E-Mail: Tanya.Sammut-Bonnici@um.edu.mt
Web Site: http://staff.um.edu.mt/tsam1
Phone: + 356 79 375 976
eFax:   + 130 23 419 216

Reference: Sammut-Bonnici, T., McGee J., Chapter 12 in McGee, J., H. Thomas, & D. Wilson (Eds.) Strategy: Analysis and Practice, Maidenhead: McGraw-Hill, UK, 2005.

Chapter Introduction:
The new information and communication technologies of the last decade are fundamentally transforming the operating methods of most manufacturing and service companies and are provoking wholesale reappraisal of the nature of support functions.  These technologies have become institutionalised in the new ICT (Information & Communications Technology) industry across the world and are now having a revolutionary effect on corporate strategy. Executives are rethinking the strategic fundamentals of business practices not just in technology and communications industries but also across the entire spectrum of industries.

Many of the component parts of this new ICT industry such as telecommunications, the Internet, computing and software, are shaping significant parts of the corporate environment into a new "network economy". The essence of networks is the existence of multiple nodes, the interconnectivity between them, and the cooperative (as opposed to competitive) behaviour of the nodes.

As we will see, networks have increasing returns to scale characteristics. The dynamics of corporations and the new information economy will increasingly reflect these increasing returns to scale and therefore understanding how such networks work is the key to developing a new set of strategies in this new information-based corporate landscape (Kelly, 1998).

The "old world" was driven by economies of scale and scope where the benefits of size are moderated by eventual diminishing returns.  The "new world", spawned by information and communications technology, is not moderated by the normally powerful influence of diminishing returns.

Network effects, also known as network externalities, can result in "winner-takes-all" phenomena (for example, the Wintel standard for PC's) and therefore result in new industry dynamics and new sets of corporate responses (for a discussion of network effects see McGee & Sammut-Bonnici, 2002)