Strategy and TechnologyCIS 2200Kannan MohanDepartment of CISZicklin School of Business, Baruch College

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Learning Objectives• Examine the relationship between Information

Technology and:• Competitive advantage• Resource-based view• Value chain• Porter’s five forces

• Examine the different IT asset classes and the IT portfolio approach

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IT and Competitive Advantage• Sustaining?• Does IT matter?• Commoditization of IT• Innovation• Strategic use of IT

• Replication of business models, processes, technologies• Operational effectiveness vs. strategic positioning• Loss of uniqueness• First mover vs. Fast Follower

FreshDirect

• Using technology to craft an efficient model that makes an end-run around stores• Worker shifts are highly efficient• The firm buys and prepares what it sells, leading to less

waste• Higher inventory turns• Use of artificial intelligence software • Use of climate controlled cold rooms to save energy• Use of recycled bio-diesel fuel to cut down on delivery costs

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FreshDirect

• Relationship with suppliers• Offering to carry a greater selection of supplier products by eliminating “slotting fees”• Co-branding products• Paying in days rather than in weeks• Sharing data to improve supplier sales and operations

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Resource-based view of competitive advantage

• How can you recognize whether your firm’s differences are special enough to yield sustainable competitive advantage?

• Four critical characteristics of resources that lead to sustainable competitive advantage:

• Valuable• Rare• Imperfectly imitable• Non-substitutable

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The Value Chain

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• Value chain: Set of interrelated activities that bring products or services to market

The Value Chain

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• Imitation-resistant value chains• A way of doing business that competitors

struggle to replicate and that frequently involves technology in a key enabling role

• FreshDirect• Incumbents straddled between two business models,

unable to reap the full advantages of either• 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• Supply chain management (SCM)• Customer relationship management (CRM)• Enterprise resource planning software (ERP)

• Potential danger• Adopting software that changes a unique process into a

generic one - co-opting a key source of competitive advantage

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Can be purchased by competitors

too

The Value Chain• Packaged ERP implementation — software would

require the firm to make changes to its unique and highly successful operating model?• Horizontal vs. Vertical vs. Virtual integration• Disintermediation• Information asymmetry• Visibility across the supply chain

• Apple vs. Dell and choice of software to manage value chain – Competing on product uniqueness vs. operational differences

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Switching costs and Data• Switching costs: Exist when consumers incur an

expense to move from one product or service to another

• Sources of switching costs:• Learning costs• Information and data• Financial commitment• Contractual commitments• Search costs• Loyalty programs

• Data can be a particularly strong switching cost for firms leveraging technology

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Strategies• Differentiation: Commodities vs. differentiated goods and

services• Low-cost leadership: Use information systems to achieve

the lowest operational costs and the lowest prices (E.g. Wal-Mart)

• Network effects: When the value of a product or service increases as its number of users expands

• Managing various distribution channels: The path through which products or services get to customers

• Patents: Intellectual property protection for those innovations deemed to be useful, novel, and non-obvious

• Entry barriers2-13

Porter’s Five Forces Model

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Organizational Ambidexterity

• Balancing exploitation and exploration• Streamlining existing processes/products vs. new markets

and innovation• Managing IT investments with this in mind• Structural vs. contextual ambidexterity• Traditional channel vs. Internet channel

(USAToday.com)

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IT Porfolio

(Weill and Aral, 2004)

Monday Morning Mandate for the CIO• What percentage of our key business processes are digitized?

Percentage of sales? Percentage of purchases? What degree of cross-business unit linking is needed?

• What is our IT savvy by business unit? Should our IT investment allocations vary by business unit to reflect the differences?

• How do I work with my senior management colleagues to increase IT savvy?

• What is our current IT portfolio allocation by asset class? How did it get that way?

• What have been our historical returns by asset class and by business unit?

• What changes to IT governance do I need to make to address the answers to the questions above?

Summary

• How are IT and competitive advantage related?• Relate IT to the five forces model to assess how IT can

be leveraged by organizations in an industry• How can you use the resource-based view to examine

IT’s role in business?• How is IT related to organizational ambidexterity?• What do we need to do to consider IT investments as a

portfolio?

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