UPDATED - OIM Exam #2 (ERP, Netflix, Moore's Law, Disruptive Technologies, Amazon)

Enterprise Resource Planning (ERP)

an all-in-one software platform that connects and manages an organization's major business functions (sales, inventory, accounting, HR, etc) in a centralized environment

ERP: why companies use Enterprise Resource Planning (ERP) systems

- as businesses grow, they often use separate, disconnected platforms/systems for different departments

- separate apps don't communicate well, leading to duplicate data, errors, and delays

- this kind of software centralizes data so departments can seamlessly share information and coordinate activities

ERP: Real-world example of Enterprise Resource Planning (ERP)

A laptop company:

- sales: receives a customer order

- inventory: automatically updates stock levels

- accounting: records the sale and creates an invoice

- purchasing: notices if inventory is running low and reorders

- shipping: learns the order is ready to ship

W/ Enterprise Resource Planning (ERP), all of this happens AUTOMATICALLY without manual data transfer between departments

ERP: Integration

process of connecting different departments, processes, and software systems so they can share info and work without duplicate entry

ERP: what happens without integration?

- employees enter same data multiple times

- different departments hold conflicting versions of the same data

- inventory records don't match physical stock

- accounting gets sales info late

- management makes decisions using outdated data

ERP: Service-Oriented Architecture

a software approach where large applications are broken down into smaller, independent components that each perform a specific function and can be reused across the organization

ERP: why Service-Oriented Architecture (SOA) is important

Reusability: the same service can be used by multiple business processes

Flexibility: organizations can update or extend features without rebuilding the whole system

Integration: different applications can easily talk to each other

Scalability: systems can expand smoothly as business needs change

ERP: Implementation Scope

defines the boundaries of an ERP project

like what departments, business processes, requirements, resources, and timelines are included (and what's left out)

ERP: why an Implementation Scope is critical

- ERP projects are big and expensive

- Scope Creep (uncontrolled expansion of requirements)

- unexpected costs/delays

- confusion over who is responsible for what

ERP: key questions to define before implementation of ERP

1. which departments will use the system?

2. which business processes need support?

3. what features/functionality are required?

4. what data needs to be transferred?

5. what is the budget and timeline?

6. who is responsible for implementation and testing?

ERP: Data Migration

the process of moving existing organizational data from old spreadsheets and databases into a new ERP system after cleaning and formatting it

ERP: why data preparation matters

moving dirty data (duplicates, missing info, wrong formats) into a brand-new ERP means the new system will still produce errors ("garbage in, garbage out")

ERP: 6 steps of data migration

Extract - pull data from old systems/spreadsheets

Clean - fix errors, remove duplicates, and fill missing gaps

Transform - format data to match the new ERP's requirements

Validate - check that data is accurate and complete

Load - import the data into the new EPR

Verify - Confirm everything appears correctly and works and expected

ERP: Transaction Modeling

involves identifying and testing real-world business transactions to ensure the new ERP system handles them accurately before going live

ERP: why Transaction Modeling is important

proves the ERP can handle daily business operations, not just store files

ERP: examples of tests for Transaction Modeling

- creating a customer order and checking inventory availability

- purchasing products from suppliers and receiving inventory

- processing payments, issuing refunds, and generating invoices

NETFLIX: Atoms to Bits

switching from physical items (DVDS) to digital files (internet streaming)

NETFLIX: First Sale Doctrine

law that says if you buy a physical copy (like a DVD), you own it and can rent or sell it to anyone w/o paying royalties (applies ONLY to physical items, NOT digital stremaing)

NETFLIX: Long Tail

selling a big variety of hard-to-find, niche items instead of just stocking popular, well-known items

NETFLIX: Collaborative Filtering

smart software that tracks what you like, compares it with millions of other users, and suggests things you'll enjoy

NETFLIX: Churn Rate

the percentage at which customers leave a product/service

NETFLIX: Fixed Costs

costs stays the same no matter economies of scale

NETFLIX: Marginal Cost

extra cost to make/send ONE MORE UNIT of something

NETFLIX: Windowing

content is available to a given distribution channel for a specified period of time to make maximum money

NETFLIX: Coopetition (Frenemies)

when two companies work together as partners while also competing against one another (Netflix uses Amazon's servers to run it's site, but competes directly with Amazon Prime Video)

NETFLIX: Scope Creep

when a project keeps growing out of control beyond its original plan

NETFLIX: what are the three main assets Netflix has that makes it dominate physical DVD rentals?

Brand, Scale, Data

NETFLIX: Brand power - how it works

- built brand through great customer service, not just ads

- First Mover Advantage: being the first big DVD-by-mail service meant people naturally thought of Netflix first

NETFLIX: Netflix's Scale (defeating rivals)

- beat giants - Blockbuster (40 million customers) and Walmart tried to crush Netflix

- 58 distribution facilities - ship DVDs overnight to 97% of US (would cost $300 million to replicate and rivals don't want/have $ to spend)

- economies of scale - Netflix has millions of users, can spread $300 million warehouse cost across a huge group (every subscription they get is more profitable for them)

NETFLIX: Leveraging the Long Tail

used streaming to advantage b/c First Sale Doctrine doesn't apply to streaming so they were able to offer unique/rare products

NETFLIX: Data and Cinematch

- Cinematch: recommend movies based on customer ratings, keeping users happy and lowering churn rate

- Smart Inventory: recommend movies that were currently sitting in the local warehouse to avoid shipping delays

- Revenue Sharing: studios gave Netflix DVDs at wholesale prices in exchange for a cut of subscription revenues

NETFLIX: challenge 1: no first sale law

can't just stream a movie because they own a DVD; they must negotiate digital streaming rights separately

NETFLIX: challenge 2: media oligopoly

about 6 major media companies control 90%+ of all US media, giving them a lot of power to set prices

NETFLIX: challenge 3: bidding wars

rivals like Amazon, HBO, Apple, and Disney bid against them driving up licensing prices

NETFLIX: challenge 4: windowing limits

movie studios delay streaming releases to protect cash from theaters and cable TV

NETFLIX: longest tail vs long enough tail

- DVD era, offered almost every movie ever made (longest)

- streaming era, bc licenses are EXPENSIVE and LIMITED, Netflix focuses on a CURATED LIBRARY with something for everyone (long enough) and makes shows original to Netflix

NETFLIX: keep pricing simple- what does this mean?

- competitors use complex pricing (ads, pay-per-view, buying titles)

- Netflix kept a single flag monthly fee, keeping customer satisfaction higher than rivals

NETFLIX: Physical Sale DOESN'T EQUAL Streaming Scale

having lots of warehouses gives zero advantage in digital aspects

NETFLIX: more subscribers = more content power

firm with most subscribers can afford to spend more on big shows b/c cost per user stays low

NETFLIX: Hasting's Strategic Regret

making firm public too early (required to disclose financial position, world learned remarkable profit growth trajectory --> attracted two very big sharks: Blockbuster - video rental & Walmart - Fortune 500 firm)

Moore's Law

chip performance per dollar doubles every 18 months

Microprocessor

the calculating "brain" of the computer that executes software instructions

Semiconductor

another word for computer chips

Volatile Memory

TEMPORARY memory used to run programs. Data is LOST when power goes off (RAM - Random Access Memory)

Nonvolatile Memory

PERMANENT memory storage. Data is KEPT when power is turned off (hard drives)

Flash Memory

Nonvolatile, chip based storage that holds data without power

- slower than random access memory but acts as solid state equivalent to a hard drive

- used in phones, cameras, and laptops

Solid State Electronics

- chips/components with NO MOVING PARTS

- benefits: less likely to break, draw less power, run more reliably

Component Growth Rates

while moore's law strictly applies to chips, other components grow exponentially too:

- data storage (doubles every 12 months)

- fiber optic data speed (doubles every 9 months)

Price Elasticity in tech

how much buying/producing tech responds to prices changes

tech is HIGHLY price elastic - as chips get CHEAPER, people and businesses want to buy MORE, opening brand-new markets

Moore's Wall

Moore's Law relies on making chip pathways smaller, faster, more efficient - THEY CAN'T SHRINK FOREVER

3 barriers:

1. heat - packing pathways too tightly causes chips to overheat

2. power - draw massive electricity

3. size - reach physical limits

The Cloud benefits

- easy to scale up

- gives world-class tech to anyone

- saves money on hardware

- rent or pay-per-use rather than buy

The Cloud drawbacks

- latency

Latency

Delay/lag time it takes for data to travel over a network and get a response

E-Waste

discarded tech junk created when fast changing tech makes old electronics obsolete

- HAZARDOUS but also contains VALUABLE RECYCLABLE MATERIALS (silver, platinum, copper, plastic, and aluminum)

Disruptive Technologies

New technologies that come to market with a set of performance attributes that existing customers don't value BUT over time performance attributes improve to point where they invade established markets

The fall of giants

fast/cheap tech makes new market ELASTIC, which acts as a catalyst causing dominant giants to fall

Kodak Case Study

- had 145,000 employees, a 90% market share, and huge profits

- today bankrupt and lost almost entire workforce b/c failed to transition to where puck was going (digital)

Innovator's Dillema

Those running big firms fail to see disruptive innovations as a threat because they do what executives at large, shareholder-dependent firms should do—they listen to their customers and focus on the bottom line

why big companies fail - profit margin trap

- early disruptive tech is cheap and makes very low profits per sale

- big companies refuse to waste money on it when their current products make higher profits

why big companies fail - value network disconnect

"different buyers, different needs" - big companies ignore new tech b/c it starts out serving cheap/niche buyers instead of their rich/mainstream buyers

why big companies fail - sudden shift (s curve)

- tech improves over time

- suddenly the new cheap tech becomes good enough for mainstream customers, offering 90% of the features at a fraction of the cost

why big companies fail - cruise ship analogy

they are slow to turn around, by the time they realize small "speedboats" (startups) are stealing their customers, it's too late to catch up

How to spot Disruptive Tech

pay close attention to how fast/cheap tech is advancing and watch new emerging trends

Removing Management Blinders

stop focusing only on current customers and short term profit margins - see future tech coming

Talking to Experimental Edge

connect with people working on the cutting edge of tech to learn what's coming

Top External Info Sources

talk to top scientific researchers and venture capitalists to spot new tech trends early

Internal Communication

get managers, tech experts, and different product teams talking to each other more often

Employee Exit Warning Signal

pay attention when passionate employees quit to start new tech company - huge sign that a new trend is worth watching

Amazon's Early Financial Strategy

Amazon went 7 years without a profit investing revenue to purposefully build assets that achieve STRATEGIC COMPETITIVE ADVANTAGE

3 pillars of Amazon's Wheel of Growth

Large selection, customer experience (convenience), lower prices --> brand, scale, double sided network effects

Double Sided Network Effects on Amazon

opening website to 3rd party sellers attracts more customers, which in turn attracts more sellers

3rd Party Sellers

outside companies or people that list and sell their own products directly on a platform

AMAZON: early fulfillment vs modern warehouse talent

Early - inefficient, money burning

Today - bought robots to run warehouse, efficient, saves time

AMAZON: random chaos shelving rule

no two similar products shelved next to each other - prevents errors from confusing color, sizes, etc

AMAZON: kiva system robots in fulfillment centers

robots bring heavy shelves to human workers, changed system from workers running to shelves

AMAZON: conveyor belts and robot efficiency

- conveyor belts whisk full bins straight to packing

- kiva robots pack shelves close together

wave 1 (1960s)

room sized main frames (gov and big businesses)

wave 2 (1970s)

minicomputers (smaller business computers)

wave 3 (1980s)

personal computers (PC in home/office)

wave 4 (1990s)

internet computing (cheap PC connected worldwide)

wave 5 (2000s)

mobile phones (smartphones in everyone's pocket)

wave 6 (today)

pervasive computing (tech woven everywhere: RFID tags, smart speakers, robot vaccuums, wearables)

AMAZON: Accounts Payable

a bill that says when payment is due sometime in the future

AMAZON: Cash Conversion Cycle (CCC)

The firm's period between distributing funds (cash) and collecting cash for a given operation (amazon has a negative one)

Liquidity Problems

firms that can't generate cash quickly enough

Cash Flow or Float

collecting cash from buyers BEFORE having to pay suppliers

Amazon's NEGATIVE CCC

getting paid instantly by customer credit cards BEFORE paying the suppliers' bills weeks later

Advantage of Negative CCC

free interest free cash that can immediately use to build warehouses and invest elsewhere

Amazon's Golden Financial Rule

sell items as fast as possible (high inventory turns) and pay suppliers as late as possible

Dynamic Pricing

when a company/firm changes or shifts it's pricing based on DEMAND

Example of Dynamic Pricing

Uber Friday at 6pm is more expensive than Monday at 6am

Characteristics of Oligopoly

few dominant sellers, high barriers to entry

Online vs Retail Efficiencies

Amazon (online) is more efficient than Barnes & Noble (retail)

Value Networks

Group of customers, suppliers, and others connected to a business

Best Buy vs Amazon's shelves

Shelf life for product:

Best Buy - 70 days

Amazon - 33 days

Amazon vs Barns & Noble inventory turnover and style

Barns & Noble - 3 turnover/year, average on shelf for 121 days, 30% returns, mix of shelf and warehouse stock

Amazon 16 turnover/year, average book in house for 22 days, few returns, all warehouse stock

Straddling

trying to copy a competitor's success while keeping your own business model/position - not successful/efficient

Accretive

"instant-add" growth - buying/expanding in a way that instantly adds profits, value, infrastructure

AMAZON: Accretive example

buying Wholefoods Market to instantly get hundreds of physical grocery stores

Random-Access Memory (RAM)

chip-based memory, a temporary storage with fast access for executing computer programs and files