Network Strategy in the Digital Economy

This chapter is concerned with the ‘new’ world of information technology and knowledge intensity. This is a world marked by big investments in R&D, different cost structures and significantly changed demand conditions. You should read this chapter in conjunction with Chapter 19, which deals with knowledge, information and innovation. In this chapter, we are concerned with how the logic of competitive advantage applies to the new conditions in which we find ourselves. To anticipate the conclusions, we will see that the strategic context has shifted a great deal. This means that fundamental demand and cost conditions have changed, resulting in different strategies being pursued. The new world and the new economy do mean that the old strategic logic is outmoded. Instead, we see a significant change in the strategic context that results in the logic of competitive advantage being applied in different ways. The chapter presents and contrasts the differences between the old world of scale and scope economies and the new world of network externalities. There is an extensive discussion of what network externalities are and how they arise but the reader should read this in the context of addition, not replacement – scale and scope have not been replaced; there is, however, another important practical phenomenon to consider. Networks are supported by many layers of infrastructure and we go into some detail to show how the technological infrastructure can be identified and analysed. There are many implications for competition, which we review. Finally, we summarize the implications for strategy – although it is a new world, the logic of competitive advantage still applies.