book.chapter Internet era challenges

The Internet has fundamentally shifted the sources of competitive advantage for businesses, necessitating a constant refocus on core activities that generate shareholder value, while outsourcing all other context activities. The Internet is the catalyst for six major business transitions: Assets to Information: In the digital age, real-time information about an asset is more valuable than the asset itself. For instance, owning information about airline flights is now more profitable than owning an airline. Products to Services: Services, which can be delivered electronically to a wider market at lower costs, are becoming more valuable than products. For example, Ford is transitioning from an automaker to a leading provider of consumer services in the automotive industry. Vertical Integration to Virtual Integration: The Internet era favors open value chains over hoarding, attracting more competitors, fostering innovation, and delivering exceptional value to consumers. Command & Control to Self-Organizing: Open value chains are self-organizing systems, with dynamics beyond the control of any single management team. Money to Time: In the Internet era, wealth creation is skewed towards organizations that capture market-share leadership in emerging markets, rewarding first-mover advantage over efficiency. Profit & Loss to Market Capitalization: Market capitalization has become the primary measure of business success in the Internet era, as it applies across the economy. The Internet compels every organization to restructure itself with information technology at its core. Activities that raise the stock price are considered core, while all others are context. The challenge is to maximize resources applied to core activities while outsourcing context activities to efficient service providers. Over time, as technology becomes more accessible, core activities gradually become context, necessitating continuous enhancement of core activities to maintain market leadership. For instance, in e-commerce, activities that started as core later became context as more companies adopted similar strategies. The Internet allows businesses to transform others' context activities into their own core activities, selling those services back at marginal cost. The challenge for businesses in the Internet era is to continually refocus on core activities and outsource everything else. Overcoming internal resistance to outsourcing context activities often requires leveraging stock price and incentivizing managers to think like shareholders.