Presentation on theme: "Chapter 2 Strategy and Technology:"— Presentation transcript:
1 Chapter 2 Strategy and Technology: Concepts and Frameworks That Separate Winners from LosersMISY 427 – IT Applications in Management Dr. A. Everard
2 Business Models Idea is not new – early management thinking Good business model Successful businessDefines how a firm interacts with its environment toDefine a unique strategyAttract the resources and build capabilities to execute itCreate value for all stakeholders
4 IS Strategy Triangle Business Strategy drives all other strategies. Organizational and Information Strategy are dependent upon the Business Strategy.Changes in any strategy requires changes in the others to maintain balance.IS Strategy is affected by the other strategies a firm uses.
5 The Danger of Relying on Technology Firms strive for sustainable competitive advantage: financial performance that consistently outperforms industry averagesAchieving sustainable competitive advantage is not easyRapid emergence of new products and new competitorsNew competitors and copycat products cutting costs, prices and increasing features that may benefit customers but erode profits industry- wideAchieving sustainable competitive advantage is more difficult when competition involves technologyThe fundamental strategic question in the Internet era:“How can I possibly compete when everyone can copy my technology and the competition is just a click away?”
6 Business Strategy Frameworks Two concepts defined by Michael Porter can be useful in achieving sustainable advantageValue chainFive forcesAccording to Porter, firms suffer aggressive, margin-eroding competition because they define themselves according to operational effectiveness rather than strategic positioningOperational effectiveness: Performing the same tasks better than rivals perform themThe danger in operational effectiveness is “sameness”This risk is acute in firms that rely on technology for competitivenessBuy the same stuff as your rivalsHire students from the same schoolsCopy the look and feel of competitor Web sitesReverse engineer their products
7 Fast Follower ProblemExists when savvy rivals watch a pioneer’s efforts, learn from their successes and missteps, then enter the market quickly with a comparable or superior product at a lower cost before the first mover can dominateTechnology can be matched quickly — Rarely a source of competitive advantage
8 The Importance of Strategic Positioning Operational effectiveness is critical, but not sufficient enough to yield sustainable dominance over the competitionStrategic positioning: Performing different activities from those of rivals, or the same activities in a different wayTechnology itself is often very easy to replicate, but it is essential to creating and enabling novel business approaches that are defensibly different and can be quite difficult for others to copy
9 FreshDirect Redefines the NYC Grocery Landscape The New York City–based grocery firm focused on the two most pressing problems for Big Apple shoppers:Selection is limitedPrices are highThe solution it providesUse technology to craft an ultraefficient model that makes an end-run around stores
10 FreshDirect Redefines the NYC Grocery Landscape The FreshDirect model crushes costs that plague traditional grocersWorker shifts are highly efficientThe firm buys and prepares what it sells, leading to less wasteHigher inventory turnsUse of artificial intelligence softwareUse of climate controlled cold rooms to save energyUse of recycled bio-diesel fuel to cut down on delivery costsThe firm offers suppliers several benefits beyond traditional grocers, in exchange for more favorable terms such as:Offering to carry a greater selection of supplier products by eliminating “slotting fees”Co-branding productsPaying in days rather than in weeksSharing data to improve supplier sales and operations
11 Resource-based view of competitive advantage The strategic thinking approach suggesting that if a firm is to maintain sustainable competitive advantage, it must control an exploitable resource, or set of resources, that have four critical characteristicsValuableRareImperfectly imitableNonsubstitutableOften a firm with an effective strategic position can create an arsenal of assets that:Reinforce one-anotherCreate advantages that are difficult for rivals to successfully challenge
12 Porter’s Five Forces Industry Analysis Framework to analyze traditional rivalry, bargaining power and competitor intensityUsing Porter’s Model, general managers can:Identify key sources of competition they faceIdentify uses of information resources to enhance their competitive position against competitive threatsConsider likely changes in competitive threats over timeHow do firms react to these forces?Competitive mechanism: lower costs or differentiate products?Competitive scope: target a broad or narrow market?
13 The Five Forces of Industry Competitive Analysis
14 Porter’s Five Forces Model Threat of New Entrants: new firms that may enter a company’s market.Bargaining Power of Buyers: the ability of buyers to use their market power to decrease a firm’s competitive position.Bargaining Power of Suppliers: the ability of suppliers of the inputs of a product or service to lower a firm’s competitive position.Threat of Substitutes: providers of equivalent or superior alternative products.Industry Competitors: current competitors for the same product.14
15 Application of 5 Forces Model Competitive ForceIT Influence on Competitive ForceThreat of New EntrantsCan be lowered if there are barriers to entry. Sometimes IS can be used to create barriers to entryBargaining Power of BuyersCan be high if it’s easy to switch. Switching costs are increased by giving buyers things they value in exchange such as lower costs or useful informationBargaining Power of SuppliersForce is strongest when there are few firms to choose from, quality of inputs is crucial or the volume of purchases is insignificant to the supplierThreat of Substitute ProductsDepends on buyers’ willingness to substitute and the level of switching costs buyer’s faceIndustrial CompetitorsRivalry is high when it is expensive to leave an industry, the industry’s growth rate is declining, or products have lost differentiation15
16 Barriers to Entry, Technology, and Timing The barriers to entry for many tech-centric businesses are lowMarket entry is not the same as building a sustainable business and just showing up doesn’t guarantee survivalTiming and technology alone will not yield sustainable competitive advantage — Both can be enablers for competitive advantageMoving first pays off when the time lead is used to create critical resources that are valuable, rare, tough to imitate, and lack substitutes
17 Powerful Resources: Imitation-Resistant Value Chains Imitation-resistant value chains: A way of doing business that competitors struggle to replicate and that frequently involves technology in a key enabling roleValue chain: Set of interrelated activities that bring products or services to marketFreshDirectThe elements in FreshDirect’s value chain work together to create and reinforce competitive advantages that others cannot easily copyIncumbents would be straddled between two business models, unable to reap the full advantages of eitherStraddling: When a firm attempts to match the benefits of a successful position while maintaining its existing positionLate-moving pure-play rivals will struggle, as FreshDirect’s lead time allows it to develop brand, scale, data, and other advantages that newcomers lack
19 The Value ChainFrom a strategic perspective, managers can use the value chain framework to consider a firm’s differences and distinctiveness compared to rivalsAn analysis of a firm’s value chain can reveal operational weaknessesTechnology is of great benefit to improving the speed and quality of execution
20 Scale Scale Scale advantages: Advantages related to a firm’s size Businesses benefit from economies of scaleEconomies of scale: When the cost of an investment can be spread across increasing units of production or in serving a growing customer baseA growing firm may gain bargaining power with its suppliers or buyers2-20
21 Switching costs and Data Switching costs: Exist when consumers incur an expense to move from one product or service to anotherSources of switching costs:Learning costsInformation and dataFinancial commitmentContractual commitmentsSearch costsLoyalty programsData can be a particularly strong switching cost for firms leveraging technology
22 Other Powerful Resources DifferentiationCommodities are products or services that are nearly identically offered from multiple vendorsTo break the commodity trap, many firms leverage technology to differentiate their goods and servicesNetwork effectsWhen the value of a product or service increases as its number of users expandsDistribution channelsThe path through which products or services get to customers
23 PatentsIntellectual property protection can be granted in the form of a patent for those innovations deemed to be useful, novel, and nonobviousFirms that receive patents have some degree of protection from copycats that try to identically mimic their products and methodsPatents are not necessarily a sure-fire path to exploiting an innovation.
24 Opportunities and Threats Strengths and Weaknesses Strategy FormulationEnvironmentalAnalysisInternalAnalysisCompetitorCustomerSupplierRegulatorySocial/PoliticalTechnology know-howManufacturing know-howMarketing know-howDistribution know-howLogistics know-howOpportunities and ThreatsStrengths and WeaknessesIdentify opportunitiesIdentify core competenciesFix internal competencies with external opportunitiesFirm’s strategies