DB summary textbook
Table of Contents
DB summary textbook.................................................................................................................1
Table of Contents........................................................................................................................1
Chapter 1: Setting the Stage.......................................................................................................2
Chapter 2: Strategy & Technology..............................................................................................3
Chapter 3: Zara – Fast fashion from savvy systems....................................................................6
Chapter 4: Netflix in two acts – Sustaining leadership in an epic shift from atoms to bits........8
Chapter 5: Moore’s Law and more – fast, cheap, computing and what this means for the
manager....................................................................................................................................11
Chapter 6: Disruptive technologies - understanding giant killers and tactics to avoid
extinction..................................................................................................................................13
Chapter 7: Amazon: An empire stretching from cardboard box to Kindle to Cloud................16
Chapter 8: Platforms, network effects and competing in a winner-take-all world..................18
Chapter 9: Social media, peer production and leveraging the crowd......................................21
Chapter 10: The sharing economy, collaborative consumption and efficient markets through
tech............................................................................................................................................24
Chapter 11: Facebook – platforms, privacy and big business from the social graph...............25
Chapter 13: Understanding software – a primer for managers...............................................28
Chapter 14: Software in flux - open source, cloud, virtualized and app-driven shifts.............33
Chapter 15: Data and competitive advantage - databases, analytics, AI & machine learning.37
Chapter 16: A manager’s guide to the internet and telecommunications...............................42
Chapter 17: Information security - barbarians at the gateway................................................44
Chapter 18: Google in 3 parts – search, online advertising and an alphabet of opportunity. .47
1
,Chapter 1: Setting the Stage
Technology/the internet is reshaping industries and redefining skills needed to reach today’s
consumers. It globalizes countries and companies; creating profound shifts in the way we
communicate and advertise.
New technologies:
- Fuel globalization
- Redefine concepts of software and computing
- Crush costs
- Fuel data-driven decision making
- Raise privacy and security concerns
Many successful technology firms were created by young people. Examples are Microsoft
(Bill Gates), Dell (Michael Dell), Facebook (Mark Zuckerberg) and Apple (Steve Jobs).
Entrepreneurship has no minimum age requirement.
Tech skills are increasingly important, as technology is embedded in more and more job
functions (Moore’s Law; tech faster and cheaper hence embedded). As tech becomes
cheaper and more powerful, it impacts more industries and is becoming baked into what
once were non-tech functional areas:
- Modern finance or accounting wouldn’t exist without tech
- Marketing landscape changed (higher ROI, social media, search engine marketing
(SEM), search engine optimization (SEO), customer relationship management (CRM),
personalised systems etc).
- Technology is often key to a firm’s operations management’s future.
- HR uses tech for hiring, training, screening and evaluation. First cuts are likely to be
made on keywords by a database; not a human being.
- Law subjects changed, as ‘problems’ focus more on technology (piracy, privacy,
patents).
Because of the changes, tech jobs rank among the best and highest-growth positions, and
tech firms among the best and highest-paying firms to work for. Information systems (IS)
jobs are diverse, ranging from those that require heavy programming skills to those focused
on design, process, project management, privacy and strategy.
Terms:
IPO: Initial Public Stock Offering. The first-time firms make shares available via a public stock
exchange, also known as going public.
Internet of Things: a vision where low-cost sensors, processors and communication are
embedded into a wide array of products and our environment, allowing a vast network to
collect data, analyse input, and automatically coordinate collective action.
2
,Chapter 2: Strategy & Technology
Firms strive for sustainable competitive advantage: financial performance that consistently
outperforms the industry peers. Hard to achieve, especially when competition involves
technology. Hence tech is rarely a source of competitive advantage. According to Porter, the
reason firms suffer margin-eroding competition is because they’ve defined themselves
according to operational effectiveness rather than strategic positioning.
Operational effectiveness: performing the same tasks better than rivals perform them. Not
enough to get sustainable competitive advantage.
Strategic positioning: performing different activities than rivals or the same in a different
way. IT can help, and can be hard to copy, thus sustaining competitive advantage.
Commodity: interchangeable, nearly identical offers from multiple vendors. (windows vs
laptop, milk brands). The more commoditized, the more price-based competition.
Fast follower problem: especially with commodity products. Savvy rivals watch a pioneer’s
efforts, learn from their success/failures and enter the market quickly with a
comparable/superior product at lower cost. “Move fast and break things” vs “Move last and
take things”.
Resource-based view of competitive advantage: are resources valuable, rare, imitable and
non-substitutable? Then a sustainable competitive advantage can be created.
Straddling: attempts to occupy more than one position, while failing to match the benefits of
a more efficient singularly focused rival. E.g. when a traditional grocer can’t fully copy the
online supermarkets because then it would be in 2 positions (low-margin store, high-margin
delivery). Entry costs are then high, lack of existing data, etc.
Key takeaways:
- Technology is easy to copy, alone rarely offers competitive advantage
- Firms that leverage technology for strategic position use technology to create
competitive
assets or ways of doing business that are difficult to copy
- True sustainable advantage comes from assets and business models that are
simultaneously
valuable, rare, difficult to imitate and for which are no substitutes
Powerful resources
1. Value chain: set of activities through which a product or service is created and
delivered to customers.
Combine isolated resources to make them stronger and more difficult to match for rivals.
The chain can then be used to map a firm’s efficiency and to benchmark it against rivals,
revealing opportunities to use technology to improve processes and procedures. When
resistant to imitation, a superior value chain may yield a sustainable competitive advantage.
Tech only helps in improving the speed and quality of execution.
5 Primary components of the value chain:
1. Inbound logistics: getting inputs into the firm from suppliers
2. Operations: turning inputs into products/services
3. Outbound logistics: delivering products or services to consumers/retailers/partners
4. Marketing and sales: customer engagement, pricing, promotion and transaction
5. Support: service, maintenance and customer support
3
,4 Secondary (supporting)
components:
- Firm infrastructure:
functions that support
the whole firm, including
general management,
planning, IS and finance.
- HRM: recruiting, hiring, training and development.
- Technology/R&D: new product and process design.
- Procurement: sourcing and purchasing functions.
Imitation-resistant value chain: develop a way of doing business that competitors struggle
to replicate, technology can play an important role here.
Evaluation of the value chain can reveal operational weaknesses, for which technology is
often great to improve. Be aware that these tools can be bought by competitors too.
Therefore, firms may prefer to develop their own software.
2. Brand: a strong brand proxies’ quality and inspires trust. Tech can play a role in
rapidly and cost-effectively strengthening a brand. If the firm performs well,
consumers can often be enlisted to promote a product or service called, which is free
advertising (so-called viral marketing).
3. Scale: business benefit from economies of scale when the cost of an investment can
be spread across increasing units of production or in serving a growing customer
base. Also bargaining power with its suppliers and buyers can be gained. The scale of
investment can also act as a barrier to entry for potential new entrants/competitors.
4. Switching costs & data: costs of switching from one product to another, cementing
customers in the firm. Sources of switching costs are 1) learning costs, 2) information
and data, 3) financial commitment, 4) contractual commitments, 5) search costs and
6) loyalty programs. So, in order to win customers from an established incumbent, a
late-entering rival: must offer a product or service that not only exceeds the value
offered by the incumbent’s value but also any customer switching costs.
5. Differentiation: products that are nearly identically offered are commodities. As
customers are highly price focused, tech can be leveraged to differentiate offerings
(recommendation systems, or customer data).
6. Network effects: (sometimes called network externalities or Metcalfe’s Law) exist
when a product or services becomes more valuable as more people use it.
7. Distribution channels: path through which products or services get to consumers.
Application programming interfaces (API): programming hooks that allow other
firms to tap into their services (Uber added to United Airlines).
Affiliates: third parties that promote a product or service in exchange for a % of price
or cut of the sales. The ability to distribute a product by bundling with existing
offerings can be a key advantage.
4
,Key takeaways:
Technology can play a key role in creating and reinforcing assets for sustainable advantage
- By enabling an imitation-resistant value chain
- By strengthening a firm’s brand
- By collecting useful data and establishing switching costs
- By creating a network effect
- By creating or enhancing a firm’s scale advantage
- By enabling product or service differentiation
- By offering an opportunity to leverage unique distribution channels.
The value chain can be used to map a firm’s efficiency and to benchmark it against rivals,
revealing opportunities to use technology to improve processes and procedures.
Firms may consider adopting packaged software or outsourcing value chain tasks that are
not critical to a firm’s competitive advantage. A firm should be wary of adopting software
packages or outsourcing portions of its value chain that are proprietary and a source of
competitive advantage.
Patents are not necessarily a sure-fire path to exploiting an innovation. Many technologies
and business methods can be copied, so managers should think about creating assets like
the ones defined above if they wish to create truly sustainable advantage.
Nothing lasts forever and shifting technologies and market conditions can render once
strong assets as obsolete.
Barriers to Entry, Technology and Timing
For tech-businesses, these can be low (especially apps or websites), but entry doesn’t
guarantee a sustainable business or survival. Timing and technology are key to yielding
competitive advantage (e.g. first mover). It’s not time nor technology that provides
sustainable competitive advantage; it’s what a firm does with its time and technology lead. If
a firm can use time and technology lead to create valuable assets that others cannot match,
it may be able to sustain its advantage. If not, the firm can be threatened by new entrants.
Key Framework: The Five Forces of Industry Competitive Advantage. In cases where network
effects are strong or a seller’s goods are highly differentiated, the Internet can strengthen
supplier bargaining power. Highly differentiated sellers that can advertise their products to a
wider customer base can demand higher prices.
However, in markets where commodity products are sold, the Internet can increase buyer
power by increasing price transparency, counteraction information asymmetry.
5
, Chapter 3: Zara – Fast fashion from savvy systems
“Old’ way of fashion-business is guessing months in advance what customers will want as a
new style, colour etc. Wrong choices -> Large inventories -> Death of company.
Zara takes a competitive advantage from rivals based on their technology-enabled strategy.
It shuns advertising, rarely runs sales and Inditex (Mother corp) is highly vertically
integrated. Zara has “Z-day”, a twice-weekly inventory delivery with new fashion. This super-
efficient model leads to competitively priced merchandise, higher margins, faster inventory
turnover, reduced risk and less advertising.
Contract manufacturing = outsourcing production to third-party firms, often in third world
countries. You don’t own the plants or directly employ the workers that produce your goods.
Can keep costs of goods low (hence higher margins), but the lower prices customers
demand, the worse working conditions get on the other side / sweatshop labour (no safety,
child labour, environmental abuse etc).
Firms with products manufactured under unacceptable labour conditions face legal action,
brand damage, reduces sales, lower employee morale and decreased appeal among
prospective employees.
Data
Zara gathers loads of data regarding their customers about preferences in cloth, colour or
style.
Personal Digital Assistant (PDA): filling in what people are looking for.
Point-of-sale (POS) system: systems that capture customer purchases (linked to checkout),
often linked to inventory systems.
PDA tells what customers at a given location want to see on the shelves, POS tells the
firm what is selling. Improves frequency and quality of decisions made by design and
planning teams.
Zara creates new items based on actual customer demand, no design long before the
season. They fly in managers to headquarters because they are closest to the customer. This
new fashion is delivered every 2 weeks on “Z-day”. A lot faster than other retailers!
All of this is made possible by a combination of vertical integration. Zara owns several layers
in its value chain (set of activities through which a product is created and delivered to
customers), technology-based coordination of suppliers, just-in-time manufacturing and
finetuned logistics. Math and data are combined to determine how much and which sizes
each store needs. Zara makes 40% of its own fabric and produces 60% of its clothes in-
house. They work with greige goods, which are partially finished and can be customized
based on a designer/manager collab. Speed beats manufacturing costs and drives profits.
Zara has smart inventory, using radio frequency identification (RFID) tags. It makes sure
products can be tracked, so employees know what is in their own and nearby stores. Zara is
also a pioneer in going green.
6
Table of Contents
DB summary textbook.................................................................................................................1
Table of Contents........................................................................................................................1
Chapter 1: Setting the Stage.......................................................................................................2
Chapter 2: Strategy & Technology..............................................................................................3
Chapter 3: Zara – Fast fashion from savvy systems....................................................................6
Chapter 4: Netflix in two acts – Sustaining leadership in an epic shift from atoms to bits........8
Chapter 5: Moore’s Law and more – fast, cheap, computing and what this means for the
manager....................................................................................................................................11
Chapter 6: Disruptive technologies - understanding giant killers and tactics to avoid
extinction..................................................................................................................................13
Chapter 7: Amazon: An empire stretching from cardboard box to Kindle to Cloud................16
Chapter 8: Platforms, network effects and competing in a winner-take-all world..................18
Chapter 9: Social media, peer production and leveraging the crowd......................................21
Chapter 10: The sharing economy, collaborative consumption and efficient markets through
tech............................................................................................................................................24
Chapter 11: Facebook – platforms, privacy and big business from the social graph...............25
Chapter 13: Understanding software – a primer for managers...............................................28
Chapter 14: Software in flux - open source, cloud, virtualized and app-driven shifts.............33
Chapter 15: Data and competitive advantage - databases, analytics, AI & machine learning.37
Chapter 16: A manager’s guide to the internet and telecommunications...............................42
Chapter 17: Information security - barbarians at the gateway................................................44
Chapter 18: Google in 3 parts – search, online advertising and an alphabet of opportunity. .47
1
,Chapter 1: Setting the Stage
Technology/the internet is reshaping industries and redefining skills needed to reach today’s
consumers. It globalizes countries and companies; creating profound shifts in the way we
communicate and advertise.
New technologies:
- Fuel globalization
- Redefine concepts of software and computing
- Crush costs
- Fuel data-driven decision making
- Raise privacy and security concerns
Many successful technology firms were created by young people. Examples are Microsoft
(Bill Gates), Dell (Michael Dell), Facebook (Mark Zuckerberg) and Apple (Steve Jobs).
Entrepreneurship has no minimum age requirement.
Tech skills are increasingly important, as technology is embedded in more and more job
functions (Moore’s Law; tech faster and cheaper hence embedded). As tech becomes
cheaper and more powerful, it impacts more industries and is becoming baked into what
once were non-tech functional areas:
- Modern finance or accounting wouldn’t exist without tech
- Marketing landscape changed (higher ROI, social media, search engine marketing
(SEM), search engine optimization (SEO), customer relationship management (CRM),
personalised systems etc).
- Technology is often key to a firm’s operations management’s future.
- HR uses tech for hiring, training, screening and evaluation. First cuts are likely to be
made on keywords by a database; not a human being.
- Law subjects changed, as ‘problems’ focus more on technology (piracy, privacy,
patents).
Because of the changes, tech jobs rank among the best and highest-growth positions, and
tech firms among the best and highest-paying firms to work for. Information systems (IS)
jobs are diverse, ranging from those that require heavy programming skills to those focused
on design, process, project management, privacy and strategy.
Terms:
IPO: Initial Public Stock Offering. The first-time firms make shares available via a public stock
exchange, also known as going public.
Internet of Things: a vision where low-cost sensors, processors and communication are
embedded into a wide array of products and our environment, allowing a vast network to
collect data, analyse input, and automatically coordinate collective action.
2
,Chapter 2: Strategy & Technology
Firms strive for sustainable competitive advantage: financial performance that consistently
outperforms the industry peers. Hard to achieve, especially when competition involves
technology. Hence tech is rarely a source of competitive advantage. According to Porter, the
reason firms suffer margin-eroding competition is because they’ve defined themselves
according to operational effectiveness rather than strategic positioning.
Operational effectiveness: performing the same tasks better than rivals perform them. Not
enough to get sustainable competitive advantage.
Strategic positioning: performing different activities than rivals or the same in a different
way. IT can help, and can be hard to copy, thus sustaining competitive advantage.
Commodity: interchangeable, nearly identical offers from multiple vendors. (windows vs
laptop, milk brands). The more commoditized, the more price-based competition.
Fast follower problem: especially with commodity products. Savvy rivals watch a pioneer’s
efforts, learn from their success/failures and enter the market quickly with a
comparable/superior product at lower cost. “Move fast and break things” vs “Move last and
take things”.
Resource-based view of competitive advantage: are resources valuable, rare, imitable and
non-substitutable? Then a sustainable competitive advantage can be created.
Straddling: attempts to occupy more than one position, while failing to match the benefits of
a more efficient singularly focused rival. E.g. when a traditional grocer can’t fully copy the
online supermarkets because then it would be in 2 positions (low-margin store, high-margin
delivery). Entry costs are then high, lack of existing data, etc.
Key takeaways:
- Technology is easy to copy, alone rarely offers competitive advantage
- Firms that leverage technology for strategic position use technology to create
competitive
assets or ways of doing business that are difficult to copy
- True sustainable advantage comes from assets and business models that are
simultaneously
valuable, rare, difficult to imitate and for which are no substitutes
Powerful resources
1. Value chain: set of activities through which a product or service is created and
delivered to customers.
Combine isolated resources to make them stronger and more difficult to match for rivals.
The chain can then be used to map a firm’s efficiency and to benchmark it against rivals,
revealing opportunities to use technology to improve processes and procedures. When
resistant to imitation, a superior value chain may yield a sustainable competitive advantage.
Tech only helps in improving the speed and quality of execution.
5 Primary components of the value chain:
1. Inbound logistics: getting inputs into the firm from suppliers
2. Operations: turning inputs into products/services
3. Outbound logistics: delivering products or services to consumers/retailers/partners
4. Marketing and sales: customer engagement, pricing, promotion and transaction
5. Support: service, maintenance and customer support
3
,4 Secondary (supporting)
components:
- Firm infrastructure:
functions that support
the whole firm, including
general management,
planning, IS and finance.
- HRM: recruiting, hiring, training and development.
- Technology/R&D: new product and process design.
- Procurement: sourcing and purchasing functions.
Imitation-resistant value chain: develop a way of doing business that competitors struggle
to replicate, technology can play an important role here.
Evaluation of the value chain can reveal operational weaknesses, for which technology is
often great to improve. Be aware that these tools can be bought by competitors too.
Therefore, firms may prefer to develop their own software.
2. Brand: a strong brand proxies’ quality and inspires trust. Tech can play a role in
rapidly and cost-effectively strengthening a brand. If the firm performs well,
consumers can often be enlisted to promote a product or service called, which is free
advertising (so-called viral marketing).
3. Scale: business benefit from economies of scale when the cost of an investment can
be spread across increasing units of production or in serving a growing customer
base. Also bargaining power with its suppliers and buyers can be gained. The scale of
investment can also act as a barrier to entry for potential new entrants/competitors.
4. Switching costs & data: costs of switching from one product to another, cementing
customers in the firm. Sources of switching costs are 1) learning costs, 2) information
and data, 3) financial commitment, 4) contractual commitments, 5) search costs and
6) loyalty programs. So, in order to win customers from an established incumbent, a
late-entering rival: must offer a product or service that not only exceeds the value
offered by the incumbent’s value but also any customer switching costs.
5. Differentiation: products that are nearly identically offered are commodities. As
customers are highly price focused, tech can be leveraged to differentiate offerings
(recommendation systems, or customer data).
6. Network effects: (sometimes called network externalities or Metcalfe’s Law) exist
when a product or services becomes more valuable as more people use it.
7. Distribution channels: path through which products or services get to consumers.
Application programming interfaces (API): programming hooks that allow other
firms to tap into their services (Uber added to United Airlines).
Affiliates: third parties that promote a product or service in exchange for a % of price
or cut of the sales. The ability to distribute a product by bundling with existing
offerings can be a key advantage.
4
,Key takeaways:
Technology can play a key role in creating and reinforcing assets for sustainable advantage
- By enabling an imitation-resistant value chain
- By strengthening a firm’s brand
- By collecting useful data and establishing switching costs
- By creating a network effect
- By creating or enhancing a firm’s scale advantage
- By enabling product or service differentiation
- By offering an opportunity to leverage unique distribution channels.
The value chain can be used to map a firm’s efficiency and to benchmark it against rivals,
revealing opportunities to use technology to improve processes and procedures.
Firms may consider adopting packaged software or outsourcing value chain tasks that are
not critical to a firm’s competitive advantage. A firm should be wary of adopting software
packages or outsourcing portions of its value chain that are proprietary and a source of
competitive advantage.
Patents are not necessarily a sure-fire path to exploiting an innovation. Many technologies
and business methods can be copied, so managers should think about creating assets like
the ones defined above if they wish to create truly sustainable advantage.
Nothing lasts forever and shifting technologies and market conditions can render once
strong assets as obsolete.
Barriers to Entry, Technology and Timing
For tech-businesses, these can be low (especially apps or websites), but entry doesn’t
guarantee a sustainable business or survival. Timing and technology are key to yielding
competitive advantage (e.g. first mover). It’s not time nor technology that provides
sustainable competitive advantage; it’s what a firm does with its time and technology lead. If
a firm can use time and technology lead to create valuable assets that others cannot match,
it may be able to sustain its advantage. If not, the firm can be threatened by new entrants.
Key Framework: The Five Forces of Industry Competitive Advantage. In cases where network
effects are strong or a seller’s goods are highly differentiated, the Internet can strengthen
supplier bargaining power. Highly differentiated sellers that can advertise their products to a
wider customer base can demand higher prices.
However, in markets where commodity products are sold, the Internet can increase buyer
power by increasing price transparency, counteraction information asymmetry.
5
, Chapter 3: Zara – Fast fashion from savvy systems
“Old’ way of fashion-business is guessing months in advance what customers will want as a
new style, colour etc. Wrong choices -> Large inventories -> Death of company.
Zara takes a competitive advantage from rivals based on their technology-enabled strategy.
It shuns advertising, rarely runs sales and Inditex (Mother corp) is highly vertically
integrated. Zara has “Z-day”, a twice-weekly inventory delivery with new fashion. This super-
efficient model leads to competitively priced merchandise, higher margins, faster inventory
turnover, reduced risk and less advertising.
Contract manufacturing = outsourcing production to third-party firms, often in third world
countries. You don’t own the plants or directly employ the workers that produce your goods.
Can keep costs of goods low (hence higher margins), but the lower prices customers
demand, the worse working conditions get on the other side / sweatshop labour (no safety,
child labour, environmental abuse etc).
Firms with products manufactured under unacceptable labour conditions face legal action,
brand damage, reduces sales, lower employee morale and decreased appeal among
prospective employees.
Data
Zara gathers loads of data regarding their customers about preferences in cloth, colour or
style.
Personal Digital Assistant (PDA): filling in what people are looking for.
Point-of-sale (POS) system: systems that capture customer purchases (linked to checkout),
often linked to inventory systems.
PDA tells what customers at a given location want to see on the shelves, POS tells the
firm what is selling. Improves frequency and quality of decisions made by design and
planning teams.
Zara creates new items based on actual customer demand, no design long before the
season. They fly in managers to headquarters because they are closest to the customer. This
new fashion is delivered every 2 weeks on “Z-day”. A lot faster than other retailers!
All of this is made possible by a combination of vertical integration. Zara owns several layers
in its value chain (set of activities through which a product is created and delivered to
customers), technology-based coordination of suppliers, just-in-time manufacturing and
finetuned logistics. Math and data are combined to determine how much and which sizes
each store needs. Zara makes 40% of its own fabric and produces 60% of its clothes in-
house. They work with greige goods, which are partially finished and can be customized
based on a designer/manager collab. Speed beats manufacturing costs and drives profits.
Zara has smart inventory, using radio frequency identification (RFID) tags. It makes sure
products can be tracked, so employees know what is in their own and nearby stores. Zara is
also a pioneer in going green.
6
