The past two or three years will likely be remembered as the time when the long-heralded, but often postponed, “information age” finally became a reality. For business, the information age has led to the emergence of “smart” markets, or markets defined by frequent turnover in the general stock of knowledge or information embodied in products and possessed by competitors and consumers. In contrast to traditional “dumb” markets, which are static, fixed, and information-poor, smart markets are dynamic, turbulent, and information-rich. They are based on new kinds of products, competitors, and customers:
- Smart products. These consist of products and services that have intelligence or computational ability built into them (e.g., microprocessors). More generally and more important, smart products include any offering that adapts or responds to changes in the environment as it interacts with (or is used by) consumers (for example, the process of ordering a customized computer from Dell or the crafting of a personal financial portfolio from Charles Schwab).
- Smart competitors. These are competitors that, from a company’s standpoint, are changing or about which a company continually needs to update its information. The pervasive phenomenon of “convergence” — where firms from historically separate industries now find that they are direct competitors (in such areas as entertainment, telecommunications, and financial services) — is a direct consequence of smart competitors.
- Smart customers. These are customers that, from a company’s standpoint, are changing or about which the firm continually needs to update its information. As customer demographics (e.g., where they live, their family and job status) and purchasing patterns (including increased switching among competing firms) display more frequent changes than in the past, firms are finding that an ever larger portion of their consumer portfolio is made up of “smart customers.”
Smart companies have tried to sustain a competitive advantage in the face of the challenges raised by smart markets largely through their information technology (IT) infrastructure. Indeed, IT is transforming business practice. The experiences of companies as diverse as American Airlines, USAA Insurance, Federal Express, Dell Computer, and pharmaceutical wholesaler McKesson — each of which has altered the dynamics of its industry and changed the requirements for competitive success — are among the most prominent recent business stories.