IntroductiontoInformationStrategyandEconomics1ISMT510AgendaIntroduction

-Whatyouwilllearn -Coursestructure -Teachingstyle -Gradingpolicy -PointersforsuccessStrategy -Valuechain -Competitiveadvantage -Porter’sfiveforcesmodel

ClassparticipationAssignmentsFinalExam2ISMT510Teaser…Weareseeingagrowingtendencyforcompaniestosellproductsinbundlestocustomers.e.g.MicrosoftOfficewhichisabundleofWord,Powerpointetcwhichusedtobeprimarilysoldseparatelyinthepast.Whatfactorsmakebundlingmoreattractive?3ISMT510Teasers…Aleadingmanufacturerofprintersspentadditionalmoneytoslowdownitsprinters.Intelspentextraeffort(andmoney)oneachchiptodisablecertainprocessorstoslowitdown.Wasn’tfastersupposedtobebetter?Thenwhyarethesecompaniesdegradingtheirproducts?4ISMT510Moreteasers…Onp2pnetworkslikeKazaa,emptyandbigfileshavingattractivenameslike“Lordoftherings”arefrequentlyavailable.ThereweresomerumorsthatitwastheRIAAwhichwasinvolvedinpostingthesefiles.WhatistherationaleforpeopletomakethisallegationagainstRIAA.?5ISMT510WhatyouwilllearnThiscoursewillhelpyou:UnderstandtherelationshipsbetweenEconomics,Strategy,andCompetitiveAdvantageExploredifferentwaysthatInformationTechnology(IT)andElectronicCommerce(EC)canbeusedtocreateCompetitiveAdvantageDescribetheeconomicprinciplesthatmayenablefirmstocreateprofitablee-businessstrategiesEvaluateoptionsforleveragingtechnologytocreatesustainablee-businessstrategies6ISMT510CoursestructureLecture1Introduction,ISstrategyLecture2Pricing,VersioningLecture3Networkeffect,Lock-inLecture4ContextualMarketing,PrivacyLecture5Innovations,StandardsLecture6IntermediariesB2BLecture7Auctions,piracyFinalExamInClass7ISMT510TeachingStyleLectureArticles,TextbookCaseStudyFundamentalsApplicationPreparationmaterial8ISMT510The3P’s(yourrole)Preparation -Articles,textbookchapter,caseParticipation -ContributiontodiscussioninclassPerformance -Assignmentsandfinalexam9ISMT510GradingClassParticipation(Lectures2-7)20%Assignments(2)35%FinalExam45%DistributionofgradeforclasswillapproximatelyfollowschoolguidelinesA:35-40%,B:45-60%,C:5-10%,F-ifrequired10ISMT510ClassparticipationDo’s(examples) -Bringingworkrelatedrelevantexperience -Analysisofanarticle/casebeingdiscussed -Citinganecdotalevidenceoftheconceptbeingdiscussed -SWOTanalysisDont’s(examples) -Restatefactsstraightfromthecase/article -Beingdiscourteoustootherstudentswhentheyaremakingapoint11ISMT510ClassparticipationPoints:0-4QualityofpointmadenotnumberoftimesspokenRecordedrightafterclass(onlineaccess)Sixsessions(Lectures2-7).Topfivescoreswillbeconsidered(54=20)12ISMT510AssignmentsIndividualTwo17.5pointseach(17.52=35)BasedoncasestudiesTimelycompletion13ISMT510FinalexamWillcover: -Lecture -Textbookchaptersassigned -ArticlesandcasesassignedInclassexamFormat:TBD14ISMT510PointersforsuccessBeprepared -Readandanalyzecasesandotherreadingassignmentsbeforeclass -Finishassignmentsontime -BepunctualParticipateinclassdiscussionProvideFeedback15ISMT510FeedbackImportanttostructurefuturelectures.Didthelecturesatisfyteachingobjectives?RatethelectureintermsofclarityCommenthttp://teaching.ust.hk/~ismt51016ISMT510AgendaIntroduction

-Whatyouwilllearn -Coursestructure -Teachingstyle -Gradingpolicy -PointersforsuccessStrategy

-Strategicpositioning -Sustainableadvantage -Porter’sfiveforcesmodel -Valueconfiguration17ISMT510LearningobjectivesDistinguishbetweenstrategyandoperationaleffectivenessIdentifythesixprinciplesofstrategicpositioningIdentifythestrategicmistakesmadebydotcomsExplainhowafirm’sperformanceisdeterminedandidentifythedifferenttypesofbusinessmodelsAnalyzeanindustrystructureusingPorter’sfiveforcesmodelExplainhowasustainableadv.canbeachievedIdentifythedifferenttypesofvalueconfigurations18ISMT510DetailedplanStrategyDeterminantsofperformanceSustainableadvantage -howtoachieveitPortersfiveforcesmodelValueConfiguration-Strategicvs.operationaleffectiveness-Keyissuesinstrategicpositioning-Mistakesmadebydot-coms-Valuechain-Valueshop-Valuenetwork-Businessmodelsandtypes-ImpactofInternet19ISMT510WhatisStrategy?Strategyisacomprehensivemasterplanstatinghowthecorporationwillachieveitsmissionandobjectives.Strategyisthecreationofauniqueandvaluableposition,involvingadifferentsetofactivities(Porter).Strategiescanexistatmultiplelevels

-Corporate,Businessunit,Functionalarea

20ISMT510WhatisStrategicManagementStrategicmanagementisthesetofmanagerialdecisionsandactionsthatdeterminethelong-runperformanceofacorporation.Itincludes:EnvironmentalscanningStrategyformulation(i.e.,long-rangeplanning)StrategyimplementationEvaluationandcontrolSource:EssentialsofStrategicManagement,J.D.Hunger&T.L.Wheelen(2001)21ISMT510Strategyvs.operationaleffectivenessEachfirmisininvolvedinseveralactivitiese.g.manufacturing,marketing,sellingOEisaboutperformingeachactivitybetterthanrivals

-Japaneseautomakersin80’sStrategy:Performdifferentactivitiesorsimilaractivitiesdifferently

-Southwestvs.otherairlines22ISMT510OperationaleffectivenessRelativeCostQualityProductionfrontierHighLowHighLowAB23ISMT510StrategicpositioningVariety-basedpositioning -JiffyLubeNeed-basedpositioning

-IkeaAccessbasedpositioning -Carmike24ISMT510KeyissuesMakingtradeoff

-NeutrogenaFitbetweenactivities:harderforarivaltomatchanarrayofinterlockedthantoimitateasingleactivitiy -SouthwestGrowthtrap

-Maytag25ISMT510TheSixprinciplesStrategicPositioningRightgoalValuepropositionDistinctiveValuechainTradeoffFitContinuity26ISMT510TheDotcomfolliesNotdeliveringrealvalue(performance) -clickthroughrates,uniquevisitorsinsteadofprofits -concentratingonadvertisingasrevenuesourceFingerinallpies -rushingintoeverythinginsteadofmakingtradeoffsInabilitytomaintaincontroloverproprietaryassets -outsourcingleadingtocompetitiveconvergenceCompetingonprice27ISMT510

BusinessModel?Components&linkages?DynamicsEnvironment?Competitive?MacroPerformanceChange?Properties?UnderpinningsDeterminantsofPerformance28ISMT510WhatisaBusinessModel?“themethodofdoingbusinessbywhichacompanycansustainitself”MichaelRappa,Professor,NCState,Raleigh“themethodbywhichafirmbuildsandusesitsresourcestoofferitscustomersbettervaluethanitscompetitors,andintheprocessmakemoney”

-Afuah&Tucci29ISMT510TypeBasicIdeaExamplesCommissionFeesleviedontransactionsE*-trade,PricelineAdvertisingEnd-usersubsidizedYahooMarkupValueaddedinsalesAmazonProductionValueaddedinproductionMicrosoftReferralFeesforreferringcustomersAutobytelSubscriptionFeesforunlimiteduseAOLFee-for-serviceFeesformeteredserviceASP’sTypesofBusinessModels30ISMT510ExamplesofBusinessModelsWeill&Vitaledefine8“atomic”businessmodels:direct-tocustomer contentproviderfull-serviceprovider virtualcommunitywholeofenterprise valuenetintegratorsharedinfrastructurediverseintermediaries(portals,agents,auctions,aggregators)

31ISMT510InternetasatransformerofbusinessmodelsPropertiesMediatingtechnology(interconnection,B2B,C2Cetc)Universality(geographicalboundariesremoved)Networkexternalities(Metcalfe’slaw)Distributionchannel(Napster,onlinesoftwaredistribution)Informationasymmetryshrinker(buyingcars)Infinitevirtualcapacity(Moore’slawapplicabletointernet)Transactioncostreducer(searchcost,collectinginfo.onproducts)Reducesbarriersofentry(costofsettingupawebsite)32ISMT510ImpactofInterneton5C’sCoordination(inefficienciesremoved–worth$200billion)Commerce(enablesB2B,C2C)Community(usergroups–ratingsandfeedback)Content(news,stockquotes,games)Communication(e-mail,web-phones,realtimevideo)33ISMT510

BusinessModelEnvironmentPerformance5C’sCoordinationCommerceCommunityContentCommunicationChangeImpactofInterneton5C’sInternetProperties

MediatingtechnologyUniversalityNetworkexternalityDistributionChannelTransactioncostreducer…..34ISMT510Whereweare…StrategyDeterminantsofperformanceSustainableadvantage -howtoachieveitPortersfiveforcesmodelValueConfiguration-Strategicvs.operationaleffectiveness-Keyissuesinstrategicpositioning-Mistakesmadebydot-coms-Valuechain-Valueshop-Valuenetwork-Businessmodelsandtypes-ImpactofInternet35ISMT510ABriefHistoryofITforCompetitiveAdvantageThepotentialofITforcreatingstrategicadvantagewasrecognizedinearly1980sEarlyworkledbyHarvardBusinessSchoolstrategyprofessorMichaelPorter:CompetitiveStrategy,1980CompetitiveAdvantage,1985W.McFarlan,“ITChangestheWayYouCompete,”HarvardBus.Review,1984EarlycasestudiesofinnovativeuseofIT:AmericanAirlinesSABRE,OtisElevators,etc.36ISMT510Howdowedefineandachievecompetitiveadvantage?Competitiveadvantagemeans:“BeingabletoearnaROI(returnoninvestment)thatispersistentlyabovetheaverageforagivenindustry.”(notjustatemporaryadvantageorhighROI) -Crowston&Treacy,“AssessingtheImpactofITonEnterpriseLevelPerformance”1986.

Howdofirmsachievecompetitiveadvantage?37ISMT510SustainableAdvantageThestrategic“positioning”schoolofstrategy(Porter)

-Selecttheright“position”inan“attractive”industry -PerformdifferentactivitiesorsimilaractivitiesdifferentlyMeansofachieving:

-Benefitsofsizeintargetedmarkets -Accessadvantage -Exercisingoptions-EconomiesofscaleEconomiesofscopeExperienceInputsMarkets-Patents-Antitrust38ISMT510HowCanYouDeployITtoCreateaCompetitiveAdvantageIdentifynovelusesofITthatareconsistentwithandsupportyourstrategyThesenovelusesofITmay:ReinforceyourcostleadershippositionAllowyoutoprovideproduct/servicedifferentiationtoyourcustomers(orsuppliers)Striveto“lock-in”yourcustomers(orbuyers)throughinnovativeusesofITUsethe“create-capture-keep”strategy(Clemons)Whatfactorscanenhancecustomer“lock-in”or“switchingcosts??39ISMT510WhyisMichaelPorterimportant?FirststrategywritertoanalyzewhyinformationandITcanbecriticaltocompetitiveadvantageCompetitiveStrategy1980;CompetitiveAdvantage,1985;CompetitiveAdvantageofNations,1992WhatcontributionsisPorterbestknownfor?FiveforcesmodelWhatmakesanindustry“attractive”tocompetein?2x2matrixofcorestrategiesWhatarepossiblestrategiesforachievingadvantage?Thevaluechain:Howcanweanalyzethecoreactivitiesthatfirmsperform?40ISMT510PortersfiveforcesmodelUsedtoanalyzeindustryormarketPotentialprofitabilityorattractivenessOptionstoaffectcompetitivepositionAppliedtoparticularcompanies,marketsegments,industriesorregionsBasedonmicroeconomicprinciples -supplyanddemand,substitutes41ISMT510Porter’s“FiveForcesModel”

(asappliedtodiscountretailindustry)42ISMT510StrategicImplicationsof

FiveForcesAnalysisAgivenindustryisunattractivewhen:RivalryisstrongBarrierstoentryarelowCompetitionfromsubstitutesisstrongSuppliersandcustomershavestrongbargainingpower(relativetoyou)43ISMT510MoreStrategicImplicationsofFiveForcesAnalysisAgivenindustryisidealwhen:RivalryismoderateBarrierstoentryarehighGoodsubstitutesdon’texistSuppliersandcustomersareinaweakbargainingposition(relativetoyou)Dotheseindustriesexist?44ISMT510Whatstrategiesleadtocompetitiveadvantage?

CompetitiveObjectiveTargetMarketSegmentLowPriceProductorServiceDifferentiationBroadmarket

Narrowmarket

45ISMT510HowtoApplyPorterforMakingStrategyFocuson“attractive”industriestocompeteinTargetindustrieswithattractive“structuralproperties”andexitfromindustrieswithpoorstructuralpropertiesListalltheplayersinanindustryIdentifyandanalyzebuyersandsuppliersSelectoneofthefourstrategiesEnsurethatactivities