Strategy and the Internet

The Internet is a powerful new technology. The question is not whether to deploy the Internet, but how to understand its impact on each particular industry and integrate the technology into overall strategy.

“Strategy and the Internet”
     Michael E. Porter
     Harvard Business Review, March 2001.
Many of the pioneers of Internet business, both dot-coms and established companies, have competed in ways that violate nearly every precept of good strategy. Rather than focus on profits, they have chased customers indiscriminately through discounting, channel incentives, and advertising. Rather than concentrate on delivering value that earns an attractive price from customers, they have pursued indirect revenues such as advertising and click-through fees. Rather than make trade-offs, they have rushed to offer every conceivable product or service.

It did not have to be this way—and it does not have to be in the future. When it comes to reinforcing a distinctive strategy, Michael Porter argues, the Internet provides a better technological platform than previous generations of IT. Gaining competitive advantage does not require a radically new approach to business; it requires building on the proven principles of effective strategy.

Porter argues that, contrary to recent thought, the Internet is not disruptive to most existing industries and established companies. It rarely nullifies important sources of competitive advantage in an industry; it often makes them even more valuable. And as all companies embrace Internet technology, the Internet itself will be neutralized as a source of advantage. Robust competitive advantages will arise instead from traditional strengths such as unique products, proprietary content, and distinctive physical activities. Internet technology may be able to fortify those advantages, but it is unlikely to supplant them.

Porter debunks such Internet myths as first-mover advantage, the power of virtual companies, and the multiplying rewards of network effects. He disentangles the distorted signals from the marketplace, explains why the Internet complements rather than cannibalizes existing ways of doing business, and outlines strategic imperatives for dot-coms and traditional companies. 

Link to related article at HBS Working Knowledge 

This article earned the 2001 McKinsey Award (pdf).

Order article at Harvard Business Online

"How Information Gives You Competitive Advantage"
     On Competition, Chapter 3
     Michael E. Porter and Victor E. Millar
Addresses the role of information technology in affecting competition.  Information technology plays a roll in both industry structure and competitive advantage.  The five-forces framework provides the structure for analyzing the industry effect, while activities and the value chain provide the structure for examining the competitive advantage effect.  Although this article was written more than ten years ago, the issues remain current.  Today's concerns include the role of the Internet, new computer-aided design and manufacturing technologies, and enterprise-wide information systems.  The tools in this article provide an approach to understanding the competitive significance of the latest generation of information systems and software.