A CONCEPTUAL MODEL FOR SUSTAINING COMPETITATIVE

ADVANTAGE IN DIGITAL ECONOMY

Swapan Kumar Majumdar

School of Business Administration, Al Akhawayn University, Ifrane 53000, Morocco

Keywords: Business Model, Competitive Advantage, Connected Organizations, Digital Economy, Governance,

Internet, Web Technology, Sustainability.

Abstract: As high speed Internet is connecting citizens and businesses around the world, social and economic mode of

interactions among citizens, governments, customers and businesses are changing rapidly. Governments and

businesses are using web information systems to provide highest quality services at affordable cost to their

citizens and customers. Citizens and customers are becoming more demanding. Businesses are experiencing

intense pressure of global competitors, and are in constant search for strategies and models for better

governance and sustaining growth. This paper examines the impacts of Internet and web-technology on the

functions, processes, structure and behaviour of connected-business organizations, and their effects on the

competitive landscape and sustainability of eBusiness organizations. As a final point, it provides a

conceptual model for sustaining competitive advantage in digital economy.

1 INTRODUCTION

Internet has revolutionized the ways and means of

connecting, inter-operating and exchanging

messages, goods, services and money. The emerging

new media and the channels of communication is so

powerful, convenient, cost-effective and far-

reaching that they are consistently attracting millions

people of all class, hundreds of businesses of all

kinds, from all over the world every day. This

revolution of communication has created an

evolution that is transforming business, society and

the economy. It has transformed the economy into

digital economy, society into eSociety and the

businesses into eBusiness. The size of digital

economy is growing in leaves and bounds. In digital

economy citizens, customers, governments and

businesses, use Internet and Web technology tools as

the enablers of business.

The boom, bust and return (Johnson, 2002, US

Census Bureau 2005, European eBusiness Market

Watch 2005) of ePhenomenon might be confusing at

its manifestation. In fact, these are symptoms of

evolutionary characteristics of digital business

ecosystems (Peltoniemi 2004). The eEvolution

reminds us the stories of automobiles and aviation

industries. In the early days of automobile industry,

there were more than 2000 carmakers, but now there

are only three car companies left in the United

States. Likewise, hundreds of aircraft manufacturers

have gone bust, some very recently. The eSociety is

a fully connected society. Its members use

technology and the digital network for

communication, intermediation, evaluation and

completion of business transactions. The processes

are automated, ubiquitous and access able from

anywhere by anyone at any time and by many

devices. This being scope and scale operation of

connected-business (eBusiness) the success of a

networked company—depends on — how one uses

the emerging technology to create competitive

advantage for their companies and how renewable

are those advantages. The core intents of eBusiness

are similar to any other business, but the mode and

rules of operations and competition are very

different (Porter 2001).

The competitive advantage of digital business

entity does not come from having computers and

connectivity with the global network, but by using

them to create, deliver and realize superior value.

The challenge is how to create superior value for

customers and remain closer to the customers, who

are also members of the same connected society and

have many options. The Internet provides equal

opportunity to all to customers and competitors,

Kumar Majumdar S. (2006).

A CONCEPTUAL MODEL FOR SUSTAINING COMPETITATIVE ADVANTAGE IN DIGITAL ECONOMY.

In Proceedings of WEBIST 2006 - Second International Conference on Web Information Systems and Technologies - Society, e-Business and

e-Government / e-Learning, pages 59-65

DOI: 10.5220/0001243700590065

 SciTePress

suppliers and distributors. Customers of connected

economy are well aware of their options, and

demand excellence. Everyone (customers and

competitors) sees everything from everywhere. The

web-based digital economy provides global

visibility.

The biggest challenge of eBusiness is how to

maintain differentiation and remain competitive in

fully connected and transparent society. Protecting

uniqueness in open, transparent and borderless

economy requires in-depth analysis of contributors

of differentiation. What resources, actions and

behaviours of firms will lead to sustainable

competitive advantage? A competitive advantage

can result either from implementing a unique value-

creating process or through superior execution of the

same strategy as competitors (Bharadwaj,

Varadarajan, and Fahy 1993). The competitive

advantage is sustained when other firms are unable

to duplicate the strategy (Barney 1991).

Sustainability means durability and durability of

competitive advantage is like the competitive

survivability of the firm.

Success brings rewards as well as competitors,

who try hard to develop new technologies and new

business processes that can upset the initial

competitive status quo. Only those competitive

advantages lead to extraordinary growth and

profitability, which can create big barriers around a

business to fend off the competitors. The best long-

term investments are those companies whose walls

are not only high, but also getting higher and thicker

over time.

The innovative character of ICT, ubiquity of

Web, and speed of digital network has changed

sustainability into nightmare of survivability.

Customers and competitors instantly receive the

same information, thereby provide impetus to the

competitors and challengers to learn and readjust

their competitive strategy, and have made eBusiness

as hyper-challenging. Who will equal or outperform

whom and when, depends on who learn and readjust

their business processes, organizational structure and

their work culture to the requirement of the

competitive landscape of digital economy fast?

This raises many questions about the impact of

the Internet technology on functions and processes

of business, structure of organizations, and work

culture of organizations and competitive landscape

of the business. What framework or eBusiness

model (Majumdar 2005), will help eBusiness firms

to retain their competitive advantage in this

hypercompetitive business environment of digital

economy.

2 FEATURES OF DIGITAL

ECONOMY

The potential of digital connectivity to boost

productivity, convenience and lowering the costs of

operation and transaction is compelling developed

and developing countries to focus on the e-potentials

for growth and modernization of the public and

private services. Industries and organization across

the world operate like a massively interconnected

network of organizations, technologies, consumers

and products. The success of a business is no longer

dependent on the size of its internal and external

operations, but on the associations and relationships

established among the participants in the digital

Business Ecosystem.

The questions are, how can we predict, which

organization will survive for how long and which

organization will perish over time and why. What

are the rules of the emerging digital business

ecosystems? Creating sustainable business models

seems unworkable without knowing the unique

features of digital economy and the keystones of

eBusiness model.

Firms and individuals of digital economy use

Internet and web to transact business. Technology

converts all information, processes and transactions

into digital forms and allows business transactions

with minimum human intervention. Internet and web

are the backbone of digital economy and together

they provide the technological platforms that allow

business and entrepreneurs to communicate with

their stakeholders in ways not previously possible.

The ease with which information can be exchanged

over these channels fundamentally changes the

relationships with an organization's stakeholders.

Seven unique features of eBusiness technology

(Laudon 2004) are:

•

Ubiquity - Internet/web technology is

available everywhere: at work, at home,

and elsewhere via mobile devices, anytime.

Digital goods and services are visible and

accessible from “marketspace”. Anyone

from anywhere at anytime can access and

conduct business using Internet.

• Global Reach – The technology reaches

across national boundaries, around the

earth. Business is enabled across cultural

and national boundaries seamlessly.

Information can reach all connected

customers or business partners through the

Internet without sacrificing the richness of

the contents.

WEBIST 2006 - SOCIETY, E-BUSINESS AND E-GOVERNMENT

• Interoperability – Internet provides an

open and nonproprietary platform for

communication and collaboration and

allows enterprises to integrate and

interoperate ubiquitously. There is one set

of technical media standards across the

globe, Internet standard.

• Interactivity – Instant messaging

capability of eBusiness technology enables

close connections, online dialog, with

customers and among supply chain or

business ecosystem partners' information

systems. The benefits include real-time

pricing and negotiation, and online flexible

customer servicing.

•

Information Density – Technology

reduces information costs and raises

quality. Information processing, storage and

communication costs drop dramatically,

while currency, accuracy and timeliness

improve greatly. Information becomes,

plentiful, cheap and accurate.

• Speed - Change is fast and frequent in the

digital economy. Digital firms must learn

to learn and adapt quickly to changing

business and economic environments.

Adaptation is sensing the shape of next

wave, and positioning the company to take

advantage of it (Arthur, 1996).

•

Personalization – Technology allows

personalized messaged to be delivered to

individuals as well as groups. A firm or

business ecosystem (Gossain and Kandiah,

1998) can provide unique (and customized)

"solutions" (as opposed to single product or

service) to individual customers.

In digital economy, ICT is the enabler of

business. The design of “business models” of digital

economy is articulation of firms’ strategy to create

and deliver of unique value to its customers and

shareholders in a given segment of the business

ecosystem by using the right technology and

resources, aligning people and the processes for

achieving the desired level of performance.

The goodness of a business model depends on

the power of the value proposition, correctness of

execution and governance processes (Majumdar,

2005). To thrive in global marketspace, an

organization have to study the impact of Internet and

web technology on connected organizations before

developing a framework to construct a resilient

business model for the organization.

3 IMPACT OF INTERNET &

WEB TECHNOLOGY ON

BUSINESS

Sustainability of “business entities in digital

economy” depends on how effectively firms

formulate strategies to blend the technology and

other corporate resources, to design business

processes, develop organizational structure and work

culture not only to combat the competition, but also

to maintain the competitive edge. To develop a

resilient framework for sustaining competitive

advantage in digital economy requires understanding

of the impact of Internet and Web technology on: (1)

the functions of business, (2) the processes of

business, (3) the on structure of organizations, (4)

the work culture and behaviour, (5) the competitive

landscape of eBusiness, and (6) the sustainability of

eBusiness.

Figure 1 illustrates the impacts of Internet and

Web technology on eBusiness application

management.

Impact of Internet and web technology can be

assessed in several ways. In this case, the results of

Momentum Research Group (MGR 2002, 2003,

2004 and 2005), European Union (EBW 2003 and

2005) and others secondary sources were used to

examine the impact of Internet and Web technology

on sustainability of competitive advantage.

3.1 Impact of Internet on Business

Functions

The results of Net Impact research (MRG 2002,

2003, 2004, and 2005) and the report of European

Union’s eBusiness Market Watch (EBW 2003 and

2005) demonstrate that Internet and Web

technologies have substantially changed the

functions and processes of private and public sector

organizations across US, EU and Latin America.

The Internet technology is influencing almost all

functions of contemporary organizations.

Organizations of all sizes across industries, across

countries either have adopted or actively trying to

adopt Internet business solutions as a tool to lower

operating costs, increase revenue, increase

operational productivity, increasing customers’

satisfaction and harvesting rich dividends.

A CONCEPTUAL MODEL FOR SUSTAINING COMPETITATIVE ADVANTAGE IN DIGITAL ECONOMY

Figure 1: Impacts of Internet and Web Technology on Management of eBusiness Applications.

30-60% of European public sector organizations

(MRG 2004, p-2) have been able to automate the

typical business processes involved in their delivery

of citizen services. The automation of these

processes not only increase the speed of service

delivery, but also reduce data-reentry errors, and

facilitate the transmission of data to other

complementary services. The public sector

organizations are focused to extend the capabilities

of existing citizen services, to introduce new

services, to reduce costs of operations and increase

citizen satisfaction. The level of network-enabled

adaptation of Latin America 2005 is strikingly

similar to the network-enabled adaptation behaviour

of US 2003 (MRS 2005, p-16).

Web enabled applications account for a greater

percentage of deployed applications in Latin

American Networked-organizations than that was

observed in US in 2003 (MRS 2005 p-17). Smaller

organizations (less than 100 employees) had high

level of applications that use web-based technology

and the same is expected to observe in US (MRS

2005 p-18). This shows that small organizations are

smart, flexible, and are adapting web technology to

e-enable their business functions.

3.2 Impact of Internet on Business

Processes

The process and business functions are interlinked.

With the progress of automation, many of the old

business functions have been subsumed within the

activities of back-office. Thus business processes

have become more important than functions. The

Internet and Web technology is transforming all

processes into automated web-enabled processes.

The result of repeated Net Impact study (MRG 2003,

2004, and 2005) shows that business processes have

to to be reengineered to leverage new technology

capabilities. However, the timing of process

reengineering can significantly influence the final

results. Research results demonstrate that

organizations do not accomplish their desired

results, if they do not reengineer their business

processes before implementation of the technology.

Process reengineering after application deployment

tend to increase in operating costs significantly. This

reveals the fact that Internet / Web technology is a

general-purpose tool; results of application depend

on the correctness of the application process. It is

hard to change the meal, once it is cooked.

Secondly, technology does not guarantee results, if it

is not managed well.

3.3 Impact of Internet on

Organizational Structure

Internet is changing the structure of organizations

from hierarchical to flat task-based. The middle

managers’ positions are being eroded. Big

organizations are being disintegrated as smaller task

focused connected business units with specific

responsibility sharing common organizational

resource pull like human resource, IT resources.

Conversely, small organizations are forming task-

driven umbrella organization and operating like a

big corporation, but maintaining their individual

identity and profit centers. The bigger the world

economy, the more powerful is the smallest players.

Like globalization, Internet is molecularzing the

Structure of

organization

Ubiquity

Global Reach

Universal Standard

Interactivity

Speed

Neutrality

Customizability

Internet & Web

Technology

•Production process

•Service Process

•Information & Communication

•Products & Service Delivery

•Negotiations

•Buying and Selling Process

•Payment Collection Process

•Coordination & Collaboration

•Status Tracking

•Customer Relationship

Sustainability

of eBusiness

Business Functions

Work Culture

/Behaviour of

organization

Business

Process

Competitive

Landscape

WEBIST 2006 - SOCIETY, E-BUSINESS AND E-GOVERNMENT

organizations. The relationships grow more

business-like between employers and employees, the

traditional chain of command is breaking, and the

hierarchy-linked authority and power that used to be

taken for granted are now being questioned (Malone

1998).

3.4 Impact of Internet on

Organizational Behaviour

Behavior and culture of organization has significant

impact on the technology driven performance (MRG

2005 p-27). This point out that value realization

(implementation and governance) from digital

process requires different mindsets and cultural bent.

The results Net Impact study (MRG 2003, 2004 and

2005) reveals that “desire to improve customers

satisfaction” is the number one objective of using

ICT driven processes. Both the Net Impact 2003

study and European Public Sector 2004 study

revealed that customer or citizen satisfaction was the

most frequently cited driver of technology

investments. Net Impact study of Latin America

(MRG 2005) exhibits that the urge for achieving

completive advantage by accelerating organizational

speed, improving customer satisfaction or lowering

costs are common mindsets of networked

organizations.

3.5 Impact of Internet on

Competitive Landscape

By design all networked organization are global

entities. The struggle for opportunity sizing is also

global—and the winners are those—that have

highest ability to deliver on time, within budget and

according to the preferences of the customers. What

defines this “new world,” and the competitive

landscape of business? The four key elements that

make the current business landscape different are:

globalization, Internet, importance of knowledge,

and collaboration across organizational

“boundaries.”

The major challenges are: What are the fundamental

issues needs to be addressed to create sustainable

organizational improvement. How to determine what

is the right eBusiness opportunity? How can an

organization move from where it is to where it wants

to be? What are the transitional issues? Why do

some organizations execute successfully, while other

organizations fail to do so? What are the key factors

that make the most differences?

3.6 Impact on Sustainability

In digital economy, the distance is dead. Work never

sleeps. Value chains and boundaries of industry are

blurring. Profits proved hard to come by, and many

high-flying companies came crashing down. In little

more than one year, many companies have fallen,

the business world changed dramatically. The dot-

com bubble burst, a recession came, and economic

uncertainties snowballed (Kaplan 2002).

Sustainability depends on speed correctness of

the business model and soundness of execution and

governance. The new business ecosystems are

compelling organizations to rethink their directions

and revamp their business models.

Successful organizations of US, EU and Latin

America are first focusing on back-office

applications like finance and accounting, human

resource and inventory management before shifting

to customer-facing applications that improve

employees, partner, customer, client or citizen

(public sector) interactions (MRS 2005). The

message is that organizations must be internally

efficient to meet the divergent needs of their

customers and other external business partners.

4 FRAMEWORK FOR

COMPETITIVE

SUSTAINABILITY

The pace technological change is continuous in

digital business ecosystem. How long will a

distinctive competitive advantage of a firm last,

depends on what actions the firm takes to enhance

and protect its capabilities and what actions the

competitors take to replicate them. In connected

economy news move fast and provokes competitors

to take counter actions to match, alter or to supersede

them. How long a firm can uphold its key strategic

advantages?

Lucas (Lucas 2005) suggests that in digital

business ecosystem only those competitive

advantages will last for a while if they are rare,

inimitable, non-substitutable and protect-able. Long-

term sustainability of competitive advantage depends

on organization’s ability to add additional resources,

which are valuable, inimitable and non-substitutable.

Protecting competitive advantage in Internet

economy is impossible, unless it is complementary to

the characteristics of connected economy.

Conversely, eBusiness firms cannot survive, if it does

not have any competitive advantage (Barney 1991).

A CONCEPTUAL MODEL FOR SUSTAINING COMPETITATIVE ADVANTAGE IN DIGITAL ECONOMY

The continuity of success depends on how

complementary and resilient is the firm’s plans to

transform dodging power of Internet into a unifying

force to beat or equal the competition in terms of

cost, quality, speed and innovation.

The endurance of competitive advantage of

eBusiness depends not only on the worth of the

advantage and the degree of difficulties of duplication

or imitation, but also on the worth of imitation and on

the strategy of protection as well as conversion of

challengers and competitors into contributors and co-

operators. Another theory of protection is

development of capsules, modules and devices that

can embed/encapsulate complex operations into

simple capsules, modules or devices, which could be

used by many for many different things and pulled by

large number of users. Moreover, sustainability of

eBusiness depends on pull-worthiness of the business

rather than push power of the promoters.

First movers’ advantages are short-lived (Barney

1991). In digital economy, “knowledge” is the key

resource and success factor of digital economy.

Nevertheless, knowledge is not static; it requires

continuous updating and creation. To sustain in this

knowledge economy, one has to be fast learner, talent

attractor and continuous addition of resources and

refreshing of their capabilities. Organizations have to

be the homes of innovators and knowledge creators,

who would be able to continuously develop new

solutions and advantages. To survive and thrive in

this ever changing world of digital economy,

organizations have to develop superior and resilient

supply / demand matching capabilities that are more

responsive to changing market conditions and have to

have multiple sources of revenue.

Figure 2 exhibits a framework for sustaining

competitive advantage in networked economy. It

illustrates that to pull initial advantage organization

must have a distinctive competency, a worthy

network, rare resources and unique capability.

Nevertheless, to remain successful, eBusiness

initiating organization must be able to pull enterprises

with complementary values and create a talent pull.

Moreover, add additional resources and capabilities

develop efficient and effective integrated operating

models and create strong high performance work

culture to become a superior provider of products and

services and respond quickly with diverge needs of

the customers and markets. To ascertain sustainability

in uncertain and ever changing business environment,

one has to have superior and capabilities, which are

resilient, inimitable and renewable. To haze the risks

of failure, one should have multiple sources of

revenue rather than a single source of revenue.

Best-fit business plans call for assessment of the

worth-of-the-network. Lucas (Lucas 2005) mentions

about network externalities. However, from

networked organizations’ viewpoint, worth of a

network is more important rather than “network

externalities”.

Figure 2: A Conceptual Model for Sustaining Competitive Advantage in Digital Economy.

Sustainable

Advantage

Multiple

Sources of

Revenue

ST ART

Distinctive

Competencies

Worthy

Network

Rare

Resources

Unique

Capabilities

Additional Capabilities

and Resources

Valuable

Not Easily Imitable

Proctab-able

Collect & Create

A Resource &

Talent Pool

Pull Enterprises with

Complementary Assets

Go for Cooptation

Pull Enterprises

and Talents wi th

Comp lemen tar y

Assets, Develop

Skills Managing

Community

Pull Initial

Advantage

Encapsulate Key

Processes

Superior Supply/

Demand Matching

Capabilities and

Resources

Develop

Integrated

Operational Model

Develop High

Performance

Mindsets and

Work Culture

Superior

Resilient

Inimitable

Renewable

WEBIST 2006 - SOCIETY, E-BUSINESS AND E-GOVERNMENT

Worth-of-a-Network can be estimated by the

formula as given below.

WN = N * C * G + ∑P

WN = Worth of a Network,

N = Number of Customers Use the Network,

C = Per Capita Consumption,

G = Growth Potential,

P = Number of Potential Contributors

Connected with the Network and their Worth

5 CONCLUSIONS

In digital economy initial opportunities are short

lived. Changes are continuous. Challenges are

endless. To haze through the maze of eBusiness, has

to have comprehensive roadmap for value creation

and delivery. This paper provides a dynamic

framework for sustaining competitive advantage in

digital economy.

This model advocates the need of network of

complementary capabilities for continuation. The

initial success depends on the worth of the network

and the distinctiveness of the competencies.

Continuity of success depends on capability

building, effectiveness of operational model,

performance “mindsets” and the work culture of the

organization.

Continuity of competitive advantages requires

continuous scanning of the opportunity as well as

reviewing the strategies of technology-enablement

of the processes, monitoring execution, and critical

examination of the performance of the competitors.

Continuity demands continuous process

improvements and innovation. Sustainability can no

longer ensured without adding more recourses and

creating pool of talents and resources, and

discovering new sources of revenues. Successful

eBusiness management demands continuous

learning. The other fundamental elements of success

are collaboration and leadership.

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A CONCEPTUAL MODEL FOR SUSTAINING COMPETITATIVE ADVANTAGE IN DIGITAL ECONOMY