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Lecture 3

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Management Core
MGCR 331
Imad Mansour

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 inusing 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 competewhen everyonecan 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 competition - 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 inusing 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 different and can be quite difficult for others to copy FreshDirect - Examine the FreshDirect business model and list reasons for its competitive advantage. - Would a similar business work in Montreal? - What effect did FreshDirect have on traditional grocers operating in New York City? Why? - Freshdirect's CEO - Freshdirect's co-founder How Different? Using the Resource-based View of thefirm: - How can a firm’s difference be special enough to yield sustainable competitive advantage? - It must control an exploitable resource, or set of resources, that have four critical characteristics 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) TheValue Chain Imitation-resistance ValueChains - Valuechain: Set of interrelated activities that bring products or services to market - Imitation-resistant value chains: A way of doing
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