SIMS Strategic Computing and Communications Technolgy Course web page – Syllabus, schedule, lectures, readings – will be updated Requirements –Individuals Submit 4 relevant news items + 2 or 3 paragraph analysis of each over semester Participate in class discussions –Group projects I appoint mixed groups Technology assessment presentations at end

SIMS Strategy Overview Hal R. Varian

SIMS What is strategy? Definitions –“A course of action to achieve targets” –“A plan or method employed in order to achieve a goal or objective –In practice: often a checklist of things to pay attention to and watch out for External and internal Planning v strategic interaction

SIMS 3 approaches to business strategy Education –Michael Porter, Competitive Strategy Executive –Jack Welch, Winning Economics –Shapiro and Varian, Information Rules –Brandenberger and Nalebuff, Co-opetition –Dixit and Nalebuff, The Art of Strategy

SIMS Michael Porter’s Five Forces Porter, Michael E., Competitive Strategy, Free Press, 1998

SIMS Supplier power Importance of costs –Impact of inputs on your product cost or design Competitive environment –Supplier concentration, bargaining power –Presence of substitute inputs –Importance of volume to supplier –Switching costs of suppliers –Threat of forward integration

SIMS Barriers to entry Costs –Absolute cost advantages –Economies of scale –Capital requirements Scarcity –Access to distribution –Proprietary learning curve –Access to inputs (IP)‏ –Proprietary products –Brand identity Other –Customer switching costs –Expected retaliation (I.e., capacity threat)‏ –Government policy

SIMS Buyer power Competitive environment –Buyer concentration –Bargaining power –Substitutes available –Product differentiation –Price sensitivity –Buyers' switching costs –Brand identity –Buyer volume –Threat of backward integration

SIMS Threat of substitutes Customer switching costs Buyer inclination to substitute Price-performance trade-off of substitutes

SIMS Internal rivalry Economic factors –Industry concentration –Fixed costs, scale requirements –Exit barriers –Intermittent overcapacity –Industry growth Customer perceptions –Product differences –Switching costs –Brand identity –Diversity of rivals

SIMS Critique of Porter Product of its times (1980s)‏ –Relatively stable environment –Manufacturing model Not a very clear taxonomy –Competitors: actual and potential? –Substitutes: internal or external? Not much emphasis on technology and innovation

SIMS Jack Welch (ex-CEO of GE)‏ Winning, Harper Business 2005 Three steps –Find a smart, realistic, fast way to gain substantial competitive advantage –Put the right people in the right place to drive this forward –Seek out best practices, adapt them, and continue to improve them GE initiative: “Be No 1 or No 2 in each market and fix, sell, or close deal to be there.” 5 Slides

SIMS 1. What playing field looks like Who are your competitors? What has what share globally and in each market? Is your business a commodity or high value, long cycle or short, where on growth curve? What are drivers of profitability? What are strengths and weaknesses of each competitor? How good are its products? How much does each one spend on R&D? How big is its sales force? Who are your customers and how do they buy?

SIMS 2. What the competition is doing? What has each competitor done in past year to change the playing field? Has anyone introduced game-changing new products, technologies, or new channel? Are there new entrants, and what have they been doing?

SIMS 3. What have you been doing? What have you done to change the playing field? Have you bought a company, introduced a new product, taken a competitor’s salesperson, licensed a new technology? Have you lost competitive advantages you once had: a salesperson, special product, proprietary technology?

SIMS 4. What’s around the corner? What scares you the most in the year ahead? What could a competitor do to nail you? What new products or technologies could your competitor launch that might change the game? What mergers/acquisitions would knock you off your feet?

SIMS 5. What is your winning move? What can you do now to change the playing field? New acquisition, new product, new market? What can you do to make customers stick to you?

SIMS Critique of Welch Very action oriented, not so analytic –Good for CEO, not for industry analyst –Strategy and tactics intermingled –Doesn’t emphasize specific industry forces –Good meeting agenda, may not lead to deepest insights...

SIMS Brandenberger and Nalebuff Customers Company Suppliers Competitors Complementors Value Net What’s this? Actual and potential companies and products

SIMS Co-opetition and complements Customers value entire system –Hardware+software, DVD player+disks Sometimes you compete, sometimes you co- operate –Think of Intel and Microsoft, IBM and Oracle –Not a zero sum game! Complementors can be critical to your business, particularly in technology

SIMS Google Customers Competitors Complementors Suppliers [Users?]

SIMS Google Customers –advertisers Competitors –Yahoo, Microsoft, other ad media Complementors –ISPs, publishers,content providers, phone carriers Suppliers –Hardware, software, publishers [Users?] [Regulators?]

SIMS Shapiro and Varian Forces important for info tech industries –Differentiation of products and prices –Intellectual property (copyright + patents) –Switching costs and lock-in –Network effects –Standards and interconnection –Systems effects and complementors

SIMS Example: Apple Ipod story Price of songs (differentiation of prices)‏ Competition (free songs, other players)‏ Government policy (copyright)‏ Complementors (players + content)‏ Channel conflict (online + offline)‏ Standardization (interoperability, DRM)‏ New entrants (mobile phones)‏