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Topic 2 Reading Porter 2001 – Strategy And The Internet – Harvard Business Review March 2001 Notes

Accounting Notes > Strategic Finance, Digitization and Extended Enterprises Notes

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AC310 Module 1 Topic 2 Reading: Porter 2001 - Strategy and the Internet - Harvard Business Review March 2001

AC310 Module 1 Topic 2 Reading: Porter 2001 - Strategy and the Internet - Harvard Business Review March 2001 Summary: A critical analysis of the internet and its impact on traditional business. Discusses the ways in which traditional business can take advantage of the internet, whilst dismissing the notion of the 'new economy' and so-called 'e-business' and 'e-strategy'.

Introduction

"many have assumed that the internet changes everything" Porter dismisses the notion that the internet is a real game changer. He believes it is dangerous to make this assumption and has led to the misguided focus on dot-com businesses. "Internet technology to shift the basis of competition away from quality, features and service and toward price, making it harder for anyone in their industries to turn a profit" Porter explains how the internet has led to a damaging focus on lowering prices at the expense of quality and any real competitive advantage. "move away from the rhetoric about 'internet industries', 'e-business strategies' and a 'new economy' and see the internet for what it is" Porter believes that such words are distorting and unwise. Instead, he believes the internet should be seen as a powerful set of tools which are 'a complement to traditional ways of competing'

Distorted Market Signals

"New technologies trigger rampant experimentation, by bother companies and customers, and the experimentation is often economically unsustainable" Porter says that too much focus has been made on the initial successes of the internet and that traditional businesses should not be too quick to move solely to 'e-business' structures. He says that in this experimentation phase, many suppliers have offered subsidized prices which have masked true costs. "emphasized expansive definitions of revenue, numbers of customers, or even more suspect, measures that someday correlate with revenue, such as numbers of unique users ("reach"), numbers of site visitors, or click-through rates" "Buyers have been able to purchase goods at heavy discounts, or even obtain them for free, rather than pay prices that reflect true costs" The markets have focused on creative accounting approaches that have moved away from traditional economic drivers. Porter argues, that the internet has not removed the need for these traditional measures, but instead have emphasized their importance. Too many businesses have focused on initial successes and extrapolated such results for forecasts of future performance, and unwisely have altered corporate strategies as a result.

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