End Of Competition, The: The Impact Of The Network Economy. C N A Molenaar
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is incredibly naive.
This initial drive towards efficiency is typical for traditional decisionmakers. The decisions could then, after all, be made within one’s own comfort zone. The customers’ buying behaviour, new technology and the unpredictable behaviour of the younger generation lead to uncertainty. But ignoring the changes gives peace of mind. And this can be seen outside the retail sector as well. It is evident in every link of the production and marketing chain. Traditional structures are modified, but not changed.
Do One’s Own Restrictions Lead to a Tunnel Vision in the Decision-Making?
Manufacturers are able to supply their goods directly, without calling upon further links in the chain, but are afraid of the consequences. The aggrieved links in the chain might perhaps retaliate by no longer selling or recommending the products (short-term consequences). The power in the chain holds back the changes through fear. That is, until other providers come along, often from other markets or from abroad, who do sell directly, often at lower prices and with services that appeal to the buyer (24/7, return guarantee). Then finally action is taken, and hopefully on time. But the many bankruptcies and takeovers give pause for concern. So how does it get to this situation? It is, of course, to do with this fear of leaving one’s comfort zone, as well as the fear of the consequences of change to the traditional structure. But it can also be due to a reluctance to act or the strict conditions of doing business such as profitability level, stock market prices or company bonuses.
But there are also other principles that come to play here, such as the consensus approach (trying to keep everyone happy, consensus decisionmaking being typical in the Netherlands), as well as one’s own knowledge and approach as we will see later (applying what we have learned during our studies and deciding on the basis of our own experience). Traditional businesses and decision-makers are stuck to the constraints of the past which slows down decision-making. When making decisions, one calls upon one’s personal knowledge and experience, while the developments simply continue. In addition, information is usually interpreted from the perspective of one’s own field of expertise or vision (no lateral thinking). For a long time, I kept on hearing that Amazon was not a threat; it was, after all, not making any profit. This reveals a complete lack of knowledge of Amazon’s business model, which was not based upon short-term profitability, but on long-term value creation. And the same can be said for Bol.com. As far as these naive decision-makers were concerned, it was not necessary to study the developments, nor to take any action, as these new entrants would not last long.
Are the Old (Physical) Structures too Oppressive?
Another problem with change is the traditional structure. Companies continue to rely upon fixed structures, structures that arose within stable markets. Many continue to hold on to the traditional decisions of the supply chain and the decision that every supplier and company has to be an independent entity. This leads to control and less dependence, more certainty therefore. Suppliers (the independent entities) compete with one another for the best proposition for the customer, consumer or business. They often still use the traditional marketing instruments: Product, Place, Promotion and Price, with competition mainly being based on price, while that says nothing about the usability, quality or value within a production process. On the Internet, price is transparent, making price comparisons easy. But do people actually buy just on the basis of price? There is the perception that a low price is always beneficial for the buyer! In the old model, pricing has always been a dominant competitive weapon. In the 1980s, Michael Porter based his competitive strategies on the traditional market structure and the mutual competition between suppliers.
Old competition models were based on the following traditional structures:
• greater competitive strength through more efficient processes (the value chain);
• greater competitive strength through a focus on other suppliers in the market;
• by protecting the market as much as possible.
However, in the last decade there has been a growing realisation that there is an actual value proposition and that a sale involves an exchange of values of which price is only one component.
Control is important within the old structures. Among independent entities, control is often linked to possession and/or ownership. A company has its own premises, factories, machines, fleet of vehicles, staff with permanent contracts and a management board that does not change often. Supervisory boards are often old decision-makers with years of experience with the old structure. The capital of such a company can be personal capital (such as with a PLC), and also borrowed capital (loans) or the property of an investor who has more of a short-term vision (private equity). Interest is paid on this and investors tend to be more focused on the profits (efficiency). This short-term approach is a typical Anglo-Saxon approach to business. Porter’s value chain (1985) shows the total value of the value chain and consists of the organisation’s primary and secondary value activities as well as a margin.
Primary value activities are directly related to the physical creation, sale, supply and servicing of a company’s product or service. The competition is based on the old instruments of price, product, place and promotion.
• Inbound logistics: This refers to all activities related to the receipt, storage and distribution of purchased materials and/or services that are used in the production process of the company. The supplier partnerships play an important part in the creation of value.
• Operations: This denotes to all activities that have to do with converting this input into the final product for the customer and include processing, packaging and assembly.
• Outbound logistics: These activities relate to the supply of a product and/or service to the customer and include aspects such as an organisation’s collection, storage and distribution systems.
• Marketing: This includes all activities that stimulate the buyer to enter into a transaction, which include advertising, promotion and price.
• Sales: This indicates all activities that ensure that the buyers are able to purchase the product, which include channel selection and the customer relations with these channels.
• Service: This represents all activities that are concerned with delivering service in order to increase or maintain the value of the product and/service. Examples include installation, repair, advice and delivery of parts.
The following secondary activities support the above-mentioned primary functions:
• Procurement: This refers to the function of purchasing materials and/or services that are used in the production process of the company. This therefore does not refer to the purchased inputs themselves. This includes finding suppliers and negotiating the best price.
• Human resource management: This refers to all the activities that relate to recruiting, hiring, training, developing, motivating, remunerating and retaining the staff necessary to carry out the value activities.
• Technological development: This indicates all the activities related to managing and processing information as well as protecting the knowledge base of a company.
• Firm infrastructure: This consists of the functions that allow a company to carry out its daily activities such as accounting, legal matters, administration and general management.
The margin is the difference between the total value and the costs for carrying out the value activities in a linear sequence of the value chain.
What are the New Value Activities in the Competitive Battle?
In order to determine where the value activities and margin are located in a platform (network) company, you first have to look at how the essential capitals in a platform business model (infrastructure, network and data) are related to one another. The study carried out by Choudary (2015) revealed three different types of architectural layers that were repeatedly