Strategy, Logistics & The new Economics of Information

1. Strategy, Logistics & The new Economics of Information Compiled by Rulzion Rattray

2. Every Business an Information Business • Information is the glue that holds together the structure of every business. (Value Chain Porter, M.E., (1985)). • Value of Customer Relationships: • This consists of the proprietary information held about or by customers. • Information defines the relationship and helps determine relative bargaining power. • Unbundling of Information from Physical carrier: • Traditionally information was carried by things and went no further than the thing, the internet has changed this!

3. Deconstruction of the Value Chain • The changing economics of information undermines established value chains. • Evans & Wurster (2000) argue that this will require every firm to fundamentally review its strategy. • Questions: • What will be the point have having special relationships with suppliers when you can obtain supplies by posting your requirements on a bulletin board? • Information has traditionally run through channels, with better access to information often equating to power and giving rise to competitive advantage. E.g. The Sabre System.

4. Competing in the Information Economy • When the Trade off between “Richness and Reach” (Ibid) is eliminated every one will communicate, using shared standards, “Richly” with every one else. • Vertically integrated hierarchical value chains replaced by hyperarchical relationships. • Hyparachies, challenge all hierarchies with possibility of random access.

5. Unbundling of Value Chains • The Future of Newspapers: • A wide range of people contribute to the content, controlled through a hierarchical system • The finished product is then passed through an elaborate distribution system to the end user. • Advent of high resolution electronic tablets, will allow journalist to go direct to readers?

6. Hierarchy: Enables Richness but constrains choice and creates asymmetries in Information. Hyperarchy: Allowing fluid interactions, random access and information symmetry

7. ‘Hyperarchical’ Information Flow • The advent of universal standards will unleash the full effect of ‘hyperarchical’ information flow. • The ability of customers to switch between vendors will be unlimited, destroying the competitive value of established relationships. • How will this effect the banking industry?

8. Transformation of Retail Banking Check Accounts Mortgage Loans Bank Bank Bank Mainframes Mortgage Database Mutual Fund Database Mortgage Lender ? Own Bank Bank Tellers Phone service ATM ? Google,com Yahoo,com

9. Implications for Competitive Advantage • Deconstruction of the value chain will alter the source of competitive advantage. • Threats to established businesses as well as a wealth of opportunity to new & existing businesses. • Some new businesses will benefit through monopoly power: • Businesses that broker information, make markets or set standards

10. References • Evans, P. & Wurster, S., (1997)“Strategy & the New Economics of Information”, Harvard Business Review, September October. • Evans, P. & Wurster, S., (2000) “Blown to Bits; How the new economics of information transforms strategy”, Harvard Business School Press.