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In Blown to Bits: How the New Economics of Information Transforms Strategy, Boston Consulting Group executives Philip Evans and Thomas Wurster lead us through a fascinating framework for understanding how information is generating a new set of economic principles that shift the manner in which businesses compete. According to the authors, "This is a real shift. In the vast majority of traditional competitive situations, the defense has the advantage. But when the economics of information are shifting, insurgents are advantaged precisely by their lack of legacy systems, legacy assets, and a legacy mindset. Having nothing to lose becomes an advantage."
Under these new conditions, managers must continue to carefully define the fundamental customer value proposition, or, in traditional economics terminology, the buyer utility satisfied. This is important because Evans and Wurster propose that the firm's customers are really its most important competitors as well. To be effective, managers must be ever vigilant about what products or services their companies are providing to their customers that the customers could not obtain for themselves. As availability of information becomes increasingly separated from its physical carriers, as in Internet shopping, customers can seek information independently and potentially leave market intermediaries, such as bookstores, to flounder.
The authors assert that historically there has been a richness/reach trade-off for most products and services. Richness refers to the quality of information, while reach refers to the number of people who can possibly share the information. The result of such trade-offs is an asymmetry of information, or difference in knowledge among people or companies that affects their bargaining power. The authors use the example of selling cars over the Internet, where the...