Strategy and Technology

1. Strategy and Technology CIS 2200 Kannan Mohan Department of CIS Zicklin School of Business, Baruch College

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3. Learning Objectives • Examine the relationship between Information Technology and: • Competitive advantage • Resource-based view • Value chain • Porter’s five forces • Examine the different IT asset classes and the IT portfolio approach

4. IT and Competitive Advantage • Sustaining? • Does IT matter? • Commoditization of IT • Innovation • Strategic use of IT • Replication of business models, processes, technologies • Operational effectiveness vs. strategic positioning • Loss of uniqueness • First mover vs. Fast Follower

5. FreshDirect • Using technology to craft an efficient model that makes an end-run around stores • Worker shifts are highly efficient • The firm buys and prepares what it sells, leading to less waste • Higher inventory turns • Use of artificial intelligence software • Use of climate controlled cold rooms to save energy • Use of recycled bio-diesel fuel to cut down on delivery costs

6. FreshDirect • Relationship with suppliers • Offering to carry a greater selection of supplier products by eliminating “slotting fees” • Co-branding products • Paying in days rather than in weeks • Sharing data to improve supplier sales and operations

7. Resource-based view of competitive advantage • How can you recognize whether your firm’s differences are special enough to yield sustainable competitive advantage? • Four critical characteristics of resources that lead to sustainable competitive advantage: • Valuable • Rare • Imperfectly imitable • Non-substitutable

8. The Value Chain • Value chain: Set of interrelated activities that bring products or services to market

9. The Value Chain • Imitation-resistant value chains • A way of doing business that competitors struggle to replicate and that frequently involves technology in a key enabling role • FreshDirect • Incumbents straddled between two business models, unable to reap the full advantages of either • Straddling: When a firm attempts to match the benefits of a successful position while maintaining its existing position • Late-moving pure-play rivals will struggle, as FreshDirect’s lead time allows it to develop brand, scale, data, and other advantages that newcomers lack

10. The Value Chain • Firms can buy software and tools • Supply chain management (SCM) • Customer relationship management (CRM) • Enterprise resource planning software (ERP) • Potential danger • Adopting software that changes a unique process into a generic one - co-opting a key source of competitive advantage Can be purchased by competitors too

11. The Value Chain • Packaged ERP implementation — software would require the firm to make changes to its unique and highly successful operating model? • Horizontal vs. Vertical vs. Virtual integration • Disintermediation • Information asymmetry • Visibility across the supply chain • Apple vs. Dell and choice of software to manage value chain – Competing on product uniqueness vs. operational differences

12. Switching costs and Data • Switching costs: Exist when consumers incur an expense to move from one product or service to another • Sources of switching costs: • Learning costs • Information and data • Financial commitment • Contractual commitments • Search costs • Loyalty programs • Data can be a particularly strong switching cost for firms leveraging technology

13. Strategies • Differentiation: Commodities vs. differentiated goods and services • Low-cost leadership: Use information systems to achieve the lowest operational costs and the lowest prices (E.g. Wal-Mart) • Network effects: When the value of a product or service increases as its number of users expands • Managing various distribution channels: The path through which products or services get to customers • Patents: Intellectual property protection for those innovations deemed to be useful, novel, and non-obvious • Entry barriers

14. Porter’s Five Forces Model

15. Organizational Ambidexterity • Balancing exploitation and exploration • Streamlining existing processes/products vs. new markets and innovation • Managing IT investments with this in mind • Structural vs. contextual ambidexterity • Traditional channel vs. Internet channel (USAToday.com)

16. IT Porfolio (Weill and Aral, 2004)

17. Monday Morning Mandate for the CIO • What percentage of our key business processes are digitized? Percentage of sales? Percentage of purchases? What degree of cross-business unit linking is needed? • What is our IT savvy by business unit? Should our IT investment allocations vary by business unit to reflect the differences? • How do I work with my senior management colleagues to increase IT savvy? • What is our current IT portfolio allocation by asset class? How did it get that way? • What have been our historical returns by asset class and by business unit? • What changes to IT governance do I need to make to address the answers to the questions above?

18. Summary • How are IT and competitive advantage related? • Relate IT to the five forces model to assess how IT can be leveraged by organizations in an industry • How can you use the resource-based view to examine IT’s role in business? • How is IT related to organizational ambidexterity? • What do we need to do to consider IT investments as a portfolio?