Philip Evans

Thomas S. Wurster

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">The Idea in Brief</h4>
 <div class="ideainbrief-contents">
 What will happen to category killers such as Toys “R” Us when a search engine gives consumers more choice than any store? What will be the point of having a supplier relationship with General Electric when GE can post its purchasing requirements on an Internet bulletin board and entertain bids from anybody?
 Say hello to the momentous choices facing companies in the age of connectivity. Even if you never thought of your company as being in the information business, it is today. Which is why strategy has never been more important.
 The Idea in Practice
 Information has two basic elements:
 <ul>
 <li>Reach means the number of people, at home or at work, exchanging information.</li>
 </ul>
 <ul>
 <li>Richness has three components: bandwidth (the amount of information that can be moved from sender to receiver in a given time); customization (whether the information is tailored for an audience of a particular size); and interactivity (the extent to which the involved parties can converse).</li>
 </ul>
 Before the days of connectivity, the informational components of value were constrained by the physical value chain that delivered a product or service. If you wanted to deliver a lot of highly customized, highly interactive information to people, you either had to pay a lot of money or settle for communicating with a limited number of people. You had to sacrifice reach for richness, or vice versa.
 But now no such tradeoff is required. Everyone is able to have incredibly rich communication with everyone else. And communicating with customers can occur without the costs of building and maintaining sales forces, branch systems, and the like. The strategic and competitive implications are huge:
 <ul>
 <li>Bargaining power shifts to consumers as it becomes increasingly difficult for companies to control access to information. For example, car buyers can now obtain financing by putting their business out for bid via an electronic broker. The value of one-stop shopping and established relationships is diminishing. Competitive advantage is being determined on a product-by-product basis. And it is easier for customers to switch from one supplier to another.</li>
 </ul>
 <ul>
 <li>Existing value chains will fragment into multiple businesses that have their own sources of competitive advantage. Specialty companies will enter the market focusing on areas where established companies are vulnerable. Operating on lower margins, the specialists will be able to offer lower prices, and so will steal customers away from the established companies.</li>
 </ul>
 Example:&nbsp; 
 The Encyclopaedia Britannica was once a powerhouse brand. But it was tied to the economics of selling information via a direct sales force. With their much lower cost structure, CD-ROMs transformed the way customers thought about the information Britannica was selling. Since 1990, sales of Britannica’s multivolume sets have dropped more than 50%. 
 To adapt to the new economics of information, you need to be able to deconstruct your business. Start by asking the following questions:
 <ul>
 <li>How and where in your value chain does information reside?</li>
 </ul>
 <ul>
 <li>Where are you making tradeoffs between richness and reach?</li>
 </ul>
 <ul>
 <li>How can these tradeoffs be eliminated?</li>
 </ul>
 <ul>
 <li>Which activities—especially informational activities—could function as stand-alone businesses?</li>
 </ul>
 </div>
</article-ideainbrief>A fundamental shift in the economics of information is under way—a shift that is less about any specific new technology than about the fact that a new behavior is reaching critical mass. Millions of people at home and at work are communicating electronically using universal, open standards. This explosion in connectivity is the latest—and, for business strategists, the most important—wave in the information revolution.

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Strategy and the New Economics of Information

A fundamental shift in the economics of information is under way—a shift that is less about any specific new technology than about the fact that a new behavior is reaching critical mass. Millions of people at home and at work are communicating electronically using universal, open standards. This explosion in connectivity is the latest—and, for […]

Strategy and the New Economics of Information

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