Strategyandbusiness2

Rethinking
(or Why Michael Porter Is Wrong about the Internet)

by Don Tapscott

strategy + business issue 24

content strategy & competition
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ina Netw

The Harvard strategy guru errs when he says partnerships erode competitive advantage, the author contends. Instead, they are now central to business success.

Strategy
orked World
For decades, the starting point for strategicthinking

content strategy & competition
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has been the stand-alone, vertically integrated corporation. These powerful companies do everything from soup to nuts and dominate the competitive landscape. We think of them as intrinsic to the economy, and they provide the context for theories about competitive strategy. Companies prospered with this model of production because it was cheaper andsimpler for them to perform the maximum number of functions in-house, rather than incurring the high cost, hassle, and risk of partnering with

outsiders to execute vital business activities. This is no longer true. The CEO of Boeing Company says his company is no longer an aircraft manufacturer; it has become a systems integrator. Mercedes-Benz doesn’t build its own E Class cars; the MagnaCorporation does the work, including final assembly. IBM has become a computer company that doesn’t really make its computers; its partner network does. Indeed, we are seeing spectacular growth in contract

Illustration by John Hersey

Don Tapscott (dtapscott@ digital4sight.com) is president of the New Paradigm Learning Corporation and co-founder of Digital 4Sight, a company that designs andimplements new business models for corporations. He is the coauthor, with David Ticoll and Alex Lowy, of Digital Capital: Harnessing the Power of Business Webs (Harvard Business School Press, 2000).

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manufacturing — with companies such as Celestica, Flextronics, and Solectron partnering with computer and telecommunications vendors to provide core electronics manufacturing services. Virtuallyovernight, the top five contract manufacturing firms have achieved aggregate revenues of more than $50 billion, averaging return on invested capital of more than 25 percent. All of this is possible because of networking — specifically, the Internet. This deep, rich, publicly available communications technology is enabling a new business architecture that challenges the industrial-age corporate structureas the basis for competitive strategy. My colleagues at Digital 4Sight and I have studied hundreds of different examples of this architecture, what we call a business web, or b-web. We define it as any system composed of suppliers, distributors, service providers, infrastructure providers, and customers that uses the Internet for business communications and transactions. B-webs across industries,in which each business focuses on its core competence, are proving to be more supple, innovative, cost-efficient, and profitable than traditional vertically integrated competitors. Established companies, not dot-coms, are the main beneficiaries of b-web thinking. Successful businesses such as Citibank, Herman Miller, Schwab, American Airlines and Dow Chemical, are now transforming themselves bypartnering in areas that were previously unthinkable. The performance advantages of a b-web also explain why new Internet - based companies such as eBay,Travelocity, E-Trade, and Amazon are growing dramatically and competing well despite volatility in their stock prices. And b-webs explain why an upstart e-business entity like Napster is wreaking havoc in the music industry, and why open sourcesoftware

such as Linux poses a huge threat to Microsoft. Profound changes to the deep structures of the corporation are under way. Yet most of this underlying restructuring has been either unnoticed or underappreciated by the financial media and business schools. They remain shell-shocked at the rise and collapse of the Nasdaq. And since “Nasdaq” and “New Economy” are so frequently (but incorrectly)...