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Strategic Computing and Communications Technolgy

• See bspace.berkeley.edu – Has syllabus, lectures, news items, etc.

• Requirements– Individuals

• Submit 4 news items + 2 or 3 paragraph analysis of each over semester

• Participate in class discussions

– Group projects• We appoint mixed groups• Technology assessment in middle• Policy debate at end

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Strategy Overview

Hal R. Varian

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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

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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– Jeff Rohlfs, Bandwagon Effects

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Michael Porter’s Five ForcesPorter, Michael E., Porter, Michael E., Competitive Strategy, Competitive Strategy, Free Press, 1998Free Press, 1998

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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

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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

• Other– Customer switching costs – Expected retaliation (I.e., capacity threat)– Government policy

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Buyer power• Competitive environment

– Buyer concentration– Bargaining power– Substitutes available – Product differentiation – Price sensitivity – Buyers' switching costs– Brand identity – Buyer volume – Threat of backward integration

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Threat of substitutes

• Customer switching costs

• Buyer inclination to substitute

• Price-performance trade-off of substitutes

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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

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Critique of Porter

• Product of its times (1980s)– Relatively stable environment

• Not a very clear taxonomy– Competitors, actual and potential?– Substitutes, internal or external?

• Not much emphasis on technology and innovation

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Jack Welch (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

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1. What playing field looks like• Who are your competitors?• What has what share globally and in each market?• Is your business 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?

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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?

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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?

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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?

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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?

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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, not necessarily

something to study…

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Brandenberger and Nalebuff

CustomersCustomers

CompanyCompany

SuppliersSuppliers

CompetitorsCompetitors ComplementorsComplementors

Value NetValue Net

What’s this?What’s this?

Actual and potentialActual and potentialcompanies and productscompanies and products

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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

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Shapiro and Varian

• Forces important for info tech industries– Differentiation of products and prices– Intellectual property– Switching costs and lock-in– Network effects– Standards and interconnection– Systems effects and complementors

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Example: Apple Ipod story

• Price of songs (differentiation of prices)

• Competition (free songs)

• Systems effects (players + content)

• Channel conflict (online + offline)

• Standardization (interoperability)

• Entrants (mobile phones)