Role of IT in the Democratization of Commerce
No commentsM.K. Pralahad of ‘Fortune at the Bottom of the Pyramid’ and ‘Competing in the Future’ fame, talks about several trends that will lead to the Democratization of Commerce. In his words, there will be greater integration of larger number of producers and consumers in the global economy. Of the several intriguing trends he talks about, I am going to focus on the role of IT that will enable to democratize commerce.
Prahalad makes a compelling case that because of technological advances; information is getting more and more democratized. Today, on a global scale everyone has access to the same information and the potential to translate that same information into intelligence. In the past, the profit was made mainly from ‘Information Arbitrage’. If you had access to privileged information, you could take advantage of that information to make a profit. Also, information traveled slowly and thus the first movers had an advantage when it came to competition. But, with the coming democratization, the information is almost instantly available to everyone. This leads to ‘commoditization of product’ which in turn leads to “Perfect Competition“. Economists have always loved ‘Prefect Competition’ model because it increases economic efficiency.
Well, I do agree that the trend towards commoditization has accelerated and will continue to accelerate due to technological innovation. This accelerated commoditization which is at the heart of Nicholas Carr’s argument in his infamous HBR article ‘IT Doesn’t Matter’ where he makes an argument that in a ‘perfect competition’ model of future, your investment in IT cannot be leveraged for differentiation strategy. (Please read my first blog on my perspective: IT Does Matter).
Here’s my argument how IT can be used for differentiation. First of all, there is always a lag in the availability of information. Even though, technology continues to enable sharp increase in the velocity of information, the information cannot be made available instantaneously. A ‘business idea’ in your organization will not be known instantaneously to the competition. There is that lag time. But with the increased velocity of information, slow decision will be punished. Organizations need to set up agile business process and streamline decision making ability if they want to take first mover advantage. IT can play a major role in this effort only if the core competencies of the organizations are identified and automated.
While the technology can be blamed for commoditizing of products faster, we can leverage the same technology to expedite creation of Network Externalities. Let me take EBay as an example. While it is simple to copy Ebay’s business model, it will be extremely difficult to create a value for the sellers because all the buyers have become EBay’s captive audience.
So, IT is a double edged sword. On one hand it is enabling commoditization of product. On the other hand it can be leveraged to differentiate your product/service and organization. Even with democratized information availability, IT can help create first mover’s advantage. It all depends on how organizations use IT. In the later blog I will talk how IT can enable organizations to identify their products and/or services’ Long Tail which can also be exploited to create a differentiation strategy for that organization.
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Tuesday, September 18th, 2007 at 1:38 pm and is filed under Business Strategy, IT Strategy, IT Management, Nicholas Carr. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
