"The network economy is enabling new digitally-enabled business models that can enhance productivity, expand market reach, and reduce costs across sectors. However, simply having an online presence is no longer enough. To fully capitalize on emerging opportunities, companies must integrate the internet across their business model. Success will depend on leveraging network effects and complementarities between online and offline operations to create value45. In short, companies that fail to adapt their business models for the digital age risk missing out on participating in the growth of large new economic sectors. "
In the emerging network economy, competitive advantage hinges on mastering the interplay between physical and virtual realms. Companies must create value across integrated networks, leveraging partnerships and ecosystems, while protecting intellectual property to prevent value leakage. Embracing openness, connectivity, and collaboration positions companies to thrive. Knowledge drives growth The next economic growth wave is anticipated to be propelled by knowledge-based businesses, which are set to lead wealth creation through their "smart" products and services. These offerings are embedded with technology that enables them to adapt to user needs and changing conditions, while also collecting data to enhance user experience and product development. As users engage with these intelligent systems, the products evolve to better suit individual preferences, and users concurrently become more adept in their use. Customization and the ability to provide real-time, actionable insights are central to these businesses, allowing them to serve niche markets effectively. The simplicity of the core information belies the sophisticated value that can be built upon it through continuous learning and upgrades, which are crucial for maintaining a competitive edge. By empowering consumers with immediate knowledge application, these companies are maximizing value creation and setting the stage for a new era of economic prosperity led by knowledge-based innovation. Value fragmentation and reaggregation The network economy is reshaping industries by breaking down traditional value chains into decentralized networks of specialized businesses. Digital connectivity allows for the unbundling and innovative recombination of products and services, with information becoming a separate entity from the physical offering. This shift has strategic implications: specialized businesses may emerge with potential monopoly power due to network effects; physical businesses might focus on a single value chain element, redefining their brand identity; consumers gain bargaining power as new intermediaries consolidate their influence; and incumbents' physical assets could become liabilities compared to agile newcomers. The economics of information are transforming businesses, with success lying in embracing specialization and reconfigured value propositions. Manage physical and virtual value In today's fast-paced economy, continuous learning is crucial due to the rapid doubling of technical knowledge, making half of what college students learn in their first year potentially obsolete by graduation. This has led to the rise of the "shadow education market" to maintain employability and competitiveness. Over the past decade, managers have incorporated IT into processes, and further changes are expected as strategies are reassessed. The new information economics will reshape industries, with information costs becoming significant, as evidenced by a third of US healthcare spending. Information is processed through five steps—gathering, organizing, selecting, synthesizing, and distributing—to create new services and products. For instance, Procter & Gamble adds value to Tide detergent with chips that interact with washing machines for customized experiences. As businesses master creating virtual value, the challenge is to maximize revenue and profitability. The network economy will increase competition, requiring innovative pricing models for infinitely reusable digital assets. With improved processing capacity and lower transaction costs, businesses are shifting from supply-side transactions to demand-side strategies.
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