End Of Competition, The: The Impact Of The Network Economy. C N A Molenaar

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      Chapter 3

      The New Market Conditions *

      The use of the Internet has changed the competitive relationships and the market conditions. As a result, it has become necessary for providers to go along with the innovation of one of the providers. When a provider successfully applies new technologies within the traditional business model, it can lead to lower costs in the so-called input–output model and in the processing. The application of the Internet can consequently reduce the price level or, if the market price forms the basis, lead to a higher profit margin. Other providers would have to tag along to ensure they do not fall behind the competition. This is a vicious circle; despite the innovation brought about by the Internet, this will only lead to an increasingly level playing field.

      Do the Traditional Competition Models Restrict Innovation?

      The old view that a business makes products and then sells them within the supply chain is no longer so relevant. Certainly not for the so-called non-daily products and for applications within the business-to-business (B2B) market. (Say’s law: supply creates its own demand, should actually be: demand creates its own supply.) Thanks to the enormous knowledge and information that purchasing parties can access, they can be much more selective in their purchasing decisions. Organisations should no longer have a sales focus but a purchasing focus. They should no longer first produce a product and then try to find a market for it. They should instead start with the customer: what do they want, who are they, how have they changed and what motivates their decisions. This shift from a production orientation to a customer orientation results in the following:

      • companies that gear products better to the needs of (often individual) customers;

      • greater satisfaction;

      • the creation of loyalty;

      • a more concentrated strategy for businesses.

      I will take a closer look at this customer focus when I later analyse the model of Treacy and Wiersema as well as during the assessment of various models.

      Porter observes the market and product-related factors. He looks at, for example, the availability of replacement products, but does not ask himself whether these products lead to the same loyalty with consumers (customers). Nor whether preferences in the future will change, allowing a company to prepare for this change (just look at the examples of both Kodak and Nokia). This is actually the general criticism levelled at Porter’s model as well as other competition models that are based on the supply. In the traditional market, which is very dynamic and characterised by a dynamic demand, different conditions apply. Companies should take advantage of the opportunities available, but they are constantly on the defensive. This results in a less effective strategy. There are plenty of examples of this strong focus on products and traditional markets, such as Kodak, Nokia, retailers on the high street and travel agencies. The traditional strength of companies is collaboration in a network based on one’s own added value. A purchase/customer focus based on engagement requires a different type of strategy (customer-oriented), a different type of organisation (agile, flexible) and a different supply proposition and value exchange (based on customer needs). By now focusing on increasing their value, companies have to dispose of divisions that do not contribute to this. Traditional outdated competition models, which are still based on supply, stand in the way of innovation and change. If companies continue to hang on to those competition models for too long, they will quickly fall behind the competition and find themselves separated from the new entrants by a chasm that will be impossible to bridge.

      Will the Rivalry between Providers (Competitors) Change?

      The first modification I would like to make relates to the ‘Rivalry between traditional competitors’. This component is best suited to a product-oriented supply chain, aimed at defending market share. Competition has always been regarded as something negative, while these days we see collaboration with competitors based on added value. One should not look at who is a competitor and how a company can compete against them. Rather, one should look at whether there is an opportunity for collaboration and creating value in a network. Instead of only looking at the extent and strength of the competitors, it is better to keep an eye on their willingness to work together. And to see if there are any traditional relationships that can be used, any historical behaviour with regard to working together. Collaborative partnerships, resulting in complete supply chain ecosystems are the central element of modern supply chains. In actual fact, the basis of competition is not to defeat the competition but to motivate customers (Table 1).

      So What is the New Supply Chain Then?

      The traditional supply chain involved a linear process, where successive links added value. Each link was independent, and had its own revenue model and position. The totality of these independent links was the supply chain. Information was passed on from link to link. As a result, factories had limited information regarding customers, buying processes and buying motives. The customers of a manufacturer were the companies of the next link in the chain, not the end customer. This was typical for the traditional analogue approach, but was a major limitation if you needed to respond to a dynamic market.

Table 1. Overview of value creation, old and new.