalued? Perhaps. But if you consider howquickly it has mobilized other eompanies to sup-port and implement its technology, you begin tosee why the excitement may
be
justified.Netscape exemplifies a new form of industrialstructure. "Webs" are clusters of companies thatcollaborate around a particular technology.Probably the best-known is the Microsoft andIntel personal computer
web,
in which hardwareand component makers, software developers,channel partners, and training providers com-bine to deliver the overall value proposition of
a
Windows PC. Other webs have formed aroundNovell's PC networking systems and SAP's inte-grated enterprise IT solution for manufacturers.
THE McKINSEY QUARTERLY t996 NUMBER
 
SPIDER
VERSUS
SPIDER
Webs emerge from the turmoil wrought by uncertainty and change. Theyspread risk, increase flexibility, enhance an industry's innovation capa-bility, and reduce complexity for individual participants. They arecharacteristically the work of a single architect or shaper, which (unlike amonopolist) maximizes the size of the web by givitig away value lo othercompanies. The more companies - and customers - that join, the strongerthe web becomes.Webs create powerful new ways to think about strategy, risk, technologicaluncertainty, and innovation. They help us see why the virtual company maybe more than just an abstract concept. They influence management focus,organizational structure, perfortnanee measurement, and informationsystems. They may even represent the opening salvo in the transition frotnindustrial-age to information-age strategies.What are webs?An economic web is a set of companies that use a common architectureto deliver independent elements of an overall value proposition that growsstronger as more companies jointhe set. Before a web can form, two Webs may represent theconditions must be present: a tech-
^.^.^^ ;^ ,|^g transitionnolog.cal standard and increasing ,._.^^ industrial-age toreturns." The standard reduces risk informatiotvage strategiesby allowtng cornpanies to makeirreversible investment decisions inthe face of technological uncertainty. The increasing returns create amutual dependence that strengthens the web by drawing in more and morecustomers atid producers.Webs are not alliances, however. They operate without any formal relation-ships between participants. Each company in a web is wholly independent;only the pursuit of economic seif^-interest drives it into web-likc behavior. Itprices, markets, and sells its products autonomouslyWebs are a natural response to environments fraught with risk and uncer-tainty - which is why they are so prevalent in high-technology arenas. The"safety net" created by the other participants in a web allows a firm to focusexclusively on activities in which it can offer distinctive value. In this way,webs reduce overall itivesttncnt requirements, focus individual participants'investments on areas most likely to succeed, and promote the emergence ofmultiple suppliers for bottleneck components.
"
See
W Brian Arthur,
Increasing Returns and Path Dependence in the Econtwiy.
University ofMichigan Press, Ann Arhor, 1994;
also
"Positive leedhacks in the economy,"
The
McKin.sey
Quarterly.
1994 Number I. pp.
81
95.
THE McKINSEY QUARTKRLY 19% NUMBER I

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