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What Makes the Internet Different?

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A lot makes the Internet different — community, collaboration, commerce, and a few things that don't start with "c". James Cortada examines some of the more profound changes that will soon affect you as a manager.
This article is excerpted from chapter 4 of James Cortada's book, 21st Century Business: Managing and Working in the New Digital Economy.

What makes the Internet different is that work and opportunities change from those of the past, and often profoundly and swiftly. Take opportunities as an example. One type of change concerns the content or work and knowledge because information can be shared across the entire value chain quickly and cost effectively. Schwab provides its customers with a great deal of information about companies that they and other brokers used to charge for, with the result that customers can now do their own research and then place their own orders. Egghead Software began selling its products through the Internet, thereby eliminating the need for retail stores (roughly 80 percent of their employees) while providing information and services to their customers.

A second innovation touched on earlier in this book is the changing nature of commerce, where business-to-business transactions have increased and become more comprehensive via the Net. Now that initiative is being extended to customers. Then there is the third innovation, the collaboration made possible by easier-to-use software tools and the Internet to connect people and processes, employees to customers and to suppliers. We can expect more of these kinds of activities when they make sense. Will everyone rush to them? As I suggested in Chapter One, there is a fundamental change underway, sweeping across most industries at a fairly rapid rate. The only thing we do not know, however, is exactly how fast. It seems everyone is commenting on the topic, with most predicting rapid change, probably faster than it will occur. How fast is irrelevant anyway. Companies are reacting to the Internet and adopting its capabilities when it makes sense to their employees. If they guess wrong, competition bites them, move too early and they make mistakes. Move at a good clip, applying sound management practices, and a company arrives at a new way of making money.

Sound management practices include taking the experience you have with e-mail and networks and extending these to a larger pool of customers and suppliers, using the Internet to link everyone who is part of a supply chain closer to your value chain. The sound business practice is about taking measures to maintain clean information files securely and finding practical uses for this data. It calls for applying data mining techniques to use information one has to improve knowledge or market conditions in real time. For a long period of time—probably for the rest of our careers—we will have one foot planted in more traditional ways of doing business. With the other we will initially dip a few toes into the new, then eventually the whole foot into e-business.

We are now at a point where we can actually begin to see the pattern at work, thanks to the actions of early entrants. At IBM, e-business experts began uncovering a pattern of adoption by corporations in the late 1990s, a pattern of sufficient definition that they began to think of these adoptions as waves. Each wave has characteristics, and there are cases they could point to as examples. So far, they have identified three waves. During the first wave, companies are essentially operating as always, but adding Internet activities to enhance revenue, speed to market, and product innovation. Organizations in both the private and public sectors are interested in lowering existing operating costs while simultaneously enhancing services to customers and clients. Market reach is very much a part of this process. So firms use distance learning to lower training costs, or provide customer service online to do the same, while collecting some data on their interests. National Semiconductor, for instance, does extensive data mining to help inform its engineers about what new products to design, while state government agencies allow citizens to renew licenses over the Net. But the key behavior seen in Wave 1 is near-term performance enhancement.

It is during the second wave, however, that substantive change occurs, as new business models emerge based on emerging technologies. There is more extensive use of IT, new classes of intermediaries are introduced, and it is now when global supply chain integration occurs. Outsourcing of noncore activities accelerates. Value chains evolve into value nets. Firms are now deeply into e-commerce as well. Existing firms reinvent many of their offerings. Those that have done this include Bank One, Barnes and Noble, Charles Schwab, Cisco Systems, Dell Computer, IBM, and UPS. In short, the transformation cuts across many traditional industries. Other companies are born, the sorts of firms the University of Texas study suggested. Some of the better-known ones include Amazon.com, AOL, eBay, E*Trade, Yahoo!, and Priceline.com.

A third wave began emerging at the end of the 1990s, suggesting that even more profound changes await managers. In this phase, businesses are totally redesigned from top to bottom, while traditional organizational and industry boundaries dissolve. These changes lead to new bases of competition and obviously to new cost models. Everything seems very electronic. Figure 4–1 graphically illustrates the three waves. The learning point from this figure is that one

Figure 4.1 Waves of Business Transformation

The business literature about the Internet would suggest that everyone is somewhere deep in Wave 2 or 3. Nothing could be farther from the truth. The reality is different; firms live in various waves, and even portions of an enterprise participate in various waves. IBM is an example. Some departments are clearly in Wave 1, others in Wave 3. IBM's competitors are all over the place, from Wave 1 through Wave 3, complicating the competitive response of the firm since it must be effective across all three. This is the same challenge other firms face, and why ultimately so many executives worry about the impact of the Internet. These waves are simply evidence of the fact that firms and economies are in a period of transition, with one foot in the old world and the other in the new.

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