Zara threat of new entrants

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© 2016 John Wiley & Sons, Inc.

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Chapter 2 Strategic Use of Information Resources

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Zara

Chapter opening case

How often do customers visit Zara each year?

When do customers buy the designs? Why?

How many designs do they make each year?

Is this possible without IT?

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17 times a year compared to 4 times a year in an average store

Customers need to buy designs on the spot—it will be gone next time they visit

More than 30,000

No, of course not!

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Information Resources as Strategic Tools

What are information resources?

IT assets and capabilities (not just assets!)

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IT Assets and Capabilities

IT Assets

IT infrastructure

Hardware

Software and company apps

Network

Data

Website

Information Repository

Customer information

Employee information

Marketplace information

Vendor information

IT Capabilities

Technical Skills

Proficiency in systems analysis

Programming and web design skills

Data analysis/data scientist skills

Network design and implementation skills

IT Management Skills

Business process knowledge

Ability to evaluate technology options

Project management skills

Envisioning innovative IT solutions

Relationship Skills

Spanning skills such as business-IT relationship management

External skills such as vendor-management

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IT Assets

Infrastructure

Information, technology, people and processes available to perform business processes and tasks. (not just technology!)

Might even include resources not owned by the firm (e.g., eBay, Facebook, LinkedIn)

Information repository

Data captured, organized, and retrievable by the firm

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IT Capabilities

Technical Skills (designing, developing, implementing IS)

Management Skills (managing the IT function and IT projects)

Relationship Skills

Outside the organization (vendors, customers)

Within the organization (managers)

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Examples

Assets:

Proprietary technology (e.g., platforms)

Online community

Customer information

Capabilities:

Knowledge

Technical skills of IT staff

Friendly, helping nature of IT staff

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The Strategic Landscape

Managers must take multiple views of the strategic landscape, such as:

First view - Porter’s five competitive forces model.

Second view - Porter’s value chain.

Third view – focuses on the types of IS resources needed (Resource Based View).

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Five competitive forces with potential

strategic use of information resources

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Competitive Force IT Influence on Competitive Force
Threat of New Entrants Can be lowered if there are barriers to entry. Sometimes IS can be used to create barriers to entry
Bargaining Power of Buyers Can be high if it’s easy to switch. Switching costs are increased by giving buyers things they value in exchange such as lower costs, effort, or time; or useful information
Bargaining Power of Suppliers Strongest when there are few firms to choose from, quality of inputs is crucial, or the volume of purchases is insignificant to the supplier
Threat of Substitute Products Depends on buyers’ willingness to substitute and the level of switching costs buyer’s face
Industrial Competitors Rivalry is high when it is expensive to leave an industry, the industry’s growth rate is declining, or products have lost differentiation
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Application of five competitive forces model.

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Competitive Force IT Influence on Competitive Force
Threat of New Entrants Zara supports its tightly knit group of designers, market specialists, production managers, and planners. These relationships take time. Rich customer information in its database would take time to develop.
Bargaining Power of Buyers Recently, Zara has created a laser-created database of sizes for 10,000 “real” women volunteers. New products will be more likely to fit.
Bargaining Power of Suppliers Computer-controlled cutting machine can cut 1,000 layers at a time. A large number of sewers are available.
Threat of Substitute Products IT helps Zara offer extremely fashionable clothing that would last 10 wears. The result is trendy clothes at reasonable prices, making substitutes difficult
Industrial Competitors Zara tracks breaking trends and customer preferences. The result is the highest sales per square foot in the industry without much advertising, low inventories, only 10% of inventory unsold, new products from idea to shelves in 15 days, and manufacturing efficiencies
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Application of five competitive forces – Zara example

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Porter’s Value Chain Model

Value Chain model addresses the activities that create, deliver, and support a company’s product or service.

Two broad categories:

Primary activities – relate directly to the value created in a product or service.

Support activities – make it possible for the primary activities to exist and remain coordinated.

Competition can come from:

Lowering the cost to perform an activity, increasing profit.

Adding value to a product or service so buyers will be willing to pay more (again, increasing profit).

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Value chain of the firm.

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The Value System

The value chain model can be extended by linking many value chains into a value system.

Much of the advantage of supply chain management comes from understanding how information is used within each value chain within the larger system.

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The value system: interconnecting

relationships between organizations.

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Zara and Primary Activities

Primary Activity Zara’s Value Chain
Inbound Logistics IT-enabled JIT (just in time) strategy Most dyes are purchased from Zara subsidiaries Suppliers are located near production facilities
Operations IT supports decisions about fabric, cut, and pricing Products are hung on hangers to avoid ironing at stores Price tags are already on the products 60% of merchandise is produced in house Fabric is cut and dyed by robots in 23 highly automated factories
Outbound Logistics Clothes move on miles of conveyer belts Clothes reach stores within 48 hours of the order
Marketing and Sales Limited inventory permits low percent of unsold goods (10%) Point-of-Sales systems linked to HQ Managers provide information on customer needs daily via hand-held computers
Service No focus on service; clothes only last 10 wears
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Zara and Secondary Activities

Secondary Activity Zara’s Value Chain
Organization Tightly-knit collaboration between designers, store managers, market specialists, production managers, production planners
Human Resources Managers are trained to understand customer needs and report to designers daily Managers help Zara keep on cutting edge of fashion
Technology All primary activities are supported by integrated technology Automated conveyers speed up logistics
Purchasing Vertical integration reduces the amount of purchasing needed
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Sustainability

Attaining competitive advantage is one thing

A firm often exploits rare and valuable resources

But sustaining competitive advantage is another

Resources must be difficult to transfer or relatively immobile

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Sustainability Framework

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Source: Piccoli & Ives

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But Isn’t Sustaining an Advantage a “Deadly Distraction?”

Some focus on sustaining would be useful

Some sustaining steps are not too difficult or expensive

It will help profitability while inventing more “disruptive” measures

It might save the firm if disruption measures fail

But some focus on disruption is also useful

Sometimes sustaining requires too much effort

Disruption can have a huge payoff

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The Resource Based View

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IT Assets at Zara

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IT Capabilities at Zara

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Social Capital as an IT Resource

Social capital:

the sum of the actual and potential resources embedded within, available through, and derived from the individual or firm’s network of relationships

Structural – Who is connected to whom

Relational – How the people interact (e.g., respect, friendship)

Cognitive – How the people think and the impact of a shared language

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Relationships with Other Firms

Strategic Alliances

Inter-organizational relationship that affords one or more company a strategic advantage

Example: Zynga and Facebook

Business ecosystems provide abundant examples

Co-opetition

Companies cooperate and compete at the same time

Example: Microsoft builds laptops but also supplies operating systems to other laptop makers

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Potential Risks

There are many potential risks that a firm faces when attempting to use IT to outpace their competition.

Executives should be aware of these risks in advance!

Awakening a sleeping giant – a large competitor with deeper pockets may be nudged into implementing IS with even better features (Schwab/eTrade; FedX/UPS)

Demonstrating bad timing – sometimes customers are not ready to use the technology designed to gain strategic advantage (Apple’s Newton, Shelternet)

Implementing IS poorly – information systems can fail because they are poorly implemented (Nike; Hershey)

Failing to deliver what users want – systems that don’t meet the firm’s target market likely to fail (Streamline.com groceries)

Running afoul of the law – Using IS strategically may promote litigation (Airline reservation systems)

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Co-Creating IT and Business Strategy

Not just alignment, but partnership

Example: FedEx

Are you paying only for the delivery?

Or are you also paying for information about the delivery?

Fedex would not be able to accomplish the delivery without the IS components.

Can you separate IT strategy from your business strategy?

The trend is towards integrating the two.

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Summary

After you have listened to this lecture and read Chapter 2 of your text

Go to Discussion Board 3 and answer the discussion prompt

Finally complete Quiz 2

© 2016 John Wiley & Sons, Inc.