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Competing in a Networked Economy

March 10, 2014

The Process of Creative Destruction

Level of complexities
1960

1970

Creative Destruction

1980

1990

2000

2010
Source: Adapted from”Creative Destruction”

Time for a Model Change
Industrial Model
 Make and Sell  Mass Production  Channel Focused  Processes are Internally Focused  Financial Measures Information Model
Sense Mass

and Respond Focused

Customization

Customer

Processes

are

Externally Focused
Customer

Measures

Managerial Change Mass Production Product Mass Customization Control Order Coordination Multi-National Market Scope Global Production Orientation Customer Formal Plan Planning Visioning 1960 1970 1980 1990 2000 2010 .

Technological Change Inherent Connectivity Technology Focused Applications Consequential Interoperability Business Strategy Focused Extended Enterprise Management Departmental Scope Support Role Strategic Partnershis 1960 1970 1980 1990 2000 2010 .

Organizational Change Large Size Flexible Mergers & Acquisitions Economic Relationships Strategic Alliances Paper Communications Electronic Functional Hierarchy Structure Networked 1960 1970 1980 1990 2000 2010 .

Ariba (original format) .Thus exploiting the Value of Information Supply Chain for the Physical Marketplace Inbound Logistics Production Processes Outbound Logistics Marketing Sales and Distribution Service Supply Chain for the Information-based Marketspace Gather Organize Select Synthesize Distribute Metal Junction.

Leading to changes in organizational design The Physical Marketplace Content The Information-based Marketspace Disaggregation of organisation Airtel Context Infrastructure .

The Net connects People Communities Auctions Chat Businesses Supply Chain Customer Care Human Resources Things GPS Terminals Net Appliances Smart Homes Internet of Things .

The Net Separates Retail Banks Quicken.com aggregates financial service offerings • Retail banks left with a reduced scope of offerings Consumers .com Insurance Firms Mortgage Firms Investment Firms Credit-card Firms • Quicken.

iVillage.com AutoIndia Financing Insuring Repairing Marketplace Auto Spares manufacturers dealers Newspaper classified Financing Warranty firms firms Mechanics Metamediaries operate in the marketspace to align the marketplace with cognitive space.The Metamediary! Evaluating Staying informed Reselling Servicing Negotiating Used car dealers New car dealers Insurance companies Cognitive space Buying Metamediary Carwala. Eg Wedding Planner. .

In Search for a Competitive Advantage Optimizing Value Chain Relationships Differentiate or create new products/services Improve cost position .

(MS vs. destroy" happens faster and more intensely than ever before. Social Media.undoing what was perfected The cycle of "find. Online industry) –  The ideal environment for cultivating the unknown is to nurture the agility and nimbleness of networks. Apple.New rules in the networked workd  Wealth in this new regime flows directly from innovation. But by imperfectly seizing what is unknown. not optimization . Abandoning the highly successful known .wealth is not gained by perfecting what is known.   Creative Destruction . nurture.

Applying Universal Value Chain  Underlies all businesses  Making something         Design Raw material Manufacturing Service delivery Finding and reaching customers Transaction Distribution Post sales relationship  Selling something .

Some Successful Businesses to learn from  eBay  Dell  Amex  Bronner Slosberg Humphery .

The Facebook syndrome  New research  Application of Bass’s curve     Demographic depletion Fatigue Loss of initial value Innovation trigger .

Thus. where does it leave the true spirit of management of strategy? .

Some questions about Technology and Competition  How stupendous has been the impact of the Internet technology on the industry?  Which industries have been affected the most?  What do some leading researches and academia like Porter have to says about the “onslaught of the Internet”  What should we really do as business decision makers? Confidential .

the Internet companies create biz models on untested assumptions  Tend to erode the attractiveness of their industries and undermined their own competitiveness  Using Internet to shift the basis of competition away from quality. rendering all the old rules about competition and companies obsolete  Many companies esp.the Internet changes everything.The situation as of today  Key Assumption . Confidential . features and service to price  Making it harder to turn profits.

Thus new challenges  Who will capture the end economic benefits?  Will all the value go to consumers or will the companies be able to reap any benefits? eCom  Will the Internet help or erode the ability of the companies to gain sustainable competitive advantage? Confidential .

The Impact of Internet  Alters overall industry structure in a way that dampens profitability of the firms  Has a levelling effect on the business (SAP? Same channel…)  Reduces the ability of firms to establish sustainable operational advantage (Processes of online companies tend to be similar)  Success on the net will call for complementing the traditional ways of competing Confidential .

GM’s and Nolkia’s experince on FB) Confidential . facebook)  Market behaviour can be distorted giving rise to wrong interpretation (Online advertising.Why?  New technologies signals can be unreliable (first wave of e- com companies)  They trigger rampant experimentation which can be economically unsustainable (Social media – orkut.

 When prices are artificially low. unit demand becomes artificially high (Flipkart)  Curiosity.They can Distort Revenue figures  Subsidized products and services to gain customer traction not sustainable.  Buyer pay reduced costs not reflecting true value of the product.  Tend to go back to their original mode of buying after the subsidy ends Confidential . not many genuine reason to go to the net  Thus do not have longevity.

Much of Amazon revenue in 2008 of $ 450 Mn came from stocks given to their partners.  Stock has dubious value. not reflecting true cash value.  Inability to monetize in an acceptable time frame drives unethical behavior to satisfy the investors Confidential .Distorted Revenue figures  Some revenues in the form of stocks and options rather than cash.

Costs can be equally distorted  Subsidized inputs not sustainable  Eager new suppliers ready to oblige initially  Many content providers work for free  Agreement to pay later when the company turns corner may put huge burden on future cash flows  This artificially depresses the costs  Stock values decoupled from the fundamental has disastrous effects on the overall industry  Have conveniently downplayed the traditional measures of profitability Confidential .

Giving rise to new measures loosely connected to the true economic value  Click thru rates  Eyeballs  Site visitors  Likes on the face book  Tweets  Reach  Face book way of calculating future value of its 900 Mn users Confidential .

A return to fundamentals Industry structures Sustainable competitive advantage Confidential .

low differentiation. low     avenues to build value. However this money reduces switching costs making the industry vulnerable. Confidential . One page allows you to draw all information from various site. No personal contact hence low brand affinity.Giving rise to some challenges  Reduces companies / brands to parity. leaving little choice but to compete on price Far too many undifferentiated products putting pressure on pricing – destructive pricing Undifferentiated methods of ecommerce – PayPal’s e-wallet allows you to shop without sharing card or personal data.

 It leads to unwanted price wars and discounting  Leads to unhealthy business practices Confidential . making differentiation difficult to sustain and leads to unnecessary pressures.Conclusion  The Internet based models are largely untested  It has thus brought imbalances in the industry structure.

So how do we deal with it  Some successful examples      Ingram Micro vendor and partner relationship  Metal Junction  Auto Industry and the Internet Traditional Retail and the Internet (?) Express companies .FedEx Embedded process in the brick and mortar companies Information based transaction – value to customer for deciding brand choice Confidential .

Six Principles of Strategic Positioning on the Internet Confidential .

Right Goal  Superior long term returns. Confidential .  Creation of economic value.1.

2. Must deliver a value proposition  Set of benefits different from those of competition  Must define a way of competing that delivers unique value in a particular set of users Confidential .

marketing. HR and environment handling  Avoid best practices and be different Confidential .3. Reflected in distinctive value chain  Define your value chain wrt manufacturing. service delivery. logistics.

practices or activities in order to be unique  Important to build your plan that reflects choices and what you are willing to accept or let go. ideas.4. Confidential . Trade offs  Must forgo some features.

hence they must fit in well and strengthen each other. Identify the weak link Confidential . The Fit  Do all the elements fit in well with each other? Do they synergize with each other?  All the elements of the value chain are interdependent.5.

 Avoid frequent “corporate reinventions” Confidential . Continuity and direction  Unique skill and assets take long time to build  Continuity is a prerequisite to build a strong reputation with the customers.6.

Internet Value Chain  Firm Infrastructure – web based ERP. automated Pricing. global       campaign development (Bacardi) Procurement – real-time info. CRM. sales automation Confidential . product catalogues.  Technology development – collaborated product design. financials  HR –self service personnel. web based training. shipping. online RFPs Inbound logistics – scheduling. Customer profiling After sales service – online bots. (Zara) Operations – Wal-Mart's cross docking Outbound logistics – collaborative integration with customer forecasting system Marketing & sales – online acquisition.

On the Internet Be different Be unique Be meaningful Confidential .