Week 6 (June 10-14)
Capability lifecycle (Hypercompetition)
IT capability lifecycle
IT investments - IT capability
“The capability lifecycle includes several stages. The lifecycle of a new capability in a new-to-the world
organization begins with the founding stage, which lays the basis for subsequent development of the capability.
A development stage follows this initial stage, marked by gradual building of the capability. Eventually,
capability building ceases and the capability reaches the maturity stage. Once the capability reaches the
or even before then, a variety of events may influence the future evolution of the capability. The capability then
may branch into one of at least six additional stages of the capability lifecycle: retirement (death),
retrenchment, renewal, replication, redeployment, and recombination. These six stages may follow one
another in a variety of possible patterns over time. Some of these branching stages also may take place
in each branch of the capability lifecycle, historical antecedents in the form of capability evolution prior to
branching influence the subsequent evolution of the capability.” H&P 2003
● foundation- development-maturity-
● players - vision - plan - execution - exploitation - retirement
● Three different scenarios
○ one shot
○ two consecutive
○ sequential and incremental
● Which of the above scenarios describes Harrah’s and why?
○ Waves 1988-1993, 1993-1998, 1998-2006
○ Main investment in each wave
○ Strategic priorities in each wave
Business and IT strategy ● How will you define Harrah’s business strategy?
○ Has this changed over time?
● Where will you position them in terms of Porter’s OE vs. Positioning?
● Where will you position them in terms of McFarlan’s Strategic Grid?
● How will you consider the alignment between business and IT strategy? Why?
Operating Profit Margin
Kobelsky et al. 2008:
● … equals operating earnings before depreciation divided by sales revenue … We adopt operating
measures of performance because we expect IT to affect operations and not non-operating items
included in net income e.g., interest income and expense, taxes, discontinued operations, unusual
write-offs and extraordinary items.
○ Compustat: OIBDP/ SALE
Henderson and Singhal 2008:
● … we focus on operating income, which is sales less the cost of goods sold (CGS), and selling, general,
and administrative expenses (SGA). We use operating income over other income measures (for
example, net income or earnings per share) because it is a cleaner measure of performance that is not
obscured by special items, tax considerations, or interest expenses. We are interested in measuring the
productivity of operating assets in place. Accordingly, we divide operating income by the average of
beginning and ending period book value of assets to get ROA.
○ Compustat: (SALE - COGS - XAGT)/ SALE
Chung and Pruit 1994:
… approximate q is simply defined as follows: Approximate
q = (ΜVΕ + PS + DEBT)/TA
where ΜVΕ is the product of a firm's share price and the number of common stock shares outstandin