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Chapter 2: Strategy & Competitive Advantage

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The BIG idea: technology alone does NOT create advantage. Anyone can copy tech. What matters is how firms use technology to build unique, hard-to-copy advantages.

Managers must understand industry structure AND how their firm is positioned within it.

Key Vocabulary

Competitive Advantage (CA): Ability to outperform competitors.


Sustainable Competitive Advantage: Advantage that is valuable, rare, hard to imitate, and has no substitutes.


Porter’s Five Forces:
1. Rivalry
2. New entrants
3. Substitutes
4. Buyer power
5. Supplier power :contentReference[oaicite:0]{index=0}

Barriers to Entry: Factors that make it hard for new firms to enter a market.
→ Higher barriers = less competition :contentReference[oaicite:1]{index=1}

Switching Costs: Costs of changing products or systems.
→ Creates lock-in :contentReference[oaicite:2]{index=2}

Network Effects: More users = more value.
→ Strengthens dominance :contentReference[oaicite:3]{index=3}

Value Chain: All activities used to create and deliver a product.
→ Tech can improve or differentiate this :contentReference[oaicite:4]{index=4}

Differentiation: Making a product unique.


Cost Leadership: Competing by being the lowest cost.

Real Examples

Southwest Airlines:
Uses a DIFFERENT strategy (short routes, fast turnaround, one plane type) to reduce cost and increase efficiency :contentReference[oaicite:5]{index=5}
IKEA:
Self-service + flat-pack furniture = lower cost + unique experience :contentReference[oaicite:6]{index=6}
Apple:
High profitability despite tough industry → strong differentiation + ecosystem (switching costs + network effects)
Internet & Pricing:
Makes prices easier to compare → increases buyer power
AI as Substitute:
ChatGPT replacing services like Stack Overflow → example of substitution threat

Challenging Practice Questions

1.
A company launches a new app with advanced features, but competitors quickly copy the technology. The firm struggles to maintain its lead.

Why did the firm fail to sustain its advantage?

A. It lacked network effects B. Technology alone is easy to copy C. It had high switching costs D. It used cost leadership

Correct answer: B

Explanation: Technology by itself is rarely a sustainable advantage because competitors can replicate it. A could help but is not mentioned. C would help the firm, not hurt it. D is unrelated.

2.
An online retailer allows customers to instantly compare prices across multiple sellers.

Which force is MOST strengthened?

A. Supplier power B. Buyer power C. Rivalry D. Switching costs

Correct answer: B

Explanation: Price transparency increases buyer power because customers can easily choose the lowest price. The other forces are less directly impacted.

3.
A startup wants to enter a market but must invest billions in infrastructure and licenses before launching.

Which concept BEST explains this challenge?

A. Network effects B. Switching costs C. Barriers to entry D. Value chain

Correct answer: C

Explanation: High capital requirements are a barrier to entry, making it difficult for new firms to compete. The other options do not describe entry difficulty.

4.
Apple users continue buying Apple products because their apps, photos, and devices all work together seamlessly.

Which TWO concepts are MOST relevant?

A. Network effects and switching costs B. Marginal cost and capital intensity C. Substitutes and rivalry D. SaaS and cloud computing

Correct answer: A

Explanation: Apple’s ecosystem creates switching costs (hard to leave) and network effects (more value with more users/devices). The other options are not relevant to ecosystem lock-in.

5.
A company improves its internal operations using technology, making its processes faster and cheaper than competitors.

Which concept BEST explains this advantage?

A. Value chain optimization B. Buyer power C. Substitution threat D. Marginal cost

Correct answer: A

Explanation: Improving the value chain makes a firm more efficient and competitive. The other options relate to external forces, not internal process advantage.

Citations

Information Systems: A Manager's Guide to Harnessing Technology – John Gallaugher

University of Texas MIS 301 Slides – Chapter 2 Strategy & Technology :contentReference[oaicite:7]{index=7}