BUS303: Strategic Information Technology

The principles of operational effectiveness and strategic positioning are deceptively simple. But while Porter claims strategy is "fundamentally about being different," how can you recognize whether your firm's differences are special enough to yield sustainable competitive advantage?

An approach known as the resource-based view of competitive advantage can help. The idea here is that if a firm is to maintain sustainable competitive advantage, it must control a set of exploitable resources that have four critical characteristics. These resources must be (1) valuable, (2) rare, (3) imperfectly imitable (tough to imitate), and (4) nonsubstitutable. 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.

Strategy isn't just about recognizing opportunity and meeting demand. Resource-based thinking can help you avoid the trap of carelessly entering markets simply because growth is spotted. The telecommunications industry learned this lesson in a very hard and painful way. With the explosion of the Internet it was easy to see that demand to transport Web pages, e-mails, MP3s, video, and everything else you can turn into ones and zeros, was skyrocketing.

Most of what travels over the Internet is transferred over long-haul fiber-optic cables, so telecom firms began digging up the ground and laying webs of fiberglass to meet the growing demand. Problems resulted because firms laying long-haul fiber didn't fully appreciate that their rivals and new upstart firms were doing the exact same thing. By one estimate there was enough fiber laid to stretch from the Earth to the moon some 280 times! On top of that, a technology called dense wave division multiplexing (DWDM). Transmissions using fiber are accomplished by transmitting light inside "glass" cables. In DWDM, the light inside fiber is split into different wavelengths in a way similar to how a prism splits light into different colors. enabled existing fiber to carry more transmissions than ever before. The end result - these new assets weren't rare and each day they seemed to be less valuable.

For some firms, the transmission prices they charged on newly laid cable collapsed by over 90 percent. Established firms struggled, upstarts went under, and WorldCom became the biggest bankruptcy in U.S. history. The impact was felt throughout all industries that supplied the telecom industry. Firms like Sun, Lucent, and Nortel, whose sales growth relied on big sales to telecom carriers, saw their values tumble as orders dried up. Estimates suggest that the telecommunications industry lost nearly four trillion dollars in value in just three years, much of it due to executives that placed big bets on resources that weren't strategic.