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MGCR 331 (36)
Chapter 2

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Management Core
MGCR 331
Imad Mansour

Chapter 2: Strategy and Technology: Concepts and Frameworks for Understanding What Separates Winners fromLosers Section 1: Introduction - Learning objectives: o Define operational effectiveness and understand the limitations of technology-based competition leveraging this principle o Define strategic positioning and the importance of grounding competitive advantage in this concept o Understand the resource-based view of competitive advantage o List 4 characteristics of a resource that might possibly yield sustainable competitive advantage - How to achieve sustainable advantage: o According to Michael Porter:  Why so many firms suffer aggressive, margin-eroding competition?  many firms defined themselves according to operational effectiveness rather than strategic positioning  Operational effectiveness:  Performing the same tasks better than rivals perform them  Danger in this is “sameness”  This risk is particularly acute in firms that rely on technology for competitiveness  Fast follower problem:  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 - Since tech can be copied so quickly, followers can be fast ∴ not a source of competitive advantage but not limited to the Web - Firms must invest in techniques to improve quality, lower cost, and generate design- efficient customer experiences  Therefore, operational effectiveness is not sufficient enough to yield sustainable dominance over competition  In contrast to operational effectiveness, strategic positioning refers to performing different activities from those of rivals, or the same activities in a different way - Technology helps creating and strengthening strategic differences – advantages that rivals will struggle to match - FreshDirect: o Example of the relationship between technology and strategic positioning o = The New York City-based grocery firm o = (online grocery shopping web site) o results:  higher inventory turns = the firm is selling product faster, so it collects money quicker than its rivals do  traditional grocers can’t fully copy the firm’s delivery business because this would leave them straddling 2 markets (low margin storefront and high-margin deliver), unable to gain optimal benefits from either - Resource-based view of competitiveadvantage: o If a firm is to maintain sustainable competitive advantage, it must control a set of exploitable resources that have 4 critical characteristics: 1) Valuable 2) Rare 3) Imperfectly imitable (tough to imitate) 4) Nonsubstitutable - Key points: o Technology can be easy to copy, and alone rarely offers sustainable advantage o 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 o True sustainable advantage comes from assets and business models that are simultaneously valuable, rare, difficult to imitate, and for which there are no substitutes Section 2: Powerful Resources: - Learning objectives: o Understand that technology is often critical to enabling competitive advantage, and provide examples of firms that have used technology to organize for sustained competitive advantage o Understand the value chain concept and be able to examine and compare how various firms organized to bring products and services to market o Recognize the role tech can play in crafting an imitation-resistant value chain as well as when technology choice may render potentially strategic assets less effective o Define the following concepts: brand, scale, data, and switching cost assets, differentiation, network effects, and distribution channels o Understand and provide examples of how technology can be used to create or strengthen the resources mentioned above. - Imitation-resistant value chain: o A way of doing business that others will struggle to replicate, and technology plays a key enabling role - Valuechain: o = the set of activities through which a product or service is created and delivered to customers o There are 5 primary components + 4 supporting components:  5 primary components: 1) Inbound logistics: a. Getting needed materials and other inputs into the firm from suppliers 2) Operations: a. Turning inputs into products or services 3) Outbound logistics: a. Delivering products/services to consumers, distribution centers, retailers or other partners 4) Marketing and sales: a. Customer engagement, pricing, promotion, and transaction 5) Support: a. Service, maintenance, and customer support  4 supporting components: 1) Firminfrastructure: a. Functions that support the whole firm, including general management, planning, IS, and finance 2) Human resource management: a. Recruiting, hiring, training, and development 3) Technology / research and development: a. New product and process design 4) Procurement: a. Sourcing and purchasing functions - Key source for competitive advantage: o If a firm’s value chain can’t be copied by competitors without engaging in painful trade-offs o If the firm’s value chain helps to create and strengthen other strategic assets over time - Software/tools that improve things for firms: o Supply chain management (SCM):  Linking inbound and outbound logistics with operations o Customer relationship management (CRM):  Supporting sales, marketing, and in some cases R&D o Enterprise resource planning software (ERP):  Software implemented in modules to automate the entire value chain o => these software tools can be purchased by COMPETITORS as well as suppliers and customers - Brand: o = symbolic embodiment of all the information connected with a product or service o Strong brand = powerful resource for competitive advantage  Proxies quality and inspires trust o Consumers use brands to lower search costs o If a firm performs well, consumers can often be enlisted to promote a product/service (so-called viral marketing) - Scale: o Scale advantages:  = advantages related to a firm’s size o Businesses benefit from economies ofscale when the cost of an investment can be spread across increasing units of production or in serving a growing customer base o Being scalable:  = firms that benefit from scale economies  Ex) many internet & tech-leveraging businesses o A growing firm may also gain bargaining power with its suppliers or buyers o The scale of technology investment required to run a business can also act as a barrier to entry, discouraging new, smaller competitors - Switching Cost and Data: o Exists when consumers incur an expense to move from one product/service to another o Strong switching costs may cement customers to the firms o Sources of switching costs:  Learning costs: Switching technologies may require an investment in learning a new interface and commands  Information and data: Users may have to reenter data, convert files/databases, or may even lose earlier contributions on incompatible systems  Financialcommitment: Can include investments in new equipment, the cost to acquire any new software
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