Competing in the Age of HypercapitalismIt's not a new economy, but the same economy raised to a whole new levelby Don Tapscott The collapse of the dot-coms ... technology industry turmoil ... the upheaval in capital markets ... the horrific events of Sept. 11th and their aftermath, including prolonged war, restricted mobility, fear, and economic disruption ... When will things get back to normal? They already have. This reality is the new normal. It involves bolstering backup and contingency plans, ratcheting up security, building in more redundancy, and preparing for the worst. Companies need to manage costs, innovate business models, and be agile like never before. That's the easy part. The much bigger challenge for today's business leader is building high-performance vehicles to create customer and shareholder value in a new world of hypercapitalism. I say hypercapitalism instead of "new economy" because there never has been a new economy, at least in the sense that most people used the expression. A technology sector, no matter how important, does not a new economy make. Our economy is still capitalism, based on the wisdom of the marketplace and with private, not state, ownership of wealth. But the spirited discussion of whether there's a new economy has been useful because, clearly, capitalism is evolving. We have an additional and completely new infrastructure for wealth creation. Networks, specifically the Internet, are the basis of a growing portion of economic activity — but not in the traditional sense. The Internet is more than just today's equivalent of the railroads, roads, power grid, and telephone of yesterday's industrial capitalism. Those analogies belittle the Internet's profound impact. It's a deep, rich, publicly available information infrastructure growing relentlessly in functionality and bandwidth. It will soon connect every business and business function and a majority of humans on the planet. We've only just begun to feel the Internet's impact. Today there are close to half a billion people on the Internet, most connected via desktop computers. But chips grow smaller and more powerful, bandwidth expands, and companies devise new Web-based solutions to everyday problems. Already more Japanese connect to the Internet through mobile phones than through desktop computers. In the war on terrorism, navy ships from the United States, Canada, the United Kingdom, Germany, and Australia use instant messaging software to share information among themselves in real time. All this rapid change is part of the foundation of pervasive computing: ambient intelligence as our world becomes smart and interconnected. This new infrastructure increases economic metabolism, enabling and requiring firms to be more agile, focused, responsive, and do business in real time. In this environment, Joseph Schumpeter's creative destruction theory becomes even more creative and destructive. Many familiar faces will fall by the wayside. Who will succeed? Those companies that seize the powerful new business architectures enabled by the new information and communication technologies will. They understand that in the networked economy, the economic rationale for the classic vertically integrated corporation has evaporated. The Internet slashes the cost of sharing knowledge, collaborating, and meshing business processes among corporations. The most successful companies focus on core competencies and partner or outsource via the Internet to do the rest. In today's context, business strategy takes on new meaning. Previously, each industry had a standard business model that the strategist took for granted. The auto manufacturer, the integrated steel company, the insurance company, the retailer, the oil company, and the bank — while each was unique, they shared the characteristic of vertical integration. But in the networked world, radical new ways of designing a firm's architecture require new strategic concepts, approaches and methods. Largely ignored issues such as boundary decisions, building ecosystems, new distribution channels, industry restructuring, and strategic repositioning suddenly come to the forefront. Amid this turmoil, the basic rules of competition still apply. In hypercapitalism, companies still prosper by offering superior goods, lower prices, or both. The key to the Internet is knowing how it creates new business models and different ways of competing that are based on sound principles for achieving success. This shift dramatically changes the nature of business relationships. In the industrial economy, most relationships were internal to the old vertically integrated corporation: You had a relationship with your boss, employees, and project team, you had dotted-line relationships, and so on. In the hypercapitalist economy, relationships extend beyond the firm's boundaries to customers, business partners, and others. A firm's ability to engage employees, customers, suppliers, and other partners in mutually beneficial value exchanges determines its success. Keeping in step with hypercapitalism is hard work and takes skill: When it is done well it is unmatched as a means for creating consumer and shareholder value. However, there are pitfalls. The business media is full of stories, for example, of company partnerships announced with great fanfare only to be abandoned six months or a year later. But this difficulty doesn't undermine partnering's potency. It means the companies involved — or more correctly, their managers — weren't up to the job. Don Tapscott [dtapscott@digital4sight.com] cofounded Digital 4Sight (www.digital4sight.com) and is coauthor of Digital Capital (Harvard Business School Press, 2000). |
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