CHAPTER 5 FINDINGS AND DISCUSSION
5.1 Four Strategies and Two-way Resource Sourcing
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CHAPTER 5 FINDINGS AND DISCUSSION
In this section, we will provide explanations and discussions regarding the major finding from our study. Firstly, we present the four strategies and two-way strategic resource sourcing conducted from our case study. The second topic involves the strategic transitions, which focuses on the reason for strategy changes and the impact contributing to firms in their service innovations and advantages.
In the third topic, we will discuss the underlying resource reconfiguration mechanisms that correspond to both the sourcing approaches and strategy transition paths of the firms. Finally, we address the issue of the drivers, advantages, and disadvantages of first mover in the service context which has not thoroughly conducted but appeared debate in the extant literature.
5.1 Four Strategies and Two-way Resource Sourcing
We proposed a model that presents the static condition of what strategies can be applied given the certain resource set and how firms changed their strategy by possessing the necessary critical resource sets through two categories of source approaches. The research findings consisted of four strategies and two-way critical resource sourcing. The following four strategies were included:
predator, inventor, follower, and hedger. The four strategies were distinctive in terms of their resource set, philosophy toward IT-enabled service innovation, and actions undertaken. Advantages and disadvantages incurred in the execution of the strategies. We explain each strategy in terms of their typical characteristics, such as resource set, tacit action, advantages, and disadvantages, with evidence from the cases. As depicted in Figure 5.1, they are four strategies and two way resource sourcing.
Figure 5.1 Strategies Toward IT-enabled Service Innovations
Predator
Low High
High
Inventor Hedger
Complementary Resource
Information Technology Capability
Follower
Survive Reform
Develop Dominate IT Capability Sourcing
Complementary Resource Sourcing
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Predator to dominate
We described the predator strategy as the firms that intended to dominate the market and obtain the most market shares, thus, sustaining the most competitive position on the basis of possessing particular resource sets with two trends as follows: (1) preemptive effect thatpreempts rivals in the acquisition of scarce assets, and (2) synergetic effect stemming from the well-fit endowment of certain IT capabilities and complementary resources. The first resource set is a preemptive asset that refers to the preemption of assets that are scarce and less likely to be mobilized and imitated by competitors, thereby, creating barriers to entry or isolating mechanisms for impeding the competitors’
potential to entry, growth, and expansion in the IT-enabled service innovation. These typical resources include spatial and geography resources, such as widely spread sales channels, which create abundant service contacts for customers and, thus, leading to more potential to generate revenue. Similarly, on the suppliers’ side, firms can obtain the suppliers’ space from a prior contract from a different geography area (e.g., extending services into other countries). With regard to the preemptive scope of a business into a new market ahead of others, the business is more likely to obtain excess return in the absence of competitors and to attain the brand images and reputation from the local customers in an early stage.
In addition to the preemptive asset that may contribute to the value solely by one specific resource, the more powerful enabler of the predator strategy comes from the synthesized value of certain resource set. To render a synthesis effect, a well-fit endowment that may either complement or strengthen the value of resource is required. As an example, even though company A’s EC had experienced in the development of ecommerce infrastructure and a large number of sales channels that were scare and valuable resources, they could not use the predator strategy. Nevertheless, after they underwent horizontal integration of certain ecommerce sites and joint ventures of the EC site, they were able to introduce their click and mortar business model by the varieties of ecommerce good provisions and the self-owned distribution capabilities rendered by their well-established IT infrastructure. In summary, the resource set that creates preemption over competitors and a synthesis effect will be the main enabler for using the predator strategy.
This is consistent with literature on the preemptive asset can be potentially the driver of first mover advantages (Santos et al. 1995). However, the first mover advantage is not sufficient for achieving the predator strategy because that strategy requires bundle endowment of both resource and IT capability rather than occupation of the certain resource. Therefore, we present another strategy to illustrate that even a late comer may obtain the dominant position by adopting the predator strategy by the acquiring the best fit of existing resources, new resources, and capabilities through certain sourcing approaches. For example, company B has been the follower in ecommerce.
The key difference lies in the important synthetic value arising from the fit of endowment of resource and IT capability, which may render more potential advantages than the value resource.
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The typical aggressive action of the predator strategy is to monopolize relationships with product or service suppliers through vertical integration and horizontal integration by shared IT infrastructure, thereby, locking in suppliers and customers. Locking in suppliers enables firms to offer monopolized or exclusive services and goods, in turn, leading to continuous revenue growth. The monopolized assets, monopolized barriers, and customer access points are beneficial to provide and to execute the service innovation. However, the application of this strategy requires strong backup resources, IT capabilities, and sufficient customers to compensate for the high cost of the investment.
In summary, this strategy demands rich resource endowments to fit with the service innovation.
A firm will not always be able to use these strategies because the main enablers of the strategies come from the preemptive asset and synergetic effect, which are less likely to be obtained in a short time, and, thus, the firm needs the accumulation of resources and capabilities in the development process. Consequently, a firm must rely on their accumulation of strategic resources and capabilities to have these potential resources to synthesis the value by a well endowment resource set.
Inventor to reform
Firms apply the inventor strategy if they have rich IT capability but relatively few complementary resources that can be leveraged to achieve innovations. The goal of the inventor strategy is to launch new IT-enabled service innovations, thereby, creating a new market, reform the rule of competition, and reconstruct the service ecosystem relying on the continuous exploration and exploitation of IT capability. This strategy creates the strongest impacts in the early market position, superior finical performance, and entry barrier building when IT serves as the enabler of coordination and collaboration across stakeholders in service value networks. Nevertheless, while the firm may enjoy the first move advantages of technology leadership and immobilized IT investment, they also face technology and market uncertainty and immaturity that may lead to unpredictable costs, time of return, customer acceptance, and the entrance to a non-profitable market that may result in considerable loss.
The important IT capability of a firm that applies the inventor strategy includes the following:
IT infrastructure, which largely is employed as the resolution of complex linkages; coordination from different suppliers and vendors; and sales channels. The superior IT infrastructure comes from the following two sources: 1) the existing well-established source with a high degree of flexibility affording the extendibility as the value network expands; and 2) the experience and expertise on increasing the sophisticated source from the skilled IT center or department. For example, company A’s SCMS developed by the spin off IT department, which has long focused on large integrated and coordinated systems, has enabled the information processing and transmission within complex network linkages among various business partners. From the point of service network construction, we found evidence that was consistent with literature claiming the physical infrastructure and the importance of information process. The second critical resource is the internal
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R&D that fuels the numerous possibilities with the knowledge of existing technology that can discover more insight and accurately assess the potential benefits from the introduction of IT-enabled service innovation. The internal R&D also enables the deployment of intelligent property action against competitors, thereby, creating entry barriers and longer lead times in the new service innovation. For instance, company C’s MMK filed a patent lawsuit against company A. The lawsuit deterred company A’s progress in developing more features on MMK in spite of company C’s loss in this lawsuit. This result contradicts literature that argues that the patent and internal R&D does not have a significant role in the strategic position because the technology is easily copied and is in the service industry (Lovelock et al. 1996). The importance of patents and R&D increase when the protection not only includes the technological asset but also the business model embedded in the technology. Finally, the IT capabilities can be externally sourced from the joint R&D and outsourcing, which enables quick adoption as the IT capabilities move to other unfamiliar domains where internal technological experience cannot be applied or the existence of high quality IT suppliers.
The advantages of the inventor strategy include market position in the absence of other competitors and construction of the service network, which may have the potential to gain revenue.
In addition to market performance, firms can accumulate the technological experience and assets that can be employed for subsequent movement into new IT-enabled service innovations. The advantages of a high level of IT capability lies on the reason that while IT resources, such as the physical technology asset, may be imitated and replaced as markets evolve, the capability to build the IT applications evolves over long periods of time through accumulation of expertise on IT development, introduction, and cooperation with the business unit becomes causal ambiguities and, thus, are relatively difficult to be imitated in a short time, which renders the ability to continuously develop new IT-enabled service innovation in the long term. However, the newer technology may incur a huge cost due to the unpredictable market acceptance, which may require several experimentations on customer’s adoption education. In addition, if firms do not protect this invention through intellectual property appliance or continuously develop new value added services for the system, the advantages will soon dissipate due to imitation by competitors that have sufficient resources to outsource this type of IT. More importantly, after the inventor strategy is undertaken, firms should take further action to acquire the complementary resources, such as reputation, sales channels, and relationship with suppliers, to maximize and diffuse the value of the IT-enabled innovation across other industries and domains.
Follower to develop
The firm applying the follower strategy aims to further achieve a strong position in the overall quality of service, innovative features, and development of the management in new innovation from the assessment of the actions of market pioneers. Many examples from our studies are consistent
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with the statement that industry incumbents entering late will not find it as difficult to challenge the early movers and penetrate the market because they are able to leverage some of its developed resources. Particularly, we found that firms who applied Follower rely on acquiring resources to achieve external service innovation. This includes the relationship assets that are applied to enable services of partnership on technology development or joint ventures for financial capital and risk sharing. The developed external linkages with customers, such as trust, brand image, and customer loyalty, are the drivers to quickly achieve the critical mass as new service launches, thereby, obtaining economic benefits and keeping up with the early entrant in amount of short time.
The firms using the follower strategy may gain competitive advantages on the basis of two actions. The first action is to quickly enter the existing market through the financial capital, long developed partnership, and external technology sourcing as the market uncertainty is reduced. The second action is to develop and improve the IT applications that have been introduced and further improve the service of the features, function, stability, and smooth service experience. Moreover, the second action also adjusts the business model based on the information learned from the early entrant.
With the follower strategy, firms are able to access the condition with the best timing of entry that is based on the early mover’s example. This can be regarded as the free rider effect resulting from an environmental factor, such as reduced market uncertainty and information spillover(Miyagiwa et al.
2002). Thus, the value of new launch service innovation is more accurately evaluated. In another aspect, the technology curve leads to more maturity. As an example, company B’s MMK devotes the construction of a suppliers connection first and then a joint venture with the Japan company to acquire the technical skills on building MMK by technology transfer instead of focusing on the development of technology facilities themselves. They further focus on the virtual distribution channel development on the basis of a well accepted market by stakeholders, such as banking and IT service providers. In this case, they concentrate on their core capability in marketing and sales and acquire the necessary resources to introduce such innovation from external partners without carrying high risk and costs on the development of technology assets on their own. However, this strategy may result in relatively lower revenues and may not surprise customers with new services, thus, having little impact on building a better brand image.
Hedger to survive
The goal of the hedger strategy is to maintain a competitive position through investment on fundamental and mature technologies to support operations when firms lack resources and IT capabilities to innovate. The hedger strategy also represents the firm’s pre-entry state where they do not have sufficient resources from the exiting resource set to start the service innovation. Hedger strategy is feasible when the organization offer stably services for regular customers with their internal efficiency. The advantages will be less risk being innovative and aggressively take initiative to pursue the pioneers benefit over competitors. The less investment on relative new technology will
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cost on new technology with high uncertainty in market. The hedge can preserve their core business with effetely operation enabled by the small scale of information systems. This strategy can keep firms relatively less concern with the financial problems and the large scale. However, we found most of firms tend to take this strategy initially and then choose to be the pioneers or follower after they acquire some critical resource to fulfill the strategy toward their service innovation.
Summary
Based on different resources and capabilities that the firms possess, different strategies toward different service innovations were used. Through examination of their resource possessions, we found that there was a pattern that indicated that the firms made their strategies based on their IT capability to carry out the technological innovation to create a new market and to have the first mover advantages. The summary of these strategies are presented in Table 5.1.
Drawing from our case study results, we categorized their strategic orientations by the model mentioned above. Each strategy had advantages and disadvantages that served as feasibility indicators for service innovations given the resource sets that the firms possessed. In other words, the strategies are not perfect and strategies that are applied for a long time result in the firm enjoying the benefits without any changes toward different service innovations. There is only the feasible strategy based on the present configuration resource set in terms of IT capability and complementary resource because the drive for the resource set value will erode as the market evolves with competition and environmental changes. The certain resource set may be valuable now but may not mean anything in next new innovation. Therefore, in facing new service innovations, firms are more likely to acquire more resources or to enhance the given resources to the proposed strategy when there is no sufficient resource set supporting the strategy. In conclusion, the continuous sourcing and resource reconfiguration is promising for analyzing the firm’s enabler in certain strategies and the potential benefits after the execution of feasible strategies in different IT-enabled service innovation
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Table 5.1 Summary of Four Strategies
Predator Inventor Follower Hedger
Complementary Resource
Foresighted mangers in discovering new innovation idea and fully support from senior mangers on innovation development and execution.
Open culture for stimulating innovative idea from employees
Streamlined process in value chain enables effective service delivery
Tight relationship with suppliers to enable cooperation and collaboration
Dominant position in value network enables exclusive services offering
High brand image aids loyal customers building from new services quickly
Lack of aligned partners to extend their service into other market cross
industries
Weak brand image deter adoption rate and profitability of innovation
Lack of loyal customers base to create economics of scales continuously compensate for cost quickly
No abundant financial capital for resource acquisition and relationship building with suppliers
Strong support from senior mangers on service innovation development
Large customer base create economic of scale to compensate the cost in
development of service innovation
Strong partnership with IT service providers provide professional and quick adoption of new IT
Rich finical capital for service innovation investment
Long focus on improvement of services quality lead to more acceptance of new services
Trusted partnership with suppliers enables new service value network construction quickly and smoothly
Conservative attitude towards investment
Low budget for IT investment less enable the
No abundant financial capital for resource acquisition and relationship building with suppliers
Lack of plenty loyal customers to create economic of scales continuous compensate for cost quickly
IT capability Specialized IT department to introduce IT innovation quickly
Flexible IT systems enables new service embedded efficiently
Tight relationship and lock in with suppliers enabled by shared IT infrastructure
Robust and Flexible IT infrastructure to unfold coordination and cooperation in the value network
Rich experience on IT development provide insights in new innovation and enable quick implementation
Visionary mangers discover the innovation opportunity in IT
Foresighted IT mangers discover new value from IT application and
Abundant intellectual property sustain advantages of IT-based service innovation
Less intensive R&D to develop innovative IT-enabled services
Less intelligent property to building the entry barriers to impede rivals
Less strong IT infrastructure to unfold collaboration with suppliers
IT outsourcing to quickly adopt new innovation while focus on business
IT outsourcing to quickly adopt new innovation while focus on business