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 / Third Quarter 2001 / Issue 24(originally published by Booz & Company)


Rethinking Strategy in a Networked World (or Why Michael Porter is Wrong about the Internet)

Unfortunately, he uses these truths to prop up a false thesis. Because corporate objectives remain unchanged by the Net, Professor Porter argues, the best methods of achieving these goals, including operating within a vertically integrated structure, must be unchanged, too.

Professor Porter sees the world as two warring camps: the Internet zealots and the defenders of tried-and-true business thinking, such as himself. And it’s pretty clear who’s winning. This gives him the basis on which to assert that “the experiences companies have had with the Internet thus far must be largely discounted and … many of the lessons learned must be forgotten.” If you were an industry leader prior to the Internet’s bursting on the scene, continue your time-tested business processes. Use the Net as a “complement to traditional ways of competing,” he says, rather than “cannibalizing” a healthy company.

Regrettably, a much-needed return to fundamentals has become a new fundamentalism that argues managers should turn back the clock for business wisdom. Although there is some merit in Professor Porter’s view that “in our quest to see how the Internet is different, we have failed to see how the Internet is the same,” it is utter folly to believe the Internet brings nothing fundamentally new.

What Is the Internet?
Much of Professor Porter’s reasoning stems from his misunderstanding of the Internet itself. He concedes that the Internet is important — it’s just not that important. “But for all its power, the Internet does not represent a break from the past; rather, it is the latest stage in the ongoing evolution of information technology,” he writes. Rather than viewing the Net as the emerging infrastructure for economic activity, he puts the Internet architecture on the same level as “complementary technological advances such as scanning, object-oriented programming, relational databases, and wireless communications.”

It is wrong to trivialize the Net in this way. The Net is much more than just another technology development; the Net represents something qualitatively new — an unprecedented, powerful, universal communications medium. Far surpassing radio and television, this medium is digital, infinitely richer, and interactive. The Net is becoming ubiquitous; it will soon connect every business and business function and a majority of humans on the planet. All other communications technologies, such as telephone, radio, television, and wireless, are being sucked into the Net’s maw.

Professor Porter also makes an all-too-common mistake in assuming that the Internet we see today — a network that connects desktop PCs — is the same Internet we will see tomorrow. This is nonsense. The Internet of tomorrow will be as dramatic a change from the Internet of today as today’s Internet is from the unconnected, proprietary computing networks of yesterday.

The Net continues to soar in reach, power, and functionality. It is not only the means to link computers, but the mechanism by which individuals and organizations exchange money, conduct transactions, communicate facts, express insight and opinion, and collaborate to develop new knowledge.

Mobile computing devices, broadband access, wireless networks, and computing power embedded in everything from refrigerators to automobiles are converging into a global network that will enable people to use the Net just about anywhere and anytime. No facet of human activity is untouched. The Net is a force of social change penetrating homes, schools, offices, factories, hospitals, and governments. When an institution such as the Massachusetts Institute of Technology says it will post its entire curriculum on the Net — including such items as lecture notes and course reading lists — it is attempting to shape the nature of pedagogy and learning everywhere.

The 20th-century corporation was based on an infrastructure that included the electric power grid, roads, railroad tracks, and primitive analog networks like the telephone. Rather than viewing the Net as comparable to “scanning,” Professor Porter should see it as the new infrastructure of the 21st century. Many strategists look beyond individual corporations to think about the structure of industries. However, the Internet precipitates one of those rare occasions in economic history when we must think even more broadly in order to understand how the entire infrastructure for wealth creation is changing.

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  1. Don Tapscott, David Ticoll, and Alex Lowy, Digital Capital: Harnessing the Power of Business Webs, Harvard Business School Press, 2000
  2. Lawrence M. Fisher, “From Vertical to Virtual: How Nortel’s Supplier Alliances Extend the Enterprise,” s+b, First Quarter 2001; Click here.
  3. Keith Oliver, Anne Chung, and Nick Samanich, “Beyond Utopia: The Realist’s Guide to Internet-Enabled Supply Chain Management,” s+b, Second Quarter 2001; Click here.
  4. Michael E. Porter, “Strategy and the Internet,” Harvard Business Review, March 2001; Click here.
  5. David Ticoll, “Strategy and the Internet,” Letters to the Editor, Harvard Business Review, June 2001
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