BUS303: Strategic Information Technology

In contrast to operational effectiveness, strategic positioning refers to performing different activities from those of rivals, or the same activities in a different way. While technology itself is often very easy to replicate, technology is essential to creating and enabling novel approaches to business that are defensibly different from those of rivals and can be quite difficult for others to copy.

For an example of the relationship between technology and strategic positioning, consider FreshDirect. The New York City–based grocery firm focused on the two most pressing problems for Big Apple shoppers: selection is limited and prices are high. Both of these problems are a function of the high cost of real estate in New York. The solution? Use technology to craft an ultraefficient model that makes an end-run around stores.

The firm's "storefront" is a Web site offering one-click menus, semiprepared specials like "meals in four minutes," and the ability to pull up prior grocery lists for fast reorders - all features that appeal to the time-strapped Manhattanites who were the firm's first customers. Next-day deliveries are from a vast warehouse the size of five football fields located in a lower-rent industrial area of Queens. At that size, the firm can offer a fresh goods selection that's over five times larger than local supermarkets. The service is now so popular that apartment buildings in New York have begun to redesign common areas to include secure freezers that can accept FreshDirect deliveries, even when customers aren't there.

The FreshDirect model crushes costs that plague traditional grocers. Worker shifts are highly efficient, avoiding the downtime lulls and busy rush hour spikes of storefronts. The result? Labor costs that are 60 percent lower than at traditional grocers. As for freshness, consider that while the average grocer may have seven to nine days of seafood inventory, FreshDirect's seafood stock turns each day. Stock is typically purchased direct from the docks the morning of delivery in order to fulfill orders placed the prior night. The firm buys what it sells and shoplifting can't happen through a Web site, so loss from waste and theft plummets.

Artificial intelligence software, coupled with some seven miles of fiber optic cables linking systems and sensors, supports everything from baking the perfect baguette to verifying orders with 99.9 percent accuracy.. Since it lacks the money-sucking open-air refrigerators of the competition, the firm even saves big on energy (instead, staff bundle up for shifts in climate-controlled cold rooms tailored to the specific needs of dairy, deli, and produce). And a new initiative uses recycled biodiesel fuel to cut down on delivery costs.

Buying direct from suppliers, paying them in days rather than weeks, carrying a greater product selection, and avoiding the "slotting fees" (payments by suppliers for prime shelf space) common in traditional retail all help FreshDirect to negotiate highly favorable terms with suppliers. Add all these advantages together and the firm's big, fresh selection is offered at prices that can undercut the competition by as much as 35 percent. And FreshDirect does it all with margins in the range of 20 percent, easily dwarfing the razor-thin 1 percent margins earned by traditional grocers.

Technology is critical to the FreshDirect model, but it's the collective impact of the firm's differences, this tech-enabled strategic positioning that delivers success. Operating for more than half a decade, the firm has also built up a set of strategic assets that not only address specific needs of a market but are now extremely difficult for any upstart to compete against. Traditional grocers can't fully copy the firm's delivery business because this would leave them straddling two markets (low-margin storefront and high-margin delivery), unable to gain optimal benefits from either. Competing against a firm with such a strong and tough-to-match strategic position can be brutal. Just five years after launch there were one-third fewer supermarkets in New York City than when FreshDirect first opened for business.