Strategy and Internet

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Strategy and the Internet
by Michael E. Porter

Reprint r0103d

March 2001

HBR Case Study
Mommy-Track Backlash

r0103a

Alden M. Hayashi

First Person
The Job No CEO Should Delegate

r0103b

Larry Bossidy

HBR at Large
The Nut Island Effect:
When Good Teams Go Wrong

r0103c

Paul F Levy
.

Strategy and the Internet

r0103d

Michael E. Porter

Building the Emotional Intelligence
of Groups

r0103e

Vanessa Urch Druskat and Steven B. Wolff

Not All M&As Are Alike – and That Matters

r0103f

Joseph L. Bower

Introducing T-Shaped Managers:
Knowledge Management’s Next Generation

r0103g

Morten T. Hansen and Bolko von Oetinger

HBR Interview
Tom Siebel of Siebel Systems:
High Tech the Old-Fashioned Way

r0103h

Bronwyn Fryer

Best Practice
Unleash Innovation in Foreign Subsidiaries

r0103j

Julian Birkinshaw and Neil Hood

Tool Kit
Making the Most of On-Line Recruiting

r0103k

Peter Cappelli

Books in Review
Playing Around with Brainstorming
Michael Schrage

r0103l

62

Copyright © 2001 by Harvard Business School Publishing Corporation. All rights reserved.

Many have argued that the Internet renders strategy obsolete. In reality, the opposite is true. Because the Internet tends to weaken industry profitability without providing proprietary operational advantages, it is more important than ever for companies to

distinguish themselves through strategy. The winners will be those that view the Internet as a complement to, not a cannibal of, traditional ways of competing.

Strategy
and
the

Internet

ILLUSTRATION BY MICHAEL GIBBS

by Michael E. Porter

march 2001

T

he Internet is an extremely important new
technology, and it is no surprise that it has
received so much attention from entrepreneurs,
executives, investors, and business observers.
Caught up in the general fervor, many have assumed that the Internet changes everything, rendering all the old rules about companies and competition obsolete. That may be a natural reaction, but it is a dangerous one. It has led many companies, dot-coms and incumbents alike, to make bad decisions – decisions that have eroded the attractiveness of their industries and undermined their own competitive advantages. Some companies, for

example, have used 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. Others have forfeited important proprietary
advantages by rushing into misguided partnerships

63

S t rat e g y a n d t h e I n t e r n e t

and outsourcing relationships. Until recently, the negative
effects of these actions have been obscured by distorted
signals from the marketplace. Now, however, the consequences are becoming evident. The time has come to take a clearer view of the Internet. We need to move away from the rhetoric about “Internet industries,” “e-business strategies,” and a “new economy” and see the Internet for what it is: an enabling

technology – a powerful set of tools that can be used,
wisely or unwisely, in almost any industry and as part of
almost any strategy. We need to ask fundamental questions: Who will capture the economic benefits that the Internet creates? Will all the value end up going to customers, or will companies be able to reap a share of it? What will be the Internet’s impact on industry structure?

Will it expand or shrink the pool of profits? And what will be its impact on strategy? Will the Internet bolster or
erode the ability of companies to gain sustainable advantages over their competitors? In addressing these questions, much of what we find is
unsettling. I believe that the experiences companies have
had with the Internet thus far must be largely discounted
and that many of the lessons learned must be forgotten.
When seen with fresh eyes, it becomes clear that the Internet is not necessarily a...
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