Technology and Competitive Advantage

Chapter Introduction

• The chapter explains how firms use technology for competitive advantage.
• Technology alone is not the answer, but incorporating technology into operations creates value.
• Two management frameworks explored are the value chain and the five forces model.
• Digital technologies are advancing faster than any innovation in history.
• Managers understanding the impacts of a shifting environment can recognize opportunities and risks.

Digital Business Landscape

• The last twenty years have seen considerable technological growth, changing how we live and do business.
• Google generates more advertising revenue than any other firm.
• Apple became the first U.S. company with a $2 trillion market capitalization in 2020.
• Social media networks have become hotbeds for digital media marketers and influencers.
• Facebook reached 2.9 billion active users by the fourth quarter of 2021.
• New communication channels allow sharing of thoughts, but companies must mitigate potential negative impacts.
• Data analytics and business intelligence drive discovery and innovation and redefine modern marketing and business strategies.
• The growth in data collection has highlighted the need to consider customer privacy.
• Open-source software powers most, rewriting revenue models and lowering computing costs.
• Cloud computing and Software as a Service (SaaS) has turned complex computing into a utility
• The pervasiveness of computing means many devices and appliances are 'smart.'
• Smart technologies connect electric devices to a network, allowing information exchange.
• Smart devices incorporate machine learning and artificial intelligence and collect data on consumer behaviour
• Technological disruptions are accelerating.

Technology Enabled Strategy

• Managers are often conflicted on how firms should craft a tech-enabled strategy.
• Strategic management theories are contentious and confusing.
• Layering on thinking about technology is key to modern business strategy.
• Developing strong strategic thinking skills is a career-long pursuit.

Competitive Advantage

• A firm has a competitive advantage when it successfully attracts more customers, earns more profit, or returns more value to its shareholders than rival firms.
• A company achieves this by adding value to its products/services or reducing its own costs more effectively.
• New competitors and copycat products create a race to cut costs, cut prices, and increase features that may benefit consumers but erode profits industry-wide.
• Business-level strategy is the general way that a business organizes its activities to compete against rivals in its product's industry.
• A strategic information system is designed specifically to align with and implement a competitive organizational strategy.
• A strategic information system attempts to deliver a product/service at a lower cost, add differentiation, help focus on a specific market segment, and enable innovation.

Competitive Strategy

• When pursuing a cost-leadership strategy, firms offer products/services at a lower price than rivals.
• Supplier relationships are managed stringently to guarantee the lowest prices for parts.
• Manufacturing is conducted in the least expensive labour markets.
• Walmarts Fast Unloader tech scans and sorts incoming inventory, reducing truck uploading process by one-third.
• A differentiation strategy adds value to products/services to attract customers willing to pay a higher price.
• Differentiation focuses on innovation, customer service, and marketing to bolster brand value. Starbucks is a good example.
• Some products/services are referred to as commodities, and consumers are price-focused.
• To break the commodity trap, firms leverage technology to differentiate their goods and services.
• Customization enables companies to collect consumer data as Starbucks app stores customer preferences and data as a switching cost.
• Amazon uses browsing records, purchase patterns, and product ratings to present a custom home page.
• Porter's typology suggests firms succeed through cost leadership or differentiation, but combining these can lead to being stuck in the middle.
• The focus strategy means a firm must still choose one of the other strategies organizing activities while concentrating marketing/selling on a smaller market.
• Innovation strategy can be described as a plan to encourage, mobilize, motivate, and achieve advancements in technology or service by investing in research and development activities.
• In order for a firm to develop a successful innovation strategy, the organization must be readied for the effort.
• Tech and innovation management must balance short-term efficiency with long-term effectiveness in the market.

The Value Chain

• Value is built through the value chain, described as a series of activities undertaken by the company to produce a product or service.
• The two sets of activities are primary activities and support activities.
• Primary activities are functions that directly impact the creation of products or services that add value greater than the cost of the activity.
• Operations converts the raw materials into a final product or service. IT provides more efficient processes and increases innovation through flows of information.
• Support activities are the functions in an organization that support all of the primary activities and can be considered indirect costs.
• HRM recruits, hires, and offers services needed to attract and retain employees.
• Tech development provides innovation in primary activities is integrated across the firm, where is primary value generation.

Limitation Resistant Value Chain

• When a firm has an imitation-resistant value chain tough for gaining similar benefits may create a critical competitive asset.
• Using a value chain analysis may reveal operational weaknesses, and may improve with software to improve processes and tools
• Supply chain management (SCM), Customer Relationship Management (CRM), Enterprise Resource Planning (ERP)
• If software adoption changes a unique process into a generic one, it may have a co-opt of a competitive advantage.
• Apple had no problem adopting third-party ERP software as they competed on product uniqueness

Porters Five Forces

• The five forces model helps understand the degree of competition and analyze strengths and weaknesses by analysing the five elements.
• Threat of substitute products or services which considers the likelihood of another product/service replacing the product/service offered, driving profitability down
• Digital hybrid substitutes are digital services wrapped around a physical product, like Uber and Lyft.
• Supplier's bargaining power is vital if there are few suppliers to obtain needed product/service, lowering negotiating a price
• E-commerce platforms like Shopify allow many businesses to create an online presence and expand their market base.
• A customer's bargaining power is strong when many companies are providing the same product
• The Internet has increased buyer power due to access to media, price, switching costs
• The easier it is to enter an industry, the more challenging it will be to profit because nature of competition is changing as digital businesses have low start-up.
• Technological advancements have lowered the barrier to enter the market
• Markets with low rivalry are easier to enter and become profitable since each others presence in accepted.
• Platform business models focus on customer support
• Technology has lowered overall profitability
• Government deregulation or intervention, political shock, and social and demographic changes can alter industry impact

Danger of Relying on Technology

• Operational effectiveness refers to performing the same tasks better than rivals perform them.
• The risk is when technology is easily acquired such as copying materials/websites
• The fast follower problem exists when rivals watch, learn, and quickly enter the market with a comparable product at a lower cost.
• IT is essential to creating and enabling novel approaches to business that are defensibly different from those of rivals
• Resources must be valuable, rare, imperfectly imitable (tough to imitate), and non-substitutable.
• Strategy is not just meeting demands because a true strategic positioning creates differences that cannot be easily matched by rivals.
• The combination of the right technologies and good management provides a company the best chance for a positive result.