Managers are confused, and for good reason. Management theorists, consultants, and practitioners often vehemently disagree on how firms should craft tech enabled strategy, and many widely read articles contradict one another. Headlines such as "Move First or Die" compete with "The First Mover Disadvantage." A leading former CEO advises, "destroy your business," while others suggest firms focus on their "core competency" and "return to basics." The pages of the Harvard Business Review have declared, "IT Doesn't Matter," while a New York Times bestseller hails technology as the "steroids" of modern business.Theorists claiming to have mastered the secrets of strategic management are contentious and confusing. But as a manager, the ability to size up a firm's strategic position and understand its likelihood of sustainability is one of the most valuable and yet most difficult skills to master. Layer on thinking about technology a key enabler to nearly every modern business strategy, but also a function often thought of as easily "outsourced" and it's no wonder that so many firms struggle at the intersection where strategy and technology meet. The business landscape is littered with the corpses of firms killed by managers who guessed wrong.Developing strong strategic thinking skills is a career long pursuit a subject that can occupy tomes of text, a roster of courses, and a lifetime of seminars. While this chapter can't address the breadth of strategic thought, it is meant as a primer on developing the skills for strategic thinking about technology. A manager that understands issues presented in this chapter should be able to see through seemingly conflicting assertions about best practices more clearly; be better prepared to recognize opportunities and risks; and be more adept at successfully brainstorming new, tech centric approaches to markets.The Danger of Relying on TechnologyFirms strive for sustainable competitive advantageFinancial performance that consistently outperforms industry averages., financial performance that consistently outperforms their industry peers. The goal is easy to state, but hard to achieve. The world is so dynamic, with new products and new competitors rising seemingly overnight, that truly sustainable advantage might seem like an impossibility. 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. Nowhere is this balance more difficult than when competition involves technology. The fundamental strategic question in the Internet era is, "How can I possibly compete when everyone can copy my technology and the competition is just a click away?" Put that way, the pursuit of sustainable competitive advantage seems like a lost cause.But there are winners big, consistent winners empowered through their use of technology. How do they do it? In order to think about how to achieve sustainable advantage, it's useful to start with two concepts defined by Michael Porter. A professor at the Harvard Business School and father of the value chain and the five forces concepts (see the sections later in this chapter), Porter is justifiably considered one of the leading strategic thinkers of our time.According to Porter, the reason so many firms suffer aggressive, margin eroding competition is because they've defined themselves according to operational effectiveness rather than strategic positioning. Operational effectivenessPerforming the same tasks better than rivals perform them. refers to performing the same tasks better than rivals perform them. Everyone wants to be better, but the danger in operational effectiveness is "sameness." This risk is particularly acute in firms that rely on technology for competitiveness. After all, technology can be easily acquired. Buy the same stuff as your rivals, hire students from the same schools, copy the look and feel of competitor Web sites, reverse engineer their products, and you can match them. The fast follower problemExists 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. 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.Since tech can be copied so quickly, followers can be fast, indeed. Gallaugher and C. Downing, "Portal Combat: An Empirical Study of Competition in the Web Portal Industry," Journal of Information Technology Management 11, no. 1 2 (2000): 13 24. Weiss, "Groupon's $6 Billion Gambler," The Wall Street Journal, December 20, 2010. When technology can be matched so quickly, it is rarely a source of competitive advantage. And this phenomenon isn't limited to the Web.Consider TiVo. At first blush, it looks like this first mover should be a winner since it seems to have established a leading brand; TiVo is now a verb for digitally recording TV broadcasts. But despite this, TiVo has largely been a money loser, going years without posting an annual profit. DiMeo, "TiVo's Goal with New DVR: Become the Google of TV," Morning Edition, National Public Radio, April 7, 2010. Rival devices offered by cable and satellite companies appear the same to consumers and are offered along with pay television subscriptions a critical distribution channel for reaching customers that TiVo doesn't control.The Flip video camera is another example of technology alone offering little durable advantage. The pocket sized video recorders used flash memory instead of magnetic storage. Flip cameras grew so popular that Cisco bought Flip parent Pure Digital, for $590 million. The problem was digital video features were easy to copy, and constantly falling technology costs (see Chapter 5 "Moore's Law and More: Fast, Cheap Computing, Disruptive Innovation, and What This Means for the Manager") allowed rivals to embed video into their products. Later that same year Apple (and other firms) began including video capture as a feature in their music players and phones. Why carry a Flip when one pocket device can do everything? The Flip business barely lasted two years. Rusli http://www.speedroc.com/replica-omega-planet-ocean-46mm.html, "Cisco Shutters Flip, Two Years after Acquisition," New York Times, April 12, 2011.Operational effectiveness is critical. Firms must invest in techniques to improve quality, lower cost, and design efficient customer experiences. But for the most part, these efforts can be matched. Because of this, operational effectiveness is usually not sufficient enough to yield sustainable dominance over the competition. In contrast to operational effectiveness, strategic positioningPerforming different tasks than rivals, or the same tasks in a different way. refers to performing different activities from those of rivals, or the same activities in a different way. Technology itself is often very easy to replicate, and those assuming advantage lies in technology alone may find themselves in a profit eroding arms race with rivals able to match their moves step by step. But while technology can be copied, technology can also play a critical role in creating and strengthening strategic differences advantages that rivals will struggle to match.Different Is Good: FreshDirect Redefines the Grocery Landscape in New York City and BeyondFor an example of the relationship between technology and strategic positioning, consider FreshDirect. The New York City based grocery firm focused on the two most pressing problems for Big Apple shoppers: selection is limited and prices are high. Both of these problems are a function of the high cost of real estate in New York. The solution? Use technology to craft an ultraefficient model that makes an end run around stores.The firm's "storefront" is a Web site offering a product mix heavy on fresh produce, as well as one click menus and semiprepared specials like "meals in four minutes." The ability to pull up prior grocery orders fuels fast reorders, and a mobile app eliminates the need for a grocery list. Enter order items as you think of them, then click a button to schedule next day delivery. All these features appeal to the time strapped Manhattanites who were the firm's first customers. Area shoppers many of whom don't have cars or are keen to avoid the traffic snarled streets of the city were quick to embrace the model. Croghan, "Food Latest Luxury Lure," New York Daily News, March 12, 2006.Deliveries set out from a vast warehouse the size of five football fields located in a lower rent industrial area of Queens. A new facility planned for the Bronx will double the firm's capacity. This kind of size allows FreshDirect to offer a fresh goods selection that's over five times larger than local supermarkets. And a bigger facility allows FreshDirect to service more customers, too.Figure 2.1 The FreshDirect Web Site and the Firm's Tech Enabled Warehouse OperationSource: Used with permission from FreshDirect. See the photographic tour at the FreshDirectThe FreshDirect model crushes costs that plague traditional grocers. Worker shifts are highly efficient replica u boat watches, avoiding the downtime lulls and busy rush hour spikes of storefronts. The result? Labor costs that are 60 percent lower than at traditional grocers. FreshDirect buys and prepares what it sells, leading to less waste, an advantage that the firm claims is "worth 5 percentage points of total revenue in terms of savings."P. Fox, "Interview with FreshDirect Co Founder Jason Ackerman," Bloomberg Television, June 17, 2009. Schonfeld, "The Big Cheese of Online Grocers Joe Fedele's Inventory Turning Ideas May Make FreshDirect the First Big Web Supermarket to Find Profits," Business 2.0, January 1, 2004. Higher inventory turnsSometimes referred to as inventory turnover, stock turns, or stock turnover. It is the number of times inventory is sold or used during a given period. A higher figure means that a firm is selling products quickly. mean the firm is selling product faster, so it collects money quicker than its rivals do. And those goods are fresher since they've been in stock for less time, too. Consider that while the average grocer may have seven to nine days of seafood inventory, FreshDirect's seafood stock turns each day. Laseter, B. Berg, and M. Turner, "What FreshDirect Learned from Dell," Strategy+Business, February 12, 2003. McInererney, "Good Foods Tastes Great," TEDxManhattan, March 4, 2013. The firm goes a step beyond conventional grocery stores by regularly evaluating product taste and sharing these results with customers. Every day, teams inspect and sample 400 500 items. Black, "Can FreshDirect Bring Home the Bacon?" BusinessWeek, September 24, 2002; S. Sieber and J. Mitchell, "FreshDirect: Online Grocery that Actually Delivers!" IESE Insight, 2007. Since it lacks the money sucking open air refrigerators of the competition, the firm even saves big on energy (instead, staff bundle up for shifts in climate controlled cold rooms tailored to the specific needs of dairy, deli, and produce). The firm also uses recycled biodiesel fuel to cut down on delivery costs. Customers who would otherwise drive to the grocery store can also feel green about their decision to order online. Walsh, "Why the Lazy Way to Shop for Groceries Online Is the Green Way," Time, April 29, 2013.FreshDirect buys directly from suppliers, eliminating middlemen wherever possible. The firm also offers suppliers several benefits beyond traditional grocers, all in exchange for more favorable terms. These include offering to carry a greater selection of supplier products while eliminating the "slotting fees" (payments by suppliers for prime shelf space) common in traditional retail, cobranding products to help establish and strengthen supplier brand, paying partners in days rather than weeks, and sharing data to help improve supplier sales and operations. Green http://www.speedroc.com/replica-cartier-ballon-bleu-28mm.html, "FreshDirect," BusinessWeek, November 24, 2003. Sieber and J. Mitchell, "FreshDirect: Online Grocery that Actually Delivers!" IESE Insight, 2007; D. Kirkpatrick, "The Online Grocer Version 2.0," Fortune, November 25, 2002; P. Fox, "Interview with FreshDirect Co Founder Jason Ackerman," Bloomberg Television, June 17, 2009.FreshDirect's customer base has ballooned to over 600,000 paying customers. That's a population roughly the size of metro Boston, serviced by a single grocer with no physical store. The privately held firm has been solidly profitable for several years. Even during the recent recession, the firm's CEO described earnings as "pretty spectacular."P. Fox, "Interview with FreshDirect Co Founder Jason Ackerman," Bloomberg Television, June 17, 2009. M. Schneiderman, "FreshDirect Goes to Greenwich," Wall Street Journal, April 6, 2010.Technology is critical to the FreshDirect 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 now extremely difficult for any upstart to compete against. Traditional grocers can't fully copy the firm's delivery business because this would leave them straddlingAttempts to occupy more than one position, while failing to match the benefits of a more efficient, singularly focused rival. two markets (low margin storefront and high margin delivery), unable to gain optimal benefits from either. Valerio, "Interview with FreshDirect Co Founder Jason Ackerman," Venture Replica D&G - Replica Watches UK Sale, September 18, 2009. On top of all this comes years of relationship building with suppliers, as well as customer data used to further refine processes, speed reorders, and make helpful recommendations. Competing against a firm with such a strong and tough to match strategic position can be brutal. Shulman, "Groceries Grow Elusive for Many in New York City," Washington Post, February 19, 2008.But What Kinds of Differences?The principles of operational effectiveness and strategic positioning are deceptively simple. But while Porter claims strategy is "fundamentally about being different,"M. Porter replica cartier Santos 100, "What Is Strategy?" Harvard Business Review 74, no. 6 (November December 1996): 61 78. how can you recognize whether your firm's differences are special enough to yield sustainable competitive advantage?
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