Spotlight Questions Technology and the Modern Consumer / Modern Enterprise. a. How do recent changes in computing impact consumers? Are these changes good or bad? Explain. How do they impact businesses? Some of the recent changes in computing include the growth of open source software, cloud computing, and software as a service (SaaS). All of these changes have their own advantages and disadvantages for businesses and consumers. Cloud computing and SaaS reduce computing costs and provide greater access to sophisticated high–powered computing, however both have increased security and privacy concerns. Open source software also reduces costs and allows for greater collaboration among programmers but may have quality issues. b. Venture capitalist Ben Evans, who works with Andreessen, has said “mobile is eating the world.” Give examples of how mobile has built billion dollar industries that wouldn’t exist without handheld computing power. How should today’s managers be thinking about mobile as an opportunity and threat? Examples include the growth and success of companies like Facebook; China’s Baidu, Tencent, Alibaba; India’s Micromax; and Africa’s Esoko, Sproxil, M-PESA, and Zaad. Mobile can serve as an opportunity for managers via its ability to increase sales and vet and build trust with customers. However, it can also act as a threat due to the way mobile phones and cameras, YouTube, Facebook, Instagram, and Twitter can now so easily reveal ethical lapses and customer service flaws. c. How is social media impacting firms, individuals, and society? Social media (Facebook, Twitter, etc.) is changing the way individuals communicate with one another as well as the way in which customers and companies communicate. Customers are using social media to broadcast their views on products and services. Firms are harnessing social media for new product ideas and for millions in sales. Social media is also changing the way society, as a whole, interacts. Social media has emerged as a catalyst for global change, with Facebook and Twitter playing key organizing roles in uprisings worldwide. While a status update alone won’t depose a dictator, technology can capture injustice, broadcast it to the world, disseminate ideas, and rally the far-reaching. d. How have the costs of entrepreneurship changed over the past decade? What forces are behind these changes? What does this mean for the future of entrepreneurship? Why are we in the ‘golden age’ of technology entrepreneurship? What factors are helping entrepreneurs more rapidly achieve their vision, and with a lower cost? Possible points of discussion: decline of entry barriers, brick-and-mortar versus online storefronts, impact of open source software on start-up costs, opportunity costs of entrepreneurship, failure rates of new businesses, exponential growth of some small-time technology companies. e. What kinds of skills do today’s managers need that weren’t required a decade ago? Answers should reflect the impact of technology on the manager’s skill set. Possible answers might include basic computer skills, project management skills, use of spreadsheets, word processing skills, knowledge of presentation programs, communication tools such as e-mail and instant messaging, conducting teleconferences, social networking, etc. Managers must have a general awareness of technology to be effective consumers of technology. Fresh Direct a. Examine the FreshDirect business model and list reasons for its competitive advantage. It offers a good selection at lower prices. Labor costs are 60 percent lower than conventional grocery stores due to highly efficient worker shifts. The firm has a higher inventory turn. Artificial intelligence software is used to support everything. The firm saves energy costs through several energy-efficient practices. FreshDirect is able to cut costs by negotiating favorable terms with suppliers. .b. Would a similar business work in your neighborhood? Why or why not? Depending on the market conditions, a business similar to FreshDirect’s may or may not work in students’ neighborhood. If real estate is not prohibitive, which promotes lower prices and wider selection, and lifestyles are not frenetic, their model might not gain traction. In some areas, grocery shopping is a social experience c. What effect did FreshDirect have on traditional grocers operating in New York City? Why? FreshDirect drove one-third of New York City grocers out of business within five years of launch by undercutting competition by as much as 35 percent. The reason for this was that FreshDirect was operating on a large scale and they offered more choices to customers at lower prices. Many of the other grocers could not match this. Operational effectiveness and strategic positioning. a. What is operational effectiveness? Operational effectiveness refers to performing the same tasks better than rivals perform them. b. What are the dangers of competing only on operational effectiveness? Be sure to describe and discuss The danger of competing on operational effectiveness is that it leads to “sameness.” It is usually not sufficient enough to yield sustainable dominance over the competition. As a result, firms become more likely to be considered commodities. Consumers likely base their decision on the strategic differences between firms. c. What is strategic positioning? Strategic positioning refers to performing different activities from those of rivals, or the same activities in a different way. d. Is a firm that competes based on the features of technology engaged in operational effectiveness or strategic positioning? Give an example to back up your claim. Assuming that the features can be replicated, firms competing based on features alone are likely to be engaged in operational effectiveness. The automotive industry is an example of an industry that relies heavily on operational effectiveness because features such as power steering, antilock brakes, tire pressure sensors, and the like can be easily duplicated. e. Which is the better basis for competing – operational effectiveness or strategic positioning? Why? Strategic positioning because it is about external competition and achieving sustainable competitive advantage by stabilizing what is unique about a company. It means performing different activities from competitors, or performing similar activities in different ways. The data breaches at Equifax and Target Corporation are among the largest ever in U.S. History. a. What factors enabled the hackers to breach Target and Equifax? The company was initially hacked via a consumer complaint web portal, with the attackers using a widely known vulnerability that should have been patched but, due to failures in Equifax's internal processes, wasn't. The attackers were able to move from the web portal to other servers because the systems weren't adequately segmented from one another, and they were able to find usernames and passwords stored in plain text that then allowed them to access still further systems. The attackers pulled data out of the network in encrypted form undetected for months because Equifax had crucially failed to renew an encryption certificate on one of their internal security tools. b. What valuable things did the hackers steal in these breaches? It potentially affected 143 million people — more than 40 percent of the population of the United States — whose names, addresses, dates of birth, Social Security numbers, and drivers' licenses numbers were exposed. A small subset of the records — on the order of about 200,000 — also included credit card numbers; this group probably consisted of people who had paid Equifax directly in order to order to see their own credit report. c. Who should have been responsible for these breaches, that is, how do you think the firms could have prevented the attacks and what should they do in the future to heighten security and win back customer trust? d. If you were the type of consumer who uses these firms, would what you know about these breaches change your attitude about dealing with either of these firms? How do you think your attitude would have changed and why; or, why would your attitude not change? e. Why do law enforcement agencies struggle to cope with these types of computer crimes? Law enforcement agencies dealing with computer crime are increasingly outnumbered, outskilled, and underfunded. Many agencies are staffed with technically weak personnel who were trained in a prior era’s crime fighting techniques. Governments can rarely match the pay scale and stock bonuses offered by private industry. Organized crime networks now have their own R&D labs and are engaged in sophisticated development efforts to piece together methods to thwart current security measures. Technology, Information, and Bargaining Power What is price transparency? What is information asymmetry? How does the Internet relate to these two concepts? How does the Internet shift bargaining power among the five forces? Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider. Information, or price transparency, is a condition where buyers know what products are being offered and at what prices throughout the entire market. The Internet fosters price transparency, and reduces price discrimination, by making information to counteract information asymmetry readily available. In certain cases this serves to enhance the power of buyers and reduce seller power. Discuss the concepts of price transparency and information asymmetry as they apply to the diamond industry as a result of the entry of Blue Nile. Name another industry where the Internet has had a similar impact. As a result of the entry of BlueNile into the diamond industry via their online store, price transparency has increased and information asymmetry has decreased. BlueNiles’s website serves as a sort of basis for determining low price. eBay also serves as a price benchmark for a variety of goods, including new goods in the second tier markets. Under what conditions can the Internet strengthen supplier bargaining power? Give an example. When network effects are strong and/or a seller’s goods are highly differentiated, the Internet can strengthen supplier bargaining power. This is due to the presence of only a few suppliers and the creation of a market with many buyers through Internet exposure. Consulting and recruiting firms with an online presence benefited from the demand for programming experts in certain legacy languages during the Y2K run-up. What is the effect of switching costs on buyer bargaining power? Give an example. Switching costs can weaken buyer bargaining power. In cases where network effects are strong or a seller’s goods are highly differentiated, the Internet can strengthen supplier bargaining power and lower that of the buyer. Wells Fargo has found that customers who use online bill payment (where switching costs are high) are 70 percent less likely to leave the bank than those who don’t use it. This shows that switching costs help cement customers to the company even when rivals offer more compelling rates or services. How does the Internet impact bargaining power for providers of rare or highly differentiated goods? Why? When network effects are strong and/or a seller’s goods are highly differentiated, the Internet can strengthen supplier bargaining power. For instance, an antique dealer with a rare and valuable piece, can expand the number of potential customers available, and bid up the price via a service like eBay. The buyer obtains bargaining power because he has access to more potential buyers Information Technology and Strategic Competitive Advantage Do you think it is possible to use information technology to achieve competitive advantage? If so, how? If not, why not? Why is an innovation based on technology alone often subjected to intense competition? Used in isolation, information technology can’t build a sustainable competitive advantage. If used to build a value chain or brand, create scale economies and distribution channels, take advantage of switching costs, data and network effects, and achieve differentiation, information technology can be used to create a competitive advantage. IT is commonly used as an enabler of competitive advantage. Can you think of a firm that has successfully created competitive advantage even though other firms provide essentially the same thing? What factors – factors relevant to this class - enabled this success? Netflix and Blockbuster both provide movies on rental CDs. Through brand, scale, switching costs, and data advantages, Netflix was able to craft a significant competitive advantage over Blockbuster Does technology lower barriers to entry or raise them? Do low entry barriers necessarily mean that a firm is threatened? Barriers to entry for many tech-centric businesses are low. Technology lowers the barriers to entry as technology can be duplicated easily. This argument is particularly true for the Internet where rivals can put up a competing Web site seemingly overnight. Low entry barriers do not always provide a threat to companies that have built a sustainable competitive advantage based on critical resources that are rare, valuable, and tough to imitate, and lack substitutes. However, low entry barriers will attract more competitors and may become a serious threat if the firm does not possess sustainable competitive advantage. Is there such a thing as the first-mover advantage? Why or why not? Under what conditions would a first-mover have an advantage? Under what conditions would a late entrant have an advantage? There is a “first-mover advantage” provided the early entrant uses the time-lead to create critical resources that are rare, valuable, tough to imitate, and lack substitutes. Timing and technology alone will not produce a sustainable competitive advantage; however, both can be significant enablers for competitive advantage. What kinds of strategic assets are Google’s Android and Apple’s iOS seeking to create and exploit? Do you think these firms will be more successful than rivals? Why or why not? Google’s Android and Apple’s iOS are seeking to create assets that exploit the network effects, which exist when a product or service becomes more valuable as more people use it. These firms will be more successful than rivals such as Microsoft and HP because Apple and Google have a much larger network as well as a greater number of apps that run on and enhance their devices, most of which are provided by third parties. Third-party add-on products, books, magazines, or even skilled labor are all attracted to networks of the largest number of users, making Apple’s iOS devices and Google’s Android even more valuable. Technology and the Value Chain Discuss the elements of FreshDirect’s value chain and the technologies that FreshDirect uses to give the firm a competitive advantage. It offers a good selection at lower prices. Labor costs are 60 percent lower than conventional grocery stores due to highly efficient worker shifts. The firm has a higher inventory turn. Artificial intelligence software is used to support everything. The firm saves energy costs through several energy-efficient practices. FreshDirect is able to cut costs by negotiating favorable terms with suppliers. Why is FreshDirect resistant to imitation from incumbent firms? FreshDirect is resistant to imitation by incumbent firms because copying the firm’s business model would leave a competitor straddling two markets (low-margin storefront and high-margin delivery), and unable to gain optimum benefit from either. Entry costs for would-be competitors are also high (the firm spent over $75 million building infrastructure before it could serve a single customer).What advantages does FreshDirect have that insulate the firm from serious competition from startups copying its model? How can information technology help a firm build a brand inexpensively? If a brand is recognized positively, information technology can be used to inexpensively promote the product or service. If a firm performs well, consumers can often be enlisted to promote a product or service (viral marketing). Describe Blue Nile’s advantages over a traditional jewelry chain. Can conventional jewelers successfully copy Blue Nile? Why or why not? BlueNiles’s advantage over traditional jewelry chains are based on scale. It sold as many diamond rings with just 115 employees and one web site as a traditional jewelry retailer would sell through 116 stores. This leads to lower prices, attracts more customers, and increases scale advantages even more. In turn, higher profit margins are the result. Conventional jewelers cannot copy BlueNile because of two reasons: Conventional retailers cannot match the scale at which BlueNile is operating and hence they cannot provide the products at the same price. If a conventional retailer adopts the model, it will leave him straddling in two markets. Zara Vs. The Conventional Fashion Industry What is the “conventional wisdom” of the fashion industry with respect to vertical integration in design and manufacturing and with respect to advertising? For example, what is Gap’s business model for manufacturing clothes? Who makes them? Why? Are there risks in this approach? Most fashion retailers place orders for a seasonal collection months before these lines make an appearance in stores. Conventional wisdom suggests that leveraging cheap contract manufacturing in developing countries can keep the cost of goods low. Firms can lower prices and sell more product or maintain higher profit margins—all good for the bottom line. Global competition among contract firms has led to race-to-the-bottom cost-cutting measures. Too often, this means that in order to have the low-cost bid, contract firms skimp on safety, ignore environmental concerns, employ child labor, and engage in other ghastly practices. The apparel industry in particular has been plagued by accusations of employing sweatshop labor to keep costs down. Despite the fact that Gap audits contract manufacturers and has a high standard for partner conduct, the firm has repeatedly been taken to task by watchdog groups, the media, and its consumers, who have exposed unacceptable contract manufacturing conditions that Gap failed to catch. Big firms are big targets and those that fail to adequately ensure their products are made under acceptable labor conditions risk a brand-damaging backlash that may turn off customers, repel new hires, and leave current staff feeling betrayed. In what ways is the Zara model counterintuitive? Describe at least four (4) ways Zara’s business model and the factors Zara focuses on to ensure a strong profit margin has made the firm a better performer than Gap and other competitors. The blend of technology-enabled strategy that Zara has unleashed seems to break all of the rules in the fashion industry. The firm shuns advertising and rarely runs sales. Zara is highly vertically integrated, keeping huge swaths of its production process in-house, rather than using contract manufacturing. More customized to consumers stores and styles. Use only 2 locations in Spain for moving all deliveries. How is data captured in Zara stores? Using what types or classifications of information systems? How does the firm use this data? Zara’s store managers lead the intelligence-gathering effort that ultimately determines what ends up on each store’s racks. Armed with personal digital assistants (PDAs)—handheld computing devices meant largely for mobile use outside an office setting—to gather customer input, staff regularly chat up customers to gain feedback on what they’d like to see more of. PDAs are also linked to the store’s pointof-sale (POS) system—a transaction process that captures customer purchase information—showing how garments rank by sales. Another level of data gathering starts as soon as the doors close. Then the staff turns into a sort of investigation unit in the forensics of trendspotting, looking for evidence in the piles of unsold items that customers tried on but didn’t buy. What role does technology play in enabling the other elements of Zara’s counterintuitive strategy? Could the firm execute its strategy without technology? Why or why not? -Allows for highly efficient supply chain and customization as well as getting new items to stores faster -No because there would be no way to record, send and analyze the data as efficiently Why has Zara’s RFID rollout been less problematic than those at Walmart and JC Penny? How does Zara’s use of RFID reduce concerns that customer products will be tracked post-purchase? How does Zara reduce the expense associated with tagging each item? How does RFID improve efficiency and customer service? Zara has vertical integration which allows them to track inventory right out of production. Zara previously identifies codes for each individual clothing (Radio Frequency Identification) tags. As the item moves around the stores, wall mounted or hand held canners can listen in, track product and take inventory. Stores remove these tags when the customer buys the items. Also, they use a reusable tag system. Allows for stores to see what their consumers want, allows them to help customers easier, etc..