Strategy And The Internet

Strategy and The Internet
Michael E. Porter
Harvard Business Review

In this article, the author (Michael E. Porter), explains his opinion on the use of the internet by organisations. He points out that both dot-coms and established companies have both, by way of competition, violated the core precept of strategy in businesses. Porter brings out the fact that companies focussed more on attracting more customers, via discounted channels, discounting and advertising, rather than having profit in their line of sight. He clearly explains that managers should use the internet to complement their current ways of competing, rather than making the internet a strategy in itself. The internet should be part of business activities, rather than being a standalone approach. Porter provides a distinctive perspective to the use of the Internet in business interactions, unlike several authors who have suggested that the internet leads to greater success.

In a rush to launch their Internet business, companies have dropped their root strategy and principles for competitive advantage. They have been confused by distorted market signals of this new business phenomenon. Companies misinterpreted sales figures and rather pictured the Internet Business as a cash generating strategy on its own. Porter highlights that we should be cautions with these figures. First, prices on the Internet do not reflect the actual value of the product - they are subjected to heavy discounts. Therefore, when prices are artificially low, unit demand in turn becomes artificially high. Second, the newness of the internet has attracted millions of customers out of curiosity, but they do not have a sense of loyalty towards these brands, and hence the company will need to return to normal business to sustain competitive advantage. Finally, some revenues from on-line commerce have been received as stock. Porter also argues that the internet has a levelling effect on the industry. It alters the