Theories of Digital Business – Literature summary
Week 1
Chapter 1 Technology and the Modern Enterprise
IPO: Initial public stock offering, the first time a firm makes shares available via a public stock
exchange, also known as ‘going public.’
Fast/cheap computing helps creating the Internet of Things (IoT): a vision where low-cost sensors,
processors, and communication are embedded into a wide array of products and our environment,
allowing a vast network to collect data, analyse input, and automatically coordinate collective
action. Moreover, cheap processors and software smarts are also powering the drone revolution
with far-reaching impact, e.g. in farming.
The way we conceive of software and the software industry is radically changing. Open source
software powers most of the website and the rise of open source has rewritten the revenue models
for the computing industry and lowered computing costs for startups to blue chips worldwide. High-
powered computing turned into a utility. Many organizations today collect and seek insights from
massive datasets, often referred to as Big Data. Data analytics, business intelligence, and machine-
learning are driving discovery and innovation, redefining modern marketing, and creating a shifting
knife-edge of privacy concerns that can shred corporate reputations if mishandled.
In the previous decade, tech firms have created profound shifts in the way firms advertise and
individuals and organizations communicate. New technologies have fuelled globalization, redefined
our concepts of software and computing, crushed costs, fuelled data-driven decision-making, and
raise privacy and security concerns.
Tech is everywhere and you’ll need it to thrive
As technology becomes faster and cheaper, and developments like open source software, cloud
computing, software as a service (SaaS), and outsourcing push technology costs even lower, tech
skills are being embedded inside more and more job functions. Ubiquitous tech fuels our current era
of Big Data, where bits-based insights move decision making from hunch to science.
,Chapter 2 Strategy and Technology: concepts and frameworks for achieving
success
2.1 Introduction
Firms strive for sustainable competitive advantage: financial performance that consistently
outperforms industry averages. The world’s dynamic character makes this hard. 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. This balance is especially difficult when technology is
involved.
Define operational effectiveness and understand the limitations of technology-based competition
leveraging this principle.
Operational effectiveness refers to performing the same tasks better than rivals perform them.
When offerings are roughly the same they are commodity: a basic good that can be interchanged
with nearly identical offerings by others (milk, coal). The more commoditized an offering, the greater
the likelihood that competition will be based on price, which can pull down profits. This risk is
particularly acute in firms relying on technology for competitiveness as technology can be easily
acquired. The fast follower problem exists when savvy rivals watch a pioneer’s efforts, learn from
their successes and missteps, then enter the market quickly with a comparable or superior product
at a lower cost before the first mover can dominate.
Augmented reality: technology that superimposes content, such as images and animation, on top of
real-world images.
Facebook takes elements of Snapchat and actually makes them bigger.
Define strategic positioning and the importance of grounding competitive advantage in this concept.
Operational effectiveness is critical; firms must invest in techniques to improve quality, lower cost,
and design efficient customer experience. However, for the most part, these efforts can be matched
and therefore operational effectiveness is not sufficient to yield sustainable dominance over
competition. In contrast to operational effectiveness, strategic positioning refers to performing
different tasks than rivals, or the same tasks in a different way. Technology itself is very easy to
replicate, but can also play a critical role in creating and strengthening strategic differences –
advantages that rivals will struggle to match.
Inventory turns: also referred to as inventory turnover, stock turns, or stock turnover. The number
of times inventory is sold or used during a given period. A higher figure means that a firm is selling
products quickly.
case: FreshDirect. Technology is critical to its model, but it’s the collective impact of the firm’s
differences when compared to rivals, this tech-enabled strategic positioning, that delivers success.
Over time, the firm has also built up a set of strategic assets that not only address specific needs of a
market but are not extremely difficult for any upstart to compete against. E.g., for traditional grocers
to copy the firm’s delivery business, this would leave them straddling two markets: attempting to
occupy more than one position, while failing to match the benefits of a more efficient, singularly
focused rival. Entry-costs are high due to investments in infrastructure; the firm’s software is
complex and highly customized; and the firm has years of relationships built with suppliers, as well
as customer data used to refine processes. Competition against a firm with such a strong and tough-
to-match strategic position is hard.
Such companies do have competition from better-funded, growth-seeking rivals ready to squeeze
hem out of the current market, e.g. Amazon.
Understand the resource-based view of competitive advantage.
Resource-based view of competitive advantage: the strategic thinking approach suggesting that if a
firm is to maintain sustainable competitive advantage, it must control an exploitable resource, or set
of resources that have four critical characteristics. They must be: (1) valuable; (2) rare; (2)
,imperfectly imitable; and (4) nonsubstitutable. Having all four is key. Strategy is not just about
recognizing opportunity and meeting demand.
Dense wave division multiplexing (DWDM): a technology that increases the transmission capacity
(and hence speed) of fibre-optic cable. Transmissions using fibre are accomplished by transmitting
light inside ‘glass’ cables. In DWDM the light inside fibre is split into different wavelengths in a way
similar to how a prism splits light into different colours. Problem was that every company was doing
this. For some firms, the transmission prices they charged on newly laid cable collapsed by over 90%.
Established firms struggled, upstarts went under.
Key takeaways:
- Technology can be easy to copy, and technology alone rarely offers sustainable advantage.
- Firms that leverage technology for strategic positioning use technology to create
competitive assets or ways of doing business that are difficult for others to copy.
- True sustainable advantage comes from assets and business models that are simultaneously
valuable, rare, difficult to imitate, and for which there are no substitutes.
2.2 Powerful resources
Understand that technology is often critical to enabling competitive advantage, and provide
examples of firms that have used technology to organize for sustained competitive advantage.
Understand the value chain concept and be able to examine and compare how various firms organize
to bring products and services to market.
While many of the resources below are considered in isolation, the strength of any advantage can be
far more significant if firms are able to leverage several of these resources in a way that makes each
stronger and makes the firm’s way of doing more difficult for rivals to match. Imitation-resistant
value chain: a way of doing business that competitors struggle to replicate and that frequently
involves technology in a key enabling role. The value chain is the set of activities through which a
product or service is created and delivered to customers. There are five primary and four supporting
components. The primary components are:
1. Inbound logistics: getting needed materials and other inputs into the firm from suppliers.
2. Operations: turning inputs into products or services.
3. Outbound logistics: delivering products/services to consumers, distribution centres,
retailers, or other partners.
4. Marketing and sales: customer engagement, pricing, promotion, and transaction.
5. Support: service, maintenance, and customer support.
Supporting components:
1. Firm infrastructure: turning inputs into products or services.
2. Human resource management: recruiting, hiring, training, and development
3. Technology/R&D: new product and process design
4. Procurement: sourcing and purchasing functions.
Good and information don’t necessarily flow in a
line from one line to another. E.g., an order taken
by the marketing function can trigger an inbound
logistics function to get components from a
supplier, operations function (to build a product
it not available), or outbound logistics function
(to ship a product when available).
, When firms have an imitation-resistant value chain then it may have a critical competitive asset. If a
firm’s value chain can’t be copied by competitors without engaging in painful trade-offs, or if the
firm’s value chain helps to create and strengthen other strategic assets over time, it can be a key
source for competitive advantage.
Recognize the role technology can play in crafting an imitation-resistant value chain, as well as when
technology choice may render potentially strategic assets less effective.
Technology is often a great benefit to improving the speed and quality of execution. Firms can often
buy software to improve things and tools such as supply chain management (linking inbound and
outbound logistics with operations), customer relationship management (supporting sales,
marketing, and sometimes R&D), and enterprise resource planning software (software implemented
in modules to automate the entire value chain) can have big impact on more efficiently integrating
the activities within the firm, as well as with its suppliers and customers. However, these software
tools can be purchased by competitors as well. If a firm adopts a software that changes a unique
process into a generic one, it may have co-opted a key source of competitive advantage. This isn’t a
problem with e.g. accounting software, but SCM, CRM, and ERP software are different.
Define the following concepts: brand, scale, data and switching cost assets, differentiation, network
effects, and distribution channels.
Brand: the symbolic embodiment of all the information connected with a product or service. Can be
exceptionally powerful resource for competitive advantage. Building a strong brand is not just about
advertising and promotion; first and foremost, customer experience counts. A strong brand proxies
quality and inspires trust. Tech can play a critical role in rapidly and cost-effectively strengthening a
brand viral marketing: leveraging consumers to promote a product or service.
Scale: many firms gain advantages as they grow, these advantages related to size are scale
advantages. Businesses benefit from economies of scale when costs can be spread across increasing
units of production or in serving multiple customers. Businesses that have favourable economics of
scale (like many internet firms) are sometimes referred to as being highly scalable.
A growing firm may also gain bargaining power with its suppliers or buyers. Moreover, the scale of
technology investment required to run a business can act as a barrier to entry, discouraging new,
smaller competitors.
Switching costs are the costs a consumer incurs when moving from one product to another. It can
involve actual money spent as well as investments in time, any data loss, etc. Tech firms often
benefit from strong switching costs that cement customers to their firms. Firms that seem dominant
but that don’t have high switching costs can be rapidly trumped by strong rivals. Sources of
switching costs:
- Learning costs: switching technologies may require an investment in learning a new
interface and commands.
- Information and data: users may have to reenter data, convert files or databases, or even
lose earlier contributions on incompatible systems.
- Financial commitment: can include investments in new equipment, the cost to acquire any
new software, consulting, or expertise, and the devaluation of any investment in prior
technologies no longer used.
- Contractual commitments: breaking contracts can lead to compensatory damages and harm
an organization’s reputation as a reliable partner.
- Search costs: finding and evaluating a new alternative costs time and money.
- Loyalty programs: switching can cause customers to lose out on program benefits. Think
frequent purchaser programs that offer miles or points.
