© gabriele piccoli appropriating it-enabled value over time establishing when and how an...
TRANSCRIPT
© Gabriele Piccoli
Appropriating IT-EnabledValue Over Time
Establishing when and how an IT-dependent strategic initiative can be protected
© Gabriele Piccoli
Course Roadmap
• Part I: Foundations• Part II: Competing in the Internet Age• Part III: The Strategic use of Information Systems
– Chapter 6: Strategic Information Systems Planning– Chapter 7: Value Creation and Strategic Information
Systems– Chapter 8: Value Creation with Information Systems– Chapter 9: Appropriating IT-Enabled Value over Time
• Part IV: Getting IT Done
© Gabriele Piccoli
Learning Objectives
1. Analyze the potential of IT-dependent strategic initiatives to ensure value appropriation over time.
2. Identify and recognize the four barriers to erosion that protect IT-dependent competitive advantage. Learn to estimate their size.
3. Identify the response lag drivers associated with each of the four barriers to erosion, and provide examples of each.
4. Recognize how each of the four barriers can be strengthened over time in order to protract the useful life of an IT-dependent strategic initiative.
5. Employ the concepts and frameworks described in this chapter in the context of future IT-dependent strategic initiatives
6. Articulate possible courses of action based on your analysis to be able to offer recommendations
© Gabriele Piccoli
Not all Initiatives are Equal
• Can we reduce uncertainty about whether IT-dependent strategic initiatives lead to sustainable advantage?
• Examples: High Speed Internet Access in Hotels
vs.
Business Intelligence in Casinos
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Sustainability Framework
Careful!– Reproducing IT is NOT equivalent to reporoducing an
IT-dependnet strategic initiative
Basic Concepts:– Sustainable competitive advantage– Response lag– Response lag drivers– Barriers to erosion
© Gabriele Piccoli
Sustainable Competitive Advantage
• Ability of a firm to protect its competitive advantage in the face of competition– Don’t focus on theoretical replicability– Sustainability as a continuum
• How much time to erode the advantage?• How much money to erode the advantage?
• The stronger the advantage, the higher the resiliency to imitation
© Gabriele Piccoli
Response Lag
• Response lag:– The time it takes competitors to respond aggressively
enough to erode a firm’s competitive advantage– A measure of the delay in competitive response
Response Lag DriversCharacteristics of the technology, firm, its competitors, or
the value system in which the firm is embedded that combine to make replication hard and costly.
• Response lag drivers:– Work in combination– Combine into Barriers to Erosion
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Four Barriers to Erosion
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IT-Resources Barrier
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IT-Resources Barrier
• Rely on access to IT assets and capabilities necessary to produce and use the technology at the core
• More reliance on preexisting IT resources leads to more difficult in replication
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IT-Resources Barrier
IT assets:– Available IT
resources– What the firm has
IT Capabilities:– Skills and abilities of
firm’s workforce– What the firm can do
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IT-Resources Barrier
IT AssetsIT infrastructure - IT
components managed by specialists to provide standard services to the organization
Information Repositories – data stores containing extensive information
IT CapabilitiesIT tech skills - ability to
design and develop effective computer applications
IT mgmt skills - ability to provide leadership to create more response lag
Relationship Asset - mutual respect and trusting rapport between the IS function and business managers
© Gabriele Piccoli
Complementary-Resources Barrier
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Complementary Resources
• As an initiative becomes more reliant on these, the complementary-resource barrier to imitation strengthens, and replication of the strategy becomes slower, costlier, and more difficult.
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Complementary ResourcesStructural Resources
Structural Resources: used to enact IT-dependent strategic initiative – Tangible: competitive scope, physical assets,
scale of operations and market share, organizational structure, governance, and slack resources
– Intangible: corporate culture, top management commitment, and the ability to manage risk
© Gabriele Piccoli
Complementary ResourcesCapabilities
Capabilities: how the firm carries out its productive activities
- Activity System: interlocking and mutually reinforcing economic activities that show internal consistency and are appropriately configured
- Business Processes: series of steps that a firm performs in order to complete an economic activity
© Gabriele Piccoli
Complementary ResourcesExternal Resources
• Assets that do not reside internally with the firm but accumulate with other firms and with consumers– Brand– Distribution channels
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IT-Project Barrier
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IT-Project Barrier
• Rely on an essential enabling IT core• Cannot be implemented until the necessary
technology has been successfully introduced
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IT-Project BarrierIT Characteristics
- Complexity: - A function of the bundle of skills and knowledge
necessary to effectively design, develop, implement, and use it
- Uniqueness: - Degree of tailoring of the core IT- Off the shelf vs. custom developed
- Visibility: - Extent to which competitors can easily and directly
observe the enabling technology
© Gabriele Piccoli
IT-Project BarrierImplementation Process
The strength of barriers changes depending on the implementation characteristics of the IT core- Implementation process complexity:
- A function of the project size and scope, number of functional units involved, complexity of user requirements, etc…
- Degree of process change: - A function of the far reachingness of the IT core- Harder and riskier change becomes when
- More departments involved
- More organizational boundaries crossed
© Gabriele Piccoli
Preemption Barrier
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Preemption Barrier
• Even if a competitor is able to replicate an IT-dependent strategic initiative, the response may be unsuccessful if:– The leader created preferential relationship with
customers or other members of the value system– The leader introduced substantial switching costs
• When this occurs respondents must– Eeither compensate customer for the cost of
switching or – Provide enough additional value to justify customers’
absorbing the switching costs
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Preemption Barrier
Switching Costs– The total costs borne
by the parties of an exchange when one of them leaves the exchange
Value System Structure
– Provides opportunities for preemptive strategies and for the exploitation of the response-lag drivers
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Preemption BarrierSwitching Costs
• Co-specialized tangible investments: – The total capital outlay necessary to obtain
the needed physical assets
• Co-specialized Intangible investments: – The need of the firm’s customers or channel
partners to invest time and money to partake in the initiative
© Gabriele Piccoli
Preemption BarrierValue System’s Structure
• Relationship Exclusivity: – Participants in the value system elect to do
business with only one firm that provides a particular set of products/services
– They work with either the leader or the follower but never with both
• Concentrated Value-System Link: – The market numbers relatively few
organizations or consumers to work with
© Gabriele Piccoli
The Dynamics of Sustainability
• Two main dynamics– Capability development– Asset-stock accumulation
Manager’s RolePlan to remain ahead of the competition.
Look for opportunities to reinvigorate and reinforce the existing barriers to erosion
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Capability Development
• The process by which:– An organization improves its performance
over time by – Developing its ability to use available
resources for max effectiveness
• Capability development is the process of “Learning by using”
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Asset-Stock Accumulation
• The Process by which:– Firms accrue resources over time– These assets are typically developed over time and
cannot be accelerated
Example: Gamblers’ data
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Applying the Framework
• We can use the sustainability framework to determine when to pursue an IT-dependent strategic initiative
• We ask two types of questions:– Prerequisite questions– Sustainability questions
• Applicable to both– The leader trying to maintain an advantage– A laggard looking to respond to the innovator
© Gabriele Piccoli
Prerequisite Questions
Is the initiative aligned with our strategy?- This question helps figure out how the initiative advances
the firm’s positioning and strategy
Are we focused on reducing cost, increasing willingness to pay, or both?
- This question helps focusing the analysis on the planned value proposition
What’s the IS design needed for this Initiative?- This question ensures that we do not narrowly focus on
IT investments, but rather on IS design
© Gabriele Piccoli
Sustainability Questions
Which competitors can replicate the initiative?- The leader should focus on maximizing the impact of
prerequisite assets and capabilities- The laggard can estimate the role existing assets and
capabilities play in the initiative
How long before competitors can offer the same value proposition?- What is the response lag of the IS core of the initiative?- This question helps in estimating the role of IT in the
initiative and the role of the IT project barrier
© Gabriele Piccoli
Sustainability Questions
Will replication do competitors any good?- This question helps in estimating the role of the
prehemption barrier- Based on this analysis the leader may choose to move
aggressively to build switching costs- The laggard may choose fast replication or to be more
circumspect
What evolutionary paths does the innovation create?- This question points to the need to evaluate the potential
for capability development and asset stock accumulation
© Gabriele Piccoli
Outcomes and Recommendations
1. Develop the IT-dependent strategic initiative independently. Best suited when:
– Strong barriers to erosion exist– Sustainable advantage can be attained– Potential to gain acceptable ROI before imitation
2. Develop the IT-dependent strategic initiative as part of a consortium. Best suited when:
– The innovator is unlikely to yield sustainable competitive advantage,
– But it will improve overall profitability of the industry
3. Shelve the IT-dependent strategic initiative when:– The initiative will not likely create strong barriers to erosion– Retaliation by competitors will degrade average industry
profits
© Gabriele Piccoli
What we Learned
1. Analyze the potential of IT-dependent strategic initiatives to ensure value appropriation over time.
2. Identify and recognize the four barriers to erosion that protect IT-dependent competitive advantage. Learn to estimate their size.
3. Identify the response lag drivers associated with each of the four barriers to erosion, and provide examples of each.
4. Recognize how each of the four barriers can be strengthened over time in order to protract the useful life of an IT-dependent strategic initiative.
5. Employ the concepts and frameworks described in this chapter in the context of future IT-dependent strategic initiatives
6. Articulate possible courses of action based on your analysis to be able to offer recommendations