The Engine That Drives Success

The Engine That Drives Success

True, Web services may enable competitors to more easily reproduce technology innovations. But it also enables companies to create software faster. Carr looks at only one side of a double-edged sword - the dark side. But the new technology lets companies get to market faster with business innovations. Yes, the speed of the competition is accelerating and competitors are trying to catch up. This is the new normal. Companies need to be more agile. Get used to it!

Similarly, ubiquity is also a double-edged sword. Of course technology is more pervasive now than in the past. But this creates new opportunities as systems and new business models can scale instantly. Whereas in the past, American Hospital Supply had to purchase and roll out terminals and build complex, risky networks, today companies like eBay or Tesco can reach millions of customers instantly. It took only three years to build one of the most successful retail companies in the world. And its customers paid for the "terminals" and the "network". and eBay don't have proprietary terminals in our homes or offices. So if competitors can easily replicate this technology, why haven't they succeeded? Basically, we're all locked in by the power of their software applications and business models. It seems the cost for us to switch to another competitor is prohibitive. And no competitor can touch these companies, because of their installed base. They have each created a new "proprietary" resource - the resilient power of IT-enabled relationships.

At the cusp of each wave of tech innovation, market leaders seize advantage, whether as early adopters or fast followers. They grab positional advantage through a combination of IT and business design, and then others have no choice but to follow in their wake. This happens anytime there are new waves of tech innovation.

How IT Drives Business Model Transformation

The heart of Carr's problem is his inability to grasp the role of IT in the new business designs that enable competitive advantage.

In a classic case of one step forward, two steps back, Carr's book now accepts the notion that an effective business model can be the basis of competitiveness. This is progress. But he stubbornly denies the role IT plays in creating these new models. He suggests that investments in technology by industry leaders like Dell, JetBlue and Wal-Mart are marginal to their success. For example, in the case of JetBlue, he writes: "the source of that advantage lies not in the technology but in the business model".

But IT and business models are not discrete factors in strategy; increasingly, they are inseparable. IT is leading to profound changes in business design - not just to new business processes but to the deep structures of the corporation. Because IT and networks radically reduce internal transaction costs, companies can conduct business in real time. My research shows that smart companies can speed up their metabolism and build high performance into their business designs.

Most important, IT is slashing transaction and interaction costs between companies. The upshot is that partnering is becoming more cost-effective than performing many business functions internally. The vertically integrated corporation is unbundling, and companies can now focus on what they do best and partner to do the rest in what I've called "business webs". Leading companies grow by focusing on their core - that cluster of activities where they have unique capabilities and where they create true barriers to replication. The evidence is clear: Companies that forge high-performance business webs tend to have better products, lower cost structures and better profitability than their vertically integrated counterparts.

But Carr specifically attacks the business web in a lengthy section of the book titled "In Praise of Walls". In a thinly veiled defence of vertical integration, he creates a classic straw man and labels myself and others as the "post-company school". Apparently, we believe that the corporation is no longer the "fundamental unit of commerce" and that it is being replaced by "amorphous, loose groupings of companies". Allegedly, we "jump to the conclusion that companies will naturally get smaller". In supporting "the death of the company", we suggest that managers should not "keep their own company's interests foremost".

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