CH6 New Strategies for the Network Economy by Feng

8/18/2019 CH6 New Strategies for the Network Economy by Feng

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Part ||Emerging Strategies and Business Models in the

Network EconomyChapter 6,7,, and !

"he new #usiness en$ironment has changed inse$eral important aspects,

this change re%uires organi&ations to adopt newstrategies, #usiness models and new organi&ationaldesigns, de$elop new ways o' doing #usiness andmanage disrupti$e inno$ations e(ecti$ely


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New Strategies 'or the NetworkEconomy

)e# Strategy, Business *n#undling, and +irtual

rgani&ation• "his chapter -rst illustrates the we# strategy de$eloped #y .agel andcolleagues, and e/plores its implications 'or today0s organi&ations inthe knowledge1#ased, network economy2

• 3ollowing this, the chapter e/amines the deconstruction o' $aluechains and integrated #usiness models and, in particular, how this

might #e done2• 3inally the chapter discusses the $irtues and potential pit'alls o' the

$irtual organi&ation

• these are only some e/amples o' emerging strategies and #usinessmodels in the new #usiness en$ironment, and they are used toillustrate that the #usiness en$ironment is indeed $ery di(erent 'rom

the past, and under some circumstances new strategies and #usinessmodels are needed 'or organi&ations to compete e(ecti$ely today2

• "hese new strategies and #usiness models are closely linked to someo' the new rules o' the network economy discussed in chapter 42

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New Strategies 'or the Network Economy)e# Strategy, Business *n#undling, and +irtual rgani&ation

• "he changing #usiness en$ironment re%uires organi&ationsold and new to de$elop new strategies and #usiness models2

• ne such strategy that has emerged in recent years is theso1called 0we# strategy0,

•

"he we# here is not the )orld )ide )e# although thenternet plays a critical role in the emergence o' this strategyin many industries82 9ather, the we# re'ers to 0clusters o'companies that colla#orate on a particular technology02

• "he concept o' the 0we#0 o$erlaps with another popular

concept in the studies o' inno$ation 1 0clusters0, – #ut clusters usually ha$e a strong geographical connotation which

is not necessarily important 'or a we#2 n contrast,

– we#s are primarily concerned with technological standards, orcustomer or market segments2

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New Strategies 'or the Network Economy)e# Strategy, Business *n#undling, and +irtual rgani&ation

• .agel regards the we# as a – natural response to en$ironmental uncertainty and risks,

– and we#s create power'ul new ways to think a#out strategy,risk, technological uncertainty and inno$ation2 ;i(erent 'rom

traditional strategic alliances or supply chains, – the we# e/plains how independent companies cluster around

particular technological standards or customer segments todeli$er comple/ $alue propositions to the -nal consumers2

• "his strategy re%uires #usiness e/ecuti$es to ree$aluate

their management 'ocus, organi&ational structure,per'ormance measurement, and in'ormation systems,

• "he we# strategy also highlights the pro'oundsigni-cance o' $irtual organi&ations n the new economy2

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New Strategies 'or the NetworkEconomy

)e# Strategy, Business *n#undling, and +irtual

rgani&ation• +irtual organi&ation is unlike we# strategy,

– the $irtual organi&ation illustrates situations where a cluster o'independent companies acti$e with each other to e/ecute a pro


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"he )e# Strategy

• .agel de-ned we#s as clusters o' companiescolla#orating around a particular technology2

• E/amples o' we#s include the Microso't ntelplat'orm, S=P integrated " solutions, Netscape and

the Sony PlayStation2• "he we#s create conditions where#y each company

within them mo#ili&es the support o' othercompanies to achie$e its own o#


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"he )e# StrategyClassi-cation o' the )e#

• Economic we# – is a cluster o' companies that use a common

architecture to deli$er independent elements

o' an o$erall $alue proposition to -nalconsumers2

– ne e/ample o' an economic we# is theMicroso't and ntel personal computer we# 1

the )intel we#2 – )ithin the we#, independent companies

com#ine to deli$er the o$erall $alueproposition o' a )indows PC2

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• "he mem#ers o' the we# are independentcompanies, and $ery o'ten they don?t know 1indeed, do not e$en need to know 1 most othermem#ers o' the we#

• =ll companies in the we# are wholly independent@they price, market and sell their productsautonomously2

• t is the pursuit o' economic sel'1interest that #rings

them into the we#2• a participant o' the we# rarely needs to de$elop

any 'ormal relations with the ma


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• "echnology we#, – where a cluster o' independent companies

organi&e around a particular technological

plat'orm2 – "he rapid de$elopment o' the nternet and

related technologies allows a growing num#ero' industries to un#undle their $ertically

integrated #usiness models to allowspeciali&ed, independent players to enter themarket2

– E/ampleA online ser$ice

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• *n#undling has created more than $irtualorgani&ations, – #ecause the pro$iders o' $arious ser$ices are

independent and they pro$ide their ser$ices tomultiple #uyers, and many o' these #uyers could#e competitors2

• n doing so the technology we# – lowers the #arrier o' entry, to allow new entrants

to concentrate on what they are good at and

– o#tain the rest 'rom other participants o' the we#2


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• +alue we#2 – t operates within the technology we#2

– "he technology we# 'ocuses on ma/imi&ing $alue

to the customer2 – whereas the $alue )e# 'ocus on creating $alue

'or a speci-c group o' companies that ha$eadopted a common technology plat'orm2

•

E/amples are the $alue we#s in the desktop1computing technology we#2 =pple?sMacintosh $ersus the PC #y Microso't andntel


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• )e#s do not necessarily 'ormulate aroundtechnology2 "wo other types ' we# are emerging @the customer we# and the market we#,

• the customer we# 'ocuses – on managing the ownership o' customer relationships and

customer segments2

– By de$eloping and maintaining deep relationships with aparticular segment o' customers,

– a company could then le$erage this special relationshipand deep understanding to ser$e a wide range o' theirneeds #y -nding and deli$ering the most suita#le productsand ser$ices they need 'rom the market and ma/imallysatis'y each customer2

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• Similarly, a market we# – 'ocuses on a speci-c type o' transaction

#y de$eloping deep relationships 'or a

particular need with all customers2 – e/ample, a portal 'or mortgages is the

'ocal point o' a market we#2

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"he )e# Strategytwo conditions o' an economic we#

• .agel illustrated two conditions that must #e present #e'ore aneconomic we# can 'orm@ a technological standard and increasingreturns2

• )hen competing technology standards e/ist in a market, – = common standard reduces risk #y allowing companies to make

irre$ersi#le in$estment decisions in the 'ace o' technological uncertainty2 – = technological standard pro$ides the sta#ility and sa'ety net 'or -rms to

make dedicated in$estmentsA and those who own or control the standardcan o'ten e/tract disproportionate reward 'rom it2

– a company o'ten has to take huge risks when selecting which standard to'ollowA

–

and once the decision is made, it is o'ten irre$ersi#le2 So 'ollowing thewrong standard could #e costly and strategically damaging to the company2

• "his to some e/tent e/plains why some companies gi$e away theircore technologies and products to #oost widespread adoption #yusersA

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"he )e# Strategytwo conditions o' an economic we#

• "he second condition o' an economic we# isincreasing returns, – )hich creates a mutual dependence that strengthens

the we# #y drawing in more and more customers and

producers2 – "his is closely linked to the -rst condition, "his creates

a $irtuous, a positi$e 'eed#ack loop, drawing in e$ermore companies and consumers and increasing thesi&e o' the whole market e/ponentially2

– "he result is increasing returns 'or e$eryone within thewe# 1 the more people


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"he )e# StrategyCharacteristic o' the )e#

• "he we# has se$eral key characteristics2

• )e#s are not alliances association8, #ecause $ery o'tenthere is no 'ormal relationship #etween the ma


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"he )e# StrategyCharacteristic o' the )e#

• "he sa'ety net o' the we# allows a -rm – to 'ocus e/clusi$ely on acti$ities where it can o(er distincti$e

$alue,

– and the common standards ensure that the products andser$ices o(ered #y one company can work together with those

'rom other companies in the we#2

• "he increasing returns ser$e to attract more and morecompanies and customers into the we#2 there#y ena#lingcontinued growth2

• "he we# – reduces the o$erall in$estment re%uirements #y a company to

enter the market,

– and it allows the company to 'ocus in$estments on areas mostlikely to succeed2

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9oles 'or di(erent players in a we#@ shapers and adapters

• = company can per'orm one o' two roles in awe#@ a shaper or an adapter2

• Each role can potentially create su#stantial $alue#ut the strategies they need to pursue and thetactics they ha$e to adopt di(er signi-cantly2

• 3or shapers, the central task is to de-ne andinDuence the en$ironment in order to enhancetheir a#ility to create $alue2

• =dapters 'ocus on staying ahead o' competition#y anticipating and responding to en$ironmentalchanges %uickly2


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9oles 'or di(erent players in a we#@ shapers and adapters

• "o illustrate the di(erences we can e/amine thestrategies and tactics o' Microso't and ;ell inthe desktop computing we#2

•

=s a leading shaper o' this we#2 Microso't hasconcentrated on – controlling and de$eloping key technologies and

relationships in the computer arena and using thesepositions to shape the we#2 Either accidentally or

deli#erately, – Microso't managed to esta#lish MS1;S, and then

)indows, as the de facto operating system 'or PCsaround the world2

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9oles 'or di(erent players in a we#@shapers and adapters

• n contrast, ;ell0s desktop #usiness has 'ollowed a$ery di(erent strategy2 ts 'ocus is to use its low1cost #usiness model to o(er customi&ed productsat a low price and high %uality2

• *nlike Microso't, ;ell0s success depends on itsa#ility to e/ploit near1term product opportunities inthe Microso'tntel $alue we#2

• ts marketing has 'ocused on product e/cellence

and customi&ation, low cost and comprehensi$eser$ice, rather than trying to de-ne new standardsor create a new architecture to ri$al Microso't0s)indows2

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9oles 'or di(erent players in a we#Shapers? Condition

• the ownership o' a key plat'orm technology is essential, whichshapes the #roader architecture and pro$ides long1term lock1in o'other participants in the we#2

• "he shapers also need to deli#erately on purpose8 un#undle their#usinesses to release pro-ta#le opportunities 'or other we#

participants so as to attract companies to enter the we# and createconditions o' increasing returns2

• 3or the shaper owning a smaller slice o' a large and rapidlye/panding we# is o'ten 'ar more pro-ta#le and -nancially more$ia#le 1 than controlling a large slice o' a small and stagnated we#2

• ts strategic 'ocus needs to go 'ar #eyond the organi&ation0s own#oundary, #ecause its success depends not only on how eFcient orinno$ati$e it is internally, #ut also, more importantly, on howsuccess'ul the we# is2

• By speeding up the adoption o' core technologies and e/pandingthe range o' we# participants,

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9oles 'or di(erent players in a we#=dapters? conditions

• 'or an adapter to #e success'ul,

• early participation in $alue we# is essential 'oresta#lishing pre1empti$e positions in attracti$e markets2

• "he adapter must pursue market shares in the $alue

we# through aggressi$e competition and strengthenrelationships with the key shapers 'or in'ormation on thelatest de$elopment2

• Strategically they could – either link their own strategies with key shapers or

– include se$eral competing we#s, although the latter can #ee/pensi$e and o'ten re%uires large scales2

– 3or e/ample, a games company could de$elop gamesplat'orms, #ut there are serious cost and skill implications2

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"he implications o' the we# strategy

• "he implications o' the we# strategy are $ery pro'ound,

• it create power'ul new ways to think a#out strategy,risk, technological uncertainty and inno$ation

• allows companies to manage risk and generate

inno$ation in today?s comple/, rapidly changingen$ironment2

• 9educe risk – t ena#les companies to reduce risks #y 'ocusing on what they

are genuinely good at

– increases De/i#ility and reduce the o$erall in$estmentre%uired #y each company and lowers the #arriers o' entry2

– reduce risks 'or all participants in the we# #ecause i' onecompany 'ails multiple companies will take it place2

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• Encourage nno$ation – "his mechanism encourages multiple entries in

#ottleneck areas or in areas occupied #y companieswithout distincti$e capa#ilities,

– pro$ide opportunities 'or inno$ati$e companies tosucceed2

– encourages competition

– "he we# also encourages inno$ation #ecause

in'ormation is distri#uted 'ar more widely andcomprehensi$ely than in a con$entional marketplace2

• "his ser$es to #oost 'unctionality, ser$ice andcustomer adoption2

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• Strategy – t ena#les participant to un#undle their

#usiness so they can 'ocus on distincti$e

competence whilst outsourcingundi(erentiated #usiness acti$ities2

– t re%uires participants, especially theshapers, to #roaden their strategic 'ocus,'rom ma/imi&ing $alue to themsel$es toma/imi&ing the $alue o' the we# as well2

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•Management – it re%uire new mindset and a new way o' thinking

a#out strategy, industry structure, relationships#etween companies and $alue creation2

–

"raditionally a -rm 'orms its own strategy and thennegotiates alliances in the market to ad$ance itsstrategy2

– )ithin a we#, management -rst needs to decidewhich we# to enter and what role it should play,

– and then 'ormulates strategy 'or the -rm2

– the per'ormance measurement o' #usinesse/ecuti$es in shapers needs to place as muchemphasis on -rm per'ormance as on the

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• More recently, #usiness un#undling andoutsourcing has gone #eyond undi(erentiated#usiness acti$ities, – strategic outsourcing

– -rms are increasingly outsourcing care'ully selectedstrategic acti$ities 'rom relia#le, competent suppliers2

• "he in'ormation system o' the -rm o'ten needs toe/tend #eyond its own #oundary to enhance

communications and in'ormation share along theentire supply chain2 – "he internet make communication easy and a(orda#le

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• Many issues remain unanswered2

• "he we# strategy re%uires organi&ations – to adopt a De/i#le organi&ational design and to

–

outsource non1strategic acti$ities and, increasingly2some strategic acti$ities it is not good at2

– t also gi$es rise to the emergence o' $irtualorgani&ations and new inter1organi&ational relations2

• .owe$er, it remains unclear GGG – how un#undling can take place,

– and under what conditions a $irtual organi&ationshould #e adopted instead o' $ertical integration2

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)hat ;oes your Company really;oG

• )hene$er ask senior #usiness e/ecuti$es and MB= students thissimple %uestion, the answers are always $ery speci-c, in$estment#ank, a car manu'acturer8

• Stepping #ack 'rom the sectoral details o' these #usinesses, the natureo' the acti$ities that all organi&ations do is much simpler2 – the customer relationship #usiness

– the product inno$ation and commerciali&ation #usiness

– the in'rastructure management #usiness

• Most organi&ations0 acti$ities can #e assigned to one o' the threecategories listed a#o$e, although the make1up o' some organi&ationstends to lean more hea$ily towards some o' these acti$ities than others2

•

Such an organi&ational composition is a ma


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"he customer relations #usiness

• is dri$en #y economies o' scope

• Each customer should #e treated as an indi$idual and

• the o(erings to each customer 1 as 'ar as possi#le H tailor

made to ma/imally satis'y their needs2• the organi&ation must de$ote its e(orts in customi&ation to

de$eloping relationships with customers and understandingtheir indi$idual needs2

• "he company should o(er as many choices as possi#le to

ma/imi&e selection 'or customers2• "he o#


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"he product inno$ation and commerciali&ation #usiness

• is dri$en #y speed 1 the 'aster an organi&ation can inno$ateand commerciali&e new products and ser$ices the #etter2

• "his re%uires the organi&ation –

to use all possi#le distri#ution channels to reach potentialcustomers

– "he organi&ational culture needs to #e geared towards attractingand retaining creati$e talents,

• and operations need to #e tailored to ser$e the needs o'

these creati$e talents 'or #reakthrough inno$ation• in other words, the product innovation and

commercialization business requires very dierentstrategies, organizational culture and operational systemsfrom the customer relations business.

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"he in'rastructure management #usiness

• is signi-cantly di(erent in its re%uirements 'romeither customer relations management or productinno$ation and commerciali&ation2

• t is dri$en #y economies o' scale,• and the organi&ation should use the in'rastructure to

deli$er as many products as possi#le, as 'ast aspossi#le, and at the lowest costs2

• "he strategic 'ocus is on the 'ull utili&ation o''acilities and low1cost operations – re%uire an organi&ation to #e oriented towards cost

reduction and standardi&ation2

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*n#undling the *nnaturally BundledCorporations

• Each acti$ity – ha$e di(erent characteristics

– re%uire $ery di(erent strategies, #usiness models and organi&ationalstructure and processes

– and most o' all, di(erent organi&ational cultures 1 to 'unction eFciently

and e(ecti$ely2• Managing them within one organi&ation means that a

compromise has to #e reached, and despite $arious otherpotential #ene-ts, none o' them can operate optimally2

• "he di(erent characteristics o' the three #usinesses unnaturally#undled together within the same organi&ation can createserious pro#lems 'or each o' them2

• n customer relationship #usiness – E/2 Bank, no #ank could possi#ly pro$ide J#est products? in all

categories2 "his create a dilemma to the -nancial ad$isor in the #ank

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• Customer relation management vs. speciali&ed customer ser$icecompany

• "he moral o' the story is that e$en i' the customer relationsmanagement sta( the -nancial ad$isers8 want to do a good


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• "he same is true 'or product inno$ation and commerciali&ation2

• For an integrated company, – once they ha$e in$ested in producing a product,

– the company will need to reco$er the in$estment o$er a certain periodo' time and e/tract as much pro-t 'rom it as possi#le2

– ' hal'way through an in$estment cycle a newer and #etter product isin$ented,

– it may well #e in the company0s interest not to commerciali&e the newproduct too %uickly,

– in case it canni#ali&es the e/isting product and the in$estment alreadymade in the e/isting product cannot #e reco$ered2

• In comparison, for product innovation andcommercialization company, – the consideration will #e $ery di(erent and they will e/plore di(erent

routes to market and commerciali&e the product as %uickly aspossi#le2

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• 3or in'rastructure management#usinesses, – the dri$ing 'orce is scale the more

products that can #e pumped through thein'rastructure the more %uickly theorgani&ation can reco$er its in$estmentand make a pro-t2

– .owe$er, #eing part o' an integrated#usiness will restrict what can and cannot#e deli$er through the in'rastructure2

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*n#undling the *nnaturally BundledCorporations ="M8

• 3or e/ample, the cash machine networks automatedteller machine8

• in the *K re%uire huge in$estment to de$elop andmaintain,

• and 'or most #anks it is a ser$ice they ha$e to pro$ideto customers and o'ten it is a pro-ta#le not acti$ity2

• .owe$er, i' the network can #e detached 'rom #anks, – the in'rastructure can #e used to deli$er more than cash and

it can also #e used to pro$ide a range o' other ser$ices

– 'or e/ample, selling theatre or 'oot#all tickets, and so on,

– there#y generating additional re$enues 'or its pro$iders2

• "his may ena#le the ="M network to #ecome a stand1alone, pro-ta#le #usiness

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• "he implications are $ery pro'ound2 – Since the !!s, large companies ha$e spent considera#le

energy and resources re1engineering and redesigning theircore processes2

– "hey ha$e used the latest C"s to eliminate human

inter$ention, cut waiting time and reduce errors2

– 3or many companies, streamlining core processes has yieldedimpressi$e gains, sa$ing money and time and pro$idingcustomers with more $alua#le products and ser$ices2

• .owe$er, there are limits to such gains2 – "he principles go$erning the three core processes conDict with

one another2

– Bundling them into a single corporation ine$ita#ly 'orcesmanagement to compromise the per'ormance o' each processin ways that no amount o' re1engineering can an o$ercome2

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*n#undling the *nnaturally BundledCorporation

• n the past when transaction costs were high, andsometimes 'or other strategic1reasons2 – these acti$ities were #undled together under the same

organi&ational roo' and managed $ia $ertically integrated#usiness models and organi&ational designs2

• .owe$er, the conditions today ha$e changed and ito'ten makes more sense to un#undle them and runeach o' the three acti$ities as stand1alone #usinesses2 – E/amining the 'undamental nature o' the #usiness pro$ides

one way to deconstruct the $ertically integrated #usinessmodel and processes

• "ransaction cost, ha$e also cost pressure, someorgani&ations may choose not to un#undle2

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*n#undling the *nnaturally BundledCorporation

• .agel and Singer #elie$ed that onlyproduct inno$ation is likely to #edominated #y a large num#er o' small

companies #ecause o' the need 'orcreati$ity, which 'a$ors smaller companies2

• "he other two #usinesses 1 customerrelations management and in'rastructure

management 1 are likely to consolidate


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*n#undling the *n#undled

• a second wa$e o' un#undling is trans'orming the wayassset1intensi$e companies work2

• "hey re'er to this process as 0un#undling the un#undled?2

• most #asic capital1intensi$e ser$ices were hea$ily

regulated andor owned #y the state2• Such ser$ices were mostly deli$ered #y monopolies single

supplier8

• E/amples include gas, electricity, water,telecommunication and other utilities2

• Since deregulation, most o' these ser$ices ha$e #eenpri$ati&ed and the pre$iously $ertically integrated ser$icedeli$ery models ha$e #een un#undled into discrete#usinesses

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*n#undling the *n#undled

• =n e/ample o' this is the gas #usiness where theownership o' the pipeline is separated 'rom the#usiness o' pipeline operation, maintenance andupgrading, and the #usiness o' day1to1day work2

• "he un#undling o' the integrated #usiness model inutilities and other industries stimulated inno$ationand led to signi-cant impro$ements in eFciency2

• "his was largely achie$ed #y introducing competition

into those stages o' the $alue chain that are notnatural monopolies2

• Separate asset ownership, asset management andser$ice deli$ery2

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)hen is +irtual +irtuousG

• the logic #ehind this enthusiasm is that

• Managers and academics alike are increasingly con$incedthat #ureaucracy is #ad and De/i#ility is good2

• +irtual organi&ations –

re%uire less in$estment and – more responsi$e to market changes than integrated companies,

– there'ore are more suited 'or today0s $olatile #usinessen$ironment2

• ;espite repeated warnings a#out the potential pit'alls o'

the $irtual organi&ation since the mid1!!s, – managers are still urged to su#contract e$erything possi#le

today,

– through downsi&ing, decentrali&ation, alliances and morerecently, strategic and operational outsourcing2

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• +irtual organi&ations ha$e many ad$antages #ut so ha$e largeintegrated organi&ations2

• =ccording , to Ches#rough and "eece, the keys to the success o'$irtual organi&ations are – incenti$es and responsi$eness2 9ather than relying on administrati$e

measures o' the hierarchy to deploy resources and set priorities,• +irtual organi&ations use market organisms to

– #ring 'ree agents together to #uy and sell goods and ser$ices2

– to de$elop, manu'acture, market, distri#ute and support integratedsolutions 'or the -nal consumers in ways integrated companies could not2

• =ll the smartest people in the world work 'or them, so the market

gi$es organi&ations access to such talents when re%uired2• n other words, #y stimulating inno$ation and encouraging risk

talking, – such networks can #e more sensiti$e, inno$ati$e and responsi$e to market

changes than integrated companies2

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• "he pro#lem is that the greater incenti$es couldlead to e/cessi$e risk taking #y some o' the 'reeagents, – and when some o' them 'ail, there is the risk o' the

entire network #eing pulled down with them2 – 'ree agents is independent each party in the network

tends to act in its own sel'1interest, o'ten at the e/penseo' others2

– 3urthermore, the transient nature o' many such

arrangements means that most partners will take ashort1term $iew

– and there is also the risk o' 'riendly partnerships goingsour2

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• +irtual organi&ation – o'ten press e$ery little ineFciency out o' the system

– with the result that $ery little organi&ational slack le't inthe system to a#sor# potential disruptions and market

Ductuations2 – when market changes direction suddenly, the whole

network o'ten collapsed2

• n contrast, integrated companies – rely on internal administrati$e measures to coordinate

acti$ities, control resources and set priorities2 – within integrated organi&ations it is possi#le 'or some

sections to make local sacri-ces 'or the #ene-t o' thewhole organi&ation2

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• Ches#rough and "eece regarded the$irtual organi&ation and theintegrated company as two

e/tremes@ in the middle are $ariousalliances

• "he key is to strike an appropriate

#alance #etween incenti$e andcontrol, which depends on the natureo' the inno$ation the organi&ation is

pursuing2 4


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=utonomous $ersus Systemic nno$ations

• "here are two types o' inno$ation2 – nno$ations that can pursued

independently2•

=n e/ample o' such an inno$ation is a tur#ochargers 'or cars

– nno$ation must #e pursued colla#orati$elyin a systemic 'ashion, and one cannot

'unction without the other• E/2 instant photography which depends on a

per'ect camera technologies with -lmtechnologies

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=utonomous $ersus Systemic nno$ations

• )hen inno$ations are autonomous, – +irtual organi&ations can manage the

de$elopment and commerciali&ation o' the

inno$ation $ery well,• )hen the inno$ation is systemic,

– ntegrated organi&ational design are o'tenmore appropriate #ecause theorgani&ation does not need to rely onother independent partners o$er whomthey ha$e no control2

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=utonomous $ersus systemicinno$ations

• t should also #e noted that all inno$ations dependcritically on in'ormation Dows2 – Codi-ed collected8 in'ormation can tra$el relati$ely

easily #etween organi&ations•

"he in'ormation needed to integrate an autonomous inno$ationwith e/isting technologies is usually well understood andsometime such in'ormation is codi-ed in industry standards2

– "acit implicit8 knowledge is deeply em#edded in anorgani&ation and does not tra$el across organi&ational#oundaries easily2• Systemic inno$ation o'ten re%uire in'ormation that is largely

tacit in nature, and it is o'ten easier and sa'er to coordinate thee/change o' such in'ormation within the #oundary o' anorgani&ation2

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"he 9ise and 3all o' BM

• "he success and 'ailure o' $irtual organi&ations were clearly illustrated #ythe rise'all o' BM since the !s2 *nder threat 'rom aggressi$ead$ances #y =pple,

• BM launched its -rst PC in !2

• 9ather than de$eloping its own technologies2 BM chose to outsource allma


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"he 9ise and 3all o' BM

• .owe$er, the early success was soon eroded #ecause BM lostcontrol o' the " architecture it created2 – Competitors were a#le to #uy the same components, license the same

operating system and application so'tware, and use the same distri#utionchannels2

• lea$ing BM with little to esta#lish competiti$e ad$antages2 – )hen BM tried to regain control o' the architecture #y launching its own

S5 operating system2 Microso't introduced a competing system, )indows,which was #ackward compati#le with the old operating system, ;S

• Compa% was also a#le to work with ntel to launch the -rst :6 0 PC#e'ore BM2

• By !!>, BM0s PC market share had #een reduced to a mere 72: percent, against Compa%0s 2> per cent H

• n 5> the BM PC was sold to China0s Leno$a2

• .owe$er, BM did help create some super1rich companies in theindustry 1 'rom ntel and Microso't to .ewlett1Packard and ;ell2

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Main Lessons

• "he moral o' the story is that

• a company should not outsource e$erything,

• without core competences and strong internal strength,strategic positions in $irtual network are o'ten short1li$ed

•

the $irtual organi&ation is only e(ecti$e under particularcircumstances2

• 3or most organi&ations especially the large organi&ations, – striking the right balance between a mixture of internal

development capabilities, licenses, partnership and alliances,

– as well as new technologies purchased from other companies, is

essential to their long-term competitive and survival.

– without control over key technologies and relationships, internalcapability, market-led virtual networks often do not work, is

particularly crucial for a rm to shape the market.

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Main Lessons

• = 'urther lesson is that organi&ations need toe$aluate a new strategy and #usiness modelo$er di(erent time scales and

• the right #alance #etween long1term

opportunities and short1term gains is $eryimportant2 – too short a time hori&on in e$aluating new strategies

and #usiness models is dangerousA

–

e%ually dangerous is the decentrali&ation andoutsourcing o' key acti$ities and technologies withoutstrategic le$erage and central coordination andcontrol o$er the relationship and the pro$ider

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Main Lessons

• +irtual organi&ations ha$e manyad$antages o$er integratedcompanies, under certain

circumstances• i' implemented properly "he critical

issue is

– to identi'y the right circumstances and – the acti$ities to un#undle or outsource

'rom the market, and

–

e/ecute the strategy e(ecti$ely2 >6


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Summary

• n the conte/t o' the changing #usiness en$ironment andthe new rules o' the networked, knowledge1#ased economy,

• this chapter illustrated one set o' emerging strategies and#usiness models2

• "he we# strategy – represents a power'ul new way to think a#out strategy, risk,

technological uncertainty and inno$ation

– and it encourages #usiness e/ecuti$es to re1e$aluate theirmanagement 'ocus, organi&ational structure, per'ormancemeasurement, and in'ormation systems2

– highlights the critical importance o' standards in today0s #usinessen$ironmentA and once standards are esta#lished, it re%uiresorgani&ations to un#undle integrated #usiness models andprocesses in order to unleash opportunities 'or other companiesand grow the market rapidly2

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Summary

• .owe$er, $irtual organi&ations pose newchallenges to #usiness e/ecuti$es2

• *nder speci-c circumstances,

– the $irtual organi&ation is $ery e(ecti$e inharnessing the resources and competence o'independent companies in the market todeli$er integrated solutions to customers,

– and it is indeed more responsi$e and De/i#lethan many o' the $ertically integratedcompanies in responding to market changes2

CH6 New Strategies for the Network Economy by Feng

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