Business Strategy & Information Technology

1. Business Strategy & Information Technology Minder Chen, Ph.D. Martin V. Smith School of Business and Economics CSU Channel Islands Minder.Chen@CSUCI.EDU

2. Strategy and IS Industry Structure (5 Competing Forces) Competitive Strategy Business Process Design / Reengineering Value Chain Analysis Information Systems

3. Business Strategies The job of the strategist is to understand and cope with competition. Competition for profits goes beyond established industry rivals to include four other competitive forces: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.

4. Industry Structure and Forces Forces are intense: airlines, textiles, and hotels, almost no company earns attractive returns on investment. Forces are benign: software, soft drinks, and toiletries, many companies are profitable Industry structure, manifested in the competitive forces, sets industry profitability & competitiveness in the medium and long run. Industry structure affects a firm strategic positioning Identify the strongest competitive force or forces for strategy formulation.

5. The Five Force That Shape Industry Competition Threats of new entrants Entry barriers, Bargaining power, Switching costs Entry barriers, Bargaining power, Switching costs Emerging / Disrupted technologies Changing environments View this video: http://www.youtube.com/watch?v=mYF2_FBCvXw

6. Sources of Switching Costs Loyalty programs: Switching can cause customers to lose out on program benefits. Think frequent purchaser programs that offer “miles” or “points” (all enabled and driven by software). 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 or databases, or may even lose earlier contributions on incompatible systems. Financial commitment: Can include investments in new equipment, the cost to acquire any new software, consulting, or expertise, and the devaluation of any investment in prior technologies no longer used. Contractual commitments: Breaking contracts can lead to compensatory damages and harm an organization’s reputation as a reliable partner. Search costs: Finding and evaluating a new alternative costs time and money.

7. Barriers to Entry • Supply-side economies of scale • Demand-side benefits of scale (network effects) • Customer switching costs: • Enterprise resource planning (ERP) software is an example of a product with very high switching costs. • Capital requirements • Semiconductor foundry vs. corner coffee shop • Incumbency advantages independent of size • Brand, experiences curve • Unequal access to distribution channels • Using e-commerce for direct sales • Restrictive government policy

8. Strategy and the Internet Michael E. Porter, "Strategy and the Internet," Harvard Business Review, Mar 01, 2001.

9. Threats of Substitute Products or Services Rivalry is often fierce in commodity industries Polaroid  Substitutive products/services http://en.wikipedia.org/wiki/Polaroid_Corporation

10. Disruptive Technology http://en.wikipedia.org/wiki/File:Disruptivetechnology.gif

11. Type of Innovations Bower, Joseph L. & Christensen, Clayton M. (1995). "Disruptive Technologies: Catching the Wave" Harvard Business Review, January–February 1995 • Sustaining: An innovation that does not affect existing markets. • Evolutionary: An innovation that improves a product in an existing market in ways that customers are expecting. (E.g., fuel injection) • Revolutionary (discontinuous, radical): An innovation that is unexpected, but nevertheless does not affect existing markets. (E.g., the automobile) • Disruptive: An innovation that creates a new market by applying a different set of values, which ultimately (and unexpectedly) overtakes an existing market. • For example, the lower priced Ford Model T

12. Innovator’s Dilemma * http://en.wikipedia.org/wiki/Disruptive_innovation and Christensen, Clayton M. (1997), The innovator's dilemma: when new technologies cause great firms to fail, Boston, Massachusetts, USA: Harvard Business School Press, ISBN978-0-87584-585-2. Good firms are usually aware of the innovations, but their business environment does not allow them to pursue them when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from that of sustaining innovations (which are needed to compete against current competition). "Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream."

13. Threats of New Entrants Source: http://www.businessweek.com/1996/29/960715.htm INSIDE MICROSOFT (Part 1)INSIDE MICROSOFT (Part 2) • New entrants are diversifying from other markets, they can leverage existing capabilities • Pepsi did when it entered the bottled water industry (i.e., Aquafina) • Microsoft did when it began to offer internet browsers (embrace and extend)

14. Apple’s Entrance to Different Industries (Nov. 2001) (June 2007) (April 2010) iTune (Jan. 2001)  iTunes Store (April 2003)  Apple Store (May 2001) Why Industries have the following Apple products entered and disrupted?

15. Apple Products as Disruptive Forces • Apple Computer Inc.  Apple Inc. • Apple II to Mac to iMac • iPod + iTune + iTune Store (music download)  MP3, Tower Record • Apple Stores • iPhone + iTune + Apps  • iPad + iTune + Apps + iBook  eReader, Notebook computer • iRadio, iTV, iWatch, iWhatSoEver? • From a system to an eco-system • From hardware to software to contents and services

16. Apple Stores Services Intensive control of how employees interact with customers, scripted training for on-site tech support and consideration of every store detail down to the pre-loaded photos and music on demo devices. Stores are designed around usages. http://www.nytimes.com/2012/06/24/business/apple-store-workers-loyal-but-short-on-pay.html?pagewanted=2&_r=0

17. Porter Generic Strategies Market Segmentation = Focus strategy Source: http://blogs.hbr.org/cs/2011/08/why_hps_departure_from_the_pc.html read the comments Cost Leadership: High volume and low profit margin Differentiation strategy: Unique product features, usually high margin/price and low volume

18. Value Chain

19. Internet and Value Chain Analysis http://highered.mcgraw-hill.com/sites/dl/free/0073043559/314063/OBrien_13e_Chapter_2.pdf

20. Stan Shih’s “Smile Curve” IBM Leads the Way in the Post-PC EraWhy IBM exited the PC market? Source: http://asmarterplanet.com/blog/2011/08/ibm-leads-the-way-in-the-post-pc-era.html

21. Apple Inc.

22. Value Chain and ERP, CRM, SCM Enterprise Resource Planning Customer Relationship Management Supply Chain Management

23. Industrial Value Chain http://exonous.typepad.com/mis/valuechain.gif

24. Process in Perspective: A System View Source: Process in Perspective (or “Tell me again, why are we doing this ‘process’ stuff?”), Geary Rummler

25. Business Processes http://highered.mcgraw-hill.com/sites/dl/free/0073043559/314063/OBrien_13e_Chapter_2.pdf The order management process consists of several business activities and crosses the boundaries of traditional business functions.

26. Order Processing http://msdn.microsoft.com/en-us/library/vstudio/ff183189.aspx Online Ordering of a Restaurant Food Delivery

27. Integration

28. Extra Slides • Backup Slides • Additional resources: • What is strategy? From SlideShare by by Marc Sniukas

30. Revisit Stan Shih’s “Smile Curve”

31. Process Flow for Sales Orders (SAP)

32. Generic Strategies and Industry Forces

33. Components of a Business Model Source: http://qcao.ba.ttu.edu/ArcFall10/applegate_ch01.pdf

34. Service at Apple Stores http://online.wsj.com/article/SB10001424052702304563104576364071955678908.html "Approach customers with a personalized warm welcome," "Probe politely to understand all the customer's needs," "Present a solution for the customer to take home today," "Listen for and resolve any issues or concerns," and "End with a fond farewell and an invitation to return."

35. An Example of Detail Value Chain Activities

36. IT Permeates the Value Chain Source: How information gives you competitive advantage.

37. Industry Value Chain

38. Analyzing Competitive Forces and Strategic Positioning Source: Lynda Applegate, http://qcao.ba.ttu.edu/ArcFall10/applegate_ch01.pdf

39. Customer Audit Approch

40. Competitor Audit Approach

41. Product/Market Positioning Audit Approach

42. Value Network Audit Approach

43. Market Commonality Resource Similarity Competitive Dynamics (Model of Inter-firm Rivalry): Likelihood of Attack and Response Drivers of Competitive Behavior Outcomes Ability for Action and Response Interfirm Rivalry: Attack & Response Competitive Market Types Awareness Slow, Standard Motivation Relative Size or Fast Cycle Likelihood of Attack Capability First Mover Incentives Speed Competitive Innovation Outcomes Likelihood of Response Sustained Quality Type of Competitive Competitive Competitor Analysis Action Advantage Actor’s Reputation Temporary Dependence on the Advantage Market Evolutionary Resource Availability Outcomes Entrepreneurial Growth-Oriented Feedback or Market-Power Actions http://www.wiziq.com/tutorial/381-Competitive-Dynamics

44. Five-Force Analysis vs. Competitive Dynamics http://www.mingjerchen.com/dl/Academic_Papers/2012_AMA_Competitive_DynamicsThemes.pdf

45. Resource-Based View of Competitive Advantage • http://en.wikipedia.org/wiki/Resource-based_view • Nicholas Carr, "Does IT Matter," Harvard Business Review, May 2003, pp. 41-48. • (CSUCI Library Online Database) and Responses • The strategic thinking approach suggesting that if a firm is to maintain sustainable competitive advantage, it must control an exploitable resource, or set of resources, that have four critical characteristics. • These resources must be • Valuable, • Rare, • Imperfectly imitable, and • Non-substitutable.

46. 4-Step Process • What are your mission/visions/goals? • What are your strategies? • Product/service strategies • Marketing/branding strategies • Technology strategies • What are your methods for implementing your strategies? • How do you know you are making progress towards your goals?

47. Five Questions Source: A Play Book for Strategy Strategy is choice. 5 choices: a winning aspiration, where to play, how to win, core capabilities, and management systems. More specifically, strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition.

50. Five Competing Forces YouTube Video: The Five Competitive Forces That Shape Strategy