Chapter 2 Strategy and Technology Concepts and Frameworks for Understanding What Separates Winners from Losers 2 1 Introduciton Strategy and technology meet many firms struggle at this intersection Sustainable competitive advantage financial performance that consistently outperforms their industry peers Operational effectiveness performing the same tasks better than the rivals perform them not sufficient enough to yield sustainable dominance over the competition Fast follower problem 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 o When technology can be matched so quickly it is rarely a source of competitive advantage TiVO flip video camera Strategic positioning performing different activities from your rivals or the same activities in different ways better to focus on this than on operational effectiveness o FreshDirect redefines the NYC grocery experience Inventory turns number of times inventory is sold or used during the year higher number means the firm is selling products quickly Straddling attempts to occupy more than one position while failing to match the benefits of a more efficient singularly focused rival Resource based view of competitive advantage if a firm is to maintain a sustainable competitive advantage it must control a set of exploitable resources that have 4 characteristics valuable rare tough to imitate non substitutable Just because growth is spotted in a market doesn t mean you should enter it telecommunications industry telecom firms began digging up the ground and laying webs of fiberglass rivals did the same thing Dense wave division multiplexing enabled existing fiber to carry more transmission than ever before Key Takeaways o Technology can be easy to copy and technology alone rarely offers sustainable advantage o Firms that leverage technology for strategic positioning use technology to create competitive assets or ways of doing business that are difficult for others to copy o True sustainable advantage comes from assets and business models that are simultaneously valuable rare difficult to imitate and for which there are no substitutes 2 2 Powerful Resources Imitation resistant value chain a way of doing business that others will struggle to replicate frequently involves technology Value chain the set of activities through which a product service is created and delivered to customers o Primary components Inbound logistics getting needed materials and other inputs into the firm from suppliers Operations turning inputs into products services Outbound logistics delivering products services to consumers distribution centers retailers other partners Marketing and sales customer engagement pricing promotion transaction Support service maintenance customer support o Secondary components Firm infrastructure functions that support the whole firm Human resource management recruiting hiring training development Technology R D new product and process design Procurement sourcing and purchasing functions Brand the symbolic embodiment of all the information connected with a product service Viral marketing leverages consumers to promote a product service Economies of scale when costs can be spread across increasing units of Scale advantages advantages relating to a firm s size production highly scalable companies include internet companies Switching costs the costs a consumer incurs when switching from one product to a rival include learning costs of new technologies information and data reenter data convert files financial commitment contractual commitments search costs loyalty programs Commodities are products services that are nearly identically offered from multiple vendors consumers are highly price focused bc there are so many options many firms leverage technology to differentiate their goods and services Network effects aka network externalities Metcalfe s Law value of a product service increases as its number of users expand Distribution channels the path through which products services get to Affiliates 3rd parties that promote a product service usually in exchange for customers a cut of the sales Patents innovations deemed to be useful novel and nonobvious Factors enabling firms to profit from their innovation secrecy lead time sales skills manufacturing patents Key Takeaways o Technology can play a key role in creating and reinforcing assets for sustainable advantage by enabling an imitation resistant value chain strengthening a firm s brand collecting useful data and establishing switching costs creating a network effect creating or enhancing a firm s scale advantage enabling product or service differentiation and offering an opportunity to leverage unique distribution channels o The value chain can be used to map a firm s efficiency and to benchmark it against rivals revealing opportunities to use technology to improve processes and procedures When a firm is resistant to imitation a superior value chain may yield sustainable competitive advantage o Firms may consider adopting packaged software or outsourcing value chain tasks that are not critical to a firm s competitive advantage A firm should be wary of adopting software packages or outsourcing portions of its value chain that are proprietary and a source of competitive advantage o Patents are not necessarily a sure fire path to exploiting an innovation Many technologies and business methods can be copied so managers should think about creating assets like the ones previously discussed if they wish to create truly sustainable advantage o Nothing lasts forever and shifting technologies and market conditions can render once strong assets as obsolete 2 3 Barriers to Entry Technology and Timing Enables for competitive advantage timing and technology Need to create network effects switching costs data assets build solid brands Yahoo vs Google o Google got to build its brand scale and advertising network while yahoo failed to pay attention Incumbents must monitor their competitive landscape recognize new rivals and react to challenging offerings Key Takeaways It doesn t matter if it s easy for new firms to enter a market if these newcomers can t create and leverage the assets needed to challenge incumbents Beware of those who say IT doesn t matter or refer to the myth of the first mover This thinking is overly simplistic It s not a time or technology lead that provides sustainable
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