it's a whole new ball-game

European Management Journal Vol. 17, No. 3, pp. 290–295, 1999 1999 Elsevier Science Ltd. All rights reservedPergamon

Printed in Great Britain0263-2373/99 $20.00 1 0.00PII: S0263-2373(99)00008-0

It’s a Whole New Ball-Game1

DAVID A. SOBERMAN, INSEAD

Today, a big challenge for business is dealing withthe change created by the information revolution.The industrial revolution created the need of urban-ization, mass production created homogeneity inconsumption patterns and mass media createdtremendous homogeneity in the news and infor-mation that people are exposed to. The informationrevolution has the created (1) the opportunity forindividuals to work and buy at home, (2) theopportunity for firms to implement ‘mass customiz-ation’ and provide customized offerings for smallersegments of customers and (3) tremendous splin-tering in the channels that people use to exchangeinformation. The information revolution effectivelyhas the ability to reverse characteristics that areprototypical of 20th century society. To deal withthese ‘reversals’, a successful firm will have to useinformation technology to understand both itself

andits

European Management Journal Vol 17 No 3 June 1999290

customers better. 1999 Elsevier Science Ltd. Allrights reserved

You’ve got to be very careful if you don’t know where youare going because you might not get there. (Yogi Berra,New York Yankees baseball player)

Yogi Berra, the baseball player who is as renownedfor his quotes as for his feats on the diamond, fin-ished his playing career long before the microchip,personal computers and the Worldwide Web playeda role in the functioning of society. Yet Yogi’s quoteis as pertinent to the world of business now as it everwas to the eighth inning of a baseball game. Com-puters and communication intrude into practicallyevery aspect of daily life and the way in which busi-nesses, government and individuals operate is beingcompletely rewritten by information technology.

You cannot get past the second page of a businessnewspaper or magazine

without reading of thenew and exciting ser-

vices that are going tobe the basis of busi-ness in the 21st cen-

tury. If you are notreading about cable

companies like Videotronthat are making hugeinvestments in the Que-

bec marketplace tooffer interactive

shopping throughits cable TV net-work, you arereading aboutfirms like Great

Universal Stores,the venerable cata-

logue retailer who is try-ing to modernize by con-

verting itself to a direct-marketing firm. A recent

report by Forrester ResearchInc., of Cambridge MA, sug-

The information revolution

is a change that is affecting

the fundamental way society

is organized and the way we

communicate with each

other

IT’S A WHOLE NEW BALL-GAME

gests that Internet commerce will exceed $500 billionwithin 3 years and the most discussed problem inbusiness is the Y2K problem which has become acrisis in waiting.2

In a short 20 years, the information age hasdescended upon us and no one has felt the changesmore than the executives and managers who managesome of the world’s largest brands. In the rest of thisarticle, we will discuss the implications of the infor-mation revolution for businessmanagers with specific empha-sis on how the information rev-olution is changing society andthe way that people live, workand play. From the perspectiveof firms with a marketingorientation (Kotler, 1997), theseissues are visceral since an in-depth understanding of con-sumers is the cardinal first stepin providing them with some-thing they are willing to buy.

A good first step to understanding the direct impactof the information revolution on the field of market-ing is to consider the conspicuous effect that infor-mation technology has had on society in general. Theinformation revolution really started in the late 1970swith the rapid increases in computing power thatresulted from the advances in microchips and semi-conductors by firms like Apple, Motorola and Intel.Of course, it has been accelerated by numerous otherfactors including advances in computer operatingsystems, software, communication (fiber optics andsatellites), and the Internet. It is important to under-line that the information revolution is not simply thestart of new product category, the personal com-puter. The information revolution is a change that isaffecting the fundamental way society is organizedand the way we communicate with each other.

The Information Revolution and Society

One way to think about this change is to put it in thecontext of several major technological changes thathave occurred since early in the last century. The fol-lowing list is not comprehensive, but highlights threetechnological advances that have had colossal effectson the way society is organized. In each case, it isinteresting that effects of each change can be summedup with a simple phrase:

The Steam Engine: Society becomes ‘less rural’. Asearly as the 17th century, inventors had toyed withthe idea of an engine powered by steam, it was notuntil James Watt patented his steam engine in 1769that the concept became a feasible source of powerfor industrial applications. Ultimately, this machineand advances pioneered by other inventors in the

European Management Journal Vol 17 No 3 June 1999 291

early 19th century led to the industrialization ofsociety. This created the need for people to live inmuch closer quarters to provide the labor so neededby the newly created factories.

Mass Production: Society becomes ‘less individual-istic’. Early in the 20th century, mass production andthe automation techniques pioneered by Henry Fordand the other American automobile producers meantthat huge advantages could be gained by producing

large numbers of very similarproducts. This led to tremen-dous increases in the standardof living and the power ofindustry but it also led to sig-nificant homogenization in theconsumption patterns. Forexample, as early as the 1920s,Americans from the shores ofthe Pacific to the craggy capesof New England were all driv-ing identical black Ford ModelTs.

Mass Media: Society has ‘common knowledge’. Oneof the most significant effects of the arrival of massmedia was that people throughout countries or evencontinents were watching the same news, the sameentertainment and the same sports. As recently as1991, the entire world was mesmerized by coverageof the Gulf War that was provided primarily byone network.

A cynical observer might say that while mankindmade tremendous advances since the early 19th cen-tury, the net effect on the organization of society ofmany technological changes has been mixed. Whathas effectively happened is that the previously men-tioned changes have made people live much closertogether; made them dress, live and consume thesame things and made people all think and be awareof the same things. By the 1970s, we were certainlya healthier and happier society than we were in the1870s but modern technology had, to some extent,created homogeneity amongst us that we would beloath to admit.

Let us now consider the effects of the informationrevolution in the context of a world that has becomemore and more homogenized by industrialization,mass production and mass media? Amazingly, theinformation revolution has the potential to reversemany of the trends caused by previous technologicaladvances. Consider the following:

❖ It will allow people to return to rural life becausework, play, learning, and shopping can be donein the confines of a small rural community. Peopleare no longer obliged to travel to a factory or officeto earn their living. By example, I know of a youngcomputer programmer who works for the officeof a Tel Aviv firm from her home in the country-


side of France! While this example is somewhatextreme, it is clear that a great deal of valuablework can be performed working on a computer inthe family home. In addition, an important devel-opment in modern economies is the size andgrowth of the services, a sector which nowaccounts for 79 per cent of all jobs and 74 per centof gross domestic product (Kotler, 1997). Infor-mation technology will have significant impact infacilitating the decentralization of services includ-ing healthcare and education. For example, a Can-adian university now offers a fully decentralizedMBA programme at 21 locations across Canada(including one in the Northwest Territories)through videoconferencing, the Worldwide Weband high-speed communication links.3

❖ It will reverse the homogeneity in consumptioncreated by mass production and automation.Firms can now use technology and information tocustomize product offerings for each and everyconsumer. The computer that this article is beingwritten on was tailored to my individual needs interms of power, controls, communication devicesand capacity. There is probably no other computerin the world that is exactly the same. This wouldhave been unthinkable even 20 years ago.

❖ Information technology and communication willcreate a splintering of society from the mass media‘global village’ envisioned by Marshall McLuhan(1964). Evidence of this splintering is alreadyoccurring within the mass media where the degreeof choice has led to much lower ratings for toprated TV shows. But the information revolution isalso likely to create new more intensive communi-cation between narrower groups of individualsthat live around the world. Websites and bulletinboards on the Internet allow people with like-minded interest to trade products, ideas and infor-mation amongst themselves with the no regard forthe geographic distance between them. CertainlyInternet penetration has yet to reach the massaudience garnered by television (even in the US,the world leader in Internet penetration, less than50 per cent of the population has access). Nonethe-less, access to the Internet is expected to increaseat a rapid rate due to ‘smart appliances’ that focuson a few core functions and solve the cost andcomplexity barrier of PCs (Hamilton, 1998). Forexample, Samsung’s Web Video Phone (launchplanned for February 1999) has a pull out screenthat allows easy access to the Internet for peoplewho have never touched a computer before.

Given what we have just discussed, an appropriatephrase to capture the impact that the informationrevolution will have on society is ‘it’s a whole newball-game’. It seems as if only a fraction of the ulti-mate impact of information technology has affectedour lives at this point. In the long run, informationtechnology has the ability to change the rules of thegame and undo many things which we mightdescribe as prototypical of 20th century society.


Implications for Modern Corporations

So far so good but what’s the implication of all thisfor people engaged in the running of a modern cor-poration? A good place to start is to consider thethree reversals mentioned in the previous paragraph.

If we accept that information revolution means thata greater number of people will be working at home,doing less commuting and perhaps living furtherfrom major centers, we have a society that is becom-ing more heterogeneous (at least in the short-term)and this presents a tremendous marketing problemfor companies. Marketing is predicated on the group-ing of people into like minded segments who havesimilar needs; the idea being that firms can orientthemselves to serve one or more of the segmentsprofitably by tailoring a product/service package.For this approach to be effective, first, segments mustbe large enough to warrant a customized offeringand second, a firm must serve enough segments tobe profitable in a global sense. In this context, theeffect of increased heterogeneity is serious:

(a) first, increased heterogeneity means that thereare more distinct segments and it will be muchmore difficult to provide a tailored offering toeach segment.(b) second, it is going to be increasingly difficultto identify the needs of each segment since thesplintering of society will also make the findingof people representative of each segment moredifficult.(c) finally, the needs of the segments given thegreater overall heterogeneity in society will bemuch broader and more differentiated.

The response to these problems must be one of get-ting better and increased information on customers.The successful firm will understand the new hetero-geneity observed in society and will be able to designan approach to the market that recognizes thechanges (Glazer, 1991). In some sense, we candescribe the optimal response to this challenge asGET (i.e. get better and broader information on theevolution of the market). In a recent interview, JohnHagel (the leader of McKinsey and Co.’s global elec-tronic commerce practice) mentions that informationhas been the key driver of negotiating power in eco-nomics and firms will need better information tocounter consumers who are better informed thanever before.4

The second reversal relates to the expectation thatpeople are now developing in terms of demandingproducts that are tailored to their individual needs.In some sense firms like Dell (‘made to measure’computers) and Panasonic (‘made to measure’bicycles) are creating a prisoner’s dilemma for allmanufacturers. In the past customers always wantedproducts that provided good value for the price paid.

A significant fraction of

customers are not worth

serving


This in large part explains the popularity of productsfrom the Volkswagen to McDonalds. However, cus-tomers knew that they were getting a standardizedproduct that was essentially identical to the productbought by both the customer served before and thecustomers served after the focal customer. Dell (inpersonal computers) and Panasonic (in bicycles) havecertainly obtained a short-term advantage over thecompetition by providing customized service; how-ever, in the long-run, customers will expect cus-tomized products/service from every competitoracross a number of categories. Thus, successful com-panies will have to recognize this change in customerexpectations and meet it. A successful company willnot just be obliged to GET the information on its cus-tomers; it will have to develop effective strategies toUSE the information. This will involve difficultdecisions including choices that go beyond issues ofcustomized manufacturing and/or service. Firmswill have to develop strategies for knowing whichcustomers to serve and what aspects of their productor service to customize for these various customers.

The first step in this process is the recognition that asignificant fraction of customers are not worth serv-ing. Some companies learn this the hard way.

Dell, the previously mentioned, ‘made to measure’computer manufacturer, devised an ingeniousscheme of using instantly accessible customer infor-mation records to assist in taking direct orders fromcustomers to build customized PCs with the latestperipherals. But direct order manufacturers such asDell and Gateway clearly limit themselves by nothaving a retail presence like Compaq. To address thislimitation in 1991, Dell enteredinto agreements with severalretailers in the US andlaunched two lines, Dimensionand Precision, that were manu-factured with a limited set ofpre-determined configurations.5However, the Dell manufactur-ing approach was not designed for mass productionand the lower margins meant that Dell was losingmoney (Serwer, 1997). In addition, the retail channeldid not allow Dell to utilize its major innovation‘mass customization’ for which it was generally ableto charge a 15 per cent price premium. By 1994, Delldecided to pull out of the retail channel and refocuson its direct channels. This was a costly mistake forDell yet Dell has prospered subsequently, mainlybecause the direct market for PCs was much largerthan originally anticipated (Serwer, 1997).

Through this experience, Dell learned that it wasprobably not the ideal company to serve the segmentof small businesses and individuals who wish toshop for PCs in a showroom setting. As noted byReicheld (1996), one of the most difficult decisionsthat a firm must make is saying ‘no’ to certain cus-tomers who ultimately may prove to be unprofitable.


The third reversal created by the information revol-ution results directly from the splintering of themedia. This creates a tremendous challenge for themass-marketer in many traditional categories. One ofthe principal tools that a marketer must control andmanage in order to run his/her business profitablyis communication. The mass media (broadcast andprint) remains the primary vehicle that marketers useto communicate important information about theirproducts and services. In the past, marketers whomanaged products with broad appeal could dependon mass advertising (be it television, radio, or print)to reach a broad target audience. The techniques ofadvertising on these media have been well honedsince the early days of TV and it is safe to say thatthere are organizations that can provide creative andimpactful ways of raising awareness or communicat-ing key information that consumers need to makeproduct decisions. However, a new range of prob-lems face the marketer today and the same level ofimpact and quality of creative executions in the newenvironment cannot be guaranteed at similar levelsof spending:

(a) The fragmentation of the media means thatmarketers cannot depend on the mass media todeliver a message to a broad population. To reacha broad population, several complementary chan-nels are required. This is a complex problem evenwhen the number of potential channels is limited(Mitchell, 1988).(b) The cost of producing creative material isexpensive and frequently executions that wereappropriate for network TV do not fit on alterna-tive channels (or media).

(c) The importance of reg-ular TV and radio remainshigh but alternative chan-nels such as interactivechannels and the World-wide Web are becomingimportant channels to reacha significant number of con-

sumers (First USA Inc., the largest MasterCardand Visa issuer in the USA recently committed to$90 million in advertising on the Microsoftnetwork)6 For these channels, there is little expert-ise amongst advertising firms as to how thesemedia can best utilized to communicate with con-sumers.

While the splintering of the media certainly has thetendency of making a mass-marketer’s life more com-plicated, it may also be a boon for niche marketers.In the past niche marketers had significant problemsin communicating with consumers because the mediawas too expensive for both the number of peoplethey were to reach and the volume of products thatthey were trying to sell. Frequently, they had todepend on communication mechanisms such as spec-ialized magazines, word of mouth and publicrelations. Now however, niche marketers can reach


specialized markets efficiently through specializedchannels. For example,

(a) a manufacturer of car spoilers can afford TVadvertising on the Men and Motors specialtychannel.(b) a tavern oriented towards the gay communitycan advertise on channels specially aimed at agay audience.(c) the proliferation of channels has also led to anincrease in the quantity of specialty programmingwhere surfboard manufacturers, garden supplycompanies, and golf club manufacturers can findshows that are perfectly oriented to their targetand the cost per message is affordable.

John Hagel of McKinsey and Co. also notes that theInternet presents a substantial opportunity for smallfirms to launch new products because of the speedand low cost of making the product available. Inother words, the splintering of the media places a lotof pressure on mass-marketers and opens up opport-unities for niche manufacturers. The principal skillthat either type of firm will need to be successful isthe ability to ANALYZE the mass of informationavailable on their potential consumers. A mass-mar-keter must develop the skills of identifying a targetmarket that is both feasible (from a volume and profitperspective) and further identify the appropriatemedia and message to send to them. A niche mar-keter will need to exploit the opportunity presentedby a medium such as the Internet as well asdeveloping the skills to utilize media like televisionwhich were in the past unfeasible. These require-ments will place tremendous pressure on the analyti-cal skills of marketers.

To summarize, the information revolution representsa substantial change in the way businesses will haveto operate in the 21st century. The main reasons forthis are the effects that information will have on thestructure of society. For the most part, 20th centurysociety in the western world is one in which the vastmajority of people live in large urban centers, com-mute to their jobs 5 days per week, and work regularhours. Ultimately, information technology meansthat many people will have occupations that do notfit this conventional pattern. The PC, the Internet,and satellite communication means that people canwork during off-peak hours and interact with col-leagues in other time zones with great facility. Inaddition, many people will live in smaller communi-ties and make less frequent trips into major urbancenters. Consumers will have different tastes and dueto the power of information technology, they willexpect and will buy products and services that aremuch more customized than they are today. Inaddition, the consumer of the 21st century will havespecialized tastes in terms of the media that he/sheuses regularly.

The obligatory response of the business with a strong


marketing orientation must be to become an infor-mation expert. That is, a successful firm mustdevelop the skills to GET the right information onconsumers that might be interested in the product orservice in question. This has critical implications fora firm in terms of its allocation of resources. Firmswill find that an increasing percentage of their timeand resources will be allocated to the collection,analysis and interpretation of marketing information.A successful firm, however, must go beyond‘interpretation’ of the information. A firm must knowhow to USE the information to tailor theproduct/service package so that the consumer’sneeds are met. This places increased responsibility onoperations managers to be fully aware of the flexi-bility of the firm’s manufacturing/delivery systemand its cost structure. Operation managers will alsoneed the ability to communicate this informationquickly to the strategic decision-makers in the firm.Finally, developing a consumer-preferredproduct/service is only half the battle. The firm mustnow cope with the increased complexity of informingpotential consumers about it. This means that firmswill need the skills to ANALYZE behavioral infor-mation on target customers. Only by understandingthe behavior and everyday habits of potential cus-tomers will a firm be able to find the right media andright message to inform and persuade them of thebenefits associated with the firm’s product or service.

The changes in society resulting from informationtechnology will unquestionably present many newand exciting opportunities for businesses. To someextent, we can never fully predict all the changes thattechnology will have so as Yogi Berra said, there isno guarantee of arriving or being successful. None-theless, it seems reasonable to expect that the role offirms will continue to be one of making profit bymeeting customers needs. In this vein, an astute firmis taking an insurance policy against this uncertaintyby using information technology to understand bothits customers and itself better.

Notes

1. This article is, in part, based on the article ‘Into theupside-down age’ which appeared in the Financial Timeson 9 November, 1998.

2. These are discussed in: Mail chauvinist, The Economist, 7February 1998; and Beyond computers, Macleans 21December 1998.

3. The National Videoconference MBA is offered by theQueen’s School of Business at Queen’s University, Kings-ton.

4. From Bank (1998).5. Based on publicly available information and Narayandas

and Rangan (1995).6. From Marketing News (1998).

References

Bank, D. (1998) According to John Hagel, the web is revol-utionizing business. Wall Street Journal Europe 7December, p. 14.


Glazer, R. (1991) Marketing in an information-intensiveenvironment: strategic implications of knowledge as anasset. Journal of Marketing 55, 1–19.

Hamilton, A. (1998) Dial I for internet. Time (Canadian Edition)152, 49.

Kotler, P. (1997) Marketing Management, 9th ed. Prentice-HallInc., New Jersey.

McLuhan, H.M. (1964) Understanding Media: The Extensions ofMan. McGraw-Hill, New York.

Mitchell, A.A. (1988) The development of a knowledge basedmedia planning system. In Data Expert Knowledge andDecisions, eds W. Gaul and M. Schader, pp. 67–69.Springer-Verlag, New York.

Narayandas Das and Katsuri Rangan, V. (1995) Dell Com-puter Corporation, Harvard Business School Case 9-596-058, Boston, MA.

News Digest: (1998) $90 million Web ad deal. Marketing News32(24), 23 November.

Reicheld, F.F. (1996) The Loyalty Effect, pp. 63–90. HarvardBusiness School Press, Boston MA.

Serwer, A.E. (1997) Michael Dell turns the PC world insideout. Fortune 8 September, access athttp://www.pathfinder.com/fortune/1997/970908/del.html (onthe Worldwide Web).


DAVID SOBERMAN,INSEAD, Boulevard deConstance, 77305 Fontai-nebleau, Cedex, France.

David Soberman isAssistant Professor ofMarketing at INSEAD.His research consists ofusing applied microeco-nomics and game theoryto analyze a number of

marketing phenomena. His current researchincludes the analysis of contracting within a fran-chise network, the relationship between price sensi-tivity and advertising in a message-sending frame-work, the use of joint R&D ventures to manipulatethe attractiveness of markets to an entrant, and opti-mal diffusion strategies for innovations generatedthrough R&D.

it's a whole new ball-game

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