Author: Christopher Hamel-Smith

The Digital Revolution seems to be changing the business environment almost at the speed of light. Only a few years ago many of us had never heard of the Internet. Today none of us can afford to ignore the challenge of e-commerce and doing business on the Internet. We know that we must prepare for intense competition in a global and virtual marketplace where time and distance have almost disappeared as competitive factors.

Facing fundamental and rapid change, it is all too easy to become paralyzed. We may simply despair in the face of the coming competitive onslaught. Or we can presume that something about our business is unique and will make us impervious to the effects of changes in the marketplace.

However, an ostrich-like defensive posture will not protect us from the effects of today's Digital Revolution any better than it protected those who clung to the old ways in the face of the changes wrought by the Agricultural and Industrial Revolutions. We can be as nostalgic as we like about "the good old days" but we must be hard-nosed in our determination to prepare our companies for the new competitive environment. Standing still is not an option. To survive and to succeed, we must learn to swim with the sharks.

The good news is that we each already know a great deal about what is really important in order to succeed in the face of the e-commerce challenge. The secret is simply to know that we know it. And, of course, to put our knowledge into action! One key to doing so involves what I describe as "constantly stripping back to first principles".

Whether business is conducted in a store, at the office or on the Internet (or even on the golf course) many of the most important factors remain constant. For example, to do business on the Internet as elsewhere, we must know our market intimately and build our brand by providing our customers with efficient and friendly service, a quality product and value for money. If we concentrate on the underlying principles involved in the particular commerce that we are proposing to conduct on the Internet, we can tap into our accumulated wisdom and experience to find solutions to many of the issues that arise. In fact, you may find that many features of doing business in cyberspace can be demystified by constantly stripping everything back to first principles.

This approach also applies to the law generally and to the legal and regulatory framework for e-commerce in particular. Many of the legal issues that affect business on the Internet can be resolved by learning how to peel the technological skin off of the relevant business model, transaction or problem being examined. The objective is to expose the underlying legal structures and principles. Once this is done, in most commercial situations the relevant issues -particularly the crucial risk allocation issues- can be identified and addressed using established legal techniques.

Another important benefit of taking this approach is that it helps us to unearth shifts in the established ways of allocating commercial risk that may otherwise slip through unobserved. Generally, we should be wary of attempts to alter rules about risk allocation in commerce because of the use of technology to support a business model or transaction. It will frequently be the underlying principles of the model or transaction, and not the technology, which drive the established position.

This does not mean that the effects of new technology will never justify altering risk allocation. Indeed, in some cases, the introduction of technology may even make it advantageous to do so. However, we should check that this is the case by reference to the principles involved. We ought not to presume that a change in risk allocation should be accepted simply because it is put forward in the context of the introduction of new technology.

As we learn how to engage in e-commerce, the commercial community can use the basic approach of stripping back to first principles in a number of important ways. For example, we can:

  • Analyze existing and proposed legal structures for conducting e-commerce in order to modify such structures, or even create entirely new ones, that add value in the new business context;
  • Manage many of the legal risks posed by the existing and proposed legal structures used to conduct e-commerce; and
  • Identify areas where legislation may be needed to facilitate e-commerce and develop proposals for such legislation that are in the interest of the business community.

As we prepare to do business in a digital marketplace -characterised by global competition, perplexing uncertainty and rapid change- the first principle of leadership is to strip back to first principles. In this way we can identify and orient ourselves by reference to what represents "True North" in relation to our ways of conducting business, our particular business situation and the relevant transactions. This can provide our business community with a simple, yet powerful, technique to lead the way on the exciting journey in search of markets in cyberspace.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.