Strategy and Technology: Competitive

Advantage, Value Chains, Powerful

Resources

Warning: Your concept of Power Rangers may change after this class session!

• Competitive advantage and how IT acts as an enabler of competitive advantage• How to recognize a sustainable competitive advantage• The value chain and the role of brand, scale, data and switching cost assets, differentiation, network effects, and distribution channels

What is the first half of the chapter all about??

• There is lots of disagreement about business strategy and how to incorporate technology into that strategy• Ultimately, firms want to reach sustainable competitive advantage: financial performance that consistently outperforms their industry peers• The fundamental strategic question

in the Internet era is, “How can I possibly compete when everyone can copy my technology and the competition is just a click away?”

Technology and Sustainable Competitive Advantage

• Winners focus on operational effectiveness: performing the same tasks better than rivals perform them

• Winners anticipate the fast follower problem: exists 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

• Winners invest in techniques to improve quality, lower cost, and design efficient customer experiences

• Winners focus on strategic positioning: performing different activities from those of rivals, or the same activities in a different way• In other words, technology can play a critical role in

creating and strengthening strategic differences

How do Winners Use Technology?

Vs

Vs

• The resource-based view of competitive advantage: if a firm is to maintain sustainable competitive advantage, it must control a set of exploitable resources that have ALL four critical characteristics1. Valuable2. Rare3. Imperfectly imitable (tough to imitate4. Non-substitutable

• Miss value and no one cares what you’ve got. Without rareness, you don’t have something unique. If others can copy what you have, or others can replace it with a substitute, then any seemingly advantageous differences will be undercut.

How do We Know When We have Sustainable Competitive Advantage?

Video: Bloomberg Talks to FreshDirect CEO, Rick BraddockIn Groups…Discuss the following questions (you don’t have to write this down):• What is FreshDirect? • What NYC-based problems did FreshDirect focus on? What was

FreshDirect’s solution to those problems?• List and discuss briefly several reasons for FreshDirect’s competitive

advantage. • Discuss how technology plays a role in FreshDirect’s business model.• Why can’t traditional grocers fully copy the FreshDirect model?• What does the FreshDirect CEO mean by “the Internet can make a

business a lot better, but it cannot take a business that doesn’t have the right to exist and make it into one?” Discuss this concept in terms of competitive advantage and sustainable competitive advantage.

• Do you think a similar business would work in your neighborhood? Why or why not?

Case:

• The strength of any competitive advantage comes from: • firms leveraging several resources that makes each stronger and • Making its way of business more difficult for rivals to match

• An imitation-resistant value chain: a way of doing business that others will struggle to replicate, and in nearly every successful effort of this kind, technology plays a key enabling role.

• Value Chain: set of interrelated activities that bring products or services to market

Sources of Competitive Advantage: Value Chains

• Five primary components of value chain: 1. Inbound logistics—getting needed materials and other

inputs into the firm from suppliers2. Operations—turning inputs into products or services3. Outbound logistics—delivering products or services to

consumers, distribution centers, retailers, or other partners

4. Marketing and sales—customer engagement, pricing, promotion, and transaction

5. Support—service, maintenance, and customer support• Four secondary components:

1. Firm infrastructure—functions that support the whole firm, including general management, planning, IS, and finance

2. Human resource management—recruiting, hiring, training, and development

3. Technology / research and development—new product and process design

4. Procurement—sourcing and purchasing functions

Value Chains

The Value Chain

Similar to…The Power Rangers

I love inbound logistics!

Operations are super sweet!

Outbound logistics

are amazing!

Marketing and sales are where

it’s at!

Service rocks!

THE POWER OF A COHESIVE VALUE CHAIN

• Brand: the symbolic embodiment of all the information connected with a product or service.• Having a strong brand lowers costs associated with finding

products• Example: Coca-cola, Cliff Bar, North Face

• Provides quality and inspires trust• Technology can play a major role in strengthening/de-strengthening a

brand• Example: Viral marketing: leveraging consumers can often be enlisted to

promote a product or service• Example of successful viral marketing:

Resources for Competitive Advantage: Brand

Old Spice | The Man Your Man Could Smell Like51,680,283 YouTube Views

LG | So Real It’s Scary 23,984,651 YouTube views

• Scale advantages: Advantages related to a firm’s size and growing in size.

• Economies of scale: the cost of an investment can be spread across increasing units of production or in serving a growing customer base.• In other words: when you do something so often, and do it so

well that you figure out ways to do it better and cheaper than anyone else

• Technology often lowers economies of scale and is said to be scalable

Resources for Competitive Advantage: Scale

• Switching Costs: exist when consumers incur an expense to move from one product or service to another.• Users invest their time learning a product, entering data into a system, creating files, and

buying supporting programs or manuals• Sources of switching costs:

1. Learning costs: Switching technologies may require an investment in learning a new interface and commands.

• Apple vs. Microsoft2. Information and data: Users may have to reenter data, convert files or databases, or may

even lose earlier contributions on incompatible systems.• Dropbox vs. OneDrive

3. Financial commitment: Can include investments in new equipment, the cost to acquire any new software, consulting, or expertise, and the devaluation of any investment in prior technologies no longer used.

• More money, more problems4. Contractual commitments: Breaking contracts can lead to compensatory damages and

harm an organization’s reputation as a reliable partner.5. Search costs: Finding and evaluating a new alternative costs time and money.

• I have to find it?? Too lazy6. Loyalty programs: Switching can cause customers to lose out on program benefits. Think

frequent purchaser programs that offer “miles” or “points” (all enabled and driven by software).

• Starbucks Rewards

Resources for Competitive Advantage: Switching Costs

• Differentiation: many firms leverage technology to differentiate their goods and services that are pretty much the same• Amazon – uses DATA to differentiate itself – browsing records,

purchase patterns, and product ratings to present a custom home page featuring products that the firm hopes the visitor will like

• Netflix: Uses previous movies and your ratings to suggest movies for you; HBO Go does not

Resources for Competitive Advantage: Differentiation

• Network Effects: a product or service becomes more valuable as more people use it. • Facebook with no one? Instagram with no one? Tweeting to

no one? That’s no fun

Resources for Competitive Advantage: Network Effects

• Distribution Channels: the path through which products or services get to customers• Technology opens up new opportunities for business owners

to reach customers• Example: Book Sellers on Amazon• Example: Google AdWords

Resources for Competitive Advantage: Distribution Channels

• In Groups…use your computers to search for and read through a value chain example. For example, you could search for Starbucks value chain, Pizza Hut value chain, etc.

• Starbucks value chain example• As a group, based on what you find, please write examples for the following…• Primary activities:

1. Inbound logistics2. Operations3. Outbound logistics4. Marketing and sales5. Support

• Four secondary components:1. Firm infrastructure2. Human resource management3. Technology / research and development4. Procurement

• The influence of (only discuss the ones that are relevant): • Brand• Scale• Switching Costs• Differentiation• Network Effects• Distribution Channels

• Once you are done, email each other your answers. This will be helpful to study for the test!!

Activity: A Value Chain Example