Download Making the Case for Networked Business

Making the Case for Networked
Business
Chapter 4
Example of Industrial Economies of Scale
In the early 1900s, Ford Motor Company executives demonstrated that industrial technologies
and management principles could enable the company to dramatically lower the cost and
increase the output of cars in its assembly plants.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th Edition,
Irwin McGraw Hill, 2002
Example of Industrial Economies of Scope:
Because of the specialized nature of the technology and processes used, Ford Motor Company
executives found that economies of scope were limited. The decision to introduce new products,
like trucks, required that new plants be built. In fact, assembly plants were closed for several
weeks each summer to enable new models of cars or trucks to be built in existing plants.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th Edition,
Irwin McGraw Hill, 2002
Network Economies of Scale and Scope
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th Edition,
Irwin McGraw Hill, 2002
Market Maker Value -Added
Dave Perry’s View of How Network Economies
E n able Market Makers to Create Value
0%
Market makers are spending
money, but not yet generating
significant value.
20%
40%
Market makers must
capture 80% or more of
a market to begin to
generate value
60%
80%
100%
% of Buyers/Sellers Involved in Market
Source: Applegate, Lynda M., Rober t D. Austin, and F. War ren McF a rlan, Corporate I nformation Strategy and M anagement. Bur r Ridge, IL:
McGr aw-Hill/Irwin, 2002.
Chapter 4 Figure 4-3
A Scenario-Based Approach to
Valuation
Step 1: Define the purpose for the value assessment
Step 2: Pick a point in the future when you expect your business
strategy to deliver value
Step 3: Analyze the business concept and strategy and forecast market
size, your share, and revenues.
Step 4:
Analyze the capabilities and resources required to
reach the future state and forecast the cost of building those
capabilities and acquiring resources.
Step 5:
Based on this analysis, construct estimates of financial
performance and market value that reflect the "most likely"
assumptions.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th Edition,
Irwin McGraw Hill, 2002
A Scenario-Based Approach to
Valuation
•Step 6: Factor in the uncertainty in your assumptions by
developing several scenarios that represent upper and lower
bounds on key variables in your forecasts.
Step 7: When appropriate, validate your model by using alternative
approaches, such as Discounted Cash Flow and Comparable
Company Analysis.
Step 8: Discuss the value analysis scenarios you have constructed
with
others and critique the findings and assumptions—not
just
once—but on a regular basis.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th Edition,
Irwin McGraw Hill, 2002
The IT Business Value Score Card
Categories 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 pursued
Create an efficient, flexible
online/offline platform for
doing business with
customers, suppliers, and
partners
Sample Measures:
Decrease the cost /
improve the performance
of internal IT operations;
new IT applications to be
created at lower cost, in
less time, and with less
risk; expand the range of
internal IT initiatives
Sample Measures:
Decrease the cost / improve the
performance of doing
business online; decrease
the time, cost and risk of
launching new online
business initiatives;
The IT Business Value Score Card
Categories of
Benefits
Commerce
Goals and Measures
Internal
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
External
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 Score Card
Categories
of Benefits
Content /
Knowl
edge
Goals and Measures
Internal
External
Improve the performance of Improve the performance of knowledge
knowledge workers and
workers in customer, supplier, and
enhance organizational
partner organizations; add
learning
“information value” to existing
Sample Measures:
products and services; create new
Enable individuals to
information-based products and
services
achieve and exceed
personal performance
Sample Measures:
goals; increase the
Provide information to customers,
speed and effectiveness
suppliers, and partners that enables
of decision making;
better decision-making; charge a
increase the ability of
price premium for products and
the organization to
services based on information valuerespond quickly to
added; launch new information-based
threats and opportunities
products and services; increase
revenue per users and add new
revenue streams
The IT Business Value Score Card
Categories
of Benefits
Community
Goals and Measures
Internal
External
Attract and retain top
Attract and retain high quality
talent; increase
customers, suppliers, partners, and
satisfaction,
investors; increase external
engagement, and
stakeholders satisfaction,
loyalty; create a culture
engagement, and loyalty
of involvement,
motivation, trust, and
Sample Measures: Customer,
shared purpose
supplier, partner satisfaction and
Sample Measures:
lifetime value; average revenues
Length of time to fill
per customer and trend over time;
key positions; attrition
level of personalization available
and % that use it; churn rate
rate, trends in hiring
and retaining top talent
(over time, by industry,
by region)
Comparing the three eras of IT Evolution
Timeframe
Dominant
Technology
Organization
Metaphor
Primary IT Role
Mainframe Era
1950s to 1970s
Microcomputer Era
1980s & Early 1990s
Network Era
1990s to present
Mainframe, stand-alone
applications, databases
Stand-alone
microcomputer and enduser tools (e.g., word
processing,
spreadsheets)
Client-server,
Internet, browser and
hypertext
“Data Management”
“Information
Management”
“Knowledge
Management”
Hierarchy
Entrepreneurial
Organization
Networked Business
Community
“Centralized
Intelligence”
“Decentralized
Intelligence”
“Shared Intelligence”
Automate back-office
activities
Provide information and
tools to improve decision
making and knowledge
worker performance
Transform
organizations and
markets to create
business value
Comparing the three eras of IT Evolution
Timeframe
Mainframe Era
1950s to 1970s
Microcomputer Era
1980s & Early 1990s
Network Era
1990s to present
Typical User
IT specialists
IT literate business
analysts
Everyone
Location of Use
Computer room
Desktop
Everywhere
Yearly budgeting
Individual expense
Business
development and
strategic planning
Justification
Cost savings
Increased decision
quality and personal
performance
Business value
Implementation
Independent projects
Ad-hoc
Strategic initiatives
Planning
Process
Benefits of Investments in Infrastructure
Return on
Investment
$(+)
0
Decreased
initial
investments
$(-)
Increased cumulative benefit
from IT portfolio
Time
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.
Chapter 4 Figure 4-5