Information Technology & Business Strategy

Across a span of seven weeks I completed an MBA class on information technology and business strategy that involved the reading of nearly 1,000 pages of business theory and case studies, analyzing these ideas with a six-person team, and creating of over 100 pages of reflection.  My final case study involved reflecting on the three business articles that were the most compelling to me and then applying them across the mattress industry.  

Top Three Articles

• Customer Intimacy and Other Value Disciplines, Michael Treacy and Fred Wiersema (1993)
• How to Help Your Employees Learn from Each Other by Kelly Palmer and David Blake (2018)
• Two Routes to Resilience by Clark Gilbert, Matthew Eyring, and Richard N. Foster (2012)

Information Technology and Business Strategy Reflection

The pursuit of a competitive advantage in the market is what keeps business leaders engaged during the day, awake deep into the night, and oftentimes burning the candle at both ends.  Whether the organization is a healthcare system recruiting a new cardiologist, an airline increasing the number of recurring passengers, or even a foundation hosting more fundraising events; everyone is in pursuit of success through establishing a competitive advantage over their competition.  However, success and the pursuit of a competitive advantage does not come easy and is heavily influenced by the five forces model (Porter, 1979) of business. 

• Bargaining power of suppliers
• Threat of new entrants
• Threat of substitute products or services
• Bargaining power of customers
• Jockeying for position among current competitors

In order to achieve a strong competitive advantage a business needs a strategy that enables their team to navigate these five forces.  Successful companies will navigate these challenges through strong operations, a commitment to employee education and retention, and the ability to mitigate change effectively.  Treacy and Wiersema provide a compelling argument of three critical value disciplines in business through their Customer Intimacy and Other Value Disciplines from 2000.  Palmer and Blake  outline how to harness and foster the growth of the intelligence on a team through their How to Help Your Employees Learn from Each Other in 2018.  Gilbert, Eyring, and Foster also propose a compelling strategy for how a company can successfully navigate change in their Two Routes to Resilience piece from 2012.  

Developing a company strategy based on value disciplines, employee education, and change will ultimately lead to an organization achieving and maintaining a competitive advantage.  Below I will outline these three strategies, critique the role of information technology in the strategy, and illustrate the impact that these strategies make in securing and maintaining a competitive advantage.  

Leveraging the Value Disciplines

Treacy and Wiersema outline why companies have become and remained leaders in their industry, through the narrowing of their business focus, specifically in one of three value disciplines.  They identify operational excellence, customer intimacy, and product leadership and state that successful companies become champions in one discipline and meet the industry standards in the other value disciplines.

• Operational excellence, providing customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience.
• Customer intimacy, segmenting and targeting markets precisely and then tailoring offering to match exactly the demands of those niches
• Product leadership,offering customers leading-edge products and services that consistently enhance the customer’s use or application of the product, thereby making rival goods obsolete.

Companies that push the boundaries of one value discipline while meeting industry standards in the other two gain such a lead that competitors find it hard to catch up (Treacy and Wiersema 2000).  Toyota is a great example of a company that uses technology to manage the operations of their value chain.  They perform this through value mapping, an activity that allows the organization to analyze all aspects of the company along the value chain.  This term is commonly referred to as Total Quality Management and is used to evaluate if a product or process does or does not add value.  Toyota’s IT investment in their operations allows them to achieve a competitive advantage and also achieve great success in the value discipline of operational excellence.  Treacy and Wiersema reference the impact that General Electric had in using IT investments to understand precisely what customers are ordering so that they could leverage their “virtual inventory” to quickly complete the delivery of the desired product (Treacy and Wiersema, 2000).  This would have not been possible without strong operations and the impact of an IT investment in this operational system.  This quick and seemingly personal service by GE can also be viewed as this company demonstrating effectiveness in the value discipline of customer intimacy and operational effectiveness.  

Knowledge Management

Palmer & Blake propose a strategy that facilitates the transfer of employee knowledge through peer learning opportunities.  Peer learning is the ultimate replacement for traditional education from a document or web-based training.  This idea is reinforced through over 55% of employees stating that when they need to learn a new skill, they turn to their peers.  Unfortunately, most organizations do not have peer-to-peer training programs and instead use single-day intensive training programs that can be costly and ultimately ineffective (Palmer and Blake 2018).  The downside to peer-to-peer learning is that it still only involves individuals and can be hard to scale due to time restrictions.  In order for companies to be effective, they must prioritize peer learning and design a formal peer-to-peer learning program that has the ability to scale personal knowledge.  

This approach allows for employees to gain knowledge, practice applying knowledge, receive feedback, and reflect on what has been learned.  Palmer and Blake identify four key best practices for a strong peer-to-peer learning program.

• Appoint a facilitator who can act as a neutral party and keep learning on track and organized
• Build a safe environment that empowers people to be comfortable communicating their thoughts and beliefs
• Focus on real-world situations that simulate challenges that employees will experience
• Encourage networking that builds meaningful relationships across the organization that stretch past formal learning events

A key component to developing a knowledge-oriented company is the inclusion of a knowledge management system that can track and assist in providing recommendations of what associates should be learning in their roles.  Currently, there are several knowledge management databases on the market that include cloud-based and artificial intelligence technologies that support saving knowledge creations that can be accessed at anytime by other company employees and auto-suggestion of topics searched in a database, respectively.  These knowledge management systems are critical competitive necessities for companies (Carr 2003). Companies that adopt a knowledge-creating culture and appreciate the sharing of knowledge will be more likely to increase competitive advantage, create disruption, and maintain sustainability.  Personally, I think about how my company, Cerner Corporation, uses the Workday platform that has a specificing Learning component that consists of a repository of relevant topics for my role.  The tool also provides weekly recommendations based off of company popularity, executive recommendations, and new skills that my position may need.  Tools like Workday demonstrate the immense impact that information technology can make in the management of knowledge, networking of employees, facilitation of knowledge between employees across an organization.   

Navigating Change

Companies will have to eventually transform themselves in response to market shifts, groundbreaking technologies, or disruptive startups in the industry (Gilbert et. 2012).  Dean Becker is quoted (Couto 2002) saying, “More than education, more than experience, more than training, a person’s level of resilience will determine who succeeds and who fails.  That’s true in the cancer ward, it’s true in the Olympics, and it’s true in the boardroom.”  While Becker’s beliefs are focused on the individual, they also expand to successful companies around the world.  Resilience is a critical component to managing transformation.  He also outlines how resilience must be a reflex, a skill made possible by facing reality, making meaning from hardships, and improvisation at the core.  Gilbert  proposes a two-piece strategy to being resilient and overcoming a major transformation within your organization. 

A company beginning a transformation should focus their energy in repositioning their core business model to the altered market place and should create a separate, disruptive business that will become the source of future growth.  In the first piece, Gilbert proposes that companies should identify the strongest competitive advantage that their current model can sustain in the current disrupted marketplace.  Repositioning the core is more than just cutting cost, a company must reposition and target the core needs of their most valuable customers.  For a company to effectively reposition their core business they have to properly evaluate their value chain and the linkages that connect unique value activities.  These linkages will be the opportunities where an 

organization can make tradeoffs, optimize, and coordinate activities to effectively reposition the business.  In 2007, Barnes & Noble effectively repositioned the core of their business, the traditional retail bookstore.  They made tradeoffs on their value chain like reducing the amount of stores to invest in the quality of the other stores and target their most valuable customers, families with children.  They created a new and open environment that had children’s books, gadgets, coffee table books, coffee shops, group readings, and other activities.  This repositioning resulted in $7 billion in revenue coming from the 700 Barnes & Noble bookstores.  

The second element to Gilbert’s strategy focuses on building a new and disruptive business for the future.  The goal of this strategy should look to embrace disrupting the marketplace as much as typical disruptors like startups do.  This new business line will be the future of the company and should lead disruption across the entire marketplace.  A company that is looking to create a new and disruptive business must act like they are searching for a blue ocean.  These companies need to leave the overcrowded market places and instead sail to a blue ocean; the uncontested markets where competition is irrelevant (Kim and Mauborgne, 2004) just like Cirque du Soleil did when they reinvented the circus.  When searching for this blue ocean a company should not be asking “what do we do that customers still want?” but “what unmet needs do customers have in today’s environment?”.  Gilbert proposes that this separate business unit must have its own profit formula, dedicated staff, distinct process, and a singular culture.  Barnes & Noble was effective at creating a new business unit through the commitment to developing the Nook e-reader.  This product capture over 25% of the e-reader market in just two years.  Eventually this resulted in a substantial $300 million investment from Microsoft.  

The final piece to Gilbert’s strategy of being resilient through managing a transformation is through what he calls the Capabilities Exchange, the coordination of the two transformation efforts so that each gets what it needs and is protected from interference by the other.  At the core this should allow each transformation to share resources and operate as if the future of the company depended on it alone (Gilbert 2012).  In order to accomplish this he proposes a five-step framework of establishing singular leadership, identifying resources that can be shared like marketing and customer data, creating a “exchange teams” that can work on both sides, protecting boundaries so that the organizations are not interfering with the other’s progress, and scaling to promote the new business.  This proposal by Gilbert allows the repositioned core to remain self-sufficient and profitable while creating a new business unit that is disruptive and is the key source of future growth.  Information technology is critical for an organization to properly understand and analyze the changes in an industry and theirself.  IT has to be used to conduct market research, forecast the future, collaborate internally, and communicate changes back out to employees and customers.  The ability to identify the need to adapt and communicate these changes throughout the COVID-19 pandemic has continued to illustrate the importance of information technology when navigating change.

Information technology and business strategy is the ultimate tool to achieve a competitive advantage as outlined by the three frameworks and ideas previously outlined.  An organization needs to first identify the value discipline (or two) that they are going to be the best at in the world and focus their IT and strategy around this principal.  Once a path is chosen, there has to be a strong knowledge management system in place the is based in peer-to-peer learning. This knowledge management program will continue the education of your team, empower them to make start choices, and stay with the company because of their relationships and feeling of being valued.  Finally, an organization has to leverage IT and business strategy to be ready and effectively navigate change in the industry.  It is not a matter of if, but when an organization will be impacted by the five forces.  Information technology and strategy will allow an organization to achieve and maintain true competitive advantage.  
The State of the Mattress Industry

If someone asks you to name a store that appears to be “located on every corner” you would likely think of businesses like Starbucks and Walgreens.  While these are great guesses and each have over 8,000 stores in the US, they pale in comparison to one industry, mattresses.  As of 2018 there were over 9,000 mattress stores located in the US (Dodson, 2018).  One of the biggest reasons why mattress stores are so common across the country can be answered through basic economics.  A regular grocery store typically operates with profit margins of less than 5%; in comparison mattress stores typically operate with margins of at least 40% and will oftentimes exceed a staggering 900% (Dholakia 2015).  Business is typically good and easy to come by.  Most traditional consumers also prefer to buy mattresses in a physical store where they can see the different options and even “test out” what they are going to buy (Sleep 2019).  This level of customer intimacy is hard to come by in the online mattress shopping experience.  

However, in the past few years the traditional way to buy a mattress – going into a store – has sharply declined in popularity and has been replaced by a “bed-in-a-box” online shopping experience.  In 2018, Mattress Firm, one of the largest mattress companies filed for bankruptcy and closed over 700 physical stores.  The mattress industry was officially being disrupted and Mattress Firm was one of the greatest victims (Borney 2018).  There are multiple reasons why the $14 billion mattress industry is ripe for disruption.  First, the cost of a mattress can be staggering, and with a high profit margin there are multiple opportunities for companies to cut costs for a consumer.  Second, going into a physical stores has been less of a need when new mattress companies are willing to ship mattresses to consumers and manage returns if necessary.  Online mattress companies are also providing consultation and assistance in buying the correct mattress, a process that can be a challenge to a person surrounded by other customers and countless mattress choices in a store to compare.  These elements are virtually removing the need to physically be in a store.  Finally, as other e-commerce companies have proven, the online shopping experience is hard to argue with.  Current you have to travel into a store, working with a sales rep, picking out your mattress, transporting your mattress back to your home, and then setting it up.  Alternatively you could purchase a mattress online with one click while sitting on your current mattress.  Enter, Casper.  A start up mattress company valued at over $4 billion that utilized a “bed-in-a-box” concept to disrupt the mattress industry and cripple Mattress Firm’s success.  Mattress Firm found itself in this challenging situation primarily because at the same moment that online mattress firms like Casper, Purple, and Yogabed were growing, Mattress Firm bought Sleepy’s in 2015, acquiring over 1,000 physical mattress stores (Meyersohn 2018).  This was clearly a poor strategy as Mattress Firm filed for bankruptcy and sold over 700 stores three years later.        

In order to be successful in the future Mattress Firm desperately needs to focus on two new strategies, customer intimacy and navigating through change.  Customer intimacy is clearly the most important value discipline in the mattress industry.  On average, a new mattress is purchased every decade and will cost a customer over $1,000.  This is not a quick and easy decision for the average consumer.  Mattress Firm should recommit to making mattress purchasing a personal and custom experience whether in person or online.  A customer should be guided through the full process from the point of entry all the way to a mattress being used at home for the first time.  Mattress Firm should also commit to this customer for life, knowing that they will likely be back in business for a mattress in the future for themselves and their family. One of the best ways to maintain this customer for a lifetime is to utilize a customer relationship management tool (CRM) to catalog and store customer information that exceeds just purchase details.  An effective sales rep should collect as much information as possible that can be used to continue to build a lifetime relationship with a customer.  A CRM to facilitate customer intimacy is a powerful use of information technology in business, especially a business ripe for disruption like the mattress industry.  

The second key strategy that Mattress Firm should focus on is in regards to navigating change.  First, the firm needs to reposition their core to the changing market, the physical store locations.  These stores need to be repositioned and be sensitive and focused on the customer intimacy of a customer and making the in person shopping experience as simple as possible.  Additionally they need to redirect resources to the “bed-in-a-box” business unit, aligning with the change in the industry.  Finally, and arguably most important, they need to look towards the future and create a new and innovative business unit that acts as a start up in the mattress industry.  Throughout these changes the Mattress Firm needs to continue to facilitate a peer to peer learning program where they can keep all associates educated about the current changes in the industry, preparing them for effectively working with new customers.  

While the application of these three frameworks may work well in the US mattress industry, there would be limitations in the European mattress market.  The greatest differentiation in the market relates to the availability of physical stores.  According to Psychology Today the US has 46 square feet of retail space per capita compared to 9 square feet per capita in the UK.  This is a staggering difference in the amount of physical mattress stores that are even possible in the UK.  With this change, the UK mattress stores should save all physical stores for all premium luxurious mattresses and provide an elite experience for people that want to buy luxurious mattresses.  However, the majority of business should be focused on online retail.    

The Entrance of Amazon in the Mattress Industry

Start ups like Casper successfully disrupted the mattress industry so effectively that one of the titans in the market, Mattress Firm, had to eventually file for bankruptcy and reorganize their entire firm.  However, while Casper and other start ups were disrupting the traditional market, Amazon was slowly moving in to disrupt the disruptors.  

Casper had the initial first mover advantage in the digital marketplace for mattresses, but Amazon quickly swept in to begin taking over the digital market.  Amazon was able to effectively accomplish this due to knowing what consumers like and don’t like due to their plethora of customer data from selling other mattresses like Purple, Casper, and Tufts & Needle.  Amazon also has operational excellence in the e-commerce space which allows for a lot of opportunity with a product with high margins like mattresses that has allowed them to provide mattresses at a fraction of the cost.  Finally, they have a brand that is used and trusted in every household.  

Firms selling mattresses with margins well over 100% is an idea of the past now that Amazon has successfully entered the market and heavily reduced the cost for an average customer.  The overhead costs for traditional brick and mortar stores will be even more challenging to manage if companies have to lower their point of purchase to compete with Amazon.  Due to this challenge I would recommend that organizations like Mattress Firm pivot to selling almost all of their physical stores and keeping only a few per major city for specific events or premium purchases.  The cost to do business in a physical store won’t be worth the profits.  

The recommendation on customer intimacy is even more important for organizations with the entrance of Amazon.  One of the greatest tools of Amazon for customer acquisition is the power of technology like machine learning and artificial intelligence to predict what their customers want.  In order to compete with this a company will be required to have strong customer intimacy to compete.  This customer intimacy has to exist from the point of purchase and throughout a consumer’s life.  If a company doesn’t keep a customer engaged, they may turn to the easier to purchase and cheaper alternative on Amazon.  

The future of mattresses exists in e-commerce through customer intimacy.  I would recommend an interactive website that assists a consumer in identifying their top recommended mattresses based off of their needs and wants.  All the while there should be a personal sales representative available to help a customer throughout the evaluation process, the purchase of the mattress, and finally the delivery.  Following the delivery there needs to be a representative that can personally reach out in the first 30 days and then at least on an annual basis to check for customer satisfaction.  

Citations

Dodson, A. (2018, January 4). There Are Now More Mattress Stores in the US than Starbucks. https://sleepzoo.com/now-mattress-stores-us-starbucks/

Dholakia, U. (2015, September 22). Why Are There So Many Mattress Stores in America? https://www.psychologytoday.com/us/blog/the-science-behind-behavior/201509/why-are-there-so-many-mattress-stores-in-america

Sleep Like the Dead. (2019). Buying A Mattress Online Vs Buying In Store. https://www.sleeplikethedead.com/mattress-reviews-online.html

Bomey, N. (2018, October 05). Mattress Firm files for Chapter 11 bankruptcy protection, will close up to 700 stores. https://www.usatoday.com/story/money/2018/10/05/mattress-firm-chapter-11-bankruptcy/1532218002/

Meyersohn, N. (2018, October 06). How Casper drove Mattress Firm into bankruptcy. https://www.cnn.com/2018/10/06/business/mattress-firm-bankruptcy-casper/index.htm