One resource for student reading, professor fab lecture production, and
info-joy generally is an interview with professor guru Porter on how the
dot-com wave was misread and how the new economy may evolve. By the bye,
Business Week online (free to subscribers) is wonderful with weekly
emailings etc. Perhaps a tad too expensive for students generally though.
Cyberregards,
Charlie
AMERICA'S FUTURE -- MANAGEMENT
Business Week Online, AUGUST 27, 2001
Interview with Michael Porter by John A. Byrne
CHARLIE'S EXCEPTS FOR HIS eBUDS (I really can't just pop it in its entirety
because of intellectual property laws etc.). So you'll see a lot of
ellipses.:
Q&A: Caught in the Net
Few business school professors have been as influential or as well known as
Harvard Business School's Michael E. Porter. Twenty-one years ago, this
management thinker's landmark book, Competitive Strategy, had immediate
impact in both the business school classroom and the real world. Porter
helped a generation of managers understand that superior profitability
almost always comes from differentiation and the company's relative cost
position.
So when observers began to promote the Internet as a competitive
game-changer a few years ago, Porter took notice. After a trip to the West
Coast during the spring of 2000, the strategy professor decided to put aside
nearly everything else and attempt to understand what the new technology
meant for management and strategy. Porter joined the advisory boards of
several dot-com companies, and he became a board member of an Internet
consulting firm. His conclusions--published before the dot-com bust--were
sobering.
Senior Writer John A. Byrne recently asked Porter, 54, about the lessons of
the high-tech bubble and the tulip-bulb-like mania that the Internet
inspired.
Q: How was it possible for so many smart people to get caught up in what is
now widely recognized as a bubble?
A: Management is a very faddish field. People are always looking for an easy
explanation or an easy solution. There's a very strong tendency to take what
might be a modest trend and essentially extrapolate it way into the future.
.... It's simple. It's clear. There's a bandwagon effect.
Q: Why did managers so seriously misread the actual demand for online
commerce?
A: The way this technology was deployed in the first stage, virtually all
the value went to the customer. In fact, 150% of the value went to the
customer.....But technology has to deliver value that people are willing to
pay for. The problem with the Internet was that many of the things it did
were not sufficiently valuable for people to pay for.
Q: What can companies do to capture more of the benefits and make the Net
more of a competitive advantage?
A: We need to see the Internet as complementary to other things the company
does rather than contradictory or cannibalistic.....
If you view the Internet as an applications tool, then you're just going to
try to build the best applications. You're not going to get much of an
advantage from that, because everyone else will do that, too. If you view it
as a strategy tool, you'll ask yourself: "O.K., given my product concept and
how I try to differentiate myself, how can I use the Internet to make that
differentiation stronger?" It's really the tailoring of the Internet to the
firm's unique strategy that will be the real opportunity for advantage.
Q: Why did so many people miss this?
A: ...... The Internet didn't invalidate the importance of the product, the
brand, the distribution system, or even physical locations like stores and
warehouses. The Internet affected discrete parts of the value chain, but
other parts of the value chain remained important. There was no
inconsistency between having online ordering and having stores. You could do
both together. The firm that really understands the product, the business,
and the customer needs is probably in a better position to do a good job on
the digitization.
Q: Is there a danger in going from irrational exuberance to irrational
pessimism about what the Internet can accomplish?
....
Q: How do you see this playing out?
A: ...... We'll see deeper integration among service, sales, logistics,
manufacturing, and suppliers. The first level of that will improve
efficiencies, reduce transaction costs, and reduce inventory.
............
Q: Why was that?
A: The systems tended to be very partial. You could order online and buy
from your suppliers. But you didn't know how much inventory your supplier
had, and the supplier didn't have any special understanding of the
marketplace. I think we're going to move to more complex, more integrated
systems. Product design will not just be done in the firm but jointly with
suppliers and customers.
Q: The high-tech boom also led many to rethink what the corporation would
look like in the future. How lasting are some of those ideas, like heavy
reliance on outsourcing?
A: The short-term cost savings of outsourcing were very apparent, very
attractive, and very seductive to companies who were desperately trying to
improve their earnings per share quarter to quarter. But when you outsource
something, you tend to make it more generic. You tend to lose control over
it. .... That creates strategic vulnerabilities and also tends to
commoditize your product. You're sourcing from people who also supply your
competitors.
Q: What's next?
A: Another big freight train is coming down the track in the U.S. economy.
That's the tremendous long-term shortage of labor we are facing. We're very
short of workers of any kind and particularly highly skilled scientists and
engineers. So ways of bolstering the efficiency of people, such as the
Internet, are important. I just hope companies will heed the message not to
think of this as an operational efficiency tool but as a way to reinforce
your own distinctive strategy. That's the way to turn it into an advantage
rather than just something you have to do to be in the game.
Copyright 2000-2001, by The McGraw-Hill Companies Inc.