In this report, we have presented a rationale for transformation, industry consolidation, alliance-formation, and specialization in the information industry, based on functionality for customers and markets rather than on internal technology factors. Adopting such an orientation requires that companies make specific types of investments. Integrating multiple media can be exceedingly complex. For example, in networking, different network platforms will have to converge and integrate, as discussed earlier. In the same manner, devices must evolve to handle increasingly rich content. However, we believe that clarity of strategy and marketing capabilities will be as important as technological strength.

The upper limits of adoption, especially for electronic and information-based products, are typically underestimated. For example, when the television was first introduced, it was considered a luxury; the average household now has three televisions. How users interact with applications will also be key, and the development of intuitive interaction will greatly spur market expansion. For example, speech-recognition software is becoming far more functional and is routinely used in telecommunications applications. Thus, it will rapidly migrate to a variety of multifunction appliances.

The Importance of Alliances

Few current players enjoy large incumbency advantages in making the transition to the new industry structure, because the required core competencies are substantially different from those that companies have developed so far (with the possible exception of content providers). Because nobody has all of the needed core competencies, the industry will develop via equity partnerships and alliances.

Rather than ownership, a kieretsu-style model will emerge. If each industry pursues an independent course, consumer adoption will be slow and fitful. All three industries must work together in symbiotic alliances to create the market. This is similar to the relationship between software and hardware in PC markets or between content and conduit, which was responsible for most of the cable industry's growth.

Critical Success Factors

Not all corporations are adept at dealing with change of this magnitude. While status quo or reactive management styles are often successful in stable environments, what will be required of players in the information industry is anticipatory management (see Figure 6). Anticipatory managers align their company with the direction in which the industry is heading and, when possible, in front of the trend. This requires a clear vision of the future, a strategic game plan, and an understanding of which position is to be desired in the future. Based on our analysis of the requirements for success, companies will have to emphasize the following areas in particular.

Figure 6. Critical Success Factors

Global Orientation

Companies aspiring to succeed in the information marketplace must be globally oriented and create a global brand. Information technology is inherently boundary-free; the boundaries that have existed so far have been imposed by governments or have resulted from cultural differences. Both of these barriers are collapsing. In telecommunications, governments are privatizing state-owned PTTs and breaking their monopoly. Companies such as IBM, Philips, and NEC are creating a global, rather than multidomestic, focus.

Managing Geopolitical Dynamics

While world markets are opening up, regional trading blocs are becoming more widespread. For example, the three major trading blocs are expanding their spheres of influence. The North American Free Trade Agreement (NAFTA) will ultimately expand to cover most of the Americas; the European Union (EU) will rapidly integrate Eastern Europe; and the informal Asian bloc will continue to expand (possibly to include India). Globally oriented companies must establish a significant presence within at least two of these blocs.

Flexibility, Speed, and Productivity

Large companies must be as nimble as small ones in responding rapidly to fleeting opportunities. With shifting geopolitical dynamics, the windows of opportunity are often brief. Companies must be highly adaptive and learn to reduce their time-to-market with new products and services. They must continuously increase their productivity to compete globally. Success will be decided by an increasingly unforgiving marketplace.

Alliances and Partnering

Companies that are culturally not able to partner with suppliers, customers, and even competitors will be at a major disadvantage. Partnering will be required horizontally as well as vertically. For example, Time Warner, a content company, was instrumental in the development of the DVD player.

Quality Obsession

Outstanding quality will be a minimum requirement to be in the running for global business. Companies must benchmark their performance against the best in the world and adopt continuous improvement processes to stay competitive.

Mass Customization

Increasingly, companies are called upon to provide customized products to markets at costs comparable to mass-produced ones. Companies can do this by creating flexible manufacturing systems and by investing heavily in information technology. Both Dell and Gateway computers are built to order and shipped directly to the customer. By avoiding high inventory and distribution costs, both are redefining how to address the market; both Apple and Compaq are moving to this model.

Breakthrough Innovation

With the rapidity of technological change in the information industry, the importance of research and development has never been greater. Technological breakthroughs will be crucial at both the basic as well as the applied levels. In other words, companies must periodically break prevailing price/performance norms. For example, Sony has excelled at creating new products that meet needs customers never thought they had, with products such as the transistor radio, Walkman™ stereos, and compact-disc players. Leading the markets in this manner will be key in the future.

Access to Capital

Competing on a global basis in the information industry will require access to significant amounts of capital. Obtaining it will require tapping global capital markets (especially for constructing information highways) as well as sources such as the World Bank and vendor financing.

Investments in Human Capital

Companies must invest in upgrading and maintaining their human capital, as the half-life of knowledge in a fast-changing environment is remarkably short. Because the information industry is likely to evolve along a very different path than envisioned just a few years ago, there are very few off-the-shelf experts to guide companies into the future. Companies must develop new knowledge and train their employees on an almost continuous basis.

End-User Focus

All companies in the industry must keep a focus on the customer's customer (i.e., the ultimate end user). Without such a discipline, product-development efforts will fail. Furthermore, end users provide the volume and velocity needed to achieve required price/performance ratios.