How can internet strategically help business

Your team needs to determine what you want to achieve and then collect the data that will help you answer business questions, improve operations, and create new streams of revenue. There are numerous ways data can influence your business success, but for the most part businesses use data in these three ways:. Making better business decisions is the first way all organisations should leverage their data intelligence. Data can help your team make better decisions in all areas of your business from warehousing to distribution, marketing to customer service, and more.

Identify and prioritise your unanswered business questions and then determine what data you can analyse to get an answer for that unsolved business problem. Certainly, one of the most prolific ways that companies gain insights from data is to get a better understanding of their customers—data-driven insights rather than assumptions—about who they are, their preferences, behaviors, and more.

A top priority for many companies is to use data to gain operational efficiencies. For example, service-based businesses with fleets of vehicles equipped with GPS devices can all be connected to give extraordinary insight via real-time monitoring. Amazon leveraged the insights of data in a big way when it launched the personal recommendation system that helps us know what we might need even before we have given it a thought. The more robust and compelling your data is, the more attractive it becomes as a business asset.

In fact, companies are now being bought and sold based on the data they have. IBM can now sell that data to other companies who have an interest in understanding weather patterns.

Even if your company is not looking to be acquired, your data is still valuable. 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 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 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? 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 blessing. It tends to alter industry structures in ways that dampen overall profitability, and it has a leveling effect on business practices, reducing the ability of any company to establish an operational advantage that can be sustained.

Internet technology provides better opportunities for companies to establish distinctive strategic positionings than did previous generations of information technology. The key question is not whether to deploy Internet technology—companies have no choice if they want to stay competitive—but how to deploy it.

Here, there is reason for optimism. Gaining such a competitive advantage does not require a radically new approach to business. It requires building on the proven principles of effective strategy. The Internet per se will rarely be a competitive advantage. Many of the companies that succeed will be ones that use the Internet as a complement to traditional ways of competing, not those that set their Internet initiatives apart from their established operations.

That is particularly good news for established companies, which are often in the best position to meld Internet and traditional approaches in ways that buttress existing advantages. But dot-coms can also be winners—if they understand the trade-offs between Internet and traditional approaches and can fashion truly distinctive strategies.

Far from making strategy less important, as some have argued, the Internet actually makes strategy more essential than ever. Companies that have deployed Internet technology have been confused by distorted market signals, often of their own creation. It is understandable, when confronted with a new business phenomenon, to look to marketplace outcomes for guidance. But in the early stages of the rollout of any important new technology, market signals can be unreliable. New technologies trigger rampant experimentation, by both companies and customers, and the experimentation is often economically unsustainable.

As a result, market behavior is distorted and must be interpreted with caution. That is certainly the case with the Internet. Consider the revenue side of the profit equation in industries in which Internet technology is widely used. Sales figures have been unreliable for three reasons. First, many companies have subsidized the purchase of their products and services in hopes of staking out a position on the Internet and attracting a base of customers.

Governments have also subsidized on-line shopping by exempting it from sales taxes. Buyers have been able to purchase goods at heavy discounts, or even obtain them for free, rather than pay prices that reflect true costs. When prices are artificially low, unit demand becomes artificially high. Second, many buyers have been drawn to the Internet out of curiosity; they have been willing to conduct transactions on-line even when the benefits have been uncertain or limited.

If Amazon. Sooner or later, though, some customers can be expected to return to more traditional modes of commerce, especially if subsidies end, making any assessment of customer loyalty based on conditions so far suspect. The sustainability of such revenue is questionable, and its true value hinges on fluctuations in stock prices.

If revenue is an elusive concept on the Internet, cost is equally fuzzy. Many companies doing business on-line have enjoyed subsidized inputs. Their suppliers, eager to affiliate themselves with and learn from dot-com leaders, have provided products, services, and content at heavily discounted prices. Many content providers, for example, rushed to provide their information to Yahoo! Some providers have even paid popular portals to distribute their content. Further masking true costs, many suppliers—not to mention employees—have agreed to accept equity, warrants, or stock options from Internet-related companies and ventures in payment for their services or products.

Payment in equity does not appear on the income statement, but it is a real cost to shareholders. Such supplier practices have artificially depressed the costs of doing business on the Internet, making it appear more attractive than it really is.

Finally, costs have been distorted by the systematic understatement of the need for capital. Company after company touted the low asset intensity of doing business on-line, only to find that inventory, warehouses, and other investments were necessary to provide value to customers. Signals from the stock market have been even more unreliable. They no longer provided an accurate guide as to whether real economic value was being created.

Any company that has made competitive decisions based on influencing near-term share price or responding to investor sentiments has put itself at risk.

Distorted revenues, costs, and share prices have been matched by the unreliability of the financial metrics that companies have adopted. The executives of companies conducting business over the Internet have, conveniently, downplayed traditional measures of profitability and economic value. Creative accounting approaches have also multiplied. The dubious connection between reported metrics and actual profitability has served only to amplify the confusing signals about what has been working in the marketplace.

The fact that those metrics have been taken seriously by the stock market has muddied the waters even further. For all these reasons, the true financial performance of many Internet-related businesses is even worse than has been stated. One might argue that the simple proliferation of dot-coms is a sign of the economic value of the Internet. Such a conclusion is premature at best. Dot-coms multiplied so rapidly for one major reason: they were able to raise capital without having to demonstrate viability.

Rather than signaling a healthy business environment, the sheer number of dot-coms in many industries often revealed nothing more than the existence of low barriers to entry, always a danger sign. It is hard to come to any firm understanding of the impact of the Internet on business by looking at the results to date. But two broad conclusions can be drawn. First, many businesses active on the Internet are artificial businesses competing by artificial means and propped up by capital that until recently had been readily available.

Second, in periods of transition such as the one we have been going through, it often appears as if there are new rules of competition. But as market forces play out, as they are now, the old rules regain their currency. The creation of true economic value once again becomes the final arbiter of business success.

Economic value for a company is nothing more than the gap between price and cost, and it is reliably measured only by sustained profitability. To generate revenues, reduce expenses, or simply do something useful by deploying Internet technology is not sufficient evidence that value has been created. Shareholder value is a reliable measure of economic value only over the long run. In thinking about economic value, it is useful to draw a distinction between the uses of the Internet such as operating digital marketplaces, selling toys, or trading securities and Internet technologies such as site-customization tools or real-time communications services , which can be deployed across many uses.

But this thinking is faulty. It is the uses of the Internet that ultimately create economic value. Technology providers can prosper for a time irrespective of whether the uses of the Internet are profitable. In periods of heavy experimentation, even sellers of flawed technologies can thrive. But unless the uses generate sustainable revenues or savings in excess of their cost of deployment, the opportunity for technology providers will shrivel as companies realize that further investment is economically unsound.

So how can the Internet be used to create economic value? To find the answer, we need to look beyond the immediate market signals to the two fundamental factors that determine profitability:. These two underlying drivers of profitability are universal; they transcend any technology or type of business. At the same time, they vary widely by industry and company.

Potential profitability can be understood only by looking at individual industries and individual companies. The Internet has created some new industries, such as on-line auctions and digital marketplaces.

However, its greatest impact has been to enable the reconfiguration of existing industries that had been constrained by high costs for communicating, gathering information, or accomplishing transactions. Distance learning, for example, has existed for decades, with about one million students enrolling in correspondence courses every year.

The Internet has the potential to greatly expand distance learning, but it did not create the industry. Similarly, the Internet provides an efficient means to order products, but catalog retailers with toll-free numbers and automated fulfillment centers have been around for decades. The Internet only changes the front end of the process. Whether an industry is new or old, its structural attractiveness is determined by five underlying forces of competition: the intensity of rivalry among existing competitors, the barriers to entry for new competitors, the threat of substitute products or services, the bargaining power of suppliers, and the bargaining power of buyers.

In combination, these forces determine how the economic value created by any product, service, technology, or way of competing is divided between, on the one hand, companies in an industry and, on the other, customers, suppliers, distributors, substitutes, and potential new entrants. The five competitive forces still determine profitability even if suppliers, channels, substitutes, or competitors change.

Because the strength of each of the five forces varies considerably from industry to industry, it would be a mistake to draw general conclusions about the impact of the Internet on long-term industry profitability; each industry is affected in different ways.

For example, the Internet tends to dampen the bargaining power of channels by providing companies with new, more direct avenues to customers. But most of the trends are negative. Internet technology provides buyers with easier access to information about products and suppliers, thus bolstering buyer bargaining power. The Internet mitigates the need for such things as an established sales force or access to existing channels, reducing barriers to entry.

By enabling new approaches to meeting needs and performing functions, it creates new substitutes. Because it is an open system, companies have more difficulty maintaining proprietary offerings, thus intensifying the rivalry among competitors. The use of the Internet also tends to expand the geographic market, bringing many more companies into competition with one another. And Internet technologies tend to reduce variable costs and tilt cost structures toward fixed cost, creating significantly greater pressure for companies to engage in destructive price competition.

While deploying the Internet can expand the market, then, doing so often comes at the expense of average profitability. The great paradox of the Internet is that its very benefits—making information widely available; reducing the difficulty of purchasing, marketing, and distribution; allowing buyers and sellers to find and transact business with one another more easily—also make it more difficult for companies to capture those benefits as profits. We can see this dynamic at work in automobile retailing.

The Internet allows customers to gather extensive information about products easily, from detailed specifications and repair records to wholesale prices for new cars and average values for used cars. Customers can also choose among many more options from which to buy, not just local dealers but also various types of Internet referral networks such as Autoweb and AutoVantage and on-line direct dealers such as Autobytel. Because the Internet reduces the importance of location, at least for the initial sale, it widens the geographic market from local to regional or national.

Virtually every dealer or dealer group becomes a potential competitor in the market. It is more difficult, moreover, for on-line dealers to differentiate themselves, as they lack potential points of distinction such as showrooms, personal selling, and service departments. With more competitors selling largely undifferentiated products, the basis for competition shifts ever more toward price. That does not mean that every industry in which Internet technology is being applied will be unattractive.

For a contrasting example, look at Internet auctions. Here, customers and suppliers are fragmented and thus have little power. Substitutes, such as classified ads and flea markets, have less reach and are less convenient to use. And though the barriers to entry are relatively modest, companies can build economies of scale, both in infrastructure and, even more important, in the aggregation of many buyers and sellers, that deter new competitors or place them at a disadvantage.

Finally, rivalry in this industry has been defined, largely by eBay, the dominant competitor, in terms of providing an easy-to-use marketplace in which revenue comes from listing and sales fees, while customers pay the cost of shipping. When Amazon and other rivals entered the business, offering free auctions, eBay maintained its prices and pursued other ways to attract and retain customers.

As a result, the destructive price competition characteristic of other on-line businesses has been avoided. EBay has acted in ways that strengthen the profitability of its industry. In stark contrast, Buy. It sold products not only below full cost but at or below cost of goods sold, with the vain hope that it would make money in other ways. The company had no plan for being the low-cost provider; instead, it invested heavily in brand advertising and eschewed potential sources of differentiation by outsourcing all fulfillment and offering the bare minimum of customer service.

It also gave up the opportunity to set itself apart from competitors by choosing not to focus on selling particular goods; it moved quickly beyond electronics, its initial category, into numerous other product categories in which it had no unique offering. Although the company has been trying desperately to reposition itself, its early moves have proven extremely difficult to reverse.

Given the negative implications of the Internet for profitability, why was there such optimism, even euphoria, surrounding its adoption?

One reason is that everyone tended to focus on what the Internet could do and how quickly its use was expanding rather than on how it was affecting industry structure. But the optimism can also be traced to a widespread belief that the Internet would unleash forces that would enhance industry profitability. Most notable was the general assumption that the deployment of the Internet would increase switching costs and create strong network effects, which would provide first movers with competitive advantages and robust profitability.

First movers would reinforce these advantages by quickly establishing strong new-economy brands. The result would be an attractive industry for the victors. This thinking does not, however, hold up to close examination. Consider switching costs. Switching costs encompass all the costs incurred by a customer in changing to a new supplier—everything from hashing out a new contract to reentering data to learning how to use a different product or service. While switching costs are nothing new, some observers argued that the Internet would raise them substantially.

In reality, though, switching costs are likely to be lower, not higher, on the Internet than they are for traditional ways of doing business, including approaches using earlier generations of information systems such as EDI. On the Internet, buyers can often switch suppliers with just a few mouse clicks, and new Web technologies are systematically reducing switching costs even further.

For example, companies like PayPal provide settlement services or Internet currency—so-called e-wallets—that enable customers to shop at different sites without having to enter personal information and credit card numbers. Content-consolidation tools such as OnePage allow users to avoid having to go back to sites over and over to retrieve information by enabling them to build customized Web pages that draw needed information dynamically from many sites.

And the widespread adoption of XML standards will free companies from the need to reconfigure proprietary ordering systems and to create new procurement and logistical protocols when changing suppliers. What about network effects, through which products or services become more valuable as more customers use them? A number of important Internet applications display network effects, including e-mail, instant messaging, auctions, and on-line message boards or chat rooms.

Where such effects are significant, they can create demand-side economies of scale and raise barriers to entry. This, it has been widely argued, sets off a winner-take-all competition, leading to the eventual dominance of one or two companies. But it is not enough for network effects to be present; to provide barriers to entry they also have to be proprietary to one company. The openness of the Internet, with its common standards and protocols and its ease of navigation, makes it difficult for a single company to capture the benefits of a network effect.

America Online, which has managed to maintain borders around its on-line community, is an exception, not the rule. And even if a company is lucky enough to control a network effect, the effect often reaches a point of diminishing returns once there is a critical mass of customers. Moreover, network effects are subject to a self-limiting mechanism. A particular product or service first attracts the customers whose needs it best meets. As penetration grows, however, it will tend to become less effective in meeting the needs of the remaining customers in the market, providing an opening for competitors with different offerings.

Finally, creating a network effect requires a large investment that may offset future benefits. The network effect is, in many respects, akin to the experience curve, which was also supposed to lead to market-share dominance—through cost advantages, in that case. The experience curve was an oversimplification, and the single-minded pursuit of experience curve advantages proved disastrous in many industries.

Internet brands have also proven difficult to build, perhaps because the lack of physical presence and direct human contact makes virtual businesses less tangible to customers than traditional businesses.

Despite huge outlays on advertising, product discounts, and purchasing incentives, most dot-com brands have not approached the power of established brands, achieving only a modest impact on loyalty and barriers to entry. Another myth that has generated unfounded enthusiasm for the Internet is that partnering is a win-win means to improve industry economics. While partnering is a well-established strategy, the use of Internet technology has made it much more widespread.

Partnering takes two forms. Computer software, for example, is a complement to computer hardware. In Internet commerce, complements have proliferated as companies have sought to offer broader arrays of products, services, and information. Partnering to assemble complements, often with companies who are also competitors, has been seen as a way to speed industry growth and move away from narrow-minded, destructive competition. But this approach reveals an incomplete understanding of the role of complements in competition.

While a close substitute reduces potential profitability, for example, a close complement can exert either a positive or a negative influence. Complements affect industry profitability indirectly through their influence on the five competitive forces. Organizations that offer products and services online may find it difficult to handle a surge in traffic, which could result in lost business.

Adding resources from the cloud provides a strategic advantage by enabling them to respond to changes in demand, increase revenue and maintain customer satisfaction.

IT solutions that improve collaboration in an organization can provide an important competitive advantage. Issuing field service teams with smartphones, for example, enables service engineers to provide a faster, more efficient service to customers. Engineers working on a customer site can set up voice or video conference calls with product or technical experts at headquarters to discuss and resolve a complex issue, rather than delaying a repair.

Offering customer superior service provides a strategic advantage by differentiating an organization from competitors. By using powerful analytics software, organizations can develop customized offers and personalized communications that help to increase customer satisfaction and foster loyalty.

Organizations can use IT to make strategic changes to their business models.