1.4 The Pages Ahead

Hopefully this first chapter has helped get you excited for what’s to come. The text is written in a style similar to business magazines and newspapers (i.e., the stuff you’ll be reading and learning from for the rest of your career). The introduction of concepts in this text are also example rich, and every concept introduced or technology discussed is grounded in a real-world scenario to show why it’s important. But also know that while we celebrate successes and expose failures in that space where business and technology come together, we also recognize that firms and circumstances change. Today’s winners have no guarantee of sustained dominance. What you should acquire in the pages that follow are a fourfold set of benefits that (1) provide a description of what’s happening in industry today, (2) offer an introduction to key business and technology concepts, (3) offer a durable set of concepts and frameworks that can be applied even as technologies and industries change, and (4) develop critical thinking that will serve you well throughout your career as a manager.

Chapters don’t have to be read in order, so feel free to bounce around, if you’d like; and your professor may ask you to skip or skim over certain sections. But many students write that they’ve enjoyed reading even those areas not assigned (the ultimate compliment for a textbook author). I hope you find the text as enjoyable, as well. Here’s what you can expect:

Chapter 2 “Strategy and Technology: Concepts and Frameworks for Achieving Success” focuses on building big-picture skills to think about how to leverage technology for competitive advantage. Technology alone is rarely the answer, but through a rich set of examples, we’ll show how firms can weave technology into their operations in ways that create and reinforce resources that can garner profits while repelling competitors. A mini-case examines tech’s role at FreshDirect, a firm that has defied the many failures in the online grocery space and devastated traditional rivals. Amazon, Blue Nile, Cisco, Dell, Google, OpenTable, Uber, TiVo, and Yahoo! are among the many firms providing a set of examples illustrating both successes and failures in leveraging technology. The chapter will show how firms use technology to create and leverage brand, scale economies, switching costs, data assets, network effects, and distribution channels. We’ll introduce how technology relates to two popular management frameworks—the value chain and the five forces model. And we’ll provide a solid decision framework for considering the controversial and often misunderstood role that technology plays among firms that seek an early-mover advantage.

In Chapter 3 “Zara: Fast Fashion from Savvy Systems” we see how a tech-fed value chain helped Spanish clothing giant Zara craft a counterintuitive model that seems to defy all conventional wisdom in the fashion industry. We’ll show how Zara’s model differs radically from that of the firm it displaced to become the world’s top clothing retailer: Gap. We’ll show how technology ranging from handheld mobile devices to communications and scheduling systems to RFID tags work together to impact product design, product development, marketing, cycle time, inventory management, and customer loyalty; and how technology decisions influence broad profitability that goes way beyond the cost-of-goods thinking common among many retailers. We’ll also offer a mini-case on Fair Factories Clearinghouse, an effort highlighting the positive role of technology in improving ethical business practices. Another mini-case shows the difference between thinking about technology versus broad thinking about systems, all through an examination of how high-end fashion house Prada failed in its rollout of technology that on the surface seemed very similar to Zara’s.

Chapter 4 “Netflix in Two Acts: Sustaining Leadership in an Epic Shift from Atoms to Bits” studies Netflix in two parts. The first half of the chapter tramples the notion that dot-com startup firms can’t compete against large, established rivals. We’ll show how information systems at Netflix created a set of assets that grew in strength and remains difficult for rivals to match. The economics of pure-play versus brick-and-mortar firms is examined, and we’ll introduce managerial thinking on various concepts such as the data asset, personalization systems (recommendation engines and collaborative filtering), the long tail and the implications of technology on selection and inventory, crowdsourcing, using technology for novel revenue models (subscription and revenue-sharing with suppliers), forecasting, and inventory management. The second part of the chapter covers Netflix’s challenges as it tries what many firms have failed at—maintaining leadership even as industry-related shifts fundamentally alter a firm’s business. We present how the shift from atoms (physical discs) to bits (streaming and downloads) creates additional challenges and opportunities. Issues of digital products, licensing and partnerships, bargaining power of unique-good suppliers, content creation, revenue models, brand building and customer satisfaction, disparate competitors, global expansion challenges, and delivery platforms are all discussed. The section also covers how the streaming business has additional advantages in data collection and leverage, distinctly different but still significant scale assets, compelling benefits for consumers and content providers, and more. The chapter also provides an overview of the cloud-based Netflix technical infrastructure, the firm’s open source contributions and use of crowdsourcing, and the uniqueness and influence of the firm’s culture.

Chapter 5 “Moore's Law and More: Fast, Cheap Computing, and What This Means for the Manager” focuses on understanding the rate of technology change from a computing power and cost perspective, and the implications for firms, markets, and society. The chapter offers accessible definitions for technologies impacted by Moore’s Law but goes beyond semiconductors and silicon to show how the rate of magnetic storage (e.g., hard drives) and networking price and performance improvement create markets filled with uncertainty and opportunity. The chapter will show how tech has enabled the rise of Apple and Amazon, created mobile phone markets that empower the poor worldwide, and created six waves of disruptive innovation over six decades. We’ll also show how Moore’s Law, perhaps the greatest economic gravy train in history, will inevitably run out of steam as the three demons of heat, energy demands, and limits on shrinking transistors halt the advancement of current technology. Studying technologies that “extend” Moore’s Law, such as multicore semiconductors, helps illustrate both the benefit and limitation of technology options, and in doing so, helps develop skills around recognizing the pros and cons of a given innovation. Supercomputing, grid, and cloud computing are introduced through examples that show how these advances are changing the economics of computing and creating new opportunities. Extended examples of IBM’s Watson technology are offered, including the firm’s efforts to turn Watson into a platform to serve other firms and to be baked into new products and services, such as the Cognitoy dinosaur—a children’s learning helper. A mini-case on the development of Disney’s Magic Band shows how fast/cheap technology is being used to replace paper ticketing in Disney World in ways that improve the customer experience, streamline operations, and cut costs. The case also raises issues on the challenges of developing complex new technology initiatives that impact many areas of the firm and its customers. Issues of e-waste are explored in a way that shows that firms need to consider not only the ethics of product sourcing but also the ethics of disposal.

In Chapter 6 “Disruptive Technologies: Understanding Giant Killers and Tactics to Avoid Extinction” we’ll also introduce the concept of disruptive innovation to help managers understand why so many large incumbents are beat by new entrants, and we’ll offer methods for becoming the disruptor rather than the disrupted. Concepts of disruptive technologies and disruptive innovation are introduced in a way that will help managers recognize potentially firm-destroying and career-crushing tech-driven challenges and get new possibilities on a firm’s early radar. Mini-cases show disruption in action—for example, competition between Intel and ARM and Intuit’s migration from packaged software to cloud. The chapter also includes a section examining the potentially disruptive innovation of bitcoin. The section describes how bitcoin works, its appeal and advantages, its disruptive opportunity, and the challenges and limitations it needs to overcome to hit the mainstream.

Chapter 7 “Amazon: An Empire Stretching from Cardboard Box to Kindle to Cloud” explores one of the most disruptive firms of the post-Internet era. The chapter is broken into three parts. The first discusses the firm’s physical goods e-commerce business and provides an opportunity to examine how it seeks tech-driven efficiencies in warehouse operations, fuels strategic goals, creates advantages through the accounting and finance concept of the cash conversion cycle, reinforces brand strength, enables scale and network effects, creates a powerful data asset, and is fundamentally redefining shopping habits. New device experimentation, such as Amazon Dash, the Dash Button, and Amazon Echo, are also introduced. The second section looks at the rise of Amazon’s Kindle business and its evolution, which has moved from e-book reader to include tablet, TV, and smartphone. The chapter also covers the importance of platform creation, challenges in “going mobile,” issues of channel conflict, and how the firm is disrupting the entire publishing and media creation value chain. The final chapter examines Amazon’s personal and corporate cloud computing initiatives, the infrastructure that underpins these efforts, and the business opportunities that these efforts create.

In Chapter 8 “Platforms, Network Effects, and Competing in a Winner-Take-All World” we’ll see how technologies, services, and platforms can create nearly insurmountable advantages. Tech firms from Facebook to Intel to Microsoft are dominant because of network effects—the idea that some products and services get more valuable as more people use them. Studying network effects creates better decision makers. The concept is at the heart of technology standards and platform competition, and understanding network effects can help managers choose technologies that are likely to win, hopefully avoiding getting caught with a failed, poorly supported system. Students learn how network effects work and why they’re difficult to unseat. The chapter ends with an example-rich discussion of various techniques that one can use to compete in markets where network effects are present.

Peer production and social media have created some of the Internet’s most popular destinations and most rapidly growing firms, and they are empowering the voice of the customer as never before. In Chapter 9 “Social Media, Peer Production, and Leveraging the Crowd” students learn about various technologies used in social media and peer production, including blogs, wikis, social networking, Twitter, and more. Prediction markets and crowdsourcing are introduced, along with examples of how firms are leveraging these concepts for insight and innovation. Finally, students are offered guidance on how firms can think SMART by creating a social media awareness and response team. Issues of training, policy, and response are introduced, and technologies for monitoring and managing online reputations are discussed.

Chapter 10 “The Sharing Economy, Collaborative Consumption, and Efficient Markets through Tech” expands on peer production concepts introduced in the earlier chapter to explore the so-called “Sharing Economy” and “Collaborative Consumption.” Examples are offered of citizens coming together to create or share resources across markets, and of the creation of electronic markets to facilitate these services. Drivers that help bring about the sharing economy, the advantages enjoyed by sharing economy firms, and the challenges these firms face are also introduced. The chapter also discusses how mainstream firms are leveraging Sharing Economy concepts, and the future outlook for these firms is explored. Extended mini-cases on Airbnb and Uber discuss the impact, success, competitive advantage, platform creation, the use of APIs, and major issues facing two of the sector’s most successful firms. Success strategies and challenges for firms involved in the sector are illustrated, and the future outlook for the space is explored. 

Chapter 11 “Facebook: Platforms, Privacy, and Big Business from the Social Graph” will allow us to study success and failure in IS design and deployment by examining one of the Internet’s hottest firms. Facebook is one of the most accessible and relevant Internet firms to so many, but it’s also a wonderful laboratory to discuss critical managerial concepts. The founding story of Facebook introduces concepts of venture capital, the board of directors, and the role of network effects in entrepreneurial control. Feeds show how information, content, and applications can spread virally but also introduce privacy concerns. Facebook’s strength in switching costs demonstrates how it has been able to envelop additional markets from photos to chat to video and more. The challenges Facebook has faced as it transitions from a primarily desktop service to one where most users access it via mobile phone are also addressed, exposing how resources do and don’t transfer from desktop to mobile and why mobile is “different” for many firms. Also included is managerial insight on how mobile is, in some ways, a richer platform with a high potential for innovation.  Facebook’s struggles in mobile are illustrated alongside its major acquisitions, including Instagram, WhatsApp, and Oculus VR. Lessons from Facebook as an apps platform are also discussed in a way that provides insight to managers thinking beyond services, and toward successful platform creation. The discussion includes information on the desktop platform’s early success, stagnancy, the firm’s mobile platform struggles, attempts to build Messenger into a platform (and contrast with WeChat and other international efforts), and continued challenges. The failure of the Beacon system shows how even bright technologists can fail if they ignore the broader procedural and user implications of an information systems rollout. Social networking advertising is contrasted with search, and the perils of advertising alongside social media content are introduced. Issues of privacy, global growth, and the firm’s Internet.org effort to bring more data services to the developing world are also discussed.

Chapter 12 “Rent the Runway: Entrepreneurs Expanding an Industry by Blending Tech with Fashion” provides a fascinating look at how two young women entrepreneurs have crafted a business that has attracted millions of customers and recast how women relate to designer fashion. A discussion of the firm’s early stage allows for the introduction of key concepts in entrepreneurship, such as product-market fit and minimum viable product.  The case illustrates how a new firm developed strong network effects through crafting a win-win for customers and fashion brands. Social and mobile are detailed as being key enablers for the firm’s unique sharing economy model. A section on how the firm leverages analytics to inform everything from pricing to product sourcing to customer service shows the advantages of the tech-centric firm over conventional retailers. Technology, as well as human capital, are described in a firm that is at its heart a highly complex reverse logistics business where everything that goes out must come in and often heads right out again after cleaning and treatment. The firm’s expansion into traditional storefronts provides an opportunity to discuss when physical retail may make sense for a tech firm.

Chapter 13 “Understanding Software: A Primer for Managers”  offers a primer to help managers better understand what software is all about. The chapter offers a brief introduction to software technologies. Students learn about operating systems, application software, and how these relate to each other. Enterprise applications are introduced, and the alphabet soup of these systems (e.g., ERP, CRM, and SCM) is accessibly explained. Various forms of distributed systems (client-server, Web services, APIs, messaging) are also covered. The chapter provides a managerial overview of how software is developed, offers insight into the importance of Java and scripting languages, and explains the differences between compiled and interpreted systems. System failures (including an analysis of the failure and resurrection of systems associated with the US Affordable Care Act), total cost of ownership, and project risk mitigation are also introduced. The array of concepts covered helps a manager understand the bigger picture and should provide an underlying appreciation for how systems work that will serve even as technologies change and new technologies are introduced.

The software industry is changing radically, and that’s the focus of Chapter 14 “Software in Flux: Open Source, Cloud, Virtualized, and App-Driven Shifts”. The issues covered in this chapter are front and center for any firm making technology decisions. We’ll cover open source software, software as a service, hardware clouds, app software, and virtualization. Each topic is introduced by discussing advantages, risks, business models, and examples of their effective use. The chapter ends by introducing issues that a manager must consider when making decisions as to whether to purchase technology, contract or outsource an effort, or develop an effort in-house.

In Chapter 15 “Data and Competitive Advantage: Databases, Analytics, AI, and Machine Learning” we’ll study data, which is often an organization’s most critical asset. Data lies at the heart of every major discipline, including marketing, accounting, finance, operations, forecasting, and planning. We’ll help managers understand how data is created, organized, and effectively used. We’ll cover limitations in data sourcing, issues in privacy and regulation, and tools for access, including various business intelligence and so-called “Big Data” technologies. A mini-case on Walmart shows data’s use in empowering a firm’s entire value chain, while examples from Spotify to L.L. Bean underscore Big Data’s impact on the modern enterprise.

Chapter 16 “A Manager’s Guide to the Internet and Telecommunications” unmasks the mystery of the Internet—it shows how the Internet works and why a manager should care about IP addresses, IP networking, the DNS, peering, and packet versus circuit switching. We’ll also cover last-mile technologies and the various strengths and weaknesses of getting a faster Internet to a larger population. The revolution in mobile technologies and the impact on business will also be presented.

Chapter 17 “Information Security: Barbarians at the Gateway (and Just About Everywhere Else)” helps managers understand attacks and vulnerabilities and how to keep end users and organizations more secure. The ever-increasing number of megabreaches at firms that now include Target, TJX, Heartland, Epsilon, Sony, and even security firm RSA, plus the increasing vulnerability of end-user systems, have highlighted how information security is now the concern of the entire organization, from senior executives to frontline staff. This chapter explains what’s happening with respect to information security—what kinds of attacks are occurring, who is doing them, and what their motivation is. We’ll uncover the source of vulnerabilities in systems: human, procedural, and technical. Hacking concepts such as botnets, malware, phishing, and SQL injection are explained using plain, accessible language. Also presented are techniques to improve information security both as an end user and within an organization. The combination of current issues and their relation to a broader framework for security should help you think about vulnerabilities even as technologies and exploits change over time.

Chapter 18 “Google in Three Parts: Search, Online Advertising, and an Alphabet of Opportunity” discusses one of the most influential and far-reaching firms in today’s business environment. As pointed out earlier, a decade ago Google barely existed, but it now earns more ad revenue and is a more profitable media company than any other media firm, online or off. Google is a major force in modern marketing, research, and entertainment. In this chapter you’ll learn how Google (and Web search in general) works. Issues of search engine ranking, optimization, and search infrastructure are introduced. Students gain an understanding of search advertising and other advertising techniques, ad revenue models such as CPM and CPC, online advertising networks, various methods of customer profiling (e.g., IP addresses, geotargeting, cookies), click fraud, fraud prevention, and issues related to privacy and regulation. The chapter concludes with a broad discussion of how Google is evolving (e.g., Android, Chrome, Apps, YouTube) and how this evolution is bringing it into conflict with several well-funded rivals, including Amazon, Apple, and Microsoft.

Nearly every industry and every functional area is increasing its investment in and reliance on information technology. With opportunity comes trade-offs: research has shown that a high level of IT investment is associated with a more frenzied competitive environment. But while the future is uncertain, we don’t have the luxury to put on the brakes or dial back the clock—tech’s impact is here to stay. Those firms that emerge as winners will treat IT efforts “as opportunities to define and deploy new ways of working, rather than just projects to install, configure, or integrate.” The examples, concepts, and frameworks in the pages that follow will help you build the tools and decision-making prowess needed for victory.