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Best Business Books 2004: IT & Innovation

The Sky is Still the Limit

The case for all the corporate investment and management interest in information technology over the last two decades really rests on one premise: IT is special.

That special nature derives, first, from the technology itself. Yes, information technology (IT) is an input to production for all kinds of goods and services, as they say in economics. But the stored-program computer is also a versatile, “universal” tool that is a source of productivity, innovation, and competitive advantage for companies, and a transforming agent of economic and cultural change for society as a whole.

Three recent books about IT share that assumption and sort through its implications in different ways, while a fourth gives an agnostic’s qualified dissenting view. Still, the authors of all four agree that now is a crucial time for rethinking the impact and application of information technology: The Internet bubble years are gone but hardly forgotten; IT spending is gobbling up about half of all business capital investment; new technologies are emerging apace; and the Internet’s impact on intellectual property law remains unsettled.

The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability, by Marco Iansiti and Roy Levien (Harvard Business School Press, 2004), presents the most original and compelling theme found in these new books. The “keystone” is a term drawn from biology that refers to a species (or corporation, in this case) that occupies the hub of a biological (or business) network and whose behavior improves the health of its ecosystem. Computing is no stranger to biological metaphors. The originators of object-oriented programming compared the behavior of their digital objects to cells in the 1970s. In business, academics and consultants have applied the notion of biological ecosystems to commerce for more than a decade. But Iansiti, a professor at the Harvard Business School, and Levien, a consultant, push the concept in provocative new directions in The Keystone Advantage.

The corporate keystones singled out by Iansiti and Levien include familiar corporate names like Microsoft, Wal-Mart, and eBay, but also some interesting, lesser-known companies. They provide an illuminating account of Li & Fung, a century-old Hong Kong–based trading company, for example, that is a vital hub in the apparel industry and that has relationships with more than 8,000 specialist firms in 40 countries. Using sophisticated IT tools, Li & Fung orchestrates a vast global supply chain to fit the needs of retailers like Gap and the Limited, guiding the production of firms employing more than a million people.

Organisms to Ecosystems
The spread of the Internet in the 1990s drastically reduced the cost of company-to-company communications, but only for a fairly limited kind of interaction, according to Iansiti and Levien. This is a crucial, if somewhat geeky, point in their analysis. Put simply, the first generation of Internet protocols, such as HTML, allowed for linking and viewing documents and Web sites. But the current generation of software protocols known collectively as Web services open the door to machine-to-machine, automated data exchange. In plain English, this would mean, for example, that one company’s manufacturing system can automatically reorder parts from a trusted supplier when a surge in demand indicates that parts are about to run low.

So the goal now within reach, the authors write, is “the creation of a truly interconnected ecosystem in which organizations are integrating both technology infrastructure and business processes.” Clever keystone companies like Li & Fung are moving quickly to adopt such Web services technology, while prodding and helping their business partners to do the same. The helping hand is the distinguishing characteristic of a keystone, for the keystone company succeeds or fails depending on the strength or weakness of its ecosystem. Competition, Iansiti and Levien argue, is thus being redefined. “The crucial battle,” they write, “is not between individual firms but between networks of firms. Innovations and operations have become a collective activity.”

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