Internet and Economic Competitiveness

March 3, 1998

By Vince Giuliano

The Electronic Publishing Group



Corporate Chief Information Officers and computer executives are on board a new bandwagon nowadays – that of managing corporate information resources for greater productivity and competitiveness.  And part of this bandwagon is a frenzy of growth and consolidation among the large information service companies and consultancies – ones like Computer Sciences,  EDS, Anderson Consulting, and IBM World Services. 


In this commentary I set out to explain in fairly simple terms what this bandwagon is about, focusing specifically on the new opportunities offered by Internet.


The first question I ask is:  What does it take in today’s competitive and international environment  to succeed in business and commerce?


To examine this question, I start by listing characteristics of traditional industrial companies (Table 1), and then compare these to characteristics of successful new companies and traditional companies that have fundamentally restructured themselves to take into account the conditions of the current times (Table 2).


TABLE 1: Traditional industrial companies – typical pattern

- Appeal to mass markets

- Make standard products that do not change

- Have rigid hierarchical organizations

- Focus on manufacturing

- Work on a production line basis

- Think in terms of their products instead of the needs their products meet

- Change very slowly - are reactive rather than proactive

- Rarely examine themselves or what they were doing

- Do not fully empower their employees

- Focus on cost reduction

- Tend to appealed to older users

- Are loosing market share to competition

- See their competition as coming from traditional competitors, when it is really coming from new forms of competition that meet the customer needs.  For example:

- Internet services are competing with newspapers

- Internet services are competing with retail stores

- Virtual corporations on the Internet are competing with traditional ones


During the last 15 years and especially recently, more and more companies fitting in the above pattern have found themselves losing market share and/or profitability – sometimes to foreign competitors, sometimes to more-nimble domestic competitors, and sometimes because the markets for the products they make are declining as users shift to newer products and services. 


There is a 20-foot long bookshelf in my nearest Barnes and Nobel bookstore with books on how companies fitting this kind of pattern have more-or-less successfully set out to re-invent themselves.



large and small companies, to be competitive, have renewed themselves to become more competitive.


TABLE 2:  Typical characteristics of highly competitive new or renewed organizations:

- Have adopted  techniques such as Total Quality Management, Process Re-Engineering, Enterprise Integration, and Knowledge Management.

- Are knowledge-focused

- Are aimed at specialized and changing markets

- Focus on providing services and information as well as physical products

- Make customer-specific products

- Make small products lots or customize each one for a customer’s desires

- Listen very carefully to their customers

- Have flatter organizational structures that empower employees and are flexible

- Are accustomed and welcome rapid change

- Have flexible production organizations

- Use the latest technologies

- Are constantly in a process of examining themselves, learning, improving, evolving

- Are proactive, and often create their own markets

- Carefully track social and societal changes

- Focused on adding value instead of cost reduction

- Appealed to younger affluent users

- Are highly successful

- Work on the basis of multiple alliances, even with competitors

- See their competition as coming from other developments, not in their own industries

- Are highly competitive and making money


Organizations with these characteristics exist and are thriving today, not just tomorrow - and they typically make many uses of Internet. 

To show the relevance of Internet to these shifts, TABLE 3 exhibits a line-by-line comparison of the two kinds of organizations


The shift in industrial organizations - worldwide

Traditional manufacturing company

New knowledge-based organizations

- Long production runs

- Short or custom production

- Standard uniform physical products

- Highly differentiated service and physical products

- built to market forecasts

- Built to customer needs

- Passive workers

- Motivated and empowered workers

- Highly centralized control

- Widely distributed authority and responsibility

- Local or national markets

- International markets

- Corporations

- Alliances

- Weak use of information technology

- Very strong use of information technology


An example of this shift can be found in the New England shoe business.  Until the 1950s, Boston enjoyed a very strong traditional shoe manufacturing industry.  But then the shoe companies moved to the South of the US, and then to Italy, Asia and Mexico.  Fifteen years ago it appeared that the shoe industry had all but died in New England.  But then something else happened – the advent of high value-added athletic shoes


    Old Paradigm

-     Tennis shoes, sneakers – what are sold are simply shoes

-    Few standard designs

-     Low cost commodity products

-     Typical price $12

-     Success factor - low- cost manufacturing

-     US shoe makers stopped being able to compete in the 1960s


    New Paradigm

-     Sports and leisure foot comfort and power – what is sold is customer capability to do sport-like activities in safety and comfort

-     High price targeted products

-    Immense variety in design

-     Typical price $50-$100

-     Success factor - marketing, meeting people’s lifestyle hopes

-     New England companies highly successful

-     Shoe companies are information companies – they do everything but make shoes

-    Shoe manufacturing outsourced to Asia

-     Value added:  shoes costing $3:00 are sold for $55. 

-     Boston is back as the leisure foot comfort capital again


Some of the old shoe manufacturing buildings in East Boston have been renovated and now house software companies.  I recently visited such a company whose business is making multimedia software to support the sales of high value-added sports shoes.



         The role of Internet in the transformation of organizations


Now, let’s look at the role of Internet in facilitating the kind of industrial transformation described above.


TABLE 4:  How Internet Relates to needs for Organizational Transformation




- Short or custom production

- Highly differentiated service/physical/information products

-    Built to customer needs



-   Internet research facilitates rapidly changing markets

- Electronic mail and dedicated  networks can allow constant monitoring of customer needs

-     Extranets can link producers, suppliers and customers, so a common information system can enable customized production

-     Extranets can directly control production machinery

- Many new products are information products and can be delivered directly over the Internet

-    Motivated and empowered workers

-    Widely distributed authority


-     E-mail offers a many-to-many communication channel facilitating team communications

-     E-mail and voice conferencing facilitate operations of small decentralized work units

-    International markets

-    Alliances

-    Very strong use of information technology

-     Distance-independence of Internet communication facilitates international communications

-   Internet facilitates operations of virtual corporations, based on multi-party temporary alliances


Extranets are private networks on Internet that extend beyond a single company to multiple organizations that must collaborate, communicate and exchange information, documents, and transactions in order to achieve joint goals.  Companies now investing in Extranets include Caterpillar, National Semiconductor, John Deere, Olivetti, Sun Microsystems, Mobile Oil, McDonnell Douglas's, Marshall Industries, Lockheed Martin, as examples.


Extranets make possible new industrial communities of companies worldwide. Many extranets are operated by third parties and involve hundreds or thousands of industrial members and users.  For example:


    Enterprise Integration Network - microelectronics & computers

    Dow Jones PowerHub, real time electricity trading systems linking power utilities

    Powerag, linking makers and users of fertilizers, pesticides and agricultural chemicals

    Virtual Emporium Partnernet - affecting thousands of wholesalers and retailers and changing patterns of wholesale distribution.  Uses an extranet to maintain a very large virtual mall on the Internet

    VHA Extranet - an alliance of 1,400 health care organizations, doing $8 billion in commerce a year


Summary with respect to the role of Internet in industry and commerce:


-    Internet is empowering businesses large and small to develop their own communities of users internationally

-    Thousands of new communities of industrial companies, retailers, and small businesses are already in existence and relying heavily on the Internet

-    These are not things “the future will bring.” They are real now and affecting the business communities throughout the world right now




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