Transparency – too much of a good thing?

An interesting debate on transparency seems to have spontaneously broken out around the blogosphere. Frank Buytendijk wrote a thoughtful piece on the topic and although he sees significant upside for technology enabled transparency:

Transparency is a competitive weapon to differentiate from the competition in attracting capital, informing customers about the value proposition (not only price) and in cost efficiencies by driving down the transaction costs in the value chain. Empowering the knowledge workers leads to more organizational collaboration, everyone being on the same page (focus and alignment) and as a result more ambitious targets.

but he also worries that perfect information leading to perfect competition will destroy margins:

The conclusion is simple. Part of your profitability exist because of intransparency. Transparency can lead to margin erosion. Is that what you are looking for?

Nick Carr plied the same path and ended up concluding:

You have to wonder whether, as what was once opaque is made transparent, the bolder among us will lose the incentive to strike out for undiscovered territory. What’s the point when every secret becomes, in a real-time instant, common knowledge?

These ponderings I classify similarly to the famous quote in 1899 from the then Commissioner of the US Office of Patents who said:

Everything that can be invented has been invented. 

From the consumer perspective (and indeed for that matter from the pov of all stakeholders)such transparency can be only a good thing. With still 4 out of 6 billion on the planet excluded from meaningful participation in markets we have a long way to go and plenty of competitive space left before we reach this economic utopia of perfect competition, perfect information and no barriers to entry. But supposing we did reach it, I still think competition would thrive though the playing field of differentiation might focus more on dimensions of quality, trust, responsiveness and stakeholder assurance. Maybe then we will see the functioning of the perfect market place, a pure manifestation of economic theory.

 

2 responses to “Transparency – too much of a good thing?

  1. Pingback: Technology News & Reviews | Business Technology News and Comparison at IT PRO

  2. Increased transparency certainly does place a downward pressure on margins – price-comparison websites are a great example of the way retail consumers are benefitting from this trend. But the notion that “perfect information leading to perfect competition will destroy margins” is in many cases pure baloney!

    For a start, perfect information is a concept rather than a reality that will ever be achieved in anything more than small corners of the international markets. This is especially true for non-financial parameters that are tricky to measure and compare.

    Farrar correctly points to two other issues which weaken this argument – barriers to entry and differentiation. While highly commoditised product classes are more vulnerable to margin erosion through transparency, other product classes are not. And the moment a customer bases their purchasing decision on cost AND other differentiators like quality, reliability, trust etc. the notion of perfect info and zero margins recedes into the distance!

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