InformationWeek

Meanwhile, there has been an ongoing evolution of the IT landscape. Companies recognize the importance of extending IT beyond their own walls. Propelled by E-business, companies aim to link IT systems not just across an entire business but beyond, to consumers. This means integrating front-office applications such as order generation, processing, and customer support with back-office systems such as production, accounting, and distribution. There's an increasing number of software solutions for creating and managing customer relationships, but the consumer is still largely viewed as outside the scope of the enterprise. Is there a mismatch brewing between the emerging consumer-centric economy and traditional IT?

Traditionally, categories of players had implicitly designated roles and tasks along the value chain. Consider, for instance, the automobile industry. Suppliers provided raw materials, components, and systems to carmakers, who created value by turning these pieces into automobiles; these companies competed with others to extract and exchange value with intermediaries such as dealers and distributors. Consumers were passive "target markets" for consumption. Current IT implementation of customer-relationship management extends this notion from predetermined segments to individual consumers. This is akin to a hunter with binoculars trying to get a better view of the prey--the targeted consumer. This "game" is rapidly changing. The hunter can become the hunted if companies don't recognize the dramatic transformation of the role of consumers. Consumers are no longer a predetermined category with a specific role of consumption in the industrial system. They are active players in co-creating value. The market is no longer a "target," but must be recognized as an ecosystem. It's a forum for value creation and extraction, and the company is part of an enhanced network--one that includes its suppliers and partners, and its customers. The network's fulfillment goes beyond business-to-business or business-to-consumer relationships to a consumer-to-business-to-business relationship.

We can't associate this transformation with any one event or trend. It's the result of a wide variety of changes taking place in developed and developing societies; it's the result of a distributed set of initiatives, taken by a wide variety of players. The collective impact of these efforts is a morphing of the industrial system as we know it, from within.

• Consider the automobile industry in the 1990s. The drive for efficiency in the industrial system spawned an unprecedented spate of portfolio restructuring and mergers and acquisitions around the world. While the Web was taking off from 1996 to 1998, more than $2.3 trillion changed hands through mergers and acquisitions in more than 20,000 deals. This trend was about extracting value from hidden inefficiencies in the industrial infrastructure. For example, DaimlerChrysler managers expected to save more than $1.4 billion by rationalizing the supply chain. The evolving pattern of supplier management created the notion of an extended enterprise--one consisting of a nodal player, such as DaimlerChrysler, and a host of Tier 1 suppliers around the world. Such suppliers must take risks and invest in global expansion, as well as in advanced technical development efforts on behalf of the nodal players. Success in the marketplace is now a collective success; so is failure. The relationship is one of supplier, collaborator, and an investor with the risks associated with the investor role.

• New intermediaries and multiple channels of communication and delivery have emerged. Spurred by the Web, digitization of content, high-speed wired and wireless networks, and new consumer devices and appliances, there's an unprecedented number of touchpoints between the firm and the end-consumer. Real-time solutions and services are critical. Increasingly, speed is a source of competitive advantage. Consumers, en masse, appear to be moving toward instant gratification--the new now generation.

• Consumers are getting used to the idea of an active dialogue with providers of products and services. The emerging dialogue is not restricted to help-desk communication. Increasingly, the dialogue involves an active role in product design and testing. It's estimated that Microsoft distributed the beta version of Windows 2000 to more than 650,000 software engineers who tested the product and provided feedback on problems in the software and desirable changes to the feature set. This represents a collective investment of more than $500 million by Microsoft's customers in Microsoft. Customers weren't just collaborators but investors.

Likewise, both Apache's Web server software and the Linux operating system were co-developed by users. The increasing presence of embedded software has forced even traditional companies onto new paths: Sony Corp. engaged in a dialogue with hackers, some of whom co-developed its PlayStation, and Philips Electronics NV mobilized a Web site set up by a consumer so hackers could explore software applications in its universal remote control, Pronto.

The recognition of consumers as active players in co-creating value shifts the locus of core competencies from the firm to the enhanced network. Competence now is a function of the collective knowledge available to the whole system. It forces managers to rethink the resources available to them and re-examine what to look for and where to look for it, just as the astronomer Copernicus challenged the orthodoxies of 16th-century assumptions. Customers become another source of competence in this enhanced network. Access to resources--competence, infrastructure (such as distribution), and investment capacity of the extended network--can give smaller and startup companies the kind of market influence larger ones wield. Access to competence and leveraging resources are increasingly more-important considerations than control and ownership of resources. Resource leverage requires unique collaboration with customers and suppliers. Companies without some uniqueness--in ideas, infrastructure, or resources--can't succeed as nodal firms. The nodal firms--those that provide intellectual leadership to a coalition of firms--can create significant resource leverage for all constituent members. Consider America Online, which has developed almost 20 additional services in this way and now collaborates with more than 40 partners, including Blockbuster, eToys, Kinko's, MapQuest, Universal, and Wal-Mart.

First, the notion of traditional supply chains is linear and fixed. What today's business needs is a new understanding of the fulfillment process in the enhanced network, consisting of a nodal firm, a large number of suppliers, and multiple channels. Logistics must be understood in the context of this complex web of relationships. Any customer requirement may trigger a different set of contributors in the fulfillment web. Companies need to think of a flexible web--a concentration of competencies in the web--that can selectively activate itself to fulfill a set of consumer needs. Each consumer request may activate a different relationship in the network.

Second, managers must learn to recognize their products as consumers experience them. Some already do. Jeff Bezos, founder of Amazon.com Inc., considers his company to be customer-centric and is obsessed with customers. John Chambers of Cisco has an advocacy group in his organizational chart. Although this is a stretch for most companies, in the future successful companies will be those centered on personalized experiences. Progressive companies, whether traditional or Internet-based, recognize this fundamental fact. This means no two individuals may have an identical experience, even if they get an identical bundle of physical products. For example, children's educational software from the Learning Co. adapts the level of difficulty and tasks to the skills of the child using it. Each child can have a potentially unique experience from the same product.

Extending current thinking about customer relationships isn't just about better data gathering, segmentation of consumers, or one-to-one marketing. It's about facilitating dialogue and consumer engagement among dynamic consumer communities and heterogeneous individuals--all eager, and some able, to co-create their own experiences. Consumers are finding it easier to form their own self-selecting virtual and real communities. Access to information is no longer asymmetric but increasingly symmetric. Consumers are no longer constrained by space and time, and have more choices than before. Consider that more than 70% of auto sales last year were made to consumers who researched their purchases on the Internet. As dialogue revolves around symmetric information, consumers can shop over the Internet for prices and features, eschewing what's available "on the shelf at list prices." Companies that meet consumers' price-performance expectations will be those that consummate the exchange.

The role of IT must undergo a radical transformation, as the implications of a consumer-centric networked economy dawns on businesses enabled by IT innovation. Granted that IT applications have resulted in clear efficiency gains when applied appropriately, producing total cost reduction, common data structures, and a seemingly better approach to managing the inevitable legacy phenomenon. But is this enough to create a consumer-centric view and deal with its Copernican implications?

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