The competitive dynamics of network-based businesses.
Harvard Business Review
|December 8, 1997
Summary
Network-based businesses can now identify distinct customer usage patterns using new technology. Understanding these patterns is crucial for strategic decisions on network management and maintaining a competitive edge.
Area of Science:
- Business Strategy
- Network Analysis
- Operations Management
Background:
- Network-based businesses like telecommunications, transportation, and banking traditionally assumed uniform customer valuation of all network links.
- Previous assumptions lacked empirical data to validate customer preferences for network accessibility.
- Managers lacked tools to identify specific customer needs within complex networks.
Purpose of the Study:
- To uncover distinct customer usage patterns in network-based businesses.
- To provide a strategic framework for managing network operations based on identified patterns.
- To enable data-driven decisions regarding network expansion, consolidation, and organization.
Main Methods:
- Application of advanced computing power and robust mapping software.
- Analysis of customer behavior to identify distinct network usage patterns.
- Development of strategic implications for each identified usage pattern.
Main Results:
- Identification of three distinct customer usage patterns: uniform valuation, concentrated use in zones, and individual link valuation.
- Demonstration that customer needs within networks are often narrower than previously assumed.
- Correlation of specific usage patterns with optimal business strategies.
Conclusions:
- Recognizing and understanding these distinct network usage patterns is critical for effective business management.
- Strategic decisions on network structure, outlet management, and inter-network connectivity should align with identified customer patterns.
- Failure to adapt strategies to these patterns can lead to a loss of competitive advantage in the network economy.