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Because this thesis is about a company created by my father, it's the place in which I grow up and it will be the place where I will start working in a few months. Behind this company there is a philosophy, a way of thinking and a very clear vision. The vision is expression of the entrepreneur that created and guides the company, but this vision must be supported by logic and some theoretical evidence. This is what I will try to do, rationalize the entrepreneurial vision and verify if it's possible to apply this same business philosophy to other business and what are the most important conditions to make this happen.
This thesis is about how Basicnet works and how it manages to create a sustainable competitive advantage in the sportswear industry by exploiting the opportunities generated by the advent of Internet. It's about the importance of the entrepreneurship concept, (the Net in Basicnet stands for Network on entrepreneurs).
This thesis is about Basicnet, a company that, trough process innovation created an innovative way to sustainably sell t-shirts all around the world.
This work will also help me to understand why I started to read articles about internet before comics, why I was given a PC with an internet connection before Google and Facebook ware invented and why I got to know who Bill Gates was before being able to go out with my friends.
This work gave me the possibility better understand how my company works, get to know many people that work in the company that will be my colleagues in a few months and allowed me to make this conclusive months of my student life very useful for my future.
In 1994 Marco Boglione founded Basicnet, in order to save the Maglificio Calzificio Torinese from bankruptcy. The company owned a sportswear brand, Kappa and Jesus Jeans, controvert denim brand of the 80'. He bought the trademarks and the head quarters from the Torino Tribunal. I will go in more details of the story in the second part of this work, but the main fact is that in 1994 the company was to small and did not have the critical mass to compete with the main players of the market such as Nike and Adidas if not with an innovative business model. In that moment the entrepreneur, Marco Boglione, which was quite involved and fascinated by the technologic development (the first years with internet, DOS, Macintosh ware running) decided which was the road to follow, the vision, that he is still communicating to the more then 300 employees and bringing ahead today. To compete from the beginning with the big players of the market he had to build a faster, more reliable and flexible "machine". Something different had to be invented to manage to be immediately back on the market after only one year from bankruptcy and to be "global" from the beginning with very limited resources. He stated to think to create the Zero Gravity company, with a Digital Nervous System (this will be a key concept in this thesis) to make information flow at the speed of light (or of "thought" as Mr. Bill Gates says) so that all the companies and entrepreneurs in the network (In the Basicnet name, net stands for network of entrepreneurs) could be able to have all the information needed to take decisions correctly and as fast as possible. In 1994, an amazingly powerful instrument was moving it's first steps, Internet. He immediately understood the potential of this instrument for business and started to work the development of the Basicnet "System". His idea was to create a what he (Marco Boglione) called the Zero Gravity company, a friction free environment where information could travel in real time allowing the HR to take decisions faster and better.
In 1995 Bill Gates wrote his first book, the Road Ahead. In 1999 he wrote his second book, Business @ speed of taught. The most important one is for sure the second one. In this book, Bill Gates tells readers, how he thinks business will be done in the following decade (2000-2010) and what companies and entrepreneurs should do to exploit the opportunities arising from the advent of Internet and new technologies. It's a book written for CEO's and top managers that are asking them selves how to invest in "Information Technology", very trendy word in the late 90'. He tells them that they should build in their companies a Digital Nervous System, that is what was being done in Torino (Italy), at Basicnet since 1994, but nearly anybody else did in the following years.
In that moment everybody, companies, masses and media ware concentrated on the new websites that ware being launched and in the amazing speculation bubble that was growing on the stock markets between 1999 and 2000. The so-called "New Economy". I am not here to speak about that, I want to speak about Digital Economy, that after an in-depth research, I found out that almost only Bill Gates and Marco Boglione spoke about in the last 10 years.
What has did not happen frequently in the last 10 years is that Internet and it's incredible potential was actually used for what it has been created for, to transfer information. In this thesis the word information will be key. I the literary review I will analyse and try to better understand the importance of "information", and it's power as a potential source of competitive advantage. As a consequence how Internet can provide this information ad allow managers to build a key success factor around the information flow. I will then take the Basicnet case study as example, presenting and analyzing the innovative business model based on a network of entrepreneurs connected through the Internet. I'll take it as an example because it's a SME and thanks to this business model it manages to compete globally against bigger and richer competitors and because it's a company that I know very well and about which I can have access to lots of information.
The aim of the thesis is to argument that Information flow can be a source of competitive advantage and that this potential competitive advantage is exploitable by building a Digital Nervous System and integrating all the value chain of the company on the Internet. Basicnet will be the case study analyzed to enforce my thesis. I will also analyze the reasons for which this so important innovation did not have the expected effect on economy in the last 15 years. In conclusion I will try to create a framework to understand if the Digital Nervous System is applicable to all companies, and in any case what characteristics should a company have to exploit the opportunity arising from this 15 years old innovation.
Many other very important and well established companies managed to create a sustainable competitive advantage exploiting the potential of the Internet and of the Digital Nervous System such as Dell, Ryanair, McDonalds, Amazon and many others, that now and there I will use has benchmarks.
Not many have written about what I mean for the Digital Nervous System topic, so the main source of information concerning the Zero Gravity concept and the DNS will material coming from Business @ Speed of Taught and some other material coming from Microsoft the from archives of Basicnet. I will refer to other articles and books to enhance the importance of a Digital Nervous System as a source of competitive advantage, and it's applicability to traditional business models.
The Digital Economy and the Zero Gravity Concept
The first thing I will do is to briefly specify a concept that is very important to correctly interpret this work. What do I mean for Digital Economy? What is the difference between the famous "New Economy" and what Bill Gates calls "Digital Economy"? I will then move to defining the Digital Nervous System and the Zero Gravity concept and the aspects that characterize this kind of economic environment. Important will be to give some evidence of the importance of the information flow for managers and companies in order to conclude how this instruments can provide a company with a sustainable competitive advantage.
"New" or "Digital" Economy?
For digital economy I mean that economy where companies and entrepreneurs use and exploit the opportunities arising form innovation in the technology sector using it to improve their level of productivity, competitiveness and global presence.
Nowadays people tend to associate the name Digital Economy to the New Economy and the dot.com bubble of the end of the 90'. That period, between 1995 and 2000 was characterized by and exceptional economic growth, where the advent of Internet and new technologies created a moment of euphoria on Economic and Financial markets, "in 1995,Â Newsweek coined the phrase 'New Economy' to refer to this happy state. According to many commentators in the late 1990s, "Investments in Information Technology had eliminated economic fluctuations and ushered in a golden age of economic prosperity".Â This exaggeration continued for many years, reaching its maximum level the 10th of March 2000, when the Nasdaq collapsed with the dot.com
Image 1: The Nasdq graph from 1999 to 2010
bubble, and had his worst moment in June 2002 with one of the biggest bankruptcies in USA's history, the WorldCom one. With the collapse of the speculation bubble, the New Economy phenomena was resized and gained a more "human" dimension. But the idea that people still have of Internet associated with business is that you can do easy money with it, I do a web site, make it popular and sell it for millions of dollars. Really few of them managed after 10 years to be actually profitable, if not by using the Internet to improve an existing business idea. The dotcom dream is still alive, in the Silicon Valley Internet start-up's are created every day, but it's not about this that Bill Gates was thinking in 1999 when he wrote Business @ Speed of Thought.
His vision and prevision of the revolutionary effect that Internet could have had on economy and on competition in any market is substantially different from what actually happened and from what the companies and stock markets are still waiting for. Him and many others in the late 80's and in the 90's thought that IT could really boost the world's economy to a new level of productivity and prosperity. But it was not the case. Quoting the Nobel Prize for economy Robert Solow, "You can see the computer age everywhere but in the productivity statistics", saying this, he started the so called "productivity paradox" related to the "New Economy", concept that many researchers developed in the following years and are still developing now. In 1994 E. Brynjolfsson argued "one hypothesis to explain the productivity paradox is that computers are productive, yet their productive gains are realized only after a lag period, during which complementary capital investments must be developed to allow for the use of computers to their full potential". Even if also this quote is quite old, it gives a good point of view to understand why very few companies managed in the last 15 years to really exploit the potential that IT and Internet could give them in terms of productivity and competitive advantage. This because the cost in terms of time, effort and money is very high; a strong entrepreneurial vision was needed to continue investing in the implementation of what Bill Gates defined as a Digital Nervous System (this concept will be widely developed later on), which is what really would have given companies a competitive advantage based on ICT (Information Communication Technology), and productivity according to Business @ Speed of thought. We all know that the big majority of companies and managers have to present quarterly reports to stockholders, and long-term investments are always difficult to bring foreword, especially when the upside of this investment is very difficult to see for who does not have the entrepreneurial vision and especially for who has a short-medium term investing horizon. Also J. Triplett (1999) argues that you still can't see effects on productivity directly arising from having computers and Internet in offices, because this, as for the introduction of electricity, will take time, and benefits will be seen in the long lag. It's soon going to be 20 years since Internet started to be available, and a big part of the companies in the world are still stuck on the "website and e-commerce" concept, and still did not manage to exploit the real potential of innovation.
Summarizing, the economy that was built around Internet in the last 15 years, can be called "new", the outcome of this period are companies such as Google, Facebook and similar sites, social networks and search engines substantially, that are the only ones that can really be defined "new" since they could not exist without Internet and they have totally innovative business model. They are considerable revolutionary from a social point of view, but not from the economic one, they did not change the way of doing business around the world, they did not change the way companies are managed, and did not improve productivity or the GDP of any economy. I'm saying this, because in the 90' the expectations towards the technology and IT innovations ware very high and this expectations have absolutely not been reached. Bill Gates was one of those, but his expectations ware referring to something else that the dot.com mania, much bigger and that was expected to really revolutionize the way of doing business.
Basicnet was one of the few pioneers in the Digital Economy, but the only consequence (besides a good and sustainable performance achieved in the last 15 years in a very competitive market such as the sportswear one) of this innovative thinking was that in 2000, probably because of a misunderstanding due to the "net" in the Basicnet name, some journalists wrote on the first page of Milano Finanza (on of the two most important financial newspapers in Italy) that the company was a trap, and as for other dot.com's, behind the New Economy name there was nothing. The stock plunged in the following days and it took years to recover. At that time, Mr. Boglione's and Mr. Bill Gates's vision about Digital Economy and the importance of building a Digital Nervous System was public, but nobody seemed to see the difference between the New Economy and the Digital one.
What does Bill Gates mean for digital economy?
In 1999 with his book, Business @ Speed of thought, Bill Gates was imagining that in a few years time, the world of business was going to be revolutionized by Internet and it's application to the existing business models making them more efficient, flexible and competitive if compared to the others on the market. In the mean time, Marco Boglione and the Basicnet team ware already applying this theory and developing a digital nervous system that would have allowed them to sell t-shirts all over the world.
Is it E-Commerce?
The first thing that a reader could think is, well, Digital Economy = E-commerce. The phenomenon is getting bigger and bigger you can buy almost everything on the web. E-Commerce, is now accounting for almost 4% of total B2C commerce in the USA. Even if it's growing quickly and in relative numbers it's very big, it still a small slice of the cake and still did not change the way business is done.
Source: Quarterly E-Commerce, U.S. Department of Commerce, 16th February 2010
Having an on-line shop is a retail solution, efficient, economic and necessary in many businesses. But it does not mean that the company is Web Integrated. However it could be seen as the first sign that something is been done in order to improve the web-integration of the company. In 1995, with: The Road Ahead, Bill Gates used the term "Friction Free Capitalism, to describe how Internet was helping to create Adam Smith's ideal marketplace in which buyers and sellers can easily find one another without taking much time and spending much money". Well, the E-commerce is the firs step towards this ideal market, but the distribution is only a part of the value chain, and e-commerce is the digitalization of this particular step of the value chain of a company, and even if it's a very important part of it, it can't guarantee a sustainable competitive advantage on it's own. There must be a Digital Nervous System behind the e-commerce web site so that all the processes, from production to the logistic are synchronized and that everybody in the company can have all the information in real time.
Digital Nervous System
The nervous system is the way our body has to transfer information around. This thesis is all about information, and how well managed this magic word can give companies a competitive advantage. The importance of this very powerful instrument has not always been underlined, and often it has been considered as a supporting element.
From the theorical point of view
The concept that stands behind the idea of the Digital Nervous System is that Internet can allow to the information to flow with no frictions within and outside the company, and that this can give a company a competitive advantage. In simple words, we are giving the information a high value because information can give us high added value.
The information has an essential role in the value creation of a company, but as for Rolf Weiber and Tobias Kollmann, "the information has in the past always been considered having a secondary role in the creation of a competitive advantage".
They then expanded the concept of the importance of this digital flow of information, they theorize that in parallel with the "physical" marketplace there is a "cyber marketspace", "characterized by information flowing on electronically powered information systems, where information is handled, processed and utilised, through which virtual value creation chains are brought about within data networks". Rayport and Sviokla (1994) define this virtual world as "marketspace", "this marketspace can be seen as an artificial, intangible market for information". This division between marketplace and marketspace, always quoting Weiber and Kollmann, can lead to performance improvement in the marketplace; information is key to achieve an increase in efficiency. Information can be seen as a freestanding output, and can be traded in the marketspace. And finally "Information can provide additional consumer value in marketspace. Trought the parallel utilisation of the marketspace and marketplace, information can form the basis of an additional utility in its own right over the above physical offer in the marketplace". This is only a little part of the large literature that there is regarding the importance of information. All this is functional and supportive to what I am trying to point out, the critical importance that digital information has for the success of a company. The Digital Nervous system that Bill Gates is presenting in his book, is the instrument that can allow the information to flow within the company, not only. It's the instrument that can allow the company to exploit the competitive advantage that is "latent" in their value chain. This value is in the connections between what we have just defined as the physical marketplace and the "virtual marketspace". It's in the way and the speed with which the information flows between the "rings" of the chain of value creation of a company. And not only within the company, but also how this information manages to interact with the external players of the game, such as customers and suppliers.
From a practical point of view
This concept can seem quite abstract, to make it a little bit "concrete" I will quote a crucial sentence of the introduction of Business @ Speed of thought that perfectly summarizes this idea and also fits with the company subject of the case study since Mr. Gates is speaking of a new stile of manufacturing company, that is exactly what Basicnet is: "A manufacturer or retailer that responds to changes in sales in hours instead of weeks is no longer at heart a product company, but a service company that has a product offering. These changes will occur because of a disarming simple idea, the flow of digital information. We have been in the information Age for about thirty years, but because most of the information moving among businesses has remained in paper form, the process of buyers finding sellers remains unchanged. Most of companies are using digital tools to monitor their basic operations: to run their production system; to generate customer invoices; to handle they're accounting; to do their tax work. But this is just automating old processes." It was 1999 when M. Gates wrote this book, he thought that the digital-business age was behind the corner, he was wrong, still nowadays very few companies are using digital technology for new processes that fundamentally improve how they work, that gives them the full benefit of all their employees' capabilities, and that give them the speed response they will need to compete in the emerging high-speed business world.
The success of the failure of a company depends on how they acquire, manage and use the information.
Bill Gates introduced this subject the first time in 1995 with his first book in a superficial way, and more in detail in the second one in 1999.
that we can find in the value chain presented by Porter (1985) that divides the company in strategically , that there is a very high value in the information that flows between the chains of the value creation process.
analyzing the value chain with the Porter approach,
The friction free marketspace that was quoted above is only a little part of what Bill Gates presents in his book.. This is the definition he gives of Digital Nervous System: "A Digital Nervous System is the corporate, digital equivalent of the human nervous system, providing a well-integrated flow of information to the right part of the organization at the right time. A Digital Nervous System consists of the digital processes that enable a company to perceive and react to its environment, to sense competitors' challenges and customers' needs, and to organize timely responses. A Digital Nervous System requires a combination of hardware and software, it's distinguished from a mere network of computers by the accuracy, immediacy and richness of the information it brings to knowledge workers and the insight and collaboration made possible by the information"
"Business models based on today's largely static information architectures face challenges as new ways of creating value arise. When a customer's buying preferences are sensed in real time at a specific location, dynamic pricing may increase the odds of a purchase. Knowing how often or intensively a product is used can create additional options-usage fees rather than outright sale, for example. Manufacturing processes studded with a multitude of sensors can be controlled more precisely, raising efficiency. And when operating environments are monitored continuously for hazards or when objects can take corrective action to avoid damage, risks and costs diminish. Companies that take advantage of these capabilities stand to gain against competitors that don't".
Why is it better?
The importance of the information flow
The digital nervous system
Time - Space - Cost
Case study: Basicnet
The entrepreneurial History
Vision and Mission
Key success factors
Internet, entrepreneurship and COMMUNICATION
The key success factors of the business model
How can internet be a key success factor for a traditional company?
the importance of the network of entrepreneurs for basicnet
Is this business model applicable to other industries and other companies?
Can a company become digital or does it have to born digital?