Porter and Tapscott Polemics - Are there new business objectives and methods to achieve them?

Authors Avatar

Introduction

The tremendous growth of the information and communications technologies (ICT) and its deep penetration in all areas of human activities, is profoundly reshaping the economic, societal and private life landscape of the world of today.

The issue of the Internet was actually the core reason for a theoretical division of the economy in two large categories: “new economy”, comprised of companies that apply these technological advances up to various extents, and the “old economy”, which includes all the others. It has also initiated vivid discussions and theoretical confrontations, due to the sharply dissonant perceptions of the transformational impact of the Internet on the economic activities.

The extreme standpoints of this broad theoretical spectrum are varying from oversimplified view of Internet as just one more communication channel, to a glorifying declaration that the Internet is an originator of unthinkably different, new economy and new society of 21st century, whose implications is not possible to anticipate at the moment.

Michael Porter, the so called “Strategy-guru” and Don Tapscott, the so called “Cyber-guru’, are probably the most prominent exponents of these opposite views on business consequences from the Internet applications. This paper will try to analyse some of the issues, presented in Porter’s “Strategy and the Internet” (2001) and Tapscott’s “Rethinking Strategy in a Networked World (2001b) articles, in an attempt to come to possible conclusions on their (ir)relevance.  

PORTER AND TAPSCOTT POLEMICS

Are there new business objectives and methods to achieve them?

Porter calls for a “return to fundamentals”, stressing that there is only one arbiter of the business success: the true economic value, which is “reliably measured only by sustained profitability” (p.65). The only way to be more profitable than the average competitor is “by achieving a sustainable competitive advantage - by operating at a lower cost, by commanding a premium price, or by doing both” (p.70).

Tapscott completely agrees with these statements. The problem, according to him, is that Porter “uses these truths to prop a false thesis” (p.3), i.e. “argues that the best methods of achieving these goals, including operating within a vertically integrated structure, must be unchanged, too” (p.4).

Porter’s defence of the viability of vertical integration versus partnering is based on several arguments (p.69). Partnering with producers of complements can indirectly affect the industry profitability in either positive or negative way trough their influence on the five competitive forces. Possible rising of the switching costs is the only positive example that Porter gives. On the other hand, the list of negative effects is quite longer: partnering makes the companies more alike, thus strengthening the rivalry; it distracts companies’ attention from their own strategic objectives due to the pressure to act in consonance with their partners; finally, it increases the threat of entry because the producers of complements can evolve in future competitors.

Most of the consequences of outsourcing, as another form of partnering, are also portrayed in dark colours (p.69). Porter argues that extensive outsourcing leads to supplies from same vendors and hence to increased homogeneousness of purchased inputs. This is “eroding company distinctiveness and increasing price competition”. Additional negative effects are lower barriers to entry, as the new entrant only has to assemble the purchased inputs, and also strengthened power of suppliers who are adopting the core company’s experience.

Porter agrees that the Internet technologies are easing and fostering the partnering, and also make possible the creation of “virtual enterprises” - based on “purchased products, components and services” - as the most extreme form of partnering (p.69). However, due to Porter’s resistance towards partnering, one could conclude that, in his eyes, these virtual enterprises erode industry profitability.

Tapscott’s view is completely contrary. He claims that, thanks to the Internet, “myriad new business models have emerged that are different from the industrial age template”. In principle agreeing with Porter that the term “business model” has been often used without valid criteria, Tapscott defines it as a “core architecture of a firm”, a way of deploying all relevant resources, including those outside the company’s boundaries, in order to “create differentiated value for customers”. Many companies, he says, are succeeding by keeping the focus on their core competencies and partnering in all other areas (p.5). Instead of trying to be the best in all business functions, now, thanks to the Net, they can outsource many of them to specialized suppliers around the world at almost no transaction costs. This brings enormous benefits as the suppliers, in order to stay competitive, tend to “reduce costs and increase quality and innovation” (p.6).

Join now!

Tapscott points out the case of Sybel Systems Inc., which act as a “context provider”, orchestrating an extensive network of b-web partners, as a convincing example of a company that has achieved tremendous business success by applying b-web based business model (p.6). Boeing, Merzedes-Benz and IBM are another vivid examples of successful companies that do not produce their proprietary products (some even do not do the assembly). Moreover, the CEO of Boeing has defined the company not as an aircraft manufacturer but as a “systems integrator” (p.2). Tapscott also presents the opposite examples: Apple Computer Inc., Digital equipment Corporation, ...

This is a preview of the whole essay