MN 5336 COMPETING WITH

Digital Business DIGITAL TECHNOLOGIES

P R O F G . ‘ H A R I ’ H A R I N D R A N AT H
 Last week…Session 1

IS as socio-technical systems!
How are information systems transforming business?
What are the key components of the digital firm’s IT portfolio?
What are factors driving the digital transformation of businesses and how are
they coming together to disrupt industries?
IT business value and the role of complements
 Some buzzwords…Session 1

Big data
Internet of Things
Artificial Intelligence
/ Machine Learning
SEE MOODLE!
Cloud computing
Session 2 Learning
Objectives
How is IT impacting the competitive
landscape for firms?
What roles do IT capabilities play in enhancing
IT’s competitive impact?
Can IT offer a sustainable competitive
advantage? How might this be possible?
How do you use a range of theoretical lenses
to analyse IT’s competitive role?
Carr: IT Doesn’t
Matter!
Carr, Nicholas, Harvard Business
Review
“As information technology’s
power and ubiquity have grown,
its strategic importance has
diminished. The way you
approach IT investment and
management will need to change
dramatically”
Carr: IT Doesn’t
Matter !
• IT as an ‘infrastructural’
technology
• The commoditisation of IT
• Network effects &
standardisation
• Highly replicable
Carr: IT Doesn’t Matter!
• Rapid price
deflation
• From offensive
to defensive
• Spend less
• Follow, don’t
lead
Carr: Focus on
vulnerabilities,
not opportunities

IT Doesn’t Matter?
But, Carr’s position is
debatable
• Is IT always a
commodity?
• Does HOW we use IT
MATTER?
Does IT Matter? A different
perspective
• IT can help with
strategic differentiation
• IT value from
• Innovative business
practices
• Incremental
innovation
• Business orchestration
with partners – Amazon,
Walmart, Alibaba. 7-11
Japan
Wal-Mart’s Information System

Within 15 seconds Wal-Mart uses this data

of a purchase, to track sales, replenish
customer purchase data inventory, and
is sent to Wal-Mart’s communicate with over
data center. 100,000 vendors.

This requires sophisticated

business process orchestration,
encompassing key partners
 oContemporary example of how
IT & strong supplier
relationships can facilitate
advantages
IT & Strategic oMost profitable Japanese retailer
Differentiation: oGreat product mix agility
The Case of 7- oIndustry leading 70% new
Eleven Japan’s product lines each year
use of
information o21,000+ stores in Japan
resources o‘Zara’ of food retailing?!
oNew fresh food displays 3 times
a day
 o Sophisticated product tracking
IT & Strategic o even those not in-store

Differentiation: o Accurate demand forecasting integrating weather

predictions for ordering supplies (e.g. cold vs warm
The Case of 7- noodles or bento vs soups)
Eleven Japan’s o Reduced inventory via JIT delivery multiple
use of times/day
information o Close relationship with dedicated suppliers
resources o Frequent/regular store visits from ‘Store
Counsellors’
o to help improve store performance using data from
computers
o The 7-11 advantage: IT, people, process!
Alibaba’s Ecosystem www.alibabagroup.com
IT is Just
a Tool
How it is used
matters!
That’s where
the
differentiation
occurs!
100% of IT’s strategic value
comes from its connections to
your firm’s business strategy
(Tiwana, 2017)
Insight into using IT to rethink what
is possible comes from deep
business knowledge, not just
technical knowledge.

YOU – as a NON-IT manager –

can make a difference here!
IT: From support to competitive differentiator

‘IT as commodity’
mindset
‘IT as enabler’
McKinsey.com mindset
And that requires:
IT capability
CAPABILITY: Something that is
learned or developed over time for
the firm to create, produce or offer
its products

•IT capability makes it possible for

the firm to use its IT assets
effectively
•Requires substantial financial
resources to develop!
Scarcity vs. Ubiquity

• What makes a resource truly

strategic—what gives it the capacity
to be the basis for a sustained
competitive advantage—is not
ubiquity but scarcity.
• Core functions of IT—data storage,
data processing, and data
transport—have become available
and affordable to all (RECALL: IT
Infrastructure)
• So, no advantage. Just competitive
necessities.
Examples of IT Capabilities

Technical skills - IT management Relationship skills

applied to skills - critical for – internally (e.g., This is where
designing,
developing and
managing the IT
function and IT
between IT &
business, and differentiation
implementing
information
projects. between
departments) &
occurs!
systems. externally (e.g.,
between firm & its
outsourcing
vendors and other
partners)
Summary/Learning Objectives
so far…

What roles do IT
How is IT impacting
capabilities play in
the competitive
enhancing IT’s
landscape for firms?
competitive impact?
Now, let us consider these:
Learning Objectives

Can IT offer a
How do you use a
sustainable
range of theoretical
competitive
lenses to analyse IT’s
advantage? How might
competitive role?
this be possible?
IT Strategy Frameworks
Frameworks/Models can be used to
generalize and describe how
companies compete…

Operational Effectiveness: Strategic Positioning:

Performing the same tasks Performing different tasks
better than rivals perform than rivals or the same task
them. in different ways.
SOME KEY TERMS!

Barriers to
Entry
Barriers to entry make it
difficult for other firms to
enter an industry and
compete.
When barriers to entry
exist, sustainable profits
are more likely.
E.g., Apple’s iPhone and
linked ecosystem
 SOME KEY TERMS!

Switching Costs
A cost that a consumer incurs
when switching from one product
to another is called a switching
cost.

While Gmail is free to use and

convenient, moving to another platform
would require significant effort to
import/export messages or lose this
valuable e-mail history.
 SOME KEY TERMS!
Transaction Cost Agency Cost
Theory Theory
Firms seek to economize on transaction Firms experience agency costs (the
costs (the costs of participating in cost of managing and supervising
markets) i.e., co-ordination costs) which rise
◦ Vertical integration, hiring more as firm grows
employees, buying suppliers and
IT can reduce agency costs, making
distributors
it possible for firms to grow
IT lowers market transaction costs, without adding to the costs of
making it worthwhile for firms to supervising, and without adding
transact with other firms rather than employees
grow the number of employees E.g., reducing cost of acquiring and
E.g., using supply chain management or analysing information via MIS, HR
other inter-organizational networks systems etc
 SOME KEY TERMS!

Network Effects
Network effects exist if the value of a network increases
with the number of users.

Facebook or WeChat would be of little to value

to you if your friends weren’t part of it.
 SOME KEY TERMS!

Network Effects
In some industries, the
impact of network effects
are so strong that one firm
typically dominates.
Windows won the desktop
operating system war.
But it lost the smart phone
battle!
The Three Lenses for Competing with IT
Resource-
based View
Industry level Firm level
view view Competitive
landscape

Five forces model Value Chain Sustainable

advantage
 Lens #1 Industry level:
Porter’s Five Forces Model
Porter’s five forces model is
focused externally, describing
how a firm is positioned
within its industry.
The five forces model
positions a firm within a
context of industry rivals.
Lens #1: How IT Affects the Five forces
IT’s impact
Threat of New Entrants

a. Increases
transparency
+ f. IT antidote #2
Unconventional
competitive barriers

+ +
b. Erases • “Facebook effect”
geography •Deep customization
c. Blurs industry
boundaries
+
+ d. Legacy-free
business models

Suppliers’ Bargaining Power Fierceness of

Customers’ Bargaining Power
Competition

+ +
Trifecta breeds these
e. IT antidote #1
Operational
+
effectiveness Negotiating clout
Threat of Substitutes

Tiwana, 2017 Caps prices, raises costs Often industry outsiders

Threat alone suffices
Competing with IT:
Porter’s Competitive Forces
New entrants: How can Substitutes: How can IS
IS build barriers to help generate new
entry? products/services?
Customers: How can IS Industry rivals: How can IS
build in switching costs change the basis of
for customers? competition?
Suppliers: How can IS
change the balance of
power with suppliers?
Lens #2 Firm level: Value Chains
•Strategy = How to deliver more value than your archrivals
•Value creation = Making outputs worth more than inputs
•Value chain = lens for understanding this ~ i.e., business model

Inbound Outbound After-sales

Operations Marketing
logistics logistics Service

Supply management Demand Management

Convert into Secondary activities: HR, accounting,

Getting raw
finished and historically IT (BUT IT should
materials Getting to
products customers
NO longer be seen as Secondary)
Each activity can crosscut functions

Each step has physical + informational components trifecta increasing it

IT instrumental to tailor value chain to your firm’s strategic aspiration (perform each activity
cheaper or better than rivals)
 Porter’s value chain

In-bound logistics Operations Outbound logistics Sales and market. Services

Make
Obtain inputs Transform Deliver Added-value
customers
& resources inputs into products/ to
aware of
in the right products & services to customers,
products,
quality & services customers target
induce them
quantity discounts
to buy
Lens #2 NGOs & Services Value Chains

SERVICES FIRMS
Problem Solutions Post-
Project Relationship
Recognition Delivery Management delivery
Management
support

NON-PROFITS
Recruitment Problem Execution Evaluation
Stakeholder
fundraising Solving Outreach
 Lens #2: Value Stream
Each firm has its
own value chain A collection of value chains of multiple firms
(‘business ecosystems’)
e.g., large constellations such as
iOS/Android/WeChat

Suppliers Retailers

Distribution
Suppliers Your firm
channels
Raw Materials Consumers

Suppliers Wholesalers

Upstream Firm Downstream

value value value
Vertically integrated if
one firm does Tiwana, 2017
everything in this figure
 Transforming Value Chains using IT
IT can alter

1.Transforming One 2. Transforming Linkages between

step in a Value Chain steps in a value chain

Operational Structural
effectiveness ↑ Value- reconfiguration Coordination
added (disintermediation)
↓ costs

Among Among
functions firms

Tiwana, 2017
1. Transforming One Step in the Value Chain can
Differentiate Firms
Cost-reducing using IT

Inbound Outbound After-sales

Operations Marketing
logistics logistics Service

Insurance

Value-adding using IT
Tiwana, 2017
2. Transforming Linkages between steps in a value chain:
(i) Structural ReconfigurationOriginal Structure
Consumers

Authors Publishers Wholesalers Distributors Retailers

$5 $45 $10 $10 $30 $100

Disintermediation
“Business model innovation”
(process digitized)

Authors Publishers Wholesalers Distributors Retailers

$5 $45 $70

Amazon

Further disintermediation
(product digitized)

Authors Publishers Wholesalers Distributors Retailers

$7 $10

Amazon

Tiwana, 2017 $3
Netflix $6bn+ production budget = 3xHBO
2. Transforming Linkages between
steps in a value chain: (ii)
Differentiation by Coordination
As a business grows, departmental
specialization creates functional silos
◦ But business processes crosscut functions.
◦ Needs improved coordination

IT ≅ can overlay a connective tissue

1. Among siloed functions
◦ Through Enterprise Resource Planning (ERP)
systems to create a unified picture of the firm
2. Among upstream firms (that supply inputs)
and downstream firms (that use your outputs
such as sales channels, retailers)
◦ By using IT to align supply and demand
◦ Substituting inventory with information (e.g.,
Walmart, Uber, Airbnb)
◦ Anticipating shifts in demand with analytics (e.g.,
Zara)
BUT are IT-based advantages SUSTAINABLE?

Source: https://developer.mozilla.org/en-
US/docs/Web/API/Web_Animations_API/Using_the_Web_Animations_API

IT-based "Now, here, you see, it takes all the

running you can do, to keep in the
competition as a same place. If you want to get
somewhere else, you must run at least
Red Queen Race! twice as fast as that!"
- Lewis Carroll’s Through the Looking Glass
Lens #3: Sustainable Competitive Advantage
RESOURCE-BASED VIEW OF THE FIRM

V R i N
Valuable Rare Inimitable Non-substitutable
Creates Competitive Sustains Competitive
Advantage Advantage
Can a discrete IT asset (an app, Valuable and rare
infrastructure element, or a data ◦ e.g., purchased apps can
asset) produce a sustainable often be imitated 
competitive advantage? destroys their rarity
◦ Solution: Creating new apps
Valuable but not rare  a temporary faster than they’re imitated
competitive advantage
◦ e.g., most IT infrastructure ◦ But often financially
exhausting and
◦ Operational—but not strategic—value
unsustainable
◦ Merely creates competitive parity
Sustainable Competitive
Advantage Using IT
Possible only from IT that
archrivals struggle to imitate
This requires innovative business
practices/models using IT
(i) Using an app to create network
effects
 Netflix (ratings) 70% of ALL
movies watched
 Amazon recommendations $30
billion of its annual sales
(ii) Combining an app with proprietary
data to create an analytics edge
 Zara, Walmart, 7-11 Japan
The Three Lenses for Competing with IT
Resource-
based View
Industry level Firm level
Competitive
landscape

Five forces model Value Chain Sustainable

advantage

Best used together

Summary / Learning
Objectives

How is IT What roles do IT Can IT offer a How do you use

impacting the capabilities play sustainable a range of
competitive in enhancing IT’s competitive theoretical
landscape for competitive advantage? How lenses to analyse
firms? impact? might this be IT’s competitive
possible? role?
 Some ground
rules!

• Please attend your

workshops!
• And please come
prepared!