Class 3 Value Chain Key Resources S2023a

Value Chain and Key Resources
AFM 241 Week 2

2
Today’s Learning Objectives
 Describe key concepts and revisit their role in a business model:
 value chain
 resources
 distribution channels
 Recognize and provide examples of how technology can create and
improve value chain, resources, and distribution channels
 Identify three key strategy concepts that can indicate whether a business
uses technology to do better by being different

3
The Value Chain
The value chain is the “set of activities
through which a product or service is
created and delivered to customers.”

4
Resources
 Tangible resources, for example:
 physical (e.g., equipment, land)
 human (e.g., managers and employees)
 financial (e.g., cash and working capital)
 Intangible resources, for example:
 data, information, knowledge, and patents
 reputation, brand, user base/network

5
Resources and Activities are Inter-related
 Resources are inputs required to perform activities
 Activities can create resources so resources can also be outputs
 Resources and activities combine to deliver a capability
 Capacity for a set of resources to perform an activity in an integrative manner
 Resources shape capability: e.g., financial & human capital + R&D > innovation
 Integration achieves outcome: e.g., innovation, productivity, learning

6
Which Resources are Really Important?
Resources can provide the business with an advantage when they are:
 Valuable
 Rare
 Tough to Imitate, and
 Non-substitutable

7
Distribution Channels
The path through which products or services get to customers.
 direct/indirect channels
 physical/online channels
Source of table: Information Systems. A Manager's Guide to Harnessing Technology, v9.0 John Gallaugher, section 2.2.

8
All 3 Business Model Components Impact Performance
Source of business model canvas: https://canvanizer.com/new/business-model-canvas
Tangible resources
Intangible resources
Direct/indirect channels
Physical/online channels

Any Questions?
Key business concepts
 Value chain
 Resources (VRIN)
 Distribution channels
9
Questions?

10
 Describe key concepts and their role in understanding a business model:
 value chain
 resources

11
Technology and the Value Chain
 A business can implement software to integrate across value
chain activities through information technology:
 Supply chain management (SCM)
 Customer relationship management (CRM)
 Enterprise resource planning software (ERP)
 If a business adopts standard software, there is a danger it
could change a unique process into a generic one.
Photo credit: How the Tesla Model S is Made | Tesla Motors Part 1 (WIRED) available @ https://www.youtube.com/watch?v=8_lfxPI5ObM

12
Technology Can Reinforce Powerful Resources
 A brand is the symbolic embodiment of all information
connected with a product or service.
 Consumers use brands to decide which company’s
products are better, thus forming brand loyalty, so a
strong brand can be an exceptionally powerful resource.
 Technology can rapidly and cost-effectively strengthen a
brand; e.g., viral marketing leverages consumers to
promote a product or service.

13
Technology Can Create Powerful Resources
 Protection can be granted in the form of a patent for those
innovations deemed to be useful, novel, and nonobvious. It
can cut off paths to exploit an innovation.
 Patents provide firms a degree of protection from
copycats. Considered to be unfairly stacked against startups
due to the cost of litigation.
 Non-Practicing Entities: Commonly known as patent
trolls, these firms make money by acquiring and asserting
patents, rather than bringing products and services to market.
Quote: Information Systems. A Manager's Guide to Harnessing Technology, v9.0 John Gallaugher, section 2.2.

14
Technology Opens Opportunities For New Channels
Opportunities
 Application Programming Interfaces (APIs)
are programming hooks that allow other
firms to tap into their services.
 Affiliates are third parties that promote a
product or service in exchange for a
percentage of any sales.
 Partnership agreements among technology
companies
Examples
 Uber on apps offered by
airlines
 Websites that promote
books sold on Amazon

Any Questions?
Potential impact of technology on
 value chain activities
 reinforcing or creating resources
 opportunities for new distribution
channels
15
Questions?

16
 Describe key concepts and their role in understanding a business model:
 value chain
 resources

17
Business Strategy = Be Different So Business Does Better
Business model answers the question:
how does the business create, deliver,
and capture value (earn profit)?
Business strategy answers the
question: how does the business do
better by being different (from rivals)?
Strategy deals with competition and
trends in the external environment.
X
Strategic Positioning View
Advantage if perform different activities than rivals, or
the same activities in a different way
Resource-Based View
Advantage if resources are Valuable, Rare, tough to
Imitate, and Non-substitutable (VRIN)
X X
+ +
One way to measure if do better

Switching Costs
 Costs incurred by consumers when switching
from one product to another.
 Firms that seem dominant but do not have high
switching costs can lose to strong rivals.
 Data can be a strong switching cost for firms
leveraging technology.
 Firms with more customers gather more data to
improve their value chain with more accurate:
 Demand forecasting
 Product recommendations
Sources of switching costs:
 Learning costs
 Information and data
 Financial commitment
 Contractual commitments
 Search costs
 Loyalty programs

Google pays to be default search engine on Apple phones
“…with respect to google and the
use of google search on Apple
phones, it is extremely easy to
switch to another provider.”
Former Google CEO, Eric Schmidt in an interview
with WSJ
Quote and screen shots from: video titled “How Apple and Google Formed One of Tech’s Most Powerful Partnerships,” from Information
Systems. A Manager's Guide to Harnessing Technology, v9.0 John Gallaugher, section 2.2.

Network Effects
 When the value of a product or service increases as its number of users expands.
 Sometimes referred to as network externalities or Metcalfe’s Law.
 Powerful resource for firms that can control and leverage dominance, e.g.:
 Facebook – most dominant social network worldwide.
 Microsoft Windows – 90% share in operating systems.
 eBay – has an 80% share of online auctions.
 Switching costs can also help determine the strength of network effects.

OpenTable: Network Effects Create VRIN Resources
 The world’s largest online restaurant reservation system:
 reservations at over 32,000 restaurants worldwide
 roughly 99% of all online reservations in North America
 The system delivers value by exposing inventory and lowering search costs.
 customers are attracted to the service that has the most restaurants
 restaurants are attracted to the service with the most customers
 mutual attraction creates network effect and two-sided market
 Results in VRIN resources: user base AND restaurants
Photo source: OpenTable

22
Scale Economies
 Businesses can benefit from advantages related to size. We say an organization is
scalable if it benefits from scale economies as it develops/grows.
 Businesses benefit from economies of scale when fixed costs can be spread:
 across increasing units of production, or
 in serving a growing customer base.
 A large or growing business may also gain an advantage from gaining bargaining
power with their suppliers or buyers.

23
TiVo: Consequences When Technology Is Easy To Copy
 TiVo pioneered digital video recorder (DVR) category.
 Technology was based on readily available components:
 Off-the-shelf processors
 Commodity hard drives
 Open source Linux operating system
 Rivals could enter the market with a fraction of the
development time required.
 Misread competition: not consumer electronics companies,
competitors were cable TV providers who:
 had a distribution channel and existing customer base
 were motivated by opportunity to collect user data
Source of table: Information Systems. A Manager's Guide to Harnessing Technology, v9.0 John Gallaugher, section 2.1.

Any Questions?
3 key strategy concepts
 Switching Costs
 Network Effects
 Scale Economies
24
Questions?

25
Additional References
 Information Systems. A Manager's Guide to Harnessing Technology, Version 9.0.
John Gallaugher, Chapter 2.1 and 2.2.

Class 3 Value Chain Key Resources S2023a

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