IT IMPACT ON BUSINESS MODEL Session 02 Lecturer : JONATHAN SOFIAN LUSA Reading materials : Applegate chapter 2 MASTER IN MANAGEMENT PROGRAM PPM - School of Management DEC 05 2009 - Week I 0CT 11 2008

Chapter Outline 1 2 3 Analyzing IT Impact The Search for Opportunity GPA Case Study 2

ANALYZING IT IMPACT CASE STUDY : BORDERLESS MANUFACTURING AT LI & FUNG Assembly CHINA Lining TAIWAN Shell KOREA by  Made in Hong Kong Label, elastic, studs, toggle and string HONG KONG Filler CHINA Zipper JAPAN

LI & FUNG’S BUSINESS PARADIGM Raw Material Sourcing Product Developm’t Product Design Consumer Needs Supply Chain Management Local Forwarding Consolidation Factory Sourcing Mfg Control Export Docu- mentation Forwarder Consolidation Customs Clearance Supply Chain Financing Financing Financing Financing Financing Supply Chain Raw Material Mill Factories Shipping Airlines Wholesale Importer Retailer Consumer 4

THE CHANGING ROLE OF THE TRADING COMPANY Supply Chain Management Level of Value Added Virtual Manufacturing Borderless Manufacturing Sourcing Buying Agency

ANALYZING IT IMPACT IT impact on strategy IT impact on capabilities. Determining product, market, business network, and boundary positioning IT impact on capabilities. Building processes, infrastructure, people, partner, organization & culture, leadership, governance

ANALYZING IT IMPACT IBM Path to Business transformation

ANALYZING IT IMPACT IBM Path to Business transformation Goal: Use IT to improve end to end operating processes Business Sponsor: Business Unit & Shared service Leaders ( suppliers, customer, partner) Business Value: Reduce cost, decrease cycle time, improve org or extended enterprise operating performance, improve total cost of IT Ownership. Risk & Uncertainty: moderate to high, business & tech complexity and volatility, org change, required integration. Investment: Corporate Budgeting, steering committee. Goal: Transform organization n industry, differentiate strategy, develop proprietary asset. Business Sponsor: BOD, strong project leadership. Business Value: Enable sustained capital efficient profitable growth, improve market share, deliver sustainable competitive advantage. Risk & Uncertainty: High, new business model needed, new tech needed, organizational change, integration of new business. Investment: Integrated with corporate strategy, Review by committee, change control process n system Goal: Pursue opportunities that enable launch of new products / business, entry into new market Business Sponsor: Executive Committee, business unit leadership. Business Value: Grow Revenue, launch new product, enter high growth industries and market Risk & Uncertainty: High, new business model needed Investment: Staged commitments and investments base on milestones, base on business plan, new venture risk management Goal: Use IT to improve local operating performance Business Sponsor: Local Manager, team, individuals. Business Value: Reduce cost & Improve local operating performance. Risk & Uncertainty: Low to moderate Investment: Local Budgeting

BASIC QUESTIONS Five key questions can be used to guide executives as they search for value creating opportunities to use IT to support and drive the business strategy Can IT change the basis of competition? Can IT change the nature of relationship and the balance of power among buyers and suppliers Can IT build or reduce barriers to entry? Can IT increase or decrease switching costs? Can IT add value to existing products and services or create new ones?

Impact of IT: questions 1 of 5. Can IT change the basis of competition? Uses IT not just to automate but also to transform and to inform Benefits of conducting business online AHSC American Hospital Supply Corporation American Airlines Internet to reengineer value chain and the basis of competition

Impact of IT: questions 2 of 5. Can IT change the nature of relationships and the balance of power among buyers and suppliers? AHSC Customers recognized the value of a multivendor marketplace but were unwilling to put up with the problems of using multiple different supplier systems AHSC became channel manager Electronic market places: Oracle, CommerceOne, Ariba, …

Impact of IT: questions 3 of 5. Can IT build or reduce barriers to entry? Consultancy companies: knowledge technology Technology based advantage: AHSC, AA, … The internet can decrease the impact: low cost, ease of penetration Knowledge and community barriers are more sustainable Proprietary infrastructure and channels to market are at a particular disadvantage relative to new entrants when they attempt to create second-order barriers to entry (Amazon.com as new entrant with transaction, information and community infrastructures)

Impact of IT: questions 4 of 5. Can IT increase or decrease switching costs? Switching to another system might become difficult and costly in proprietary systems With the internet switching costs are substantially reduced  difficult to achieve customer loyalty Intuit increased the switching cost Provided easy to use inexpensive financial service software Won users via ease-of-use Hooked via simple ways of storing the information that should be reentered if the customer switches to a different product

Impact of IT: questions 5 of 5. Can IT add value to existing products and services or create new ones? Grocery stores are also in the business of selling information (client profiles) Information content of existing products (cars) Digital distribution of books, music, and video will dramatically alter existing publishing and entertainment industries. Manure and fertilizer company provides information.

GROUP PURCHASING ALLIANCE New concept for health care industry CASE STUDY

FACT

FACT

% COST DIFFERENCES GLOVE FILM I.V.SOLNS DISP SYRINGES 350% 18 X 24 474% 24 X 30 243% 30 X 40 259% 35 X 35 249% D5W 138% D10W 164% SALINE 140% RINGERS 164% 1ml 347% 2ml 337% 5ml 334% 10ml 247% GLOVE FILM I.V.SOLNS DISP SYRINGES % COST DIFFERENCES

SOLUTIONS ?

CONSEPT Infomediaries

GPA Components Hospitals: Power Force of GPA Bank: Financial support GML: Representer of Hospital Distributor/Manufacturer: Product supplier

GPA Components

Transaction Scheme GML GML

BENEFIT HOSPITAL BANK DISTRIBUTOR GML

OUR LEARNING POINTS FOR TODAY … ______________________________

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