Refresher Review

Blown To Bits
How the New Economics of Information Transforms Strategy
by Phillip Evans & Thomas Wurster

Reviewed by Ian Bullock

Blown to Bits deals with questions relating to the rise of electronic networks and the information revolution. Confronted with these questions and doubts by their many clients at the Boston Consulting Group, the authors took their ideas public with Strategy and the New Economics of Information in the September – October 1997 issue of the Harvard Business Review. The favorable response to the article led to this book.

The authors consider their primary audience the executive in an incumbent business; their secondary audience the business entrepreneur, and tertiary audience the academics. Beyond this there is another wider audience: those of us with a general interest in business and economics who are attempting to comprehend the magnitude and implications of what has come to be known as the information revolution. 

Each chapter in Blown to Bits, other than the first and last, deals with one or more aspect of information strategy and concludes with a brief summation headed Sound Bits. It’s possible to scan the book from Sound Bits alone; or browse based on Sound Bits, then gravitate back to the richness of each chapter’s content of illustrative case examples. Anecdote, diagram and graphics lighten what could otherwise make for heavy reading. Endnotes is a useful appendix that expands on the reference points in each chapter, showing the extensive material that was mined to produce this work, and also pointing the way to further reading or research for those so inclined. 

What is happening to bring about this transformation of strategy in the title? Some definitions and quotes from Blown to Bits that both enlighten and inform:

On melting the glue (information): “Information is the glue that holds value chains and supply chains together. But that glue is now melting. The fundamental cause is the explosion in connectivity and in the information standards that are enabling the open and almost cost-free exchange of a widening universe of rich information. When everyone can communicate richly with everyone else, the narrow, hardwired communications channels that used to tie people together simply become obsolete. And so do all the business structures that created those channels or exploit them for competitive advantage.” 

There used to be a trade-off between the richness of information, and the reach to the audience for that information. The rule was that the wider the reach to the audience, the lesser the quality (richness) of that information. But information technology has now changed all that and made it possible to by-pass the carrier of the information: “Digital networks finally make it possible to blow up the link between rich information and its carrier.” 

“Shifting the trade-off between richness and reach melts the informational glue that bonds business relationships. It ‘deconstructs’ value chains, supply chains, franchises, and organizations.” Further defined, “Deconstruction is the dismantling and reformulation of traditional business structures. It results from two forces: the separation of the economics of information from the economics of things, and the blowup (within the economics of information ) of the trade-off between richness and reach. Traditional business structures include value chains, supply chains, organizations, and consumer franchises. When the trade-off between richness and reach is blown up, there is no longer the need for the components of these business structures to be integrated.  The new economics of information blows all these structures to bits. The pieces will then recombine into new business structures, based on the separate economics of information and things.” The authors describe how this is already happening in the newspaper business, retail financial services, and the automotive industry. They show how this process of creative destruction and reformulation releases value and increases productivity.

A couple of recent examples of what the authors are writing about leapt off the pages of the Financial Post, as: Shell, BP to build procurement exchange (the dismantling and reformulation of a procurement structure), and: From cookware to glass data networks, as Corning transforms itself into a high-tech play in a bold transition from an old business model to a new one.

“A little deconstruction does a lot of damage; deconstruction will strike where the incumbent can least afford it.”

“If they (managers) don’t deconstruct their own businesses, somebody else (insurgents) will do it to them.”

Blown to Bits suggests the following steps to assess your vulnerability:
 

  • First, examine how informational economics shape your industry.
  • Second, consider how new technologies can shift these existing structures.
  • Third, analyze how the various players in the business system could create economic value as a consequence of these changes.
  • Fourth, lead the transition from the old business model to the new one.


Business intermediaries are particularly under threat by the new information technology and the authors provide numerous cases of disintermediation where the intermediary has either been affected by shifts along the richness/reach curve, or where the intermediary has been displaced completely by new players offering both greater reach and richness. They suggest what you might do if you are a retailer; a supplier, or a new player. They deconstruct navigation as a critical intermediary function in the coming together of buyer and seller, showing how navigators provide shortcuts through the maze. Navigators that get it right will be very profitable; however, the one sure winner is the consumer.

“Separating the economics of information from the economics of things allows the navigation function to become totally independent of the physical processes of distribution and fulfillment. The new navigators can guide people and help parties find each other, but they do not need also to serve as physical distributors in the way that a retailer does.” 

Monday Morning is the concluding chapter that ties the whole together with “a dozen guiding principles that may help with the task of rethinking strategy in an era of deconstruction”, as well as a distillation of the redefined role of leadership. The assertion is made that leaders must do the two things that only a leader can do: create a culture, the right culture; and make the big strategic moves that, in combination, “will make the difference between success and oblivion.”

The authors have taken a profound and complex subject, stripped it down to its bare essentials, and shown new sources of competitive advantage. A business survival handbook for our times!

IB



 
Blown To Bits
How the New Economics of Information Transforms Strategy
by Phillip Evans & Thomas Wurster
HBS Press, Boston MA
   


Copyright 2000 by Ian Bullock. All rights reserved.

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