The Web Still Reigns

While the economy may have weakened, the "new economy" is stronger than ever

By Don Tapscott

I can understand why some managers find the argument appealing. They can stop worrying a dot-com startup will crush them overnight. But they relax at their peril. Despite claims to the contrary, there is a new economy, with the Internet at its heart. Companies spurning this notion ensure their own failure.

Whether or not we are in a new economy is not a question of semantics. An economy is the manner in which goods and services are created, distributed, and consumed, and the distribution of the wealth generated. Throughout the 20th century almost all this activity was based on the corporation - vertically integrated in the manner Henry Ford devised. It rested on an infrastructure that included the electric power grid, the roads, and primitive analog networks such as the telephone system.

Now there is a new infrastructure added to these - the Internet - that is slashing costs of transactions and collaboration among people, firms, organizations, and other entities. The Internet is giving rise to new business models that are more effective than the industrial age corporation. This phenomenon, in turn, is subjecting the nature of products and services, distribution channels, the dynamics of competition, and virtually every institution in society to discontinuous change.

In the new economy, technology is much more than a sector. It is becoming the basis of all sectors. It is creating a new infrastructure that is replacing the foundation of banking, manufacturing, healthcare, distribution, agriculture, construction, and every other sector in the economy.

This technology pervasion is why the march toward the new economy continues apace even though the Nasdaq has crumbled. Nasdaq and the new economy are not interchangeable terms.

Many Nasdaq companies are old economy, and many companies on the New York Stock Exchange (NYSE) are new economy. A company chooses the economy it wishes to be part of. It doesn't depend on what product it sells or what stock exchange it is listed on. It depends on the business model it embraces to create customer value and shareholder wealth.

Examples abound. FedEx Corp. lists on the NYSE and is not part of the technology sector. It delivers parcels from A to B, a service that predates Marco Polo. Nevertheless, FedEx is a new economy company. It has totally redesigned its business processes around the Web. More than 80 percent of its shipments are ordered, tracked, and managed via the Internet. FedEx customers can use the Web hours a day to pinpoint the whereabouts of their parcels, and they love it.

In 1998 FedEx declared that its physical distribution system of trucks and airplanes was less valuable than its internetworked information resources. FedEx decided to focus on value-added context services like online package tracking and logistics outsourcing and leave the "driving" to other companies. But the business processes of FedEx and these new partners are seamlessly meshed via the Internet. The new FedEx is a perfect example of a new form of wealth creation called the business web, or "b-web."

The b-web is supplanting the individual corporation as the starting point for strategic thinking. It is a system of meshed entities - suppliers, distributors, service providers, infrastructure providers, and customers - that use the Internet as the basis for business communications and transactions.

The key to competing in the digital economy is business model innovation that exploits b-web power. Industry by industry, business webs are eclipsing the old model of the firm. Smart companies are using the Web to achieve goals they have striven toward for the past 25 years: focusing on core competencies, reducing transaction costs, innovating more effectively, and gaining new ways to achieve deep customer relationships.

Companies such as Herman Miller Inc., Enron Corp., Charles Schwab Corp., Cisco Systems, Nortel Networks Corp., Gartner Inc., and Dell Computers, are using b-web architectures to outpace their competition. Software company Bowstreet Inc. even promotes itself as a "business web factory."

I meet many executives moving their companies piecemeal in the b-web direction. They talk of closer links with customers via the Web, and how they can now outsource more functions to suppliers because the Internet enables close collaboration. But they fail to appreciate that the corporation by itself is now obsolete as the starting point for strategic thinking. They must reinvent their business model with the Web at its core.

To be sure, many companies - of both the old and new economies - have set up Web sites and been disappointed by the results. But as I have said many times before, a Web site is the digital era equivalent of a business card - nothing more. Businesses that obsess about having "sticky" sites with elaborate multimedia content miss the point.

The lesson of the recent Nasdaq carnage is that the Net is not about dot-coms. But this should not be misconstrued to mean that we aren't beginning a profound transformation in the way societies create wealth. We've only just begun.

Don Tapscott (dtapscott@digital4sight.com) is chair of Digital 4Sight (www.digital4sight.com) and coauthor of Digital Capital: Harnessing the Power of Business Webs (Harvard Business School Press, 2000).