Creating Innovative Organizations

Creating Innovative Organizations
Chapter 13 Creating Innovative Organizations CLASSROOM OPENER GREAT BUSINESS DECISIONS – Edwin Land Develops the Polaroid Camera In 1937, Edwin Land started a company that made a polarizing plastic and named it Polaroid. The business boomed. Land was taking family pictures on his vacation in 1943 when his three-year-old daughter asked why they had to wait so long to see the developed photographs. Land was struck with the idea of combining the polarization technology with developing films. By 1950, Land had a camera that produced black-and-white images and by 1963, he released a camera that produced color pictures. The Polaroid camera took off and by the late 1960s, it was estimated that 50 percent of American households owned one. 13-1

LEARNING OUTCOMES Compare disruptive and sustaining technologies and explain how the Internet and WWW caused business disruption Describe Web 1.0 along with ebusiness and its associated advantages A detailed review of the learning outcomes can be found at the end of the chapter in the textbook 13-2

DISRUPTIVE TECHNOLOGIES AND WEB 1.0
Digital Darwinism – Implies that organizations which cannot adapt to the new demands placed on them for surviving in the information age are doomed to extinction How can a company like Polaroid go bankrupt? CLASSROOM OPENER GREAT BUSINESS DECISIONS – Edwin Land Develops the Polaroid Camera In 1937, Edwin Land started a company that made a polarizing plastic and named it Polaroid. The business boomed. Land was taking family pictures on his vacation in 1943 when his three-year-old daughter asked why they had to wait so long to see the developed photographs. Land was struck with the idea of combining the polarization technology with developing films. By 1950, Land had a camera that produced black-and-white images and by 1963, he released a camera that produced color pictures. The Polaroid camera took off and by the late 1960s, it was estimated that 50 percent of American households owned one. If Polaroid executives had used Porter’s Five Forces analysis would they have discovered the threat of substitute products of the digital camera? What could they have done to combat this threat? CLASSROOM EXERCISE First Movers that Flopped The right technology at the wrong time. This slideshow displays ten products that were first movers but that failed to move beyond that status. Ask your students if they can list any additional first movers that flopped 13-3

Disruptive versus Sustaining Technology
What do steamboats, transistor radios, and Intel’s processors all have in common? Disruptive technology – A new way of doing things that initially does not meet the needs of existing customers Sustaining technology – Produces an improved product customers are eager to buy What do steamboats, transistor radios, and Intel’s 8088 processor all have in common? They are all disruptive technologies CLASSROOM EXERCISE Disrupting the Classroom Break your students into groups and ask them to identify the primary differences between disruptive and sustaining technologies, along with several current examples of each Disruptive technologies: Disruptive technologies redefine the competitive playing fields of their respective markets Disruptive technologies tend to open new markets and destroy old ones Disruptive technologies typically cut into the low end of the marketplace and eventually evolve to displace high-end competitors and their reigning technologies Sustaining technologies: Sustaining technologies tend to provide us with better, faster, and cheaper products in established markets Sustaining technologies virtually never lead in markets opened by new and disruptive technologies 13-4

The above figure only displays the top four and bottom four companies. To review the entire figure please refer students to the text. This figure displays companies that are expecting future growth to occur from new investments (disruptive technologies) and companies that are expecting future growth to occur from existing investment (sustaining technologies) Ask your students to list additional companies, not mentioned in the figure, that depend mostly on new investments (disruptive technologies) for profits Ask your students to list additional companies, not mentioned in the figure, that depend mostly on existing investments (sustaining technologies) for profits 13-5

Innovator’s Dilemma discusses how established companies can take advantage of disruptive technologies without hindering existing relationships with customers, partners, and stakeholders The Innovator’s Dilemma is a book by Clayton M. Christensen Companies like Xerox, IBM, Sears, and DEC all listened to existing customers, invented aggressively in technology, had their competitive antenna up, and still lost their market-dominate positions Christensen believes that these companies placed too great an emphasis on satisfying customers’ current needs, while forgetting to adopt new disruptive technology that will meet customers’ future needs, thus causing the companies to eventually fall behind Ask your student to identify several additional companies that fell victim to the innovator’s dilemma CLASSROOM EXERCISE Clayton in the Classroom Show your student’s the video on MIT highlighting Clayton Christensen 13-6

Disruptive Versus Sustaining Technology
Companies that capitalized on disruptive technology CLASSROOM EXERCISE Disruption in the Classroom Take each of the nine companies listed above and distribute them to your students either in groups or individually Ask your students to determine if the company is still gaining a competitive advantage from its use of disruptive technology? If not, what happened?

The Internet – Business Disruption
One of the biggest forces changing business is the Internet Organizations must be able to transform as markets, economic environments, and technologies change Do your students agree that the Internet is an example of a disruptive technology? When it was first introduced would they consider it a form of disruptive technology? CLASSROOM EXERCISE Finding Innovation Innovation, new ideas, and new technology are exciting. It is currently estimated that everything we know technically will represent 1 percent of all technology in Break your students into groups and ask them to search the Internet for the most exciting form of innovation that is going to hit our market and change our lives over the next ten years. Have your students present their findings to the class and offer a small prize to the winner. A few examples include: Computers that offer smells, click on a perfume and the scent permeates from your computer, movie theatres will offer smells that correspond to the movie Electronic toilets – analyze output and let you know if you getting sick days before the cold actually hits. Great for rest homes and hospitals Planes the size of small ships that offer shopping and restaurants What's For Dinner? Just Call Your Refrigerator – show your student’s the kitchen of the future

Evolution of the Internet
The Internet began as an emergency military communications system operated by the US Department of Defense Gradually the Internet moved from a military pipeline to a communication tool for scientists to businesses CLASSROOM EXERCISE Where the Internet Really Started Ask students, “How did the Internet (really) get started.” A few responses might include: Al Gore (“Information Superhighway”), or the Department of Defense (ARPANET), or even Bill Gates (Microsoft). Ask students to “Imagine an almost instantaneous communication system that would allow people and governments all over the world to send and receive messages about politics, war, illness, and family events. The government has tried and failed to control it.” Was it the Internet? Nope, the humble telegraph fit this bill way back in the 1800s. The parallels between the now-ubiquitous Internet and the telegraph are amazing, offering insight into the ways new technologies can change the very fabric of society within a single generation. Emphasize the history of the telegraph: Begin with the funny story of a mile-long line of monks holding a wire and getting simultaneous shocks in the interest of investigating electricity, and ending with the advent of the telephone (this is the true scenario). Discuss the early “online” pioneers: Samuel Morse, Thomas Edison, and a seemingly endless parade of code-makers, entrepreneurs, and spies who helped ensure the success of this communications revolution. With the invention of the telegraph, the world of communications was forever changed. The telegraph gave rise to creative business practices and new forms of crime. Romances blossomed over its wires. In addition, attitudes toward everything from news gathering to war had to be completely rethought. The saga of the telegraph offers many parallels to that of the Internet in our own time, and is a remarkable episode in the history of technology.

What is the Internet? - A world-wide network of computer networks (some are not computer at all, like network printers) - Since 1982, all connections between computers use a low-level communication protocol called TCP( Transmission Control Protocol)/IP( Internet Protocol) TCP/IP hides the differences among devices connected to the Internet In most cases a higher level protocol runs on top of TCP/IP

Internet network architecture

No one owns the Internet. It has no formal management organization.

The Internet and World Wide Web – The Ultimate Business Disruptors
World Wide Web (WWW) – Provides access to Internet information through documents including text, graphics, audio, and video files that use a special formatting language called HTML – hypertext markup language Hypertext Transport Protocol (HTTP) – The Internet protocol Web browsers use to request and display Web pages using URL – universal resource locator or web address Web browser – Allows users to access the WWW Are the Internet and the WWW synonymous? People often interchange the terms Internet and the World Wide Web, but these terms are not synonymous The Internet is a global public network of computer networks that pass information from one to another using common computer protocols The World Wide Web is a global hypertext system that uses the Internet as its transport mechanism The World Wide Web operates on the Internet CLASSROOM EXERCISE The 13 Most Embarrassing Web Moments The Internet is the most efficient information distribution system ever known. But if you're not careful, it's also the perfect way to embarrass yourself in front of the entire world. There were 1 billion Internet users in 2005 How will 2 billion additional Internet users change the competitive landscape for businesses over the next few years? Greater access to a larger number of customers More competitors Location and distance becomes a smaller factor for businesses 13-13

The Internet and World Wide Web The Ultimate Business Disruptors
What are the two primary reasons for growth of the WWW? Two events changed the history of the Internet On August 6, 1991 Tim Berners-Lee built the first Web site Marc Andreesen built and distributed Mosaic CLASSROOM EXERCISE VIDEO INTERVIEW The big talk at the WWW2006 conference is about the semantic web with its promise of an "intelligent" net Pallab Ghosh caught up with Sir Tim Berners-Lee - the man who invented the world wide web back in 1991

Evolution of the Internet

Internet Growth Trends
1977: 111 hosts on Internet 1981: 213 hosts 1983: 562 hosts 1984: 1,000 hosts 1986: 5,000 hosts 1987: 10,000 hosts 1989: 100,000 hosts 1992: 1,000,000 hosts 2001: 150 – 175 million hosts 2002: over 200 million hosts 2004: over 800 million hosts 2010, about 80% of the planet are on the Internet

What is the difference between the Internet and the Web?
The Internet is a physical network The World Wide Web is an Internet Application

Web or Internet? The Internet supports variety of protocols, but the most common one is HyperText Transfer Protocol (HTTP) There are several others application and protocols (telnet, FTP, mailto, file, news, VoIP etc.)

The WWW: What and How A Client (Web Browser) A Server (Web Server)
Like all Internet applications, WWW is fundamentally made up of two components: A Client (Web Browser) A Server (Web Server)

The Browser and The Server
The original static model of Web Serving: The HyperText Transfer Protocol (HTTP) enables web pages to be requested and transferred between the browser and server Web Browser Server HTTP Request Web Page File System Static - rarely changing pages Non-interactive - unlike the use of HTML Forms and dynamic web page generation (such as CGI (Common Gateway Interface) discussed later in module)

Evolution of The World Wide Web
File formats offered over the WWW For the reasons discussed in the previous slide, information reach and information richness, companies want to be able to post audio, video, graphic and text files to help run their businesses CLASSROOM EXERCISE Formatting the Web Ask your students their majors – accounting, finance, marketing, management, human resources, information technology, etc. List the different majors on the board and ask them how each one can use the different file formats to improve the way they achieve tasks Accounting – video and audio files for audits Marketing – all formats for Web site sales and marketing campaigns Finance – video and audio files for training on new tax laws or training new employees how to use the systems Human Resources – video and audio files for training and demonstration of sexual harassment or unethical behavior that is not tolerated by the company

Web Browsers Web Browsers are clients - always initiate, servers react
First browsers were text-based Mosaic - in early 1993 First to use a Graphical User Interface (GUI), led to explosion of Web use Most common Web browsers are: MS Internet Explorer, Google Chrome, and Mozilla FireFox

Web Servers They are computers running programs that provide documents to requesting browsers. They are slave programs. Provide responses to browser requests, either existing documents or dynamically built documents The most commonly used Web servers are Apache, MS Internet Information Server (IIS) Other servers include FTP server, Telnet server, server.

Web 1.0 – The Catalyst For Ebusiness
Web 1.0 – A term to refer to the WWW during its first few years of operation between 1991 and 2003 Ecommerce – Buying and selling of goods and services over the Internet Ebusiness – Includes ecommerce along with all activities related to internal and external business operations ( ex. Web- based CRM, SCM, ERP,…) Ebusiness opened up a new marketplace for any company willing to move its business operations online Paradigm shift – Occurs when a new radical form of business enters the market that reshapes the way companies and organizations behave Ask your students to list other types of paradigm shifts besides the Internet Radio TV Printing press 13-24

Web 1.0 – The Catalyst For Ebusiness
The Internet has had an impact on almost every industry including Travel (Travelocity) Entertainment (iTunes) Publishing (LuLu) Financial services Retail (Amazon) Automobiles ( Auto-trader) Education and training (Cisco) Industry Business Changes Due to Technology Travel Travel site Expedia.com is now the biggest leisure-travel agency, with higher profit margins than even American Express. Thirteen percent of traditional travel agencies closed in 2002 because of their inability to compete with online travel. Entertainment The music industry has kept Napster and others from operating, but $35 billion annual online downloads are wrecking the traditional music business. U.S. music unit sales are down 20 percent since The next big entertainment industry to feel the effects of ebusiness will be the $67 billion movie business. Electronics Using the Internet to link suppliers and customers, Dell dictates industry profits. Its operating margins have risen from 7.3 percent in 2002 to 8 percent in 2003, even as it takes prices to levels where rivals cannot make money. Financial services Nearly every public e-finance company left makes money, with online mortgage service Lending Tree growing 70 percent a year. Processing online mortgage applications is now 40 percent cheaper for customers. Retail Less than 5 percent of retail sales occur online. eBay is on track this year to become one of the nation’s top 15 retailers, and Amazon.com will join the top 40. Wal-Mart’s ebusiness strategy is forcing rivals to make heavy investments in technology. Automobiles The cost of producing vehicles is down because of SCM and Web-based purchasing. eBay has become the leading U.S. used-car dealer, and most major car sites are profitable. Education and training Cisco saved $133 million last year by moving training sessions to the Internet, and the University of Phoenix online college classes please investors. CLASSROOM EXERCISE Business Disruption Break your students into groups and assign them each a different industry from above Ask them to review the Figure which displays the Internet’s impact on each industry and have them update how new technologies are changing these industries even further 13-25

ADVANTAGES OF EBUSINESS
Both individuals and organizations have embraced ebusiness to enhance productivity, maximize convenience, and improve communications 13-26

Expanding Global Reach
The Internet’s impact on information Increased richness Increased reach What is the difference between information richness and information reach? Information richness refers to the depth and breath of information transferred between customers and business Instead of a company catalog with a simple text box and perhaps a small photo, the Web allows companies to post 3-dimensional photos, video, customer reviews, newspaper and magazine articles, product comparisons including price, etc. Information reach refers to the number of people a business can communicate with, on a global basis Companies can now reach customers around the world, not just customers who can physically travel to their store Internet’s Impact on Information Easy to compile - Searching for information on products, prices, customers, suppliers, and partners is faster and easier when using the Internet. Increased richness - refers to the depth and breadth of information transferred between customers and business. Businesses and customers can collect and track more detailed information when using the Internet. Increased reach - refers to the number of people a business can communicate with, on a global basis. Businesses can share information with numerous customers all over the world. Improved content - A key element of the Internet is its ability to provide dynamic relevant content. Buyers need good content descriptions to make informed purchases, and sellers use content to properly market and differentiate themselves from the competition. Content and product description establish the common understanding between both parties to the transaction. As a result, the reach and richness of that content directly affects the transaction.

Expanding Global Reach
Richness: The amount and quality of information that a business can supply to and collected from customers Reach: Measure of how many people a business can connect and how many products it can offer those people. There are tradeoffs between Richness and Reach The Internet eliminates the tradeoff between richness and reach of information How has this changed customer relationship management? How does the organization respond to the informed consumer? Use examples of the car industry – dealer must now compete on other aspects than mark-up, since much of that previously “Secret” information is now available on the web.

Reach & Richness

Opening New Markets Intermediary – Agents, software, or businesses that provide a trading infrastructure to bring buyers and sellers together Disintermediation Reintermediation Disintermediation – Occurs when a business sells directly to the customer online and cuts out the intermediary Reintermediation – Steps are added to the value chain as new players find ways to add value to the business process Cybermediation – Refers to the creation of new kinds of intermediaries that simply could not have existed before the advent of ebusiness 13-30

Opening New Markets Disintermediation: the removal of organizations or business process layers For the reasons discussed in the previous slide, information reach and information richness, companies want to be able to post audio, video, graphic and text files to help run their businesses CLASSROOM EXERCISE Formatting the Web Ask your students their majors – accounting, finance, marketing, management, human resources, information technology, etc. List the different majors on the board and ask them how each one can use the different file formats to improve the way they achieve tasks Accounting – video and audio files for audits Marketing – all formats for website sales and marketing campaigns Finance – video and audio files for training on new tax laws or training new employees how to use the systems Human Resources – video and audio files for training and demonstration of sexual harassment or unethical behavior that is not tolerated by the company 13-31

Reintermediation Reintermediation – using the Internet to reassemble buyers, sellers, and other partners in a traditional supply chain in new ways 32

Reintermediation Reintermediation: The shifting of the intermediary role to a new source ( e.g. Information Brokers) Auto Dealer Consumer Info Broker (Edmonds.com) Auto Dealer Consumer

Generating revenue on the Internet
Online ad (banner ad) - Box running across a web page that contains advertisements Pop-up ad - A small web page containing an advertisement Associate program (affiliate program) - Businesses generate commissions or royalties (Google) Viral marketing - A technique that induces websites or users to pass on a marketing message (Hotmail) CLASSROOM EXERCISE Viral Marketing Video Clip From Spam to Viral Marketing from John Cleese One B2B marketer used a lot of silliness to increase its web traffic tenfold and generate thousands of sales leads starting a viral phenomenon which went from a wacky idea to revenue-generating success. Great John Cleese video on the backup trauma institute. I like to use this video when introducing IT Architectures. This is also one of the first examples of a successful viral marketing campaign. An online ad (often called banner ad) is a box running across a web page that is often used to contain advertisements. The banner generally contains a link to the advertiser’s website. Web-based advertising services can track the number of times users click the banner, generating statistics that enable advertisers to judge whether the advertising fees are worth paying. Banner ads are like living, breathing classified ads. A pop-up ad is a small web page containing an advertisement that appears on the web page outside of the current website loaded in the web browser. A pop-under ad is a form of a pop-up ad that users do not see until they close the current web browser screen. Associate programs (affiliate programs) allow businesses to generate commissions or royalties from an Internet site. For example, a business can sign up as an associate of a major commercial site such as Amazon. The business then sends potential buyers to the Amazon site using a code or banner ad. The business receives a commission when the referred customer makes a purchase on Amazon. Viral marketing is a technique that induces websites or users to pass on a marketing message to other websites or users, creating exponential growth in the message’s visibility and effect. One example of successful viral marketing is Hotmail, which promotes its service and its own advertisers’ messages in every user’s notes. Viral marketing encourages users of a product or service supplied by an ebusiness to encourage friends to join. Viral marketing is a word-of-mouth type advertising program. Mass customization is the ability of an organization to give its customers the opportunity to tailor its products or services to the customers’ specifications. For example, customers can order M&M’s with customized sayings such as “Marry Me.” 13-34

Measuring E-Business Success
Most companies measure the traffic on a Web site as the primary determinant of the Web site’s success However, a large amount of Web site traffic does not necessarily equate to large sales Many organizations with high Web site traffic have low sales volumes 35

Web site traffic analysis can also include: Clickstream Counts the number of users visited a website and clicked on an ad Cookie Small file saved on local client machine sent by the business server 36

Clickstream data tracks the exact pattern of a consumer’s navigation through a Web site Clickstream data can reveal: Number of page views Pattern of Web sites visited Length of stay on a Web site Date and time visited Number of customers with shopping carts Number of abandoned shopping carts 37

Website Visitor Tracking

Opening New Markets Mass customization – The ability of an organization to tailor its products or services to the customers’ specifications Personalization – Occurs when a company knows enough about a customer’s likes and dislikes that it can fashion offers more likely to appeal to that person CLASSROOM EXERCISE Video Clip: Personalization I use this clip for the beginning of my mass-customization and personalization lecture. Personalization occurs when a website can know enough about a person’s likes and dislikes that it can fashion offers that are more likely to appeal to that person. Personalization involves tailoring a presentation of an ebusiness website to individuals or groups of customers based on profile information, demographics, or prior transactions. Amazon uses personalization to create a unique portal for each of its customers. A blog (the contraction of the phrase “Web log”) is a website in which items are posted on a regular basis and displayed in reverse chronological order. Like other media, blogs often focus on a particular subject, such as food, politics, or local news. Some blogs function as online diaries. A typical blog combines text, images, and links to other blogs, Web pages, and other media related to its topic. Since its appearance in 1995, blogging has emerged as a popular means of communication, affecting public opinion and mass media around the world. Real simple syndications (RSS) is a family of Web feed formats used for Web syndication of programs and content. RSS is used by (among other things) news websites, blogs, and podcasting, which allows consumers and journalists to have news constantly fed to them instead of searching for it. In addition to facilitating syndication, RSS allows a website’s frequent readers to track updates on the site. Podcasting is the distribution of audio or video files, such as radio programs or music videos, over the Internet to play on mobile devices and personal computers. Podcasting’s essence is about creating content (audio or video) for an audience that wants to listen when they want, where they want, and how they want. Podcasters’ websites also may offer direct download of their files, but the subscription feed of automatically delivered new content is what distinguishes a podcast from a simple download or real-time streaming. Usually, the podcast features one type of show with new episodes either sporadically or at planned intervals such as daily, weekly, etc. Ask your students to create a list of companies or products that are using mass customization Mini Cooper Nike shoes M&Ms Ask your students to create a list of products that feature personalization Amazon is the best example Netflix 13-39

Web Site Personalization

More web personalization

Interactive Marketing/Personalization
How do web sites know it’s you? Answer: using a “cookie”

How a cookie works A cookie is a tiny file deposited on the user’s computer hard drive when an individual visits certain Web sites; used to identify the visitor and track visits to the Web sites.

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