ENVIRONMENTAL CHANGE

The world around us is changing at an ever increasing rate and companies have to monitor and scan their environment to identify the emerging trends. The opportunities have to be evaluated objectively as well as the accompanying threats. To exploit the opportunities, internal strengths and weaknesses have to be honestly assessed.

Survival and profitability are only possible when maximum value is added through increasing quality and providing the optimum level of service. Successful companies build long-lasting relationships with customers, suppliers and business partners. Innovative approaches and meaningful differentiation based on superior core competencies and maximum leverage can create competitive advantage.Continuous efficiency and innovation will raise the barriers to entry.

To deal with the environmental challenges, an integrated corporate strategy has to be designed, implemented and controlled.

Business webs, or b-webs, enabled by networking and the Internet provide the possibility of new business architecture. This opens the door for outsourcing and collaborating on a wider scale as before and provides many advantages compared to the traditional vertically integrated company. The Net is a tool that allows new applications and innovations and expands the strategic scope of a company. A business web defines the different ways in which businesses can interact with their stakeholders. As such, a company at the center of a b-web that plays the role of context provider coordinates the activities of its partners. Business webs are mainly concerned with business relationships between participants that are situated at the nodes of their (three-dimensional) webs. Companies should develop their strategies by taking account of the more dynamic and timely interaction between partners in a web. Three nested levels of webs can be identified, namely, economic webs, technology webs within economic webs and value webs within technology webs.

With the advent of the Internet, the business environment has changed dramatically. The Internet is not always a benefit for business, reducing profitability and its leveling effect prevents companies from building sustainable competitive advantage and so does too much outsourcing at the expense of differentiation possibilities. This almost amounts to saying that partnerships limit competitive advantage, but at the same time, it is clear that companies have to employ the Internet as a help to establish a differentiated positioning.

Alliances have become increasingly important in order to share costs and risks. Many rival companies are wary of the pitfalls involved, such as compromising trade secrets, loss of margins and anti-trust considerations. However, electronic network technology has opened up the possibility for companies to establish B2B exchanges that offer big advantages in cost savings and improving the supply chain. The establishment of supply chain exchanges is especially more justified the more fragmented the industry. The advantages of internet markets (e-hubs) include increasing buyer choice, wider access to buyers and lower transaction costs.

Connectivity. In future businesses will be electronically connected internally and externally (Byrne, 2000). This will also give rise to a more fluid concept of corporate boundaries, making it harder to define precisely. All global operations of the company will be connected by the Internet, making interaction and communication much easier (Byrne, 2000). This connectivity results in speed on a global scale and substantial savings in “interaction costs”. It also enables companies to better deal with their network of suppliers, partners and contractors.

Digital capital. The digitization of data and communication has spawned the business web or network, which allows the creation of digital capital (Tapscott, Ticoll & Lowy, 2000). Digital capital is the result of internetworking of the knowledge dimensions of customer, human, and structural capital.

E-commerce. Commercial transactions on the Internet can take place at different levels such as business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C)(e.g. auction) or consumer-to-business (C2B). The initial euphoria surrounding the potential of Internet usage for consumer sales has been tempered by the numerous business failures and various allegations of doubtful business practices in this domain (Mullaney, 2003). Large amounts of investment in high technology and Internet enterprises have been lost over the past decade. Consumers have experimented with Internet purchases out of curiosity and an interest in temporary promotional offers (Porter, 2001), but it is unclear to what extent such revenue generation is sustainable. It is however, becoming clear that companies cannot ignore the Internet impact on their business (Porter, 2001), and consumers do not ignore the value in e-commerce (Mullaney, 2003). The challenge for the firm is to discover the real opportunities that will deliver a fast return.

Industry structure. The profitability of the average competitor is determined by the industry structure (Porter, 2001). The way competitors exercise options influences industry structure. The industry structure is shaped by the balance of five powers resulting from existing rivalry, the bargaining power of sellers and buyers, barriers to entry and the threat of substitute products. Porter’s study (2001) also explains how the Internet influences each one of these elements and the conclusion he makes is that the application of the Internet will depress profitability in many industries.

Products. The networked business environment enables new product definitions that allow for “more fluid products whose value resides in the knowledge embedded within them” (Maas, 2000). Physical goods and services make way for products that can be redefined on a continuous basis to cater for the evolving needs of customers. This opens up new options to formulate product offerings. The rapid increase in connectivity is a major boost to the information evolution and it has caused a substantial change in the economics of information (Applegate, 2001).