Case Scenario 2: ERP Inc

question 57

Essay

Case Scenario 2: ERP Inc.
ERPI is a leading provider of enterprise integration software (EIS). EIS allows a firm to connect and integrate processes across all aspects of its business, regardless of where they are located around the world. ERPI is a product-focused company, whereas most competitors in its market space, like Oracle, operate as "solutions companies." Oracle and Microsoft have begun to devote considerable resources to the development of and acquisition of products to compete in the EIS space. Despite these recent threats, one benefit of its product-focused strategy is that ERPI's proprietary product is generally recognized as being 200% to 300% better than competitors' software. ERPI estimates it will take 2 to 3 years for competitors to develop the capabilities needed to bring a competing product to market. ERPI invests a considerable percentage of its profits in basic R&D to support its core products. As evidence of this, among its competitors the firm maintains the largest in-house programming staff dedicated solely to the development of advanced enterprise integration software. Installation and related consulting for EIS typically cost between $100 and $200 million, with the ERPI software component accounting for about 20% of the installed cost (the remaining 80% is spent on the actual installation, not counting the value of the customer's time). ERPI's target market consists of the world's largest manufacturing and industrial firms and it currently enjoys a 60 percent market share.
-(Refer to Case Scenario 2) How valuable, rare, costly to imitate, and nonsubstitutable are ERPI's capabilities?

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Definitions:

Utility Function

A mathematical representation of a consumer's preference ranking over a set of goods or services, indicating satisfaction levels.

Units Of X

A generic term for measuring quantities of a variable or unspecified item, labeled as 'X'.

Exchanges Of X For Y

Transactions or trades where one good, service, or asset (X) is traded for another (Y).

Utility Function

An economic term describing how consumers rank different bundles of goods or levels of happiness.