1. Strategy and Technology
CIS 2200
Kannan Mohan
Department of CIS
Zicklin School of Business, Baruch College

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3. 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

4. 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

5. 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

6. 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

7. 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

8. The Value Chain
Value chain: Set of interrelated activities that bring products or services to market

9. The Value Chain 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

10. Can be purchased by competitors too
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
Can be purchased by competitors too

11. 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

12. 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

13. 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 barriers

14. Porter’s Five Forces Model

15. 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)

16. IT Porfolio
(Weill and Aral, 2004)

17. 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?

18. 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?