computers in management final
Define Network Effects (also known as _________ or _________)
"Metcalfe's Law" or "network externalities" the value of a product or service increases as the number of users grows. Simply, more users = more value
About 1/4 of Amazon revenues come from the sale of media businesses that are rapidly shifting from atoms to bits (7.3)
As evidence, consider that at Amazon, roughly 60 percent of books sold are titles that aren't available in even the biggest Barnes & Noble Superstores. [76] Amazon is also moving from distribution of the "atoms" of books and video to digital distribution of media products via the Kindle. This eliminates the cost to warehouse and ship the atoms of physical goods.
Straddling
Attempts to occupy more than one position, while failing to match the benefits of a more efficient, singularly focused rival whole foods- fresh direct and storefront
How has Moore's Law (and related advances in faster/cheaper technologies) driven six evolving "waves of computing"?
1. In the first wave in the 1960s, computing was limited to large, room-sized mainframe computers that only governments and big corporations could afford. 2. Moore's Law kicked in during the 1970s for the second wave, and minicomputers were a hit. 3. The 1980s brought wave three in the form of PCs, and by the end of the decade nearly every white-collar worker in America had a fast and cheap computer on their desk. 4. In the 1990s wave four came in the form of Internet computing—cheap servers and networks made it possible to scatter data around the world at the same time that fast, cheap PCs became mouse-click easy and PC ownership became common in the industrialized world. 5. The prior decade saw mobile phones drive what can be considered computing wave five. 6. Today many say the sixth wave of computing can be considered the era of pervasive computing, where technology is fast and so inexpensive that it is becoming ubiquitously woven into products in ways few imagined years before.
SCALE was a source of competitive advantage for Netflix. Three sources of scale advantages for Netflix were: (1) the Distribution Network, (2) The Long Tail, and (3) Customer Base
58 highly efficient distribution centers to deliver to 97% of population overnight extremely large selection of products; over 125,000 movies; selection attracts customers and the Internet allows large-selection inventory efficiencies that offline firms can't match If the entry price for getting into the national DVD-by-mail game is $300 million, but one firm has far more customers than the other then the bigger firm has a better cost structure and better profit prospects and should be able to offer better pricing- hard to offset
What firms use AWS? Provide one example. What do firms using AWS (and the cloud in general) gain and what do they give up?
AWS and competing cloud services offer several advantages, including increased scalability, reliability, security, lower labor costs, lower hardware costs, and the ability to shift computing from large fixed-cost investments to those with variable costs. Since Amazon also uses products developed by AWS, the firm's e-commerce and Kindle operations also benefit from the effort. Firms using cloud providers lose control of certain aspects of their infrastructure, and an error or crash caused by the cloud provider could shut off or scale back vital service availability. Amazon and other vendors have experienced outages that have negatively impacted clients. Despite these challenges, most firms believe they lack resources and scale to do a higher-quality or more cost-effective job than specialized cloud providers. oday AWS powers hundreds of businesses, including Etsy, Airbnb, Pinterest, Yelp, and Zynga
How does Amazon's infrastructure compare with that of competitors? How does Amazon compare in terms of revenue and profitability?
Amazon's warehouse and technology infrastructure are radically different than those of any conventional retailer. While Walmart warehouses that support its superstores ship large pallets of identical items in a single shipment (think crates of diapers or toothpaste) to thousands of its retail locations, Amazon warehouses pack boxes of disparate individual items, sending packages to millions of homes. To build a system that worked, Amazon focused on costs, data, and processes so that it could figure out what was wrong and how it could improve To automate profit-pushing hyperefficiency, Amazon warehouses are powered by at least as much code as the firm's website —nearly all of it homegrown. Technology lets a given Amazon warehouse send out over 2 million packages a week during the holiday season, all without elves or flying reindeer. The firm's larger warehouses are upwards of a quarter mile in length, packed with aisles shelves. Technology choreographs thousands of workers and robots in what seems part symphony, part sprint. When suppliers ship new products to Amazon, items are scanned and prepped so inventory is ready to fulfill customer orders as soon as possible. Dozens of workers examine the incoming shipments for defects While Amazon's revenues are still significantly smaller than Walmart, the firm is growing far faster and has a market cap over $100 billion greater than the world's largest physical retailer
How is Moore's Law advancing economic development?
Another tech product containing a microprocessor is transforming the lives of some of the world's most desperate poor—the cell phone. There are three billion people worldwide that don't yet have a phone, but they will, soon. In the ultimate play of Moore's Law opening up new markets, mobiles from Vodafone and Indian telecom provider Spice sell for $25 or less The cell phone is the single most transformative technology for world economic development." A London Business School study found that for every ten mobile phones per one hundred people, a country's GDP bumps up 0.5 percent transfer cash using text messages
How does Amazon use scale advantages for competitive advantage?
Bezos is playing the long game, thinking the opportunity to expand now will help the firm leverage scale to continue to dominate markets in the future. Larger warehouses, more warehouses closer to big cities, and more efficient warehouses all build a moat around the firm's existing businesses, making it less likely that any firm will be able to attack Amazon's three-pronged value trident of selection, service, and price Amazon's scale has allowed it to create several of its own branded product lines. Amazon's private-label brands include AmazonBasics (cables, batteries, and other consumer electronics accessories), Mama Bear (diapers and other baby products), Happy Belly (foodstuffs, including nuts and trail mixes), Presto! (home cleaning products), Pinzon (kitchen gadgets), Strathwood (outdoor furniture), Pike Street (bath and home products), Denali (tools Putting its own brand on high-volume products should allow Amazon to cut out some of the costs that would otherwise go to a branded supplier, lowering prices and improving margins over conventional brands. The willingness to sell its own brands can also give Amazon even more negotiating leverage with suppliers
What is an example of a product or service characterized by network effects?
Bill Gates leveraged network effects to turn Windows and Office into virtual monopolies and, in the process, became the wealthiest man in America. Mark Zuckerberg of Facebook; Sergey Brin and Larry Page of Google
Who was the Harvard professor who defined disruptive technologies and publicized the concept (to the extent that it is now an overused buzzword)?
Clayton Christensen
What is an example of a specific product or general industry that was "disrupted"?
Digital cameras/video/music: entered bulky, poor quality, and few storage (don't value) then had market disrupting effects to the film camera industry after improvement (invasion after improvement)
Inventory turns
Excess inventory in the retail apparel industry is the kiss of death. Long manufacturing lead times require executives to guess far in advance what customers will want. Guessing wrong can be disastrous, lowering margins through markdowns and write-offs wice-weekly inventory delivery
The value derived from network effects comes primarily from what three sources?
Exchange- But as each new Facebook friend or fax user comes online, a network becomes more valuable because its users can potentially communicate with more people. These examples show the importance of exchange in creating value Staying Power- the long-term viability of a product; directly related to switching costs; The higher the value of the user's overall investment, the more they're likely to consider the staying power of any offering before choosing to adopt it. Similarly, the more a user has invested in a product, the less likely he or she is to leave; barnacles vs. butterflies Complementary Benefits- products or services that add additional value to the network; These products might include "how-to" books, software, and feature add-ons, even labor; ex. more cameras that upload video to YouTube; book authors, camera manufacturers, and accountants invest their time and resources where they're likely to reach the biggest market and get the greatest benefit
Identify the two characteristics of disruptive technologies (aka disruptive innovations).
First, they come to market with a set of performance attributes that existing customers don't value. Second, over time the performance attributes improve to the point where they invade established markets.
Understand a few reasons that Moore's Law is managerially relevant
From a strategic perspective, these trends suggest that what is impossible from a cost or performance perspective today may be possible in the future. Fast/cheap computing also feeds a special kind of price elasticity where whole new markets are created. This fact provides an opportunity to those who recognize and can capitalize on the capabilities of new technology. As technology advances, new industries, business models, and products are created, while established firms and ways of doing business can be destroyed. Managers must regularly study trends and trajectory in technology to recognize opportunity and avoid disruption.
Bezos thinking "long term" and implications
If everything you do needs to work on a three-year time horizon, then you're competing against a lot of people. But if you're willing to invest on a seven-year time horizon, you're now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years
Differentation
In order to break the commodity trap, many firms leverage technology to differentiate their goods and services Apple is another firm that has distinguished itself through differentiation. Unlike rival offerings from Microsoft and Google, Apple mobile and computer operating systems only run on Apple hardware. This allows the firm to tightly integrate the experience across Apple products. Apple systems consistently receive high customer satisfaction ratings, are considered easier to use, are more secure, and have fewer privacy issues.
Porter's Five Forces
Industry competition and attractiveness can be described by considering the following five forces: (1) the intensity of rivalry among existing competitors, (2) the potential for new entrants to challenge incumbents, (3) the threat posed by substitute products or services, (4) the power of buyers, and (5) the power of suppliers
What downsides might a firm experience from "going public" early? What is an IPO?
Initial public stock offering- the first time a firm makes shares available via a public stock exchange, aka "going public" Reed Hastings once said his biggest strategic regret was taking his firm public too early. Once public, the firm was required to disclose its financial position, and the whole world soon learned that Netflix was on a profit march with a remarkable growth trajectory.
Understand that timing and technology alone will not yield sustainable competitive advantage, but firms can use them strategically by creating differences that cannot be easily matched
It's not a time or technology lead that provides sustainable competitive advantage; it's what a firm does with its time and technology lead. If a firm can use a time and technology lead to create valuable assets that others cannot match, it may be able to sustain its advantage. But if the work done in this time and technology lead can be easily matched, then no advantage can be achieved, and a firm may be threatened by new entrants create critical resources that are valuable, rare, tough to imitate, and lack substitutes. Anything less risks the arms race of operational effectiveness. Build resources like brand, scale, network effects, switching costs, or other key assets
Consider some benefits and downsides for a company as the first mover in an industry/product space
It's not a time or technology lead that provides sustainable competitive advantage; it's what a firm does with its time and technology lead. If a firm can use a time and technology lead to create valuable assets that others cannot match, it may be able to sustain its advantage. But if the work done in this time and technology lead can be easily matched, then no advantage can be achieved, and a firm may be threatened by new entrants. netflix and blockbuster; amazon and barnes and nobles
What are two emerging methods/materials extending the life of Moore's Law (and perhaps exceeding it)?
Multicore chips use two or more low-power calculating "cores" to work together in unison, but to take optimal advantage of multicore chips, software must be rewritten to "divide" a task among multiple cores. 3-D transistors are also helping extend Moore's Law by producing chips that require less power and run faster
How does streaming potentially strengthen the Netflix data asset (relative to data collection with the DVD-by-mail business)?
Netflix also keeps customers happy in brand-building ways by leveraging its massive and growing arsenal of user data. Data is collected when customers rate movies they've seen, and this data on customer likes and dislikes is fed into a proprietary Netflix recommendation system called Cinematch. Cinematch is a software technology known as collaborative filtering. These systems monitor trends among customers and use this data to personalize an individual customer's experience. Firms use collaborative filtering systems to customize webpages and make all sorts of recommendations, including products, music, and news stories
Describe basics of the two separate Netflix business models: DVD-by-mail and digital streaming
Netflix got its start offering a DVD-by-mail service for a monthly, flat-rate subscription fee. Under this model, customers don't pay a cent in mailing expenses, and there are no late fees. Videos arrive in red Mylar envelopes that are addressed and postage-paid for reuse in disc returns. When done watching videos, consumers just slip the DVD back into the envelope, reseal it with a peel-back sticky strip, and drop the disc in the mail. Users make their video choices in their "request queue" at Netflix.com. If a title isn't available, Netflix simply moves to the next title in the queue. Consumers use the website to rate videos they've seen, specify their viewing preferences, get video recommendations, check out title details, and even share their viewing habits and reviews. the disc subscription service that Netflix built its user base with has become an optional add-on that the firm is actively discouraging new consumers from joining. For less than $10 a month ($12 if you want Ultra HD with 4 simultaneous streams), customers gain unlimited access to the entire Netflix streaming library (which is smaller than the number of DVDs available for mailing). Netflix streaming is available on PCs, as well as all major tablets, smartphones, and Internet-connected televisions, DVD players, video game consoles, and a wide variety of specialty TV streaming hardware.
What are some ways that technology has helped to bring about radical changes across industries and societies?
New technologies have fueled globalization, redefined our concepts of software and computing, crushed costs, fueled data-driven decision making, and raised privacy and security concerns. examples: Uber, the world's largest "taxi service," owns no vehicles for hire. Airbnb, the world's largest accommodations provider, doesn't own a single hotel or rental property. Facebook, the world's most visited media destination, creates no content
Fair Factories Clearinghouse
Nike rival Reebok (now part of Adidas) has always taken working conditions seriously. The firm even has a Vice President of Human Rights and has made human dignity a key platform for its philanthropic efforts. Reebok invested millions in developing an in-house information system to track audits of its hundreds of suppliers along dimensions such as labor, safety, and environmental practices. The goal in part was to identify any bad apples, so that one division, sporting goods, for example, wouldn't use a contractor identified as unacceptable by the sneaker line Fair Factories Clearinghouse. With management that included former lawyers for Amnesty International, the Fair Factories Clearinghouse (FairFactories.org) provides systems where apparel and other industries can share audit information on contract manufacturers Suppliers across industries now recognize that if they behave irresponsibly the Fair Factories system will carry a record of their misdeeds, notifying all members to avoid the firm. As more firms use the system, its database becomes broader and more valuable. Nike has since joined the Fair Factories Clearinghouse
- Name one strategy for firms to contend with/neutralize a potentially disruptive technology once it has been identified.
One is that a firm can build a portfolio of options on emerging technologies, investing in firms, start-ups, or internal efforts that can focus solely on what may or may not turn out to be the next big thing. An option is a right, but not the obligation, to make an investment, so if a firm has a stake in a start-up, it may consider acquiring the firm; or if it supports a separate division, it can invest more resources if that division shows promise. Threatened managers can act just like the bush—they'll pull high-quality engineers off emerging projects if a firm's top offerings need staff to grow.
What are some strategies used by Zara to ensure that its innovative technologies are actually used by its employees?
PDAs POS systems raise salaries based on store performance and customer happiness Managers are motivated to use these systems and accurately record data because they have skin in the game. As much as 70 percent of salaries can come from store sale performance
How does marketing differ at Zara relative to that of other large fashion companies?
limited runs encourage customers to buy right away and at full price. Savvy Zara shoppers know the newest items arrive on black plastic hangers, with store staff transferring items to wooden ones later on. Don't bother asking when something will go on sale; if you wait three weeks the item you wanted has almost certainly been sold or moved out to make room for something new no advertising- next to high end shops
Name 1 - 2 strategies for firms that seek to improve their radar (with respect to recognizing potentially threatening disruptive technologies).
Paying attention to the trajectory of fast/cheap technology advancement and new and emerging technologies is critical. Seeing the future involves removing short-sighted, customer-focused, and bottom-line-obsessed blinders. Having conversations with those on the experimental edge of advancements is key. Top-tier scientific researchers and venture capitalists can be particularly good sources for information on new trends. Increasing conversations across product groups and between managers and technologists can also be helpful. It's common for many firms to regularly rotate staff (both management and engineering) to improve idea sharing and innovation.
What are platforms? How do they support value creation from complementary benefits?
Products and services that encourage others to offer complementary goods firms will spend their time and money to enhance your offerings CarPlay puts Siri on your steering wheel and allows auto manufacturers to integrate phone, maps, messaging, music, and other apps into automobile dashboards
What are APIs? How do APIs support value creation from complementary benefits? How can APIs lower barriers to entry for programmers/entrepreneurs?
Programming hooks, or guidelines, published by firms that tell other programs how to get a service to perform a task such as send to receive data.
Provide an example of how Zara is using technology to defy conventional wisdom in the fashion industry.
Security tags are custom made to also include RFID-technology. RFID (Radio Frequency Identification) tags wirelessly emit a unique identifying code for the individual item that they are attached to. As an item moves around the Zara distribution center, or into Zara stores, wall mounted or hand-held scanners can listen in, track product, and take inventory. RFID lets Zara know where products are, so if a customer asks for an item in a store (perhaps in a different size or color), staff using custom apps on an iPod Touch can immediately tell if a product is in store, in a nearby store, or if it can be ordered from the distribution center or Zara.com
What is RFID and how is Zara using it?
Security tags are custom made to also include RFID-technology. RFID (Radio Frequency Identification) tags wirelessly emit a unique identifying code for the individual item that they are attached to. As an item moves around the Zara distribution center, or into Zara stores, wall mounted or hand-held scanners can listen in, track product, and take inventory. RFID lets Zara know where products are, so if a customer asks for an item in a store (perhaps in a different size or color), staff using custom apps on an iPod Touch can immediately tell if a product is in store, in a nearby store, or if it can be ordered from the distribution center or Zara.com
What are some scale advantages associated with digital streaming?
Size-based advantages come from both the scale of a firm's streaming library (a longer tail) and the scale of the customer base (the ability to pay for that tail). Once a firm gets big, there's a virtuous cycle where more titles attract more customers, and more customers increase a firm's ability to bid on attractive content. A larger, more profitable firm also gains pricing advantages. As of this writing, the Netflix basic offering is cheaper than HBO, Hulu, and Showtime (although deep-pocketed Amazon is cheaper) From a high-level, HBO-linear [meaning the premium cable channel] is our closest comparison, and they have about 30 million domestic members. We have more content, more viewing, a broader brand proposition, are on-demand, on all devices, and are less expensive, so we estimate that we can be two to three times larger than current linear-HBO, or 60 to 90 million domestic members. This factors in that as we grow, our content and service can continue to get better." [68] Since new customers often gravitate toward the best-known firms and favor products recommended by friends, dominant firms should also see customer acquisition costs, as a percentage of sales, go down.
Amazon has upended the publishing value chain and significantly changed the cost structure of the industry (7.3)
The printed book, or "dead-tree," publication value chain involved a publisher, bookstore, agent, and author. Publishers typically get half of a physical book's retail price, the bookstore takes about 30 percent, and the author keeps about 20 percent as a royalty but shares 15 to 20 percent of this with his or her agent mazon instead of through traditional publishers, Amazon offers royalty options ranging from 35 to 70 percent. There's even a "Kindle Singles" program that allows authors to sell work too short for a stand-alone book (fiction, essays, magazine articles). And since digitally published work doesn't require printing, shipping, and shelf-stocking, these titles can often come to market far faster than physical offerings
Is there a shift in digital distribution supplier power associated with the Netflix (and industry-level) shift from atoms to bits? (p. 68)
The winner-take-all and winner-take-most dynamics of digital distribution can put suppliers at a disadvantage. Studios may be wary of granting Netflix increasing power over product distribution, and as such, they may be motivated to keep rivals around. If firms rely on one channel partner for a large portion of deals, that partner has an upper hand in negotiations; streaming licensing fees have become an important part of studio profitability, and an increase in Netflix streaming scale offers the firm even more leverage. However, Hastings is wary of zero-sum negotiations and the bad blood this can create between his firm and suppliers, stating publicly that the firm's goal is to develop the kinds of partnerships where both sides benefit
Recognize how Amazon uses tech and systems to get products from suppliers to customers quickly and with minimum error, or provide 1 - 2 examples of tech-enabled efficiencies or logistical advantages in Amazon's warehouse system
They're squat, 320 lb, orange colored, rounded-rectangles on wheels, about the size of a living room ottoman. Now, instead of workers running to shelves, robots bring shelves to workers. Robots don't yet handle the bulkiest items such as flat-screen TVs or lawnmowers, but Kiva robots carry shelves stacked with upwards of 750 lb of goods, making them capable of handling the majority of what you're likely ordering from Amazon Shelvers stand on platforms while Kiva robots line up for restocking, bearing shelf towers with open bins stacked nine-or-more slots high along on all four sides. Robots position shelves to expose the correct side for inventory placement. Shelvers scan products that are added to inventory, placing each in specific location on a specific shelf that is also scanned. This tells Amazon's software exactly where a given item is stored. Next, the shelf is whisked away by a robot until one of the items on the shelf is needed for a customer order. The same items might be stored on dozens of different shelves throughout the warehouse. This allows different robots to simultaneously fulfill different orders for the same items. Amazon software enforces an additional rule when stocking shelves: No two similar products sit next to each other
Affiliates
Third parties that promote a product or service in exchange for a cut of any sales websites that promote books sold on Amazon. Website operators do this because Amazon gives them a percentage of all purchases that come in through these links. Amazon now has over one million of these "associates", yet it only pays them if a promotion gains a sale. Google similarly receives some 30 percent of its ad revenue not from search ads, but from advertisements distributed within third-party sites ranging from lowly blogs to the New York Times
How does Amazon Marketplace exhibit network effects?
Third-party products are referred to as being part of the Amazon Marketplace. Amazon doesn't own inventory of marketplace items. Sellers can warehouse and ship products themselves, or they can opt to use Amazon's warehouses as part of the Fulfilled by Amazon program. The latter lets Amazon handle logistics, storage, packaging, shipping, and customer service, while customers get Amazon shipping prices—including supersaver discounts and free shipping for customers enrolled in the Amazon Prime program. Customers also benefit if they already have credit card and other information on file with Amazon Third-party products are referred to as being part of the Amazon Marketplace. Amazon doesn't own inventory of marketplace items. Sellers can warehouse and ship products themselves, or they can opt to use Amazon's warehouses as part of the Fulfilled by Amazon program. The latter lets Amazon handle logistics, storage, packaging, shipping, and customer service, while customers get Amazon shipping prices—including supersaver discounts and free shipping for customers enrolled in the Amazon Prime program. Customers also benefit if they already have credit card and other information on file with Amazon
Name one reason that big firms often fail to recognize disruptive innovations as a threat.
Those running big firms fail to see disruptive innovations as a threat not because they do what executives at large, shareholder-dependent firms should do: they listen to their customers and focus on the bottom line. And because of the first characteristic mentioned, the majority of a firm's current customers don't want the initially poor-performing new technology. The most disruptive technologies also often have worse margins than the initially dominant incumbent offerings. Since these markets don't look attractive, big firms don't dedicate resources to developing the potential technology or nurturing the needs of a new customer base.
What social media gaffe was associated with splitting the Netflix brand into two firms?
Fast follower problem
Watch a pioneer's efforts. Learn from their successes and missteps. Enter the market quickly with a comparable or superior product at a lower cost before the first mover can dominate. Because technology can be matched quickly, firms that pioneer in technology are especially susceptible to this problem.
How has Netflix leveraged crowdsourcing?
While Netflix is widely considered to have a best-in-class collaborative filtering engine in Cinematch, the firm also realizes that it has no monopoly on math. So the firm previously ran a competition, known as the Netflix Prize, ponying up $1 million to the first team that could improve Cinematch scores by 10 percent. For contest purposes, Netflix released a subset of ratings data, stripped of customer identity, [88] and over 30,000 teams from over 170 countries eventually entered the contest. The winning team consisted of engineers that entered the competition on separate teams. It included a pair of coders from Montreal; two US researchers from AT&T Labs; a scientist from Yahoo! Research, Israel; and a couple of Austrian college students turned consultants The positive crowdsourcing experience has led Netflix to run several other contests, including one rewarding hackers for improving the firm's open-source cloud tools. Not only does the firm benefit from code submissions; the contest also has a recruiting payoff.
How are design decisions typically made at Zara?
Zara designs follow evidence of customer demand. The firm's chairman and CEO notes, "Our business model is the opposite of the traditional model. Instead of designing a collection long before the season, and then working out whether clients like it or not, we try to understand what our customers like, and then we design it and produce it." [5] Data on what sells and what customers want to see goes directly to "The Cube," where teams of some three hundred designers crank out an astonishing thirty thousand items a yea; the Zara design staff relies heavily on young, hungry Project Runway types fresh from design school. There are no prima donnas in "The Cube." Team members must be humble enough to accept feedback from colleagues and share credit for winning ideas.
Information asymmetry and price transparency
a decision situation where one party has more or better information than its counterparts the degree to which complete information is available as price transparency increases, information asymmetry decreases
What is A/B testing?
a randomized group of experiments used to collect data and compare performance among two options studied (a or b). a/b testing is often used in refining the design of technology products, and a/b tests are particularly easy to run over the internet in a firm's site. amazon, google, and Facebook are among the firms that aggressively leverage hundreds of a/b tests a year in order to improve their product offerings
grid computing
a type of computing that uses special software to enable several computers to work together on a common problem as if they were a massively parallel supercomputer
What is the "Internet of Things"? Recognize and/or provide an example of how is the Internet of Things currently impacting your day-to-day life. How might it impact your life in the future?
a vision where low-cost sensors, processors, and communication are embedded into a wide array of production and out environment, allowing a vast network to collect data, analyze input, and automatically coordinate collective action Zara that has an RFID tag attached to it will trigger a message to restock shelves, ship more products from a warehouse, and spin up factories for a new order. And there's more to come. Imagine your Nest thermometer coordinating with the rest of your house: closing automated blinds when the sun is hot and high, turning off your water heater when you're away from home, and turning on lights to mimic activity while you're out of town. Smart tags in clothing could communicate with washing machines and dryers and warn the operator if settings could ruin a shirt
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, analyze input, and automatically coordinate collective action
Understand how firms can integrate the value chain concept into their business models such that their products/services are "imperfectly imitable"?
a way of doing business that competitors struggle to replicate and that frequently involved technology in a key enabling role FreshDirect's value chain work together to create and reinforce competitive advantages that others cannot easily copy. Incumbents trying to copy the firm would be straddled across two business models, unable to reap the full advantages of either. And late-moving pure-play rivals will struggle, as FreshDirect's lead time allows the firm to develop brand, scale, data, and other advantages that newcomers lack
Scale advantages and economies of scale
advantages related to size when the costs can be spread across increasing units of production or in serving multiple customers. businesses that have favorable economies of scale (like many internet firms) are sometimes referred to as being highly scalable
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?
anyone reading this book has the potential to build an impactful business. Entrepreneurship has no minimum age requirement. The ranks of technology revolutionaries are filled with young people, with several leading firms and innovations launched by entrepreneurs who started while roughly the age of the average university student. Several forces are accelerating and lowering the cost of entrepreneurship. These include crowdfunding, cloud computing, app stores, 3D printing, and social media, among others.
Understanding how Netflix sustained competitive advantage and won the DVD-by-mail business is a useful example of effective strategy. Know the three critical (and mutually reinforcing) resources that rivals failed to imitate: brand, scale, and a data asset
brand- built through positive customer experience "netflix and chill" scale- 58 distribution centers to deliver to 97% of population overnight data asset- collaborative filtering
What are some ways that Netflix built brand strength?
built through positive customer experience
What was the type of classification software on which the Netflix data asset was based? How did the data asset reinforce the other critical resources (e.g., brand and scale advantages from the long tail)?
collaborative filtering- a classification of software that monitors trends among customers and uses this data to personalize an individual customer's experience leads to positive customer experience which leads to a stronger brand and with more selection in the long tail Netflix can make more precise and accurate recommendations binge-wathcing, stopping after 15 mins, other peoples' ratings
Non-Practicing Entities
commonly known as patent trolls, these firms make money by acquiring and asserting patents, rather than bringing products and services to the market
Massively parallel
computers designed with many microprocessors that work together, simultaneously, to solve problems
Supercomputers
computers that are among the fastest of any in the world at the time of their introduction
cluster computing
connecting server computers via software and networking so that their resources can be used to collectively solve computing tasks
Logistics and operations
coordinating and enabling the flow of goods, people, information, and other resources among locations the organizational activities that are required to produce goods or services. operations activities can involve the development, execution, control, maintenance, and improvement of an organization's service and manufacturing procedures
What is eWaste?
discarded, often obsolete technology; also known as electronic waste
How does Amazon use the long tail for competitive advantage?
limited to the selection available in the stores that they are willing to travel to. Amazon's warehouses and third-party seller selection offer the equivalent of virtually limitless shelf stock, something you'd never find in a store. This selection is delivered by US mail or package shippers, so geography is no longer a concern
What are switching costs? The textbook lists six sources of switching costs - recognize and/or provide a few examples
exist when consumers incur an expense to move from one product or service to another Learning costs: Switching technologies may require an investment in learning a new interface and commands. Information and data: Users may have to reenter data, convert files or databases, or may even lose earlier contributions on incompatible systems. Financial commitment: Can include investments in new equipment, the cost to acquire any new software, consulting, or expertise, and the devaluation of any investment in prior technologies no longer used. Contractual commitments: Breaking contracts can lead to compensatory damages and harm an organization's reputation as a reliable partner. Search costs: Finding and evaluating a new alternative costs time and money. Loyalty programs: Switching can cause customers to lose out on program benefits. Think frequent purchaser programs that offer "miles" or "points" (all enabled and driven by software).
What is the long tail? (p. 62)
extremely large selection of content or products; phenomenon whereby firms can make money by offering a near-limitless selection
Which jobs that exist today likely won't exist at the start of the next decade? Based on your best guess on how technology will develop, can you think of jobs and skill sets that will likely emerge as critical five and ten years from now?
factory workers construction workers- 3D building taxi and truck drivers- cars will drive themselves coding critically thinking data scientist leveraging technology and social media
Sustained competitive advantage
financial performance that consistently outperforms industry averages
Know definitions of fixed costs and marginal costs. Recognize fixed costs and marginal costs associated with (1) the DVD-by-mail business and (2) the digital streaming business model.
fixed costs- costs that do not vary according to production volume; $300 million to enter marginal costs- the coasts associated with each additional unit produced; DVD by mail has higher marginal costs- storage (atoms), delivery (gas, cars), purchase physical DVDs, more employees; digital streaming model one flat rate for every costumer, less expensive
How is FreshDirect different from competition? What problems does it solve? How do its costs compare to its rivals? How does FreshDirect's product selection compare with traditional grocers? How has the arrival of FreshDirect impacted business for traditional grocers? Are other firms likely to be successful in imitating the FreshDirect model and thus competing with the firm in NYC? Why or why not?
greater selection lower prices website storefront fast re-orders semi-prepared specials next-day delivery warehouse facility worker shift efficiency lower energy costs 1% food waste "farm-to-fork" supply chain straddling tech: Artificial Intelligence software Fiber-optic cables Sensors Order verification Mobile app One-click menus not successful in imitating- would need something new to different to add; already 800,000 customers
What are the five components of an Information System (IS)?
hardware software networks data people processes
What is price elasticity? Are tech products typically price elastic?
highly price elastic the rate at which the demand for a product or service fluctuates with price change. goods and services that are highly price elastic see demand spike as prices drop, whereas goods and services that are less price price elastic are less responsive to price change (heart surgery)
IPO
initial public stock offering, the first time a firm makes shares available via a public stock exchange also known as going public
Understand the basics of Zara's operations and be able to provide a few specific examples of sources of competitive advantage
just-in-time manufacturing raising prices overseas vertical integration technology that helps Zara identify and manufacture the clothes customers want, get those products to market quickly, and eliminate costs related to advertising, inventory missteps, and markdowns data- not guessing limited production runs allow the firm to, as Zara's CEO once put it, "reduce to a minimum the risk of making a mistake, and we do make mistakes with our collections
Terms to know: microprocessor, RAM, solid state, volatile memory, nonvolatile memory, flash memory, semiconductor, optical fiber line
microprocessor- the part of the computer that executes the instructions of a computer game RAM- the fast, chip-based volatile storage in a computing device solid state- semiconductor-based devices. solid state components often suffer fewer failures and require less energy than mechanical counterparts because they have no moving parts. RAM, flash memory, and microprocessors are solid state devices. hard drives are not. volatile memory- storage (such as RAM chips) that is wiped clean when power is cut off from a device nonvolatile memory- storage that retains data even when powered down (flash memory, hard disk, or DVD storage) flash memory- nonvolatile, chip-based storage, often used in mobile phones, camera, and MP3 players. Sometimes called flash RAM, flash memory is slower than conventional RAM, but holds its charge even with the power goes out semiconductor- a substance such as silicon dioxide used inside most computer chips that is capable of enabling as well as inhibiting the flow of electricity. from a managerial perspective, when someone refers to semiconductors, they are talking about computer chips, and the semiconductor industry is the chip business optical fiber line- a high-speed glass or plastic-lined networking cable used in telecommunications
Inventory turns
number of times inventory is sold or used during a given time
What other aspects of computing are advancing as well? (Do not need to know specific rates...)
optical fiber storage
Contract manufacturing
outsourcing production to third-party firms. firms that use contract manufacturers don't own the plants or directly employ the workers tho produce the requested goods
Define strategic positioning and the importance of grounding competitive advantage in this concept.
performing different tasks than rivals, or the same tasks in different ways fresh direct- buys and prepares its own food, high inventory turns, artificial intelligence and climate controlled rooms, saves energy, paying in days rather than weeks, sharing data to improve supplier sales and operations
Define operational effectiveness and understand the limitations of technology-based competition leveraging this principle. What are the dangers of competing on operational effectiveness?
performing the same tasks better than rivals "sameness" more commodity than differentiated=competition based on lowest price offered technology easily acquired- fast follower problem
Cash conversion cycle: definition, how does Amazon benefit?What are the three pillars of firm focus in Jeff Bezos's "flywheel?
period between distributing cash and collecting funds associated with a given operation Amazon alone consistently reports a negative CCC—it actually sells goods and collects money from customers weeks before it has to pay its suppliers. This gives the firm a special advantage since it has an additional pool of cash that it can put to work on things like expanding operations, making interest-bearing investments, and more Keep inventory turns high (e.g., sell quickly) and pay suppliers later large selection, customer experience (sometimes referred to simply as "convenience"), and lower prices
What is Moore's Law? To what industry does it apply?
phenomenon of "faster, cheaper" computing chip performance by dollar doubles every eighteen months chip making enabled more powerful chips to be manufactured at cheaper prices Moore's Law applies to chips—broadly speaking, to processors and chip-based storage: think of the stuff in your consumer electronics that's made out of silicon
How is A/B testing used at Amazon?
present "impulse buy" recommendations that match patterns associated with the consumer's shopping carts (e.g., customers who bought that also bought this), he was originally shot down by a senior vice president. Linden was undeterred; he ran an A/B test—capturing customer response for those who saw option "A" (recommendations) versus option "B" (no recommendations). The result overwhelmingly demonstrated that recommendations would drive revenue the firm has relentlessly experimented with tests that modify and compare all sorts of variables, including the wording associated with images and buttons, screen placement, size, color, and more. Constantly measuring customer activity also helps the firm direct its investment in infrastructure. One test, for example, revealed that a tenth of a second's delay in page loading equaled a 1 percent drop in customer activity, pointing to a clear ROI (return on investment) for keeping server capacity scalable
Dynamic pricing
pricing that shifts over time, usually based on conditions that change demand Amazon seems to be monitoring the availability of products at competitor websites and using stockouts as an opportunity to earn more. The Wall Street Journal reports that "where rivals sold out of items, Amazon responded by raising its prices an average of 10 percent consumers may be mad
Commodities. How do consumers make decisions when evaluating similar products?
products or services that are nearly identically offered from multiple vendors lowest price
Application Programming Interface (APIs)
programming hooks, or guidelines, published by firms that tell other programs how to get a service to perform a task such as send or receive data. For example, amazon provides APIs to let developers write their own applications and Web sites that can send the firm orders
Understand Amazon's expansion into the consumer cloud-based offerings (AWS) and the size of this business compared to other divisions (now and potentially in the future)
replacing computing resources either an organizations or individuals hardware or software with services provided over the internet Amazon offers personal cloud storage options for all forms of media, including books, games, music, and video. It even offers file storage akin to Dropbox and Google Drive. These personal cloud offerings allow users to access files from any app, browser, or device with appropriate access. AWS, or Amazon Web Services, allows firms, and really anyone with a credit card, to rent industrial-strength computing capacity on an as-needed basis. The best-known offerings are Amazon's EC2 (Elastic Computing Cloud), which provides the virtual equivalent of physical computing hardware; and S3 (Simple Storage Service), providing Web-based storage. But AWS provides dozens of service offerings, including various operating systems, database products, enterprise software, programming environments, networking services, and more
What three forces are challenging the continued advancement of Moore's Law?
size, heat, and power
Understand the shift from atoms to bits, and how this is impacting a wide range of media industries
the idea that many media products are sold in containers (physical products, or atoms) for bits (the ones and zeros that make up a video file, song, or layout of a book). as the internet offers fast wireless delivery to TVs, music players, book readers, and other devices, the "atoms" of the container aren't necessary. physical inventory is eliminated, offering great cost savings.
What is net neutrality and what is Netflix's position regarding this concept?
the principle that all Internet traffic should be treated equally and that ISPs should not discriminate, slow down access, or charge differentially by user, content, site, platform, application, type of attached equipment, or modes of communication Hastings has also called for stronger net neutrality protections in Europe
To what does "churn rate" refer?
the rate at which customers leave a product or service decreased after blockbuster and walmart
What is the "value chain"?
the set of activities through which a product or service is created and delivered to customers
Understand the resource-based view of competitive advantage.
the strategic thinking approach suggesting that if a firm is to maintain sustainable competitive advantage, it must control an exploitable resource that has four critical characteristics: valuable, rare, imperfectly imitable, and non substitutable Having all four characteristics is key. Miss value and no one cares what you've got. Without rareness, you don't have something unique. If others can copy what you have, or others can replace it with a substitute, then any seemingly advantageous differences will be undercut.
Key resources for competitive advantage, including: o brand, o distributionchannels, o alliances, o patents
the symbolic embodiment of all the information connected with a product or service; built through customer service (quality and trust); used as a noun or verb; the path through which products or services get to customers; apple- store, iTunes subscriptions, individual mapping service Microsoft and internet explorer litigation; can't patent technology;can be extremely important and even lucrative, but in a study of the factors that were critical in enabling firms to profit from their innovations, Carnegie Mellon professor Wes Cohen found that patents were only the fifth most important factor. Secrecy, lead time, sales skills, and manufacturing all ranked higher
Point-of-sale (POS) system and PDAs
transaction processing systems that capture customer purchases. cash registers and store checkout systems are examples. these systems are critical for capturing sales data and are usually linked to inventory systems to subtract out any sold items personal digital assistants- an early name for handheld mobile computing devices Staff enter responses on their mobile devices and send these insights back to headquarters. Managers are motivated to use these systems and accurately record data because they have skin in the game. As much as 70 percent of salaries can come from store sale performance
List the four characteristics of a resource that might possibly yield sustainable competitive advantage.
valuable rare imperfectly imitable non substitutable
How does the Dell example in this chapter underscore the importance of looking beyond current winning strategies in pursuit of sustained competitive advantage?
vertically integrated sold direct to consumers everyone else (HP IBM Sony) caught up to him, market was commoditized Component suppliers located near contract manufacturers, and assembly times fell dramatically. And as the cost of computing fell, the price advantage Dell enjoyed over rivals also shrank in absolute terms
What is vertical integration? What is the value chain?
when a single firm owns several layers in its value chain (the set of activities through which a product or service is created and delivered to customers; inbound logistics,operations, outbound logistics, marketing and sales, service) 60 percent of Zara's merchandise is produced in-house, with an eye on leveraging technology in those areas that speed up complex tasks, lower cycle time, and reduce error Zara is so vertically integrated, the firm makes 40 percent of its own fabric and purchases most of its dyes from its own subsidiary. Roughly half of the cloth arrives undyed so the firm can respond as any midseason shifts in taste and trends