The Idea in Brief
Does the Internet render established rules about strategy obsolete? To the contrary, it makes them more vital than ever.
Why? The Internet weakens industries’ profitability, as rivals compete on price alone. And it no longer provides proprietary advantages, as virtually all companies now use the Web.
The Internet is no more than a tool—albeit a powerful one—that can support or damage your firm’s strategic positioning. The key to using it most effectively? Integrate Internet initiatives into your company’s overall strategy and operations so that they 1) complement, rather than cannibalize, your established competitive approaches and 2) create systemic advantages that your competitors can’t copy.
Integrating Internet initiatives enhances your company’s ability to develop unique products, proprietary content, distinctive processes, and strong personal service—all the things that create true value, and that have always defined competitive advantage.
The Idea in Practice
The Internet’s Influence
The Internet powerfully influences industry structure and sustainable competitive advantage.
Industry structure derives from the basic forces of competition: competitor rivalry; entry barriers for new competitors; the threat of substitute offerings; and the bargaining power of suppliers, channels, and buyers. How does the Internet affect these forces?
- s an open system whose technological advances level most industries’ playing fields—thus intensifying competitive rivalry and reducing entry barriers. It’
- It dramatically increases available information, shifting bargaining power to buyers.
Sustainable competitive advantage comes from operational effectiveness (doing what your competitors do, but better) or strategic positioning (delivering unique value to customers by doing things differently than your competitors).
Most companies define Internet competition in terms of operational effectiveness (speed, flexibility, efficiency). But because competitors can easily copy your firm’s advances in these areas, strategic positioning becomes most important.
The Internet as Strategic Complement
Although the Internet makes it difficult to sustain operational effectiveness, it makes it easier to maintain strategic positioning. How?
- you create a customized, common information technology platform for all your company’s activities—resulting in unique, integrated systems that reinforce the strategic fit among your firm’s many functions. Even better, competitors can’t easily imitate these systems. It lets
- Rather than cannibalizing your traditional ways of competing, it can complement them. For example, the Walgreens drugstore chain provides on-line prescription ordering. Because 90% of customers who order over the Web prefer to pick up their prescriptions at a store, Walgreens brick-and-mortar business benefits.
- By integrating virtual and physical activities to compensate for the Internet’s performance limits (e.g., customers can’t physically touch and test products), companies gain competitive advantage. For example, if you use your Web site to attract customers and draw them to flesh-and-blood salespeople who provide personalized advice and after-sales service, you reinforce connections—and strengthen sales.
The question isn’t whether you should use the Internet or traditional methods to compete; it’s how you can use both to your greatest strategic advantage.
The Internet is an extremely important new technology, and it is no surprise that it has received so much attention from entrepreneurs, executives, investors, and business observers. Caught up in the general fervor, many have assumed that the Internet changes everything, rendering all the old rules about companies and competition obsolete. That may be a natural reaction, but it is a dangerous one. It has led many companies, dot-coms and incumbents alike, to make bad decisions—decisions that have eroded the attractiveness of their industries and undermined their own competitive advantages. Some companies, for example, have used Internet technology to shift the basis of competition away from quality, features, and service and toward price, making it harder for anyone in their industries to turn a profit. Others have forfeited important proprietary advantages by rushing into misguided partnerships and outsourcing relationships. Until recently, the negative effects of these actions have been obscured by distorted signals from the marketplace. Now, however, the consequences are becoming evident.
