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A Dynamic Model of IT Strategy In A Netcentric Economy

Information Technologys Ability To Change Strategy

IT can
Enable new strategies Provide new ways to reach customers Expand the markets in which the firm participates

Metrics for Evaluating Strategies

Market share Number of markets in which a firm participates Number of new markets Sales growth Size of the average sale Sales per employee

Thinking Strategically
Strategy is an approach to achieving a series of objectives Corporate strategy describes how a firm will achieve the vision of its senior management Corporate strategy and IT strategy are intertwined The new economy has created threats and opportunities for corporate strategy

An e-business
Recognizes that IT is a fundamental driver of success Uses technology extensively in all its operations

E-commerce is one aspect of e-business

Involves using networks (primarily the Internet) for the sale and purchase of goods and services

Consists of two broad categories
Business to consumer (B2C) E.g., Buying books and music CDs over the internet Business to business (B2B) E.g., Companies buying goods from their suppliers

Has stimulated much greater competition and the rapid creation of new firm-specific resources (e.g., cash flows and venture capital) In a hypercompetitive economy, successful strategies allows firms to sustain competitive advantage for over a year

E-Business and E-Commerce

Nature of Business
Electronic business

Pervasive use of technology in the firm

E-mail, electronic conferencing, automated transactions processing, ERP, CRM, knowledge management systems, etc.

Electronic commerce Sell side To consumers (B2C)

Internet online store

To other businesses (B2B)

Electronic connection vendors to customers

Wal-mart Internet EDI with vendors

Buy side (B2B)

Businesses purchasing goods from suppliers online

Procurement auctions, free markets

Corporate Strategy: Porters Value Chain

The value chain divides a firms activities into two types
Primary: activities associated with the mission of the firm such as inbound logistics, operations, outbound logistics, marketing and sales, and service Support: activities represented by the firms infrastructure such as human resources management, technology development, and procurement

The Internet and electronic commerce have impacted the traditional value chain
E.G., has no physical stores and hence a smaller infrastructure which is easier to manage

Comparing value chains can highlight the differences among business models based on the internet and web

Porters Five Forces Model

Forces that shape a firms competition
Competitive rivalry The threat of new entrants The bargaining power of suppliers The bargaining power of buyers The threat of substitutes

The Internet has affected the five forces by

Lowering entry barriers for new firms Creating substitutes for traditional businesses (e.G., Stock trading and music) Creating new markets that change the way buyers and supplies interact

The Five Forces Model of Competition


Core Competencies View of Strategy

Core competencies are the collective learning in the organization about how to integrate multiple technologies and coordinate diverse production capabilities A core competency
Should provide access to a wide variety of different markets Should make a significant contribution to the end product Should be difficult to imitate

Resource-Based Views of Strategy

Firm resources are all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm Categories of resources
Physical Human Capital

A firm has competitive advantage when it creates a successful non-duplicable strategy and immobile, heterogeneous resources that are rare, valuable, inimitable, and non-substitutable

Competitive Advantage in the Internet Economy


A Dynamic Resource-Based Model of Competitive Advantage in the Internet Economy

Components of the Dynamic Model
Network Externalities and Critical Mass Other Assets that make the Innovation succeed complementary, specialized or co-specialized assets Lock-In and Switching Costs Additional Resources continually added resources protect and enhance existing resources that are rare, valuable, inimitable, and non-substitutable A System of Interacting Resources that create and sustain Advantage Knowledge and Skills gained by Managers Feedback Loop


To gain competitive advantage, firms have to create resources that are rare, valuable, inimitable, and non-substitutable The objective of a firm is to create an initial advantage, sustain that advantage, and to appropriate benefits from its innovative activities


Summary (Continued)
A firm cannot succeed with a strategy alone and must first devise a business model Executing the business model and strategy requires highly capable managers who can respond to changes in the economy, environment, technology, and competitor actions