ONGOING RESEARCH
Corporate Strategy
in the Digital Age
Is the Internet
really revolutionizing the business world?
by Charles V. Callahan and Bruce A. Pasternack
The answer is yes, in at least seven ways.
T
he Internet phenomenon has
participated in two Thought Leader-
on their corporate strategy within the
generated more press over
ship Panels in New York and London
next two to three years. Moreover,
the past 18 months than any
or were interviewed individually.
more than 60 percent believe that the
other business topic. Has all the hype
The results of the research —
Internet will help their companies
been justified? Is the Internet really
which have been published by the
achieve their strategic goals within
revolutionizing the business world?
E.I.U. under the title “Competing in
the next year or two. That is quite an
Or is it — like so many other so-called
the Digital Age: How the Internet is
achievement for a technology that no
technology revolutions of the past 20
Transforming Corporate Strategy” —
one except technophiles had even
years — merely the latest in a string
lead to an irrefutable conclusion:
heard of four or five years ago.
of incremental technology improve-
Quite simply, the Internet is reshaping
The Internet is changing the way
ments, one whose time might be over
the global marketplace and it will con-
customers, suppliers and companies
in a few short years?
tinue to do so for some time to come.
interact, creating huge opportunities
Recently, Booz-Allen & Hamilton
As the chairman and chief exec-
as well as unforeseen competitive
and the Economist Intelligence Unit
utive officer of the Bank of Montreal,
threats. In much the same way as it is
(E.I.U.) undertook a joint project to
Matthew Barrett, says, “We are only
redefining external relationships with
understand what senior executives
standing at the threshold of a New
suppliers, customers and alliance
around the world are thinking — and
World. It is as if we had just invented
partners, the Internet is also changing
doing — about the Internet. More
printing or the steam engine.” Mr. Bar-
the way companies work internally,
than 525 executives from a wide range
rett is not alone in his assessment.
collapsing boundaries and redefining
of industries completed a written or
More than 90 percent of our survey re-
relationships among different func-
online survey (which was prepared in
spondents believe that the Internet
tions, departments and divisions. In
six languages); more than 100 others
will transform or have a major impact
just a few years, the Internet has
...............................
Charles V. Callahan, a vice president of Booz-Allen & Hamilton, has worked for the past 12 years with clients in the communications,
media, technology and consumer-products industries to improve their return on investments in information technology and to develop
new business capabilities with Internet technologies. He holds a B.S. in management science from Pennsylvania State University.
Bruce A. Pasternack is a senior vice president of Booz-Allen, a member of the firm’s executive committee and managing partner of its
San Francisco office. He has responsibility for Booz-Allen’s firm-wide strategic leadership practice, which deals with top management
strategy, organization, business model and leadership issues. Mr. Pasternack served as the managing partner of the firm’s energy, chemicals and pharmaceuticals practice for almost a decade and has been a member of the firm’s board of directors. He is the co-author of
“The Centerless Corporation” (Simon & Schuster, 1998).
1
Second Quarter ’99
ONGOING RESEARCH
profoundly affected the basis of competition in many industries. Instead
EXHIBIT I
INTERNET-ENABLED MEGATRENDS
of the traditional focus on product
features and costs, the Internet is
shifting the basis of competition to a
more strategic level — changing the
business models that companies use
to organize themselves, engage in relationships and conduct their most
basic transactions with customers
and suppliers.
SURVEY FINDS MEGATRENDS
Our survey findings identify seven
megatrends, all due — at least in part
— to the rise of the Internet. (See Exhibit I.) In a nutshell, these portend
the next major business transformation. Obviously, senior executives
must understand these trends and
their implications, especially because
so many of them have already be-
Source: “Competing in the Digital Age:
How the Internet is Transforming Corporate Strategy”
come potent forces for business
change. Many executives have begun
to realize competitive advantage from
rethinking how the Internet will affect
EXHIBIT II
EMERGING BUSINESS MODEL — SOME KEY CHARACTERISTICS
their companies, customers, suppliers and partners. They are restructuring their businesses accordingly to exploit one or more of these megatrends.
NEW BUSINESS MODELS
As senior executives realize what
these Internet-enabled megatrends
can mean for their companies, most see
that they must develop congruent Internet strategies that may call for some
dramatic changes in the way they do
business. Most tellingly, old ways of
thinking about one’s place in the value
Source: “Competing in the Digital Age:
How the Internet is Transforming Corporate Strategy”
chain are blurring past recognition. (See
Exhibit II.) What is different about suppliers and customers today? When
...............................
2
Issue 15
ONGOING RESEARCH
does it make sense to go to market
ing channels; rather, it impacts all the
cheaper using the Internet,” says Jim
through intermediaries? What kinds of
strategic weapons chief executive
Harkness, vice president of TIAA-
relationships should a company build
officers can use to build competitive
CREF, which provides retirement and
with its suppliers, its customers, its al-
advantage. An all-too-common mis-
insurance products for the education
liance partners?
take is to view the Internet simply as
and research communities. “If you
Senior executives’ responses
a new communication channel, failing
can’t figure out a way to make the In-
confirm that the Digital Age has
to make it an integral part of the
ternet help your business, that’s not
changed age-old definitions of what
whole business. More than 90 percent
what’s wrong with the Internet, that’s
various groups are and do:
of Fortune 500 companies have an In-
what’s wrong with you.… There’s al-
ternet presence today, yet only 5
most nothing, there’s almost no in-
Intermediaries: Once a necessity
for reaching customers
in many industries, many
intermediaries are at
serious risk because pro-
..........................
dustry that I can think
EXHIBIT III
PROJECTED GROWTH OF
RESPONDENTS’ CORPORATE WEB SITES
hance its bottom line
of today that can’t enin some way using the
ducers can reach out
Internet.”
directly to their end-
Not surprisingly,
customers via the Inter-
the number of compa-
net. To continue to be
nies investing in all
viable, these intermedi-
kinds of Web sites (i.e.,
aries will need to reassess
public vs. “private” in-
what they bring to the
tranets and extranets)
table, most likely reposi-
is growing. (See Exhib-
tioning themselves in the
it III.) Interestingly, our
process.
survey respondents
Suppliers: They face
are forecasting that ex-
a host of similar chal-
tranets (i.e., private
Source: “Competing in the Digital Age:
How the Internet is Transforming Corporate Strategy”
lenges. How can they
harness the Internet to
..........................
get closer to their cus-
sites accessed by people outside the corporation) will experience
tomers, retooling traditional pro-
percent actually are generating on-
the most rapid and significant growth
cesses to enhance customer service
line profits from e-commerce. Those
over the next three years. That is
and deliver e-commerce solutions?
companies that have successful, pro-
where senior executives see the
Customers: No more caveat emp-
fitable online operations, including
biggest opportunities to develop new
tor; with a wealth of product informa-
The Dell Computer Corporation,
sources of competitive advantage
tion from thousands of companies on-
Cisco Systems, the Charles Schwab
with customers and suppliers. In fact,
ly a mouse click away, customers are
Corporation and the Microsoft Cor-
over the next three years, survey re-
in the driver’s seat now.
poration, have all integrated their
spondents believe that extranet de-
e-commerce objectives into their
ployment will more than double —
ONE SIZE WILL NOT FIT ALL
overall corporate strategies.
from 32 percent of respondents’ com-
Our survey participants caution their
Other companies can learn from
panies having them today to 65 per-
counterparts everywhere not to fall
these masters. “There’s almost noth-
cent having them within three years.
into the trap of thinking the Internet
ing you’re doing that you can’t figure
They believe that building extranets
only provides new sales and market-
out some way to do better, faster and
will allow them to bring customers
3
Second Quarter ’99
ONGOING RESEARCH
closer to their companies through the
companies will see a payoff from their
ed to top $92 billion by the year 2000,
delivery of specialized services and
Internet investments within three
according to the International Data
also to reduce costs and improve
years. They are in wholly new territo-
Corporation. This represents an al-
efficiencies when such extranets are
ry, “betting on the come,” but they be-
most 50 percent compound annual
used with suppliers. Now that most
lieve this is a necessity. If they do not
growth rate for the computers, net-
large companies have already built
make substantial investments now,
working equipment, software and ser-
the simpler Internet applications —
they risk being left in the dust a few
vices necessary for building Internet
public Web sites and intranets — and
years hence.
infrastructure. This covers both the
achieved some success with them,
At BP Amoco P.L.C. and many
spending on creating e-commerce Web
they’re ready to capture the addition-
other companies, Internet invest-
sites and the myriad of internal uses to
al value that extranets
can deliver.
IF YOU BUILD IT,
..........................
EXHIBIT IV
PAYOFFS FROM RESPONDENTS’ INTERNET INVESTMENTS
which the technology is
being applied.
Since Internet investments focus on
THEY WILL COME
building
Clearly, senior execu-
ture, keeping pace with
tives are convinced that
the market and build-
the Internet and related
ing new capabilities,
technology will revolu-
senior executives ex-
tionize their businesses.
pect payoffs to come in
While not everyone cal-
many forms. (See Ex-
culates their return on
hibit IV.) Not surpris-
investment from Inter-
ingly, survey respon-
net investments, senior
dents attribute the
executives know they
greatest Internet value
must keep up with the
to those payoffs that
Internet leaders in their
touch the customer,
industries or fall behind
such as “improving
forever. As the chairman
communication” and
of the Intel Corporation,
Source: “Competing in the Digital Age:
How the Internet is Transforming Corporate Strategy”
Andy Grove, recently
exclaimed when some-
..........................
one asked him to quan-
infrastruc-
“enhancing customer
service.” These encompass benefits of
customer loyalty, bet-
tify his company’s payoff from Inter-
ments are seen as enablers. “You cre-
ter targeting of customers, and more
net e-commerce, “What’s my ROI on
ate an infrastructure capability. No
rapid response to customer and mar-
e-commerce? Are you crazy? This is
one sits down and says, ‘What has
ket demands. Survey respondents
Columbus in the New World. What
this done for me, what has this saved
also point to a wide variety of chan-
was his ROI?”
me?’ It has become part of the way
nel-oriented payoffs, including new
Admittedly, to date few compa-
business is done,” explains Jim Hood,
market entry, new product creation
nies have seen measurable returns,
information technology leader for BP
and globalization.
but almost all are looking far past the
Amoco’s Global Business Center. Con-
From an internal perspective,
short term: 90 percent of survey re-
sequently, total investment for Inter-
“improving knowledge-sharing” is
spondents are convinced that their
net products and services is expect-
judged to be the most valuable payoff,
4
Issue 15
ONGOING RESEARCH
as companies reap savings when their
we do that better on the Web.”
that we have. And if anyone else can
employees waste less time searching
To compete effectively in the Dig-
for information contained within
ital Age, companies will need to
the organization. More importantly,
evolve their business models from
To paraphrase Mr. Thiele, the In-
knowledge-sharing has a multiplier ef-
the tired, command-and-control hier-
ternet will require — and truly enable
fect on good ideas generated within a
archies that developed with the In-
— companies to become round-the-
company. As more people have ac-
dustrial Age to the wired organiza-
clock operations that can act more
cess to these ideas, they can be en-
tions common among companies that
quickly and with more flexibility. It will
hanced and executed more broadly.
have sprung up with the Internet.
restructure roles within the value
do that…we have to do it faster and
better.”
Unfortunately, most of these In-
William Thiele, vice president of
chain by blurring boundaries be-
ternet benefits are not easily quan-
the General Reinsurance Corporation,
tween companies and their cus-
tified. To a great extent, this accounts
sums up the challenges and the op-
tomers, suppliers, partners and even
for the surprisingly low number of re-
portunities of life with the Internet:
competitors. It will force chief execu-
spondents who believe their compa-
“Internally the benefits are clear: It
tive officers to create new business
nies have already seen a payoff from
has speeded our business up tremen-
cultures where innovation, change
their Internet investments. The mon-
dously; we’re now effectively open 24
management and leadership through
shared mission are paramount.
etary impact of “improved communi-
hours a day. People work from multi-
cations” or “improved knowledge-
ple locations in a collaborative envi-
Senior executives who are posi-
sharing” is difficult to assess. Yet se-
ronment…. Externally, this is both a
tioning their companies to make the
nior executives assuredly see value in
challenge and an opportunity. We’ve
most of the Internet-enabled world un-
these “soft” benefits. They believe that
been in the business a long time; we
derstand that the Internet is truly rev-
they are positioning their companies
have a substantial investment in
olutionizing all facets of business life.
for longer-term gains, and not relying
bricks and mortar. Our business mod-
Although no one has figured out all the
strictly on orthodox metrics when
el has emphasized face-to-face con-
ramifications yet, most senior execu-
evaluating their companies’ Internet
tact, personal relationships, direct
tives are certain that they must invest
investments.
marketing. We can easily envision
in the Internet and related technology
someone setting up shop in Dublin or
— and, in some cases, invest heavily —
“WIRED” — NOT “TIRED”
Honolulu or wherever they want to
or lose market share. By placing their
Our survey underscores that the In-
and accessing all of our customers
bets on this new way of doing business,
ternet is far more than just a new
without going through the trouble
by ceasing to rely on old tools and tra-
channel for selling products
ditional business rules, com-
and services — it represents
panies
are
preparing
to
a seismic shift in how compa-
emerge from the coming trans-
nies structure their opera-
formation on top.
tions, share knowledge, em-
For more information
power employees and get
or to obtain the full findings
things done. Mr. Harkness of
of “Competing in the Digital
TIAA-CREF explains, “We are
Age: How the Internet is Trans-
not going around looking for
forming Corporate Strategy,”
things that we can do on the
please visit www.bah.com or
Internet. We are looking at the
work that is integral to our
www.eiu.com.
“What do you mean, ‘no Internet access’?
What kind of heaven is this, anyhow?”
business and seeing how can
Reprint No. 99202
5
Second Quarter ’99
©1999 Mort Greenberg from cartoonbank.com