1. Consumption economics – how does this alter the process of resource allocation in developing strategy?
We studied how three factors indelibly altered the IT infrastructure landscape in the “Consumption Economics” module, and the lasting impact on the way that customers approach purchasing and using IT. During that lecture, several rhetorical questions were posed about how this new model of consumption would alter the process of product development. The questions are no longer rhetorical. Looking at the model of consumption economics, and using other models from throughout the course (Five/Nine Forces, etc.), discuss how an IT infrastructure firm can gain and hold competitive advantage in this environment, and whether it is different from how to establish and maintain competitive advantage in a traditional, product based model.
The three things, namely, cloud computing, consumerization of IT and the downturn of global economy have questioned the basic business model under which the tech-based companies have been operating and making profits until now. The disruption that the cloud is bringing in, can either help deliver the full potential of technology or on the other side it could accelerate the commoditization of technology - all depending on how the companies reinvent their business framework.
Earlier, the IT infrastructure companies used to make profit through a product based model which included setting up of infrastructure, implementation and integration of their product into customers’ existing system. And till this stage, it would already have cost the customers 70% of their total budget for the implementation of the new technology. And by the time customers get fairly acquainted with the newly installed technology, there is a newer version of the technology out in the market. This creation of the newer version of technology (hence increasing the complexity for the end users), is a consequence of the two factors. Firstly, the increasing competition which ultimately forces everybody to cut down the prices and thereby reducing margins and secondly, the need to create a differentiating product so as to stand out from competitors. This traditional approach is clearly shown in the complexity model and with the result of increasing the consumption gap, which is, the difference in rate at which technology is created and rate at which it is consumed by the consumers. These huge costs which customers pay upfront for the technology that they may not even use entirely, has created a need for a different model. The increase of consumption of technologies over the cloud and through micro-transactions are forcing tech companies to abandon their earlier approach of product based complexity model and change to service based consumption model.
Analysis of IT infrastructure Industry through Porter’s five forces
Market Forces Scale of Impact Points Considered
Threat of new Entrants Low High capital requirements, low product...