Blown to Bits: How the New Economics of Information Transforms Strategy [Hardcover]

Philip Evans and Thomas S. Wurster think that the Internet can blow away practically any business and in Blown to Bits, they examine how the new economy is "deconstructing" industries such as newspapers, auto retailing and banking while creating new opportunities for others. They write that the "glue that holds today's value chains and supply chains together" is melting and that even "the most stable of industries, the most focused of business models and the strongest of brands can be blown to bits by new information technology."

Evans and Wurster, both executives of the Boston Consulting Group, argue that the Internet demands new business strategies because it provides companies tremendous "reach" for customers without sacrificing "richness" or the quality of the information about products and services. The book shows how some businesses--Microsoft and Intuit in personal finance, Dell Computer in retailing and the Automotive Network Exchange in manufacturing supply--are thriving amid a rapid expansion of connectivity and the widespread acceptance of new technical standards on the World Wide Web. Clearly written and tough-minded, Blown to Bits is required reading for business leaders, entrepreneurs, strategists and others concerned about the new economics of the information age. --Dan Ring, Amazon.com

Richness or reach? The trade-off used to be simple but absolute: Your business strategy either could focus on "rich" information - customized products and services tailored to a niche audience - or could reach out to a larger market, but with watered-down information that sacrificed richness in favor of a broad, general appeal.
Much of business strategy as we know it today rests on this fundamental trade-off.

Now, say Evans and Wurster, the new economics of information is eliminating the trade-off between richness and reach, blowing apart the foundations of traditional business strategy. Blown to Bits reveals how the spread of connectivity and common standards is redefining the information channels that link businesses with their customers, suppliers, and employees. Increasingly, your customers will have rich access to a universe of alternatives, your suppliers will exploit direct access to your customers, and your competitors will pick off the most profitable parts of your value chain. Your competitive advantage is up for grabs.

To prepare corporate executives and entrepreneurs alike for a fundamental change in business competition, Evans and Wurster expand and illuminate groundbreaking concepts first explored in the award-winning Harvard Business Review article "Strategy and the New Economics of Information," and present a practical guide for applying them. Examples span the spectrum of industries--from financial services to health care, from consumer to industrial goods, and from media to retailing. Blown to Bits shows how to build new strategies that reflect a world in which richness and reach go hand in hand and how to make the most of the new forces shaping competitive advantage.

Blown to Bits commands attention
It is recieved wisdom these days that the digital revolution changes everything. Companies and industries, we are told, are shifting before our eyes. No business model will survive intact. Everything is up for grabs.

Then again, the people pushing this line hardest are those with the most to gain, such as software companies and consulting firms. So a book by two partners from the Boston Consulting Group should be approached with due caution. All the same, Blown to Bits commands attention. First, it is an attempt to fit the whole phenomenon into an intellectual framework. Second, it does not over hype. It has the temerity to suggest that some industries might not be greatly affected after all. The book's basic thesis was set out by the authors in the Harvard Business Review two years ago, and is here ysefully expanded. It begins with the economics of information versus the economics of things. Take that well-worn example, the bookshop. Books are expensive and slow to shift, so the economics of things argue you should stock as few as possible. The economics of information suggest the opposite. The more you display, the more you sell. The old-style bookshop is therefore a compromise. In the digital revolution, that compromise is resolved. Information on books is displayed online, while the books themselves are stored in warehouses.

The handler of information, such as Amazon, obviously stands to profit from this. But so to may the warehouser and the distributor. The point is that both information and things can be better managed apart. And the bigger the original compromise, the greater the value which can be released. In the mail order business, by contrast, the economics of things and of information are separate already. In the grocery trade, too, physical products can be stored well enough in out of town superstores. The compromise is much smaller to begin with. An online grocer such as Peapod has a market value less than a tenth of Amazon's.

So, to the second arguement. This involves what the authors call richness versus reach. Reach is what you get when you advertise to millions on television. Richness is when a salesman sits down for an hour with an individual client. In old style business, the two conflict. The more you have of one, the less of the other. This is a line along which businesses position themselves. Take clothing. At one end is the bespoke tailor, at the other the catalogue retailer. Chains such as Marks and Spencers are somewhere between. In the digital revolution, the authors argue, this trade off is shifted or even abolished. A networked world offers not only reach but, increasingly, richness as well.

In the old world, a car maker such as Toyota would prefer richness to reach in choosing its component suppliers. Rather than shop around, it would take a few chosen suppliers into close partnership. What it lost in cheap deals it would make up in reliability and lower inventories.

Compare the Automotive Network Exchange (ANX), a so called extranet set up by the big three Detroit car makers and involving some 5,000 suppliers worldwide. In essence, this is a global auction. Buyers post their requirements, and suppliers instantly respond.

Obviously, this is a huge extension of reach. But there is richness too. Enough information can be exchanged to ensure quality and delivery. The old trade off is losing its force. As the authors admit, these are special cases. Amazon has done splendidly in bookselling, but the millions of titles it offers were already listed in the book trade's catalogues. It could therefore achieve instant critical mass.

Similarly with ANX, Detroit's big three form a quashi-monopoly of US car manufacture. If they agree on a standard, it Becomes universal. The final part of the arguement relates to corporate structure. In the old world, we are told, activities that depended on richness - on communication, control, trust and so forth - belonged within the company. Those depending on reach, by contrast, were assigned to the market. Thus, the boundary of the corporation was itself a point on the trade-off between richness and reach. In a networked world, that trade off vanishes as well. Internally, the company heirarchy gives way to a kind of structural soup, in which ad hoc teams form and dissolve. Externally, companies form shifting alliances.

The model for the future corporation is thus Silicon Valley: a community in which no-one can tell the difference between competitors and allies, and where workers mean everything and corporate boundaries nothing. Applied to most industries, this may be baloney. It is thought provoking baloney all the same.