Strategy and Technology Key Takeaways
• Technology can be easy to copy, and technology alone rarely offers sustainable
• Firms that leverage technology for strategic positioning use technology to create
competitive assets or ways of doing business that are difficult for others to copy.
• True sustainable advantage comes from assets and business models that are
simultaneously valuable, rare, difficult to imitate, and for which there are no
• Technology can play a key role in creating and reinforcing assets for sustainable
advantage by enabling an imitationresistant value chain; strengthening a firm’s brand;
collecting useful data and establishing switching costs; creating a network effect;
creating or enhancing a firm’s scale advantage (related to size); enabling product or
service differentiation; and offering an opportunity to leverage unique distribution
• The value chain can be used to map a firm’s efficiency and to benchmark it against
rivals, revealing opportunities to use technology to improve processes and procedures.
When a firm is resistant to imitation, a superior value chain may yield sustainable
• Firms may consider adopting packaged software or outsourcing value chain tasks
that are not critical to a firm’s competitive advantage. A firm should be wary of adopting
software packages or outsourcing portions of its value chain that are proprietary and a
source of competitive advantage.
• Patents are not necessarily a surefire path to exploiting an innovation. Many
technologies and business methods can be copied, so managers should think about
creating assets like the ones previously discussed if they wish to create truly sustainable
• Nothing lasts forever , and shifting technologies and market conditions can render
once strong assets as obsolete.
• It doesn’t matter if it’s easy for new firms to enter a market if these newcomers can’t
create and leverage the assets needed to challenge incumbents.
• Beware of those who say, “IT doesn’t matter” or refer to the “myth” of the first
mover. This thinking is overly simplistic. It’s not a time or technology lead that provides
sustainable competitive advantage; it’s what a firm does with its time and technology
lead. If a firm can use a time and technology lead to create valuable assets that others
cannot match, it may be able to sustain its advantage. But if the work done in this time
and technology lead can be easily matched, then no advantage can be achieved, and a firm
may be threatened by new entrants.
• Industry competition and attractiveness can be described by considering the following
five forces: (1) the intensity of rivalry among existing competitors, (2) the potential for
new entrants to challenge incumbents, (3) the threat posed by substitute products or
services, (4) the power of buyers, and (5) the power of suppliers.
• In markets where commodity products are sold, the Internet can increase buyer power
by increasing price transparency. • The more differentiated and valuable an offering, the more the Internet shifts
bargaining power to sellers. Highly differentiated sellers that can advertise their products
to a wider customer base can demand higher prices.
• A strategist must constantly refer to models that describe events impacting their
industry, particularly as new technologies emerge.
Zara Key Takeaways
• Zara has used technology to dominate the retail fashion industry as measured by
sales, profitability, and growth.
• Excess inventory in the retail apparel industry is the kiss of death. Long
manufacturing lead times require executives to guess far in advance what customers will
want. Guessing wrong can be disastrous, lowering margins through markdowns and write
offs (this is the opposite of what Zara does)
• Contract manufacturing can offer firms several advantages, including lower costs
and increased profits. But firms have also struggled with the downside of costcentric
contract manufacturing when partners have engaged in sweatshop labor, poor working
conditions, and environmental abuse.
• Firms with products manufactured under acceptable labor conditions face multiple
risks, including legal action, brand damage, reduced sales, lower employee morale, and
decreased appeal among prospective employees.
• Zara store management and staff use PDAs and POS systems to gather and analyze
customer preference data to plan future designs based on feedback, rather than on
hunches and guesswork.
• Zara’s combination of vertical integration and technologyorchestrated supplier
coordination, justintime manufacturing, and logistics allows it to go from design to
shelf in days instead of months.
• Advantages accruing to Inditex include fashion exclusivity, fewer markdowns and
sales, lower marketing expenses, and more frequent customer visits.
• Zara’s IT expenditures are low by fashion industry standards. The spectacular
benefits reaped by Zara from the deployment of technology have resulted from targeting
technology investment at the points in the value chain where it has the greatest impact,
and not from the sheer magnitude of the investment. This is in stark contrast to Prada’s
experience with instore technology deployment.
• While information technology is just hardware and software, information systems
also include data, people, and procedures. It’s critical for managers to think about
systems, rather than just technologies, when planning for and deploying technology
• Zara’s value chain is difficult to copy; but it is not invulnerable, nor is future
dominance guaranteed. Zara management must be aware of the limitations in its business
model, and must continually scan its environment and be prepared to react to new
threats and opportunities.
Netflix Key Takeaways • Netflix operates via a DVD subscription and videostreaming model. These started as
a single subscription, but are now viewed as two separate services. Although sometimes
referred to as “rental,” the model is really a substitute good for conventional usebased
• Many firms are forced to deal with technologyfueled disruption that can challenge
the current way they do business. However, successfully transitioning to a new business
model is often extremely difficult, even for firms that were dominant under a prior
• Analysts and managers have struggled to realize that dotcom startup Netflix could
actually create sustainable competitive advantage, beating back challenges in its initial
and highly successful DVDbymail business, from Walmart and Blockbuster, among
• Data disclosure required by public companies may have attracted these larger rivals
to the firm’s market.
• In understanding the initially successful DVDbymail business, technology
leveraged across the firm’s extensive distribution network offers an operational
advantage that allows the firm to reach nearly all of its customers with oneday
• Durable brands are built through customer experience, and technology lies at the
center of the Netflix top satisfaction ratings and hence the firm’s bestinclass brand
• Physical retailers are limited by shelf space and geography. This limitation means
that expansion requires building, stocking, and staffing operations in a new location.
• Internet retailers serve a larger geographic area with comparably smaller
infrastructure and staff. This fact suggests that Internet businesses are more scalable.
Firms providing digital products and services are potentially far more scalable, since
physical inventory costs go away.
• The ability to serve large geographic areas through lowercost inventory means
Internet firms can provide access to the long tail of products, potentially earning profits
from less popular titles that are unprofitable for physical retailers to offer.
• Netflix technology revitalizes latent studio assets. Revenue sharing allows Netflix to
provide studios with a costless opportunity to earn money from back catalog titles:
content that would otherwise not justify further marketing expense or retailer shelf space.
• The strategically aligned use of technology by this early mover has allowed Netflix to
gain competitive advantage through the powerful resources of brand, data and
switching costs, and scale.
• Collaborative filtering technology has been continually refined, but even if this
technology is copied, the true exploitable resource created and leveraged through this
technology is the data asset.
• The shift from atoms to bits is impacting all media industries, particularly those
relying on print, video, and music content. Content creators, middlemen, retailers,
consumers, and consumer electronics firms are all impacted. • Netflix’s shift to a streaming model (from atoms to bits) is limited by access to
content and in methods to get this content to televisions.
• The firm is right to be concerned that it needs to quickly transition to a new business
model and that there are many potential advantages to the early mover who can create
dominance in that space; however, the firm also made several blunders in its Qwikster
attempt at this migration, and the failure of the firm to execute this shift effectively offers
many lessons for firms considering customerimpacting changes.
• While the “First Sale Doctrine” allows Netflix to send out physical DVDs to
subscribers, this law doesn’t apply to streaming.
• Windowing, exclusives, and other licensing issues limit available content, and
inconsistencies in licensing rates make profitable content acquisitions a challenge.
Although the marginal cost for digital goods is zero, this benefit doesn’t apply to
• Licensing issues will make it impossible to create a long tail as long as it is
enjoyed in the DVDbymail business. Its new model is about providing a “long enough
tail” to attract and retain subscribers.
• Netflix is attempting to secure exclusive content and to fund the creation of original
programming for firstwindow rights. This makes the new, streamingcentric Netflix seem
more like a premium pay channel (e.g., HBO or Showtime).
• Netflix offers more programming than pay channels, has a larger customer base and
more viewing hours than these channels, is available in more countries worldwide, can
stream to customers who don’t have a cable TV subscription, and is less expensive than
most premium cable channels.
• Streaming allows the firm to collect and leverage data for improved customer
targeting, to help build models on content value, to promote original content in highly
targeted ways, to allow for “bingewatching,” and to potentially serve the needs of
original content producers who are freed from distribution timing and content length
constraints that conventional networks place on their work.
• Netflix makes its streaming technology available to hardware firms, and it has
facilitated the development of streaming apps for a host of consumer electronics devices.
As a result, Netflix streaming is available on more devices than any competing rival
• Netflix competitors in streaming are large, deep pocketed, and may have different
motivations for offering streaming content (such as generating ad revenue, payperview
content sales, or as an incentive to make existing hardware platforms more attractive).
• The streaming business also offers Netflix opportunities to explore new revenue
models (although the firm has stated that it is committed to a singlepriceforall content
subscription model), and it allows for rapid expansion into international markets.
• The massive networks streaming delivery and operations infrastructure are largely
hosted on the Amazon Web Services (AWS) cloud computing platform. This platform is
available to all competitors, and it represents a cost that is potentially more variable as
the firm grows than would be the case with a series of fixedcost data centers. However,
Netflix frees itself from dealing with many operational issues by contracting with Amazon, and it frees the firm to focus on proprietary systems that are a source of
competitive advantage for the firm.
o Could be a channel conflict
• Netflix is a significant creator of and contributor to software offerings—especially
those that can be used to support cloud computing. The firm also uses crowdsourcing and
code contests to fuel innovation. Both of these efforts also help the firm identify potential
staffers and partners.
• The Netflix work culture is in many ways radically different from that of peers. The
firm has shared its approach toward corporate culture, and this is increasingly having an
influence on many firms—especially those in Silicon Valley.
Moore’s Law and Disruptive Technologies Key Takeaways
• Moore’s Law applies to the semiconductor industry. The widely accepted managerial
interpretation of Moore’s Law states that for the same money, roughly eighteen months
from now you should be able to purchase computer chips that are twice as fast or
store twice as much information. Or over that same time period, chips with the speed or
storage of today’s chips should cost half as much as they do now.
• Nonchipbased technology also advances rapidly. Disk drive storage doubles
roughly every twelve months, while equipment to speed transmissions over fiberoptic
lines has doubled every nine months. While these numbers are rough approximations,
the price/performance curve of these technologies continues to advance exponentially.
• These trends influence inventory value, depreciation accounting, employee training,
and other managerial functions. They also help improve productivity and keep interest
• From a strategic perspective, these trends suggest that what is impossible from a cost
or performance perspective today may be possible in the future. Fast/cheap computing
also feeds a special kind of price elasticity where whole new markets are created. This
fact provides an opportunity to those who recognize and can capitalize on the
capabilities of new technology. As technology advances, new industries, business
models, and products are created, while established firms and ways of doing business
can be destroyed.
• Managers must regularly study trends and trajectory in technology to recognize
opportunity and avoid disruption.
• Moore’s Law (and related advances in fast/cheap technologies in things like storage
and telecommunications) has driven six waves of disruptive, markettransforming
computing. The sixth wave involves embedding intelligence and communications in all
sorts of mundane devices. Some point to a future “Internet of Things” where objects
will collect and share data and automatically coordinate collective action for radical
• As chips get smaller and more powerful, they get hotter and present power
management challenges. And at some, point Moore’s Law will stop because we will no
longer be able to shrink the spaces between components on a chip. • Multicore chips use two or more lowpower calculating “cores” to work together in
unison, but to take optimal advantage of multicore chips, software must be rewritten to
“divide” a task among multiple cores.
• 3D transistors are also helping extend Moore’s Law by producing chips that require
less power and run faster.
• New materials may extend the life of Moore’s Law, allowing chips to get smaller,
still. Entirely new methods for calculating, such as quantum computing, may also
dramatically increase computing capabilities far beyond what is available today.
• Most modern supercomputers use massive sets of microprocessors working in
• The microprocessors used in most modern supercomputers are often the same
commodity chips that can be found in conventional PCs and servers.
• Moore’s Law means that businesses as diverse as financial services firms,
industrial manufacturers, consumer goods firms, and film studios can now afford
access to supercomputers.
• Grid computing software uses existing computer hardware to work together and
mimic a massively parallel supercomputer. Using existing hardware for a grid can save a
firm the millions of dollars it might otherwise cost to buy a conventional supercomputer,
further bringing massive computing capabilities to organizations that would otherwise
never benefit from this kind of power.
• Cluster computing refers to collections of server computers that are linked together
via software and networking hardware so that they can function as a single computing
• Massively parallel computing also enables the vast server farms that power online
businesses like Google and Facebook, and which create new computing models, like
software as a service (SaaS) and cloud computing.
• The characteristics of problems best suited for solving via multicore systems, parallel
supercomputers, grid, or cluster computing are those that can be divided up so that
multiple calculating components can simultaneously work on a portion of the problem.
Problems that are linear—where one part must be solved before moving to the next and
the next—may have difficulty benefiting from these kinds of “divide and conquer”
computing. Fortunately many problems such as financial risk modeling, animation,
manufacturing simulation, and gene analysis are all suited for parallel systems.
• Many computer tasks can be offloaded to the cloud, but networking speeds (latency)
—that is, the time needed to send results back and forth—can limit instances where
collections of offsite computing hardware can replace or augment local computing.
• Many dominant firms have seen their market share evaporate due to the rise of a
phenomenon known as disruptive technologies (also known as disruptive innovations).
While this phenomenon occurs in a wide variety of industries, it often occurs when the
forces of fast/cheap technology enable new offerings from new competitors.
• Disruptive technologies (also called disruptive innovations) come to market with a
set of performance attributes that existing customers do not demand; however, performance improves over time to the point where these new innovations can invade
o Managers fail to respond to the threat of disruptive technologies, because
existing customers aren’t requesting these innovations and the new innovations would
often deliver worse financial performance (lower margins, smaller revenues).
o Several techniques can help a firm improve its monitoring ability to
recognize and surface potentially disruptive technologies. These include seeking external
conversations with pioneers on the frontier of innovation (researchers and venture
capitalists) and internal conversations with the firm’s engineers and strategists who have a
keen and creative eye on technical developments that the firm has not yet exploited.
• Once identified, the firm can invest in a portfolio of technology options—startups
or inhouse efforts otherwise isolated from the firm’s core business and management
distraction. Options give the firm the right (but not the obligation) to continue and
increase funding as a technology shows promise.
• Having innovation separated from core businesses is key to encourage new market
and technology development focus while isolating the firm from a “creosote bush” type of
resource sapping from potentially competing cashcow efforts.
• Piloting a firm through disruptive innovation is extremely difficult, as the new effort
will cannibalize existing markets, may arrive with lower margins, and can compress
• Ewaste may be particularly toxic since many components contain harmful materials
such as lead, cadmium, and mercury.
• Managers must consider and plan for the waste created by their products, services,
and technology used by the organization. Consumers and governments are increasingly
demanding that firms offer responsible methods for the disposal of their manufactured
goods and the technology used in their operations.
• Managers must audit disposal and recycling partners with the same vigor as their
suppliers and other corporate partners. If not, an organization’s equipment may end up in
environmentally harmful disposal operations.
Amazon Key Takeaways:
• Amazon is the largest online retailer and has expanded to dozens of categories
beyond books. As much of the firm’s media business (books, music, video) becomes
digital, the Kindle business is a conduit for retaining existing businesses and for growing
additional advantages. And the firm’s AWS cloud computing business is one of the
largest players in that category.
• Amazon takes a relatively long view with respect to investing in initiatives and its
commitment to grow profitable businesses. The roughly sevenyear timeline is a
difficult one for public companies to maintain amid the pressure for consistent quarterly
• Amazon’s profitability has varied widely, and analysts continue to struggle to
interpret the firm’s future. However, studying Amazon will reveal important concepts
and issues related to business and technology. • Amazon’s sophisticated fulfillment operations speed products into and out of
inventory, reinforcing brand strength through speed, selection, and low prices.
• Rapid inventory turnover and long payment terms enable Amazon to consistently
post a negative cash conversion cycle. The firm sells products and collects money
from customers in most cases before it has paid suppliers for these products.
• The cost structure for online retailers can be far less than that of offline counterparts
that service similarly sized markets. Savings can come from employee costs, inventory,
energy usage, land, and other facilitiesrelated expenses.
• Amazon’s scale is a significant asset. It allows the firm to offer cheaper prices in
many categories than nearly every other firm, online or off. Scale gives Amazon
additional bargaining leverage with suppliers. And the firm’s scaledriven low prices
reinforce Amazon as the “first choice” shopping destination.
• Around 40 percent of products sold on Amazon are offerings sold through Amazon
Marketplace by third parties. By allowing third parties to sell on its site, Amazon
reinforces its position as the firstchoice shopping destination. Amazon gets a cut of each
sale, maintains its control of the customer interface, and retains the opportunity to
collect customer data that would be lost if users went elsewhere for a purchase.
• Amazon’s ability to acquire and leverage data further allows the firm to enhance
customer experience and drive sales. Internet retailers have a greater ability to gather
personal data on consumers than do offline counterparts. Data is used in personalization
and in innovation fueled by the result of A/B experiments.
• The rise of mobile is resulting in an increase in shopping among many retailers and
fuels immediate purchases rather than the creation of shopping lists.
• Amazon offers personal cloud storage options for all forms of media, including
books, games, music, and video. It even offers file storage akin to Dropbox and Google
Drive. These personal cloud offerings allow users to access files from any app, browser,
or device with appropriate access.
• Amazon Web Services (AWS) allows anyone with a credit card to access
industrialstrength, scalable computing resources. Services include computing
capability, storage, and many operating sy