Opportunities in the Digital EconomyPublished: July 23, 1999 in Knowledge@Wharton
Competition in taking business online without sacrificing other operations is a crucial challenge as the century closes. Companies that supplement existing offices, stores and customer or supplier relationships with new links via the Internet are gaining an advantage over their non-digital counterparts.
But new strategies for competing in the digital economy range from new forms of partnership to new ways of communicating with customers; new services online clients need and closer links to existing partners or suppliers. And the Internet is not a solution to any business ills, warns David Pottruck, president and co-CEO of leading investment firm Charles Schwab. Pottruck received the first Alumni Achievement Award from the Wharton Technology Club for his work in building Schwab’s electronic trading business. "The Internet is not very good at problem-solving and customer service," he says. "Companies must embrace information technology and the Net, but technology is everyone’s job. Shareholder value comes from innovation that tilts the playing field to your advantage. This is the most exciting time to be in business since the Industrial Revolution. A lot of incumbents will be marginalized if they fail to keep pace."
Pottruck spoke at the 1999 Wharton Technology Conference organized in the spring in Philadelphia. The participants discussed issues ranging from strategic alliances and partnerships to the development of new models for e-commerce and e-business.
Managing A High-Tech Company For Growth
At Destiny Software, CEO Lucinda Duncalfe stresses the importance of "overcommunicating" and being sure that all employees know the company’s strategic direction. How to achieve it may be different among individuals or even departments. And managing different workstyles while encouraging action over ’analysis paralysis’ is key. "You’ve got to be self-critical enough to stop and move in another direction," she says. "You may be wrong. It’s dark and you don’t know the direction, but you better run fast because everyone else is running fast and someone may accidentally find the right direction."
Strategic Alliances In A Dynamic Environment
With joint ventures, partnerships and other alliances gaining favor as flexible ways to address market opportunities, companies are mastering the skills needed to direct the ventures that may develop. DaimlerChrysler, the auto industry giant, is managing ties to its suppliers with no contracts, while other companies oversee day-to-day operation with agreements that spell out how new technology will be applied and what methods of conflict resolution will be used – mediation, arbitration or legal action. "You can’t write a contract about enthusiasm or trustworthiness," says Jordan D. Lewis, an author of two books on nimble corporations.
Warning signs that a cooperative venture isn’t working out are critical but may be difficult to spot, says Jitendra Singh, vice dean of international academic affairs at the Wharton School. Are there cultural or workstyle differences? Breakdowns in communication? Are the established goals being reached? Is either side blaming the other for failing to achieve milestones?
It’s possible that the market has shifted, the objectives of management has changed or some external factors are influencing the alliance. So it’s important to review the venture’s objectives and deadlines when evaluating its success or failure, says Inder Singh, vice president of strategic alliances/corporate strategy and development at Lucent Technologies. "Alliances seem to have a lot less risk than acquisitions but you need to give them more attention," he says. "If you start asking yourself ’What am I going to do with this partner?’ then it’s time to move on."
E-Commerce: The New World Order Of Business
While the world tries to pronounce and counter the dreaded separation of customer from middleman fostered by the Internet, Vinay Bhagat of Trilogy isn’t worried. "Tighter integration with the consumer, not disintermediation, will make the difference in E-commerce," he predicts. Customers, suppliers, consumers and large corporations are all looking for new ways of doing old tasks. "Channels don’t go away. They may change or become more service oriented, but companies always try to develop additional services."
Bhagat envisions several ways the local car dealer will more closely ally himself with customers to fend off threats by chain retailers or Internet sales. One tactic might be online scheduling of repair services and e-mail reminders of upcoming required maintenance. Another might be delivering a car for a prospect to test drive during his lunch hour rather than waiting for him to make time to visit a showroom.
Ted Bream, director of e-commerce strategy at IBM, says the U.S. economy is entering a new phase of business operation that will closely align the data, sales and customer in ways never before imagined. Demand will affect production, not just supply, as orders are filled once the purchases are made. "Net generation companies could get a strategic control of an existing industry," Bream says noting the impact of Amazon.com on the book retail channel or Streamline on the existing grocery store chains in New England. "These processes aren’t stabilized and windows of opportunity aren’t well defined. But there is a first mover advantage."
Complaints about slow-speed Internet connections will seem ancient once broadband applications and competition for access bring improved accessin the home, predicts John Patrick, vice president for Internet technology at IBM. "It will be fast in and slow out," he says. "The phone company describes this as ’the last mile’ but to you it’s the first mile."
Language translation and text-to-speech messaging will permit instant global messaging through whatever device is convenient – pager, cell phone, PC or handheld computer. With smart cards and biometric systems providing a secure digital identification, the era of geo-independence will no longer make people define themselves by where they live or what jobs they do.
"To succeed in the Internet economy, you have to give the customers what they want," advises Howard Charney, senior vice president of Cisco Systems. "The viability of a newcomer to hold onto a lead depends a lot on brand, service-response, industry inertia, audience and demand. Cisco itself embodies that ethic, he says, since it sends out 45% of its shipments directly from its suppliers without the items ever passing through the hands of a Cisco employee. That tight integration has yielded a 20% increase in productivity, $550 million in additional revenue and "turned competition on its ear," Charney says.