Key Takeaways Information Systems
• In the prior decade, firms like Google and Facebook 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 raised privacy and security concerns. • Recognize that anyone reading this book
has the potential to build an impactful business. Entrepreneurship has no minimum age requirement.
• The ranks of technology revolutionaries are filled with young people, with several leading firms and
innovations launched by entrepreneurs who started while roughly the age of the average university
student.
• As technology becomes cheaper and more powerful, it pervades more industries and is becoming
increasingly baked into what were once nontech functional areas. • Technology is impacting every
major business discipline, including finance, accounting, marketing, operations, human resources, and
the law. • Tech jobs rank among the best and highest-growth positions, and tech firms rank among the
best and highest-paying firms to work for. • Information systems (IS) jobs are profoundly diverse,
ranging from those that require heavy programming skills to those that are focused on design, process,
project management, privacy, and strategy.
• This text contains a series of chapters and cases that expose durable concepts, technologies, and
frameworks, and does so using cutting-edge examples of what’s happening in industry today. • While
firms and technologies will change, and success at any given point in time is no guarantee of future
victory, the issues illustrated and concepts acquired should help shape a manager’s decision making in
a way that will endure.
• 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.
Key Framework: The Value Chain The value chain is the “set of activities through which a product or
service is created and delivered to customers.” There are five primary components of the value chain
and four supporting components. The primary components are as follows: • Inbound logistics—getting
needed materials and other inputs into the firm from suppliers • Operations—turning inputs into
products or services • Outbound logistics—delivering products or services to consumers, distribution
centers, retailers, or other partners • Marketing and sales—customer engagement, pricing, promotion,
and transaction • Support—service, maintenance, and customer support The secondary components
are the following: • Firm infrastructure—functions that support the whole firm, including general
management, planning, IS, and finance • Human resource management—recruiting, hiring, training,
and development • Technology / research and development—new product and process design •
Procurement—sourcing and purchasing functions While the value chain is typically depicted as it’s
displayed in the figure below, goods and information don’t necessarily flow in a line from one function
to another. For example, an order taken by the marketing function can trigger an inbound logistics
function to get components from a supplier, operations functions (to build a product if it’s not
available), or outbound logistics functions (to ship a product when it’s available). Similarly, information
from service support can be fed back to advise research and development (R&D) in the design of future
products.
,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 may 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” (all enabled and driven by
software)
• Technology can play a key role in creating and reinforcing assets for sustainable advantage by
enabling an imitation-resistant value chain; strengthening a firm’s brand; collecting useful data and
establishing switching costs; creating a network effect; creating or enhancing a firm’s scale advantage;
enabling product or service differentiation; and offering an opportunity to leverage unique distribution
channels. • The value chain can be used to map a firm’s efficiency and to benchmark it against rivals,
revealing opportunities to use technology to improve processes and procedures. When a firm is
resistant to imitation, its value chain may yield sustainable competitive advantage. • Firms may
consider adopting packaged software or outsourcing value chain tasks that are not critical to a firm’s
competitive advantage. A firm should be wary of adopting software packages or outsourcing portions
of its value chain that are proprietary and a source of competitive advantage. • Patents are not
necessarily a sure-fire path to exploiting an innovation. Many technologies and business methods can
be copied, so managers should think about creating assets like the ones defined above if they wish to
create truly sustainable advantage. • Nothing lasts forever, and shifting technologies and market
conditions can render once strong assets as obsolete.
• It doesn’t matter if it’s easy for new firms to enter a market if these newcomers can’t create and
leverage the assets needed to challenge incumbents. • Beware of those who say, “IT doesn’t matter”
or refer to the “myth” of the first mover. This thinking is overly simplistic. It’s not a time or technology
lead that provides sustainable competitive advantage; it’s what a firm does with its time and
technology lead. If a firm can use a time and technology lead to create valuable assets that others
cannot match, it may be able to sustain its advantage. But if the work done in this time and technology
lead can be easily matched, then no advantage can be achieved, and a firm may be threatened by new
entrants
• Industry competition and attractiveness can be described by considering the following five forces:
(1) the intensity of rivalry among existing competitors, (2) the potential for new entrants to challenge
incumbents, (3) the threat posed by substitute products or services, (4) the power of buyers, and (5)
the power of suppliers. • In markets where commodity products are sold, the Internet can increase
buyer power by increasing price transparency. • The more differentiated and valuable an offering, the
more the Internet shifts bargaining power to sellers. Highly differentiated sellers that can advertise
their products to a wider customer base can demand higher prices. • A strategist must constantly refer
to models that describe events impacting their industry, particularly as new technologies emerge.
• Zara store management and staff use PDAs and POS systems to gather and analyze customer
preference data to plan future designs based on feedback, rather than on hunches and guesswork. •
Zara’s combination of vertical integration and technology-orchestrated supplier coordination, just-in-
time manufacturing, and logistics allows it to go from design to shelf in days instead of months. •
, Advantages accruing to Inditex include fashion exclusivity, fewer markdowns and sales, lower
marketing expenses, and more frequent customer visits. • Zara’s IT expenditures are low by fashion
industry standards. The spectacular benefits reaped by Zara from the deployment of technology have
resulted from targeting technology investment at the points in the value chain where it has the
greatest impact, and not from the sheer magnitude of the investment. This is in stark contrast to
Prada’s experience with in-store technology deployment. • While information technology is just
hardware and software, information systems also include data, people, and procedures. It’s critical for
managers to think about systems, rather than just technologies, when planning for and deploying
technology-enabled solutions.
• Zara’s value chain is difficult to copy; but it is not invulnerable, nor is future dominance guaranteed.
Zara management must be aware of the limitations in its business model, and must continually scan
its environment and be prepared to react to new threats and opportunities.
• Zara has used technology to dominate the retail fashion industry as measured by sales, profitability,
and growth. • Excess inventory in the retail apparel industry is the kiss of death. Long manufacturing
lead times require executives to guess far in advance what customers will want. Guessing wrong can
be disastrous, lowering margins through markdowns and write-offs. • Contract manufacturing can
offer firms several advantages, including lower costs and increased profits. But firms have also
struggled with the downside of cost-centric contract manufacturing when partners have engaged in
sweatshop labor and environmental abuse.
• Analysts and managers have struggled to realize that dot-com start-up Netflix could actually create
sustainable competitive advantage, beating back challenges from Wal-Mart and Blockbuster, among
others. • Data disclosure required by public companies may have attracted these larger rivals to the
firm’s market. • Netflix operates via a DVD subscription and video streaming model. Although
sometimes referred to as “rental,” the model is really a substitute good for conventional use-based
media rental.
• Durable brands are built through customer experience, and technology lies at the center of the
Netflix top satisfaction ratings and hence the firm’s best-in-class brand strength. • Physical retailers
are limited by shelf space and geography. This limitation means that expansion requires building,
stocking, and staffing operations in a new location. • Internet retailers serve a larger geographic area
with comparably smaller infrastructure and staff. This fact suggests that Internet businesses are more
scalable. Firms providing digital products and services are potentially far more scalable, since physical
inventory costs go away. • The ability to serve large geographic areas through lower-cost inventory
means Internet firms can provide.
access to the long tail of products, potentially earning profits from less popular titles that are
unprofitable for physical retailers to offer. • Netflix technology revitalizes latent studio assets. Revenue
sharing allows Netflix to provide studios with a costless opportunity to earn money from back catalog
titles: content that would otherwise not justify further marketing expense or retailer shelf space. • The
strategically aligned use of technology by this early mover has allowed Netflix to gain competitive
advantage through the powerful resources of brand, data and switching costs, and scale. •
Collaborative filtering technology has been continually refined, but even if this technology is copied,
the true exploitable resource created and leveraged through this technology is the data asset. •
Technology leveraged across the firm’s extensive distribution network offers an operational advantage
that allows the firm to reach nearly all of its customers with one-day turnaround.
• In the prior decade, firms like Google and Facebook 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 raised privacy and security concerns. • Recognize that anyone reading this book
has the potential to build an impactful business. Entrepreneurship has no minimum age requirement.
• The ranks of technology revolutionaries are filled with young people, with several leading firms and
innovations launched by entrepreneurs who started while roughly the age of the average university
student.
• As technology becomes cheaper and more powerful, it pervades more industries and is becoming
increasingly baked into what were once nontech functional areas. • Technology is impacting every
major business discipline, including finance, accounting, marketing, operations, human resources, and
the law. • Tech jobs rank among the best and highest-growth positions, and tech firms rank among the
best and highest-paying firms to work for. • Information systems (IS) jobs are profoundly diverse,
ranging from those that require heavy programming skills to those that are focused on design, process,
project management, privacy, and strategy.
• This text contains a series of chapters and cases that expose durable concepts, technologies, and
frameworks, and does so using cutting-edge examples of what’s happening in industry today. • While
firms and technologies will change, and success at any given point in time is no guarantee of future
victory, the issues illustrated and concepts acquired should help shape a manager’s decision making in
a way that will endure.
• 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.
Key Framework: The Value Chain The value chain is the “set of activities through which a product or
service is created and delivered to customers.” There are five primary components of the value chain
and four supporting components. The primary components are as follows: • Inbound logistics—getting
needed materials and other inputs into the firm from suppliers • Operations—turning inputs into
products or services • Outbound logistics—delivering products or services to consumers, distribution
centers, retailers, or other partners • Marketing and sales—customer engagement, pricing, promotion,
and transaction • Support—service, maintenance, and customer support The secondary components
are the following: • Firm infrastructure—functions that support the whole firm, including general
management, planning, IS, and finance • Human resource management—recruiting, hiring, training,
and development • Technology / research and development—new product and process design •
Procurement—sourcing and purchasing functions While the value chain is typically depicted as it’s
displayed in the figure below, goods and information don’t necessarily flow in a line from one function
to another. For example, an order taken by the marketing function can trigger an inbound logistics
function to get components from a supplier, operations functions (to build a product if it’s not
available), or outbound logistics functions (to ship a product when it’s available). Similarly, information
from service support can be fed back to advise research and development (R&D) in the design of future
products.
,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 may 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” (all enabled and driven by
software)
• Technology can play a key role in creating and reinforcing assets for sustainable advantage by
enabling an imitation-resistant value chain; strengthening a firm’s brand; collecting useful data and
establishing switching costs; creating a network effect; creating or enhancing a firm’s scale advantage;
enabling product or service differentiation; and offering an opportunity to leverage unique distribution
channels. • The value chain can be used to map a firm’s efficiency and to benchmark it against rivals,
revealing opportunities to use technology to improve processes and procedures. When a firm is
resistant to imitation, its value chain may yield sustainable competitive advantage. • Firms may
consider adopting packaged software or outsourcing value chain tasks that are not critical to a firm’s
competitive advantage. A firm should be wary of adopting software packages or outsourcing portions
of its value chain that are proprietary and a source of competitive advantage. • Patents are not
necessarily a sure-fire path to exploiting an innovation. Many technologies and business methods can
be copied, so managers should think about creating assets like the ones defined above if they wish to
create truly sustainable advantage. • Nothing lasts forever, and shifting technologies and market
conditions can render once strong assets as obsolete.
• It doesn’t matter if it’s easy for new firms to enter a market if these newcomers can’t create and
leverage the assets needed to challenge incumbents. • Beware of those who say, “IT doesn’t matter”
or refer to the “myth” of the first mover. This thinking is overly simplistic. It’s not a time or technology
lead that provides sustainable competitive advantage; it’s what a firm does with its time and
technology lead. If a firm can use a time and technology lead to create valuable assets that others
cannot match, it may be able to sustain its advantage. But if the work done in this time and technology
lead can be easily matched, then no advantage can be achieved, and a firm may be threatened by new
entrants
• Industry competition and attractiveness can be described by considering the following five forces:
(1) the intensity of rivalry among existing competitors, (2) the potential for new entrants to challenge
incumbents, (3) the threat posed by substitute products or services, (4) the power of buyers, and (5)
the power of suppliers. • In markets where commodity products are sold, the Internet can increase
buyer power by increasing price transparency. • The more differentiated and valuable an offering, the
more the Internet shifts bargaining power to sellers. Highly differentiated sellers that can advertise
their products to a wider customer base can demand higher prices. • A strategist must constantly refer
to models that describe events impacting their industry, particularly as new technologies emerge.
• Zara store management and staff use PDAs and POS systems to gather and analyze customer
preference data to plan future designs based on feedback, rather than on hunches and guesswork. •
Zara’s combination of vertical integration and technology-orchestrated supplier coordination, just-in-
time manufacturing, and logistics allows it to go from design to shelf in days instead of months. •
, Advantages accruing to Inditex include fashion exclusivity, fewer markdowns and sales, lower
marketing expenses, and more frequent customer visits. • Zara’s IT expenditures are low by fashion
industry standards. The spectacular benefits reaped by Zara from the deployment of technology have
resulted from targeting technology investment at the points in the value chain where it has the
greatest impact, and not from the sheer magnitude of the investment. This is in stark contrast to
Prada’s experience with in-store technology deployment. • While information technology is just
hardware and software, information systems also include data, people, and procedures. It’s critical for
managers to think about systems, rather than just technologies, when planning for and deploying
technology-enabled solutions.
• Zara’s value chain is difficult to copy; but it is not invulnerable, nor is future dominance guaranteed.
Zara management must be aware of the limitations in its business model, and must continually scan
its environment and be prepared to react to new threats and opportunities.
• Zara has used technology to dominate the retail fashion industry as measured by sales, profitability,
and growth. • Excess inventory in the retail apparel industry is the kiss of death. Long manufacturing
lead times require executives to guess far in advance what customers will want. Guessing wrong can
be disastrous, lowering margins through markdowns and write-offs. • Contract manufacturing can
offer firms several advantages, including lower costs and increased profits. But firms have also
struggled with the downside of cost-centric contract manufacturing when partners have engaged in
sweatshop labor and environmental abuse.
• Analysts and managers have struggled to realize that dot-com start-up Netflix could actually create
sustainable competitive advantage, beating back challenges from Wal-Mart and Blockbuster, among
others. • Data disclosure required by public companies may have attracted these larger rivals to the
firm’s market. • Netflix operates via a DVD subscription and video streaming model. Although
sometimes referred to as “rental,” the model is really a substitute good for conventional use-based
media rental.
• Durable brands are built through customer experience, and technology lies at the center of the
Netflix top satisfaction ratings and hence the firm’s best-in-class brand strength. • Physical retailers
are limited by shelf space and geography. This limitation means that expansion requires building,
stocking, and staffing operations in a new location. • Internet retailers serve a larger geographic area
with comparably smaller infrastructure and staff. This fact suggests that Internet businesses are more
scalable. Firms providing digital products and services are potentially far more scalable, since physical
inventory costs go away. • The ability to serve large geographic areas through lower-cost inventory
means Internet firms can provide.
access to the long tail of products, potentially earning profits from less popular titles that are
unprofitable for physical retailers to offer. • Netflix technology revitalizes latent studio assets. Revenue
sharing allows Netflix to provide studios with a costless opportunity to earn money from back catalog
titles: content that would otherwise not justify further marketing expense or retailer shelf space. • The
strategically aligned use of technology by this early mover has allowed Netflix to gain competitive
advantage through the powerful resources of brand, data and switching costs, and scale. •
Collaborative filtering technology has been continually refined, but even if this technology is copied,
the true exploitable resource created and leveraged through this technology is the data asset. •
Technology leveraged across the firm’s extensive distribution network offers an operational advantage
that allows the firm to reach nearly all of its customers with one-day turnaround.
