Strategy Tradeoffs in the Knowledge and Network Economy

In traditional “value chain” firms, the main activity tradeoff is between differentiation and low cost. Increasingly, however, firms are creating customer value through networks (eg AOL) or by providing knowledge‐based solutions for customers (eg venture capital firm Kleiner Perkins). This article discusses the quite different activity tradeoffs faced by these “value networks” and “value shops”. It then explores the tradeoff between exploitation (focusing on short‐term performance) and exploration (focusing on transcending short‐term activity tradeoffs). Finally, in reviewing the implications for managers, it discusses the problem of trying to manage different types of business (value chains, networks and shops) within the same corporation.