Delta Model
Sustainability: Hax's Delta Model Framework (Examination of Schwab)
2009/// Filed in: Management IS
The Delta Model was proposed by Arnoldo Hax (MIT Sloan) (Hax.03). As a unified strategic framework developed after the mainstream adoption of Internet, it provides specific strategic options beyond the “Best Product Strategy" (i.e. differentiation or low cost) such as the “Total Customer Solution" and “System Lock." Within the wide range of potential strategies the Delta model points out the potential strategic value of IS/IT as enabling technologies to promote boding (with customers, complementors, partners, etc) and leading to a range of potential strategies such as “redefining the customer experience" (e.g. Saturn, Barnes & Noble, Startbucks iTunes), “customer integration" (Dell, Mathworks), “dominant exchange" (Google, YouTube, Wikipedia, iTunes), “system lock" (Intel, Microsoft). According to the Delta Model strategies based on best product are the most difficult to sustain; strategies based on customer integration, customer boding are a better strategic position, and dominant exchanges and system lock are the most sustainable since they affect the whole system and complementors. Schwab's current position of leadership does not seem to achieve dominant exchange status or system lock. Dominant exchange is achieved when a critical mass of collaborating users has been reached and each new user makes the service more useful (e.g. youTube, Wikipedia). System Lock represent the strongest form of bonding and integration among complete industries around a product (e.g. all the software companies developing Windows specific solutions). It focuses in the entire system economics instead of product-centered economics. The firm success is due primarily to the complementors that create solutions based on the firm's architecture. According to this post-internet strategic framework, Schwab has not achieved a strategic positioning that gives them a significant competitive advantage over its competitors. Consequently, Schwab historical success is not necessarily sustainable, it must rely on continuous innovation, customer bonding, as well as other intangible assets to continue to outperform competitors in the current hypercompetitive changing environment.
Note: This is the last posting in the series of 7 blog entries designed to examine the relationship between Charles Schwab’s Business and IS/IT strategy.
Note: This is the last posting in the series of 7 blog entries designed to examine the relationship between Charles Schwab’s Business and IS/IT strategy.
Sustainability: Advantage Through Superior IS/IT Systems (Examination of Schwab)
2009/// Filed in: Management IS
Schwab initially achieved its leadership position as a discount brokerage firm due to their superior technological capability, IS/IT know-how, and the scalability of their original IS/IT infrastructure. As explained earlier, social factors such as the alignment between the firms competitive strategy and IS/IT strategy, capability for rapid prototyping an product development, and agility also played a significant role in their earlier success. In fact, Schwab's investment in IT hardware and software back in 1995 was moderate.
As we have already pointed out in a previous post ... In the specific context of achieving sustainable competitive advantage using IS/IT, Carr has made the argument that while information technology has become the backbone of commerce, the importance of IT and information systems (IS) as a strategic resource capable of gaining sustainable competitive advantage has diminished (Carr.03). He acknowledges that IT is critical to today's competitive environment. However, he makes the point that because IT/IS has become so essential to competition it is inconsequential to strategy. This conclusion is based on the assumption that what makes a resource a source of sustainable competitive advantage is not its ubiquity but its scarcity, that is, a company gains an edge over its competitors by doing something that they can't do or have. Since IS have become commonplace (i.e. data storage, data processing, data transport, CRM, etc), standardized, and available to all competitors as common adopted technologies, its potential as a source of differentiation has diminished. In summary, IS are becoming a commodity and an expense of doing business. According to Carr, given that the value of IS as a strategy resource has been vanishing, he recommends firms nowdays to 1) spend less (research shows that companies with the biggest IT investment do not post the best financial results), 2) follow, don't lead (Moore's law guarantees that the longer you wait to make an IT purchase, the more you will get for your money, and you will be investing in IT capabilities that become more homogenized as opposed to proprietary), and 3) focus on vulnerabilities and not opportunities. While these recommendations of cautious IT investments are intended for the current environment, it is remarkable that Schwab's initial E-business strategy back in 1995 was implemented with a minor IT capital investment by using the existing infrastructure.
Brown and Hagel III (2003) agree that some business nowadays may have overestimated the strategic value of IT, significantly overspent on technology, and recognize the importance of managing IS more rigorously to reduce capital investment requirements and operating costs (Brown.03). However, they emphasize that while in many cases IT (especially standardized IT) is diminishing as a source of strategic differentiation, IT matters a lot (i.e. it does matter to the point of being critical). Brown and Hagel III are of the position that while differentiation is not in IT itself, it is in the new practices and services that IT/IS enable to create that make it critical. Consequently, while Schwab was able to achieve competitive advantages through superior IS/IT capability, it is unlikely that IT alone will be the source that enables the firm to sustain its leadership position.
As we have already pointed out in a previous post ... In the specific context of achieving sustainable competitive advantage using IS/IT, Carr has made the argument that while information technology has become the backbone of commerce, the importance of IT and information systems (IS) as a strategic resource capable of gaining sustainable competitive advantage has diminished (Carr.03). He acknowledges that IT is critical to today's competitive environment. However, he makes the point that because IT/IS has become so essential to competition it is inconsequential to strategy. This conclusion is based on the assumption that what makes a resource a source of sustainable competitive advantage is not its ubiquity but its scarcity, that is, a company gains an edge over its competitors by doing something that they can't do or have. Since IS have become commonplace (i.e. data storage, data processing, data transport, CRM, etc), standardized, and available to all competitors as common adopted technologies, its potential as a source of differentiation has diminished. In summary, IS are becoming a commodity and an expense of doing business. According to Carr, given that the value of IS as a strategy resource has been vanishing, he recommends firms nowdays to 1) spend less (research shows that companies with the biggest IT investment do not post the best financial results), 2) follow, don't lead (Moore's law guarantees that the longer you wait to make an IT purchase, the more you will get for your money, and you will be investing in IT capabilities that become more homogenized as opposed to proprietary), and 3) focus on vulnerabilities and not opportunities. While these recommendations of cautious IT investments are intended for the current environment, it is remarkable that Schwab's initial E-business strategy back in 1995 was implemented with a minor IT capital investment by using the existing infrastructure.
Brown and Hagel III (2003) agree that some business nowadays may have overestimated the strategic value of IT, significantly overspent on technology, and recognize the importance of managing IS more rigorously to reduce capital investment requirements and operating costs (Brown.03). However, they emphasize that while in many cases IT (especially standardized IT) is diminishing as a source of strategic differentiation, IT matters a lot (i.e. it does matter to the point of being critical). Brown and Hagel III are of the position that while differentiation is not in IT itself, it is in the new practices and services that IT/IS enable to create that make it critical. Consequently, while Schwab was able to achieve competitive advantages through superior IS/IT capability, it is unlikely that IT alone will be the source that enables the firm to sustain its leadership position.
Sustainability: Hyper-competition and Continuous Change (Examination of Schwab)
2009/// Filed in: Management IS
The question of whether sustainable competitive advantage is possible in fast-changing hyper-competitive environments such as the financial services sector is actively being debated by the research community. Attaining and sustaining competitive advantage in today's continuously changing hyper-competitive global environment is challenging. Continuous and disrupting change is especially significant in the financial services sector since regulatory pressure and policy can change very quickly depending on the national and global economic situation as well as political factors.
Some authors have argued that in the current fast-changing environment the firm's objective should be directed to an active strategy of disrupting the status quo to create an unsustainable series of competitive advantages (D'Aveni.99). According to this school of thought, sustainable competitive advantages are no longer possible and we are in the next level of competition (D'Aveni.99). The reality of continuous change leads to a new competitive paradigm that goes beyond the traditional basis for competition such as service, quality, price, products, reputation, customer base, and market access. These classical factors are certainly a pre-requisite for achieving success, but sustaining a leadership position depends on great measure of intangible factors operating at the social fabric level of the firm. These include the firm's culture, processes, corporate systems, human resources, management style, adaptability and agility, as well as leadership capability and vision. Schwab's ability to quickly prototype, test, and successfully intro to market new services (e.g. e.Schwab in 1996, Schwab Brokerage Site in 1998, Schwab Alerts in 1999, Learning Center in 2000, PocketBroker in 2000, CyberTrader in 2003, Personal Choice in 2004, Rebalacing Wizard in 2004) as well as the numerous awards received since 1998 are an indication of Schwab's capability and potential for sustainable success through continuous innovation in finding new ways to add value for customers in order to retain their loyalty.
Some authors have argued that in the current fast-changing environment the firm's objective should be directed to an active strategy of disrupting the status quo to create an unsustainable series of competitive advantages (D'Aveni.99). According to this school of thought, sustainable competitive advantages are no longer possible and we are in the next level of competition (D'Aveni.99). The reality of continuous change leads to a new competitive paradigm that goes beyond the traditional basis for competition such as service, quality, price, products, reputation, customer base, and market access. These classical factors are certainly a pre-requisite for achieving success, but sustaining a leadership position depends on great measure of intangible factors operating at the social fabric level of the firm. These include the firm's culture, processes, corporate systems, human resources, management style, adaptability and agility, as well as leadership capability and vision. Schwab's ability to quickly prototype, test, and successfully intro to market new services (e.g. e.Schwab in 1996, Schwab Brokerage Site in 1998, Schwab Alerts in 1999, Learning Center in 2000, PocketBroker in 2000, CyberTrader in 2003, Personal Choice in 2004, Rebalacing Wizard in 2004) as well as the numerous awards received since 1998 are an indication of Schwab's capability and potential for sustainable success through continuous innovation in finding new ways to add value for customers in order to retain their loyalty.
RBV Framework Analysis of Schwab's Business and IS/IT Strategy
2009/// Filed in: Management IS
The resource-based view (RBV) is useful to complement Porter's competitive forces model focused on the industry structure analysis. The RBV framework proposed by Barney and others provides a theoretical model to analyze the idiosyncratic attributes of the firm and their impact on its competitive position (Barney.91).
From the RBV framework it is important to note that by the time Schwab was ready to implement the E-business strategy in 1995, it already possessed significant technological resources, systems, know-how, and capability. Ever since its inception in 1971, Schwab had been a technological front-runner. Dave Potturck (Former Schwab President) preferred to think of Schwab as a technology firm which operated in the financial services industry. Robert Duste (Senior VP, 97) remarked that technology was not a sideline but a core part of the brand and a core part of the business (``almost every business decision involves a discussion of how we're going to use technology to do things for our customers that no-one else can do"). In fact, Schwab introduced services to enable stock trading through PCs in 1985 before it started using the telephone for trading in 1989. By 1985 Schwab posessed core competencies that were difficult to replicate, transfer, and appropriate by traditional full-service financial service firms such as Merryll Lynch. Consequently, they 1) leveraged their unique technological resources to improve value, 2) differentiated their product (discount brokerage targeted to individual investors) based on core competencies (IS/IT capability), and 3) changed the rules of competition by creating new customized products based on their IS/IT leadership (Barney.91).
Beyond the actual physical IT infrastructure that Schwab already possessed by 1995 (hardware and networks), it also had three other critical resources, namely 1) the ability to mobilize and rapidly deploy new IS/IT to achieve business objectives (e.g. a 30 member team developed, prototyped, tested, and launched e.Schwab in less than 12 months), 2) human IT infrastructure (skills and management capability), and 3) intangible IT resources such as IS culture assets, customer-focused orientations, and excellent management practices capable of aligning IS and business strategy. Research has shown that precisely these intangible IT-based resources (e.g. corporate culture, customer orientation, environmental orientation, know-how, change management) deeply embedded in the firms social fabric are a major contributor to competitive advantage and superior performance (Bharadwaj.00).
From the RBV framework it is important to note that by the time Schwab was ready to implement the E-business strategy in 1995, it already possessed significant technological resources, systems, know-how, and capability. Ever since its inception in 1971, Schwab had been a technological front-runner. Dave Potturck (Former Schwab President) preferred to think of Schwab as a technology firm which operated in the financial services industry. Robert Duste (Senior VP, 97) remarked that technology was not a sideline but a core part of the brand and a core part of the business (``almost every business decision involves a discussion of how we're going to use technology to do things for our customers that no-one else can do"). In fact, Schwab introduced services to enable stock trading through PCs in 1985 before it started using the telephone for trading in 1989. By 1985 Schwab posessed core competencies that were difficult to replicate, transfer, and appropriate by traditional full-service financial service firms such as Merryll Lynch. Consequently, they 1) leveraged their unique technological resources to improve value, 2) differentiated their product (discount brokerage targeted to individual investors) based on core competencies (IS/IT capability), and 3) changed the rules of competition by creating new customized products based on their IS/IT leadership (Barney.91).
Beyond the actual physical IT infrastructure that Schwab already possessed by 1995 (hardware and networks), it also had three other critical resources, namely 1) the ability to mobilize and rapidly deploy new IS/IT to achieve business objectives (e.g. a 30 member team developed, prototyped, tested, and launched e.Schwab in less than 12 months), 2) human IT infrastructure (skills and management capability), and 3) intangible IT resources such as IS culture assets, customer-focused orientations, and excellent management practices capable of aligning IS and business strategy. Research has shown that precisely these intangible IT-based resources (e.g. corporate culture, customer orientation, environmental orientation, know-how, change management) deeply embedded in the firms social fabric are a major contributor to competitive advantage and superior performance (Bharadwaj.00).