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Lecture 3

MGCR 331 Lecture Notes - Lecture 3: Viral Marketing, Switching Barriers, Offshoring

Management Core
Course Code
MGCR 331
Imad Mansour

of 5
Lecture 3 IT & Strategy
Course Objectives
Start developing skills for strategic thinking about IT by providing frameworks to
guide strategy analysis
Argue effectively when faced with broad generalizations about the importance (or
lack of importance) of technology and timing to competitive advantage
Clicker Q:
The freshdirect best illustrates a case of :
1) supply chaining,
2) outsourcing,
3) offshoring,
4) insourcing,
5) informing
Challenges in using IT for Competitive Advantage
- Firms strive for sustainable competitive advantage: financial performance that
consistently outperforms industry averages
- Achieving sustainable competitive advantage is not easy
o Dynamic markets (rapid emergence of new products and new competitors)
o New competitors and copycat products cutting costs, prices and increasing
features that may benefit customers but erode profits industry-wide
o Web-based platform offers great opportunities but is available to everyone
o The 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?
- Firms suffer aggressive, margin-eroding competition when they define themselves
according to operational effectiveness rather than strategic positioning (Porter)
- Operational effectiveness:
o Performing the same tasks better than rivals perform them
o It creates the risk of “sameness” specially with firms that rely on technology
for competitiveness
Buy the same stuff as your rivals
Copy the look and feel of competitor Web sites
Reverse engineer their products
o Helps but is not sufficient enough to yield sustainable dominance over 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 before the first mover can dominate
- Technology can be matched quickly Rarely a source of competitive advantage
Challenges in using IT for Competitive Advantage: Summing up
- Strategic positioning:
o Performing different activities from those of rivals, or the same activities in a
different way
- Technology itself is often very easy to replicate, but it is essential to creating and
enabling novel business approaches that are defensibly
and can be quite
difficult for others to copy
- Examine the FreshDirect business model and list reasons for its competitive
- Would a similar business work in Montreal?
- What effect did FreshDirect have on traditional grocers operating in New York City?
- Freshdirect's CEO
- Freshdirect's co-founder
How Different?
Using the Resource-based View of the firm:
- How can a firm’s difference be special enough to yield sustainable competitive
- It must control an exploitable resource, or set of resources, that have four critical
o Valuable
Does the asset yield value to the firm/customers?
o Rare
Is the asset in limited supply or difficult to acquire?
o Imperfectly Imitable
Is the asset impossible to imitate?
o Non-Substitutable
Is the asset without comparable substitutes?
Key Resources for Competitive Advantage
- Imitation-resistant Value Chain
- Brand (lowers search cost, inspire trust, viral mktg)
- Scale (economies, bargaining power, entry barrier)
- Data Differentiation/Personalization & Switching Costs
- Network Effects
- Distribution Channels
- Patents (Intellectual Property)
The Value Chain
Imitation-resistance Value Chains
- Value chain: Set of interrelated activities that bring products or services to market
- Imitation-resistant value chains: A way of doing business that competitors struggle
to replicate and that frequently involves technology in a key enabling role
- At FreshDirect:
o What’s unique?
o How easy would it be to replicate it?
For Incumbents?
For late-moving pure-play?
Value-Chain at FreshDirect
- The elements in FreshDirect’s value chain work together to create and reinforce
competitive advantages that others cannot easily copy
Potential rivals cannot compete with Freshdirect
- Incumbents would be straddled between two business models, unable to reap the
full advantages of either
o 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
The Value Chain
- Firms can buy software and tools
o Supply chain management (SCM)