Introduction Challenges of Managing in a Network Economy

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan., Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/I rwin, 2002.

1

10

100

1,000

10,000

100.000

1,000,000

1980 1990 1996

PCs and workstations

Mainframe

Adapted from: McKenney, J., Waves of Change: Business Evolution through Information Technology , Boston: Harvard Business School Press, 1995.

Price Performance Trends of Mainframes and PCs $/MIPs

*Ratio of MIPs per Dollars (Mainframes:PCs)

8:1*

286:1*

900:1*

Evolution of Computing Performance

I ntroduction Figure I-1

Themes presented in this book

• Market structure and industry dynamics• Evolving business models• IT impact• Prioritizing IT investment• Assimilation and organizational learning• Buy versus make• Partnership among key constituencies as IT

evolves• Protecting IT assets and managing risks• Pervasive computing

Theme 1: Market Structure and Industry Dynamics

• New choices for designing and building industries, markets, and organizations.

• IT expands processing capacity enabling convergence of voice, video, and data.

• Real-time transactions, interactivity and connectivity.

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/I rwin, 2002. Chapter 1 Figure 1-3

The Value Chain Defines Industry Structure and Relationships

Theme 2: Evolving Business Models

• The business models that dominated the Industrial Economy are evolving to take advantage of the capabilities of the new technologies and business practices of the Network economy, giving rise to new sources of power and differentiation.

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/I rwin, 2002.

Components of a Business Model

Chapter 2 Figure 2-1

Theme 3: IT Impact

• Important dimensions are:– The impact of IT on core operations and– The impact of IT on core strategy.

S o u r c e: A p p l e g a te , L y n d a M . , R o b e r t D . A u s t i n , a n d F . W a r r e n M c F a r l a n . , C o r p o r a te I n fo r m a t i o n S t r a teg y a n d M a n a g e m e n t . B u r r R i d g e , I L : M c G r a w - H i l l / I r w i n , 2 0 0 2 . I n t r o d u c t i o n F i g u r e I - 4

T h e I m p a c t o f I T

F a c t o r y S t r a t e g i c

S u p p o r t T u r n a r o u n d

G o a l : I m p r o v e p e r f o r m a n c e o f c o r e p r o c e s s e s

L e a d e r s h i p : B u s i n e s s u n i t e x e c u t i v e s

P r o j e c t M a n a g e m e n t : P r o c e s s r e e n g i n e e r i n g

G o a l : I m p r o v e l o c a l p e r f o r m a n c e

L e a d e r s h i p : L o c a l l e v e l o v e r s i g h t

P r o j e c t M a n a g e m e n t : G r a s s r o o t s e x p e r i m e n t a t i o n

G o a l : T r a n s f o r m o r g a n i z a t i o n o r i n d u s t r y

L e a d e r s h i p : S e n i o r e x e c u t i v e s & b o a r d

P r o j e c t M a n a g e m e n t : C h a n g e m a n a g e m e n t

G o a l : I d e n t i f y a n d l a u n c h n e w v e n t u r e s

L e a d e r s h i p : V e n t u r e i n c u b a t i o n u n i t

P r o j e c t M a n a g e m e n t : N e w v e n t u r e d e v e l o p m e n t

I T I m p a c t o n C o r e S t r a t e g y

IT Im

pac

t o

n C

ore

Op

erat

ion

s

L o w

H i g h

H i g h

Theme 4: Prioritizing IT Investments

• Shift in IT investment priorities and decisions from a cost-avoidance, project centered approach to an asset-based, strategic option approach.

The IT Business Value Scorecard

Table 4-2: The IT Business Value ScorecardCategories of Benefits

Goals and Measures

Internal External

Type I: Benefits from Investments in a Networked IT Infrastructure

Functionality and Flexibility

Improve infrastructure performance; increase the functionality and range of strategic options that can be pursuedSample Measures: Decrease the cost and/or improve the performance of internal IT operations; enable new IT applications to be created at lower cost, in less time, and with less risk; expand the range of internal IT initiatives

Create an efficient, flexible online/offline platform for doing business with customers, suppliers, and partnersSample Measures: Decrease the cost and/or improve the performance of doing business online; decrease the time, cost and risk of launching new online business initiatives; expand the reach of existing IT enabled businesses and the range of business opportunities that can be pursued.

The IT Business Value Scorecard – Contd.

Categories of Benefits

Goals and Measures

Internal External

Type II: Benefits from Doing Business on a Networked IT Infrastructure

Commerce Improve internal operating efficiency and quality

Sample Measures: Internal process performance and work flow improvements; cost savings or cost avoidance; increased quality; decreased cycle time

Streamline and integrate channels to market, create new channels, and integrate multiple online/offline channels

Sample Measures: Supply chain or distribution channel performance improvements; cost savings or cost avoidance for the organization and its customers, suppliers, or partners; decrease time to market or just-in-time order replenishment; enable new channels to market and/or extend the reach and range of existing channels

The IT Business Value Scorecard – Contd.

Categories of Benefits

Goals and Measures

Internal External

Type II: Benefits from Doing Business on a Networked IT Infrastructure

Content / Knowledge

Improve the performance of knowledge workers and enhance organizational learning

Sample Measures: Enable individuals to achieve and exceed personal performance goals; increase the speed and effectiveness of decision making; increase the ability of the organization to respond quickly and effectively to threats and opportunities

Improve the performance of knowledge workers in customer, supplier, and partner organizations; add “information value” to existing products and services; create new information-based products and services

Sample Measures: Provide information to customers, suppliers, and partners that enables better decision-making; charge a price premium for products and services based on information value-added; launch new information-based products and services; increase revenue per users and add new revenue streams

The IT Business Value Scorecard – Contd.

Categories of

Benefits

Goals and Measures

Internal External

Type II: Benefits from Doing Business on a Networked IT Infrastructure

Community Attract and retain top talent; increase satisfaction, engagement, and loyalty; create a culture of involvement, motivation, trust, and shared purposeSample Measures: Length of time to fill key positions; attrition rate, trends in hiring and retaining top talent (over time, by industry, by region)

Attract and retain high quality customers, suppliers, partners, and investors; increase external stakeholders satisfaction, engagement, and loyaltySample Measures: Customer, supplier, partner satisfaction and lifetime value; average revenues per customer and trend over time; level of personalization available and % that use it; churn rate

Theme 5: Assimilation and Organizational Learning

• The time required for successful organizational learning and assimilation of rapidly changing technologies limits the practical speed of change.

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan., Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.

Success

Phase 1Opportunity Identification and Investment

Phase 2Organizational Learningand Adaptation

Phase 3Rationalization and Continuous Evolution

Widespread TechnologyTransfer

Lack of attention andcommitment

StagnationBlock A

StagnationBlock B

Narrowly focused andnot marketed

Too efficiencydominated

StagnationBlock C

Success

Success

Introduction Figure I-5

Identifying and Assimilating IT

Theme 6: Buy versus Make

• External industry, internal organizational, and technological changes are increasing the pressure on organizations to “buy” rather than “make” IT applications and services.

Theme 7: Partnerships among Key Constituencies as IT Evolves

• High levels of engagement and cooperation among four key constituencies:– Business Executives– IT Executives– Users– Technology Providers / Partners

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan., Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/I rwin, 2002. Introduction Figure I-6

Three Eras of IT Evolution

AdministrativeFramework

Target for IT Use

Justification/Benefits

Era IMainframe

Regulated monopoly

Back office automation

Organizational productivity

Era IIMicrocomputer

Freemarket

Individual decision-

making and productivity

Individual effectiveness

Era IIIInternetworking

Shared partnership

Electronic integration and

learning

Business advantage

Theme 8: Protecting IT Assets and Managing Risks

• The ability to ensure high levels of security, privacy, reliability, and availability is a core capability that determines an organization’s ultimate success and survival.

Theme 9: Pervasive Computing: Opportunities and Risks

• Shift in IT that has dramatically changed the way people access and use technology, the way organizations exploit it, and the way it is developed and managed.