Transcript Recognizing Lock-In
Strategic Computing and Communications Technolgy
• Course web page – http://www.ischool.berkeley.edu/~hal/Courses/StratTech09 • Syllabus, schedule, lectures, readings – will be updated • Requirements – Individuals • Submit 4 relevant news items + 2 or 3 paragraph analysis of each over semester • Participate in class discussions – Group projects • I appoint mixed groups • Technology assessment presentations at end SIMS
Strategy Overview Hal R. Varian
SIMS
What is strategy?
• Definitions – “A course of action to achieve targets” – “A plan or method employed in order to achieve a goal or objective – In practice: often a checklist of things to pay attention to and watch out for • External and internal • Planning v strategic interaction SIMS
3 approaches to business strategy
• Education – Michael Porter,
Competitive Strategy
• Executive – Jack Welch,
Winning
• Economics – Shapiro and Varian,
Information Rules
– Brandenberger and Nalebuff,
Co-opetition
– Dixit and Nalebuff,
The Art of Strategy
SIMS
Michael Porter’s Five Forces
Porter, Michael E.,
Competitive Strategy,
Free Press, 1998 SIMS
Supplier power
• Importance of costs – Impact of inputs on your product cost or design • Competitive environment – Supplier concentration, bargaining power – Presence of substitute inputs – Importance of volume to supplier – Switching costs of suppliers – Threat of forward integration SIMS
Barriers to entry
• Costs – Absolute cost advantages – Economies of scale – Capital requirements • Scarcity – Access to distribution – Proprietary learning curve – Access to inputs (IP) – Proprietary products – Brand identity SIMS • Other – Customer switching costs – Expected retaliation (I.e., capacity threat) – Government policy
• Competitive
Buyer power
environment – Buyer concentration – Bargaining power – Substitutes available – Product differentiation – Price sensitivity – Buyers' switching costs – Brand identity – Buyer volume – Threat of backward integration SIMS
Threat of substitutes
• Customer switching costs • Buyer inclination to substitute • Price-performance trade-off of substitutes SIMS
Internal rivalry
• Economic factors – Industry concentration – Fixed costs, scale requirements – Exit barriers – Intermittent overcapacity – Industry growth • Customer perceptions – Product differences – Switching costs – Brand identity – Diversity of rivals SIMS
Critique of Porter
• Product of its times (1980s) – Relatively stable environment – Manufacturing model • Not a very clear taxonomy – Competitors: actual and potential?
– Substitutes: internal or external?
• Not much emphasis on technology and innovation SIMS
Jack Welch (ex-CEO of GE)
•
Winning
, Harper Business 2005 • Three steps – Find a smart, realistic, fast way to gain substantial competitive advantage – Put the right people in the right place to drive this forward – Seek out best practices, adapt them, and continue to improve them • GE initiative: “Be No 1 or No 2 in each market and fix, sell, or close deal to be there.
” • 5 Slides SIMS
1. What playing field looks like
• Who are your competitors?
• What has what share globally and in each market?
• Is your business a commodity or high value, long cycle or short, where on growth curve? What are drivers of profitability?
• What are strengths and weaknesses of each competitor? How good are its products? How much does each one spend on R&D? How big is its sales force?
• Who are your customers and how do they buy?
SIMS
2. What the competition is doing?
• What has each competitor done in past year to change the playing field?
• Has anyone introduced game-changing new products, technologies, or new channel?
• Are there new entrants, and what have they been doing?
SIMS
3. What have you been doing?
• What have you done to change the playing field?
• Have you bought a company, introduced a new product, taken a competitor ’s salesperson, licensed a new technology?
• Have you lost competitive advantages you once had: a salesperson, special product, proprietary technology?
SIMS
4. What’s around the corner?
• What scares you the most in the year ahead? What could a competitor do to nail you?
• What new products or technologies could your competitor launch that might change the game?
• What mergers/acquisitions would knock you off your feet?
SIMS
5. What is your winning move?
• What can you do now to change the playing field? New acquisition, new product, new market?
• What can you do to make customers stick to you?
SIMS
Critique of Welch
• Very action oriented, not so analytic – Good for CEO, not for industry analyst – Strategy and tactics intermingled – Doesn’t emphasize specific industry forces – Good meeting agenda, may not lead to deepest insights...
SIMS
Brandenberger and Nalebuff
Value Net Customers Actual and potential companies and products Competitors Company Complementors What’s this?
Suppliers
SIMS
Co-opetition and complements
• Customers value entire system – Hardware+software, DVD player+disks • Sometimes you compete, sometimes you co operate – Think of Intel and Microsoft, IBM and Oracle – Not a zero sum game!
• Complementors can be critical to your business, particularly in technology SIMS
• Customers • Competitors • Complementors • Suppliers • [Users?] SIMS
• Customers – advertisers • Competitors – Yahoo, Microsoft, other ad media • Complementors – ISPs, publishers,content providers, phone carriers • Suppliers – Hardware, software, publishers • [Users?] • [Regulators?] SIMS
Shapiro and Varian
• Forces important for info tech industries – Differentiation of products and prices – Intellectual property (copyright + patents) – Switching costs and lock-in – Network effects – Standards and interconnection – Systems effects and complementors SIMS
Example: Apple Ipod story
• Price of songs (differentiation of prices) • Competition (free songs, other players) • Government policy (copyright) • Complementors (players + content) • Channel conflict (online + offline) • Standardization (interoperability, DRM) • New entrants (mobile phones) SIMS