IT Impact on Business Models Chapter 2

Key Learning Objectives Understand that IT can impact the business model through its effects on strategy and/or organizational capabilities Learn how to analyze the potential of IT to create strategic opportunities Understand how to evaluate IT as a potential source of strategic risk

Automate back-office activities 辦公室自動化 Before Now Automate back-office activities 辦公室自動化 Define new strategic opportunities And build the capabilities needed to execute them Really? (2004, US) average 5% revenue on IT computer equipment, communications equipment, software(2/3 packaged software), IT services/outsourcing, IT staff costs

IT Impact Map IT impact on strategy IT impact on capabilities The role IT plays in determining four key dimensions of strategic positioning Product, market, business network, and boundary positioning Where IT drives differentiation, sustainable advantage IT impact on capabilities The role IT plays in building the capabilities Processes, infrastructure, people and partners, organization and culture, leadership and governance Business network capability (outside the wall of an organisation)

IT Impact Map: IBM Path to Business Transformation

IT Impact Map: Medtronic (MDT) Path to Business Transformation

Business process design/reengineering IT impact category Description Local improvement (automate functional support processes (e.g. payroll, budgeting); IT support for business intelligence for a local decision) Goal: improve local operating performance Business sponsors: local managers, teams and individual Business value: reduce costs and improve local operating performance Risk and uncertainty: low-moderate; loss of focus on strategic goals Project investment and management: local budgeting and management (may be ad hoc) Business process design/reengineering (business process reengineering; launch of shared services offering; ERP or sales force automation implementation) Goal: use IT to improve end-to-end operating processes Business sponsors: business unit and shared services leaders (may include suppliers, customers, or partners) Business value: reduce costs, decrease cycle time, improve total cost of IT ownership Risk and uncertainty: moderate-high; organizational changed, often require integration of new capabilities with existing capabilities Project investment and management: corporate budgeting; steering committee with formal milestone review; change control processes and system

Emerging Opportunities IT impact category Description Emerging Opportunities (remote monitoring service offering; information-based product offerings) Goal: pursue business opportunities that enable launch of new products or business or entry into new markets Business sponsors: executive committee or business unit leadership Business value: grow revenues and launch new business; enter high growth industries and markets Risk and uncertainty: High; new business models often require new capabilities and may involve new technologies Project investment and management: staged commitments and investments based on milestones; fund “experiments” and business plans; new venture risk management Business Transformation (Global service business supports core product business; interactive online business sells or supports physical service offerings or products) Goal: transform your organization and industry, differentiate strategy, and develop proprietary assets Business sponsors: board, executive committee; strong project leadership Business value: Enable sustained capital efficient profitable growth, improve market share Risk and uncertainty: High; new business model require new capabilities and new technologies; organizational changed, integration of new business models with existing business s Project investment and management: integrated with corporate strategy; board oversight with formal milestone review by executive committee; change control processes and system

The Search for Opportunity Is this a unique value proposition? Are there barriers to entry? Can we build it with a reasonable amount of capital in a reasonable period of time? The role of IT Change the basis of competition Change the nature of relationships and the balance of power in buyer-seller relationships Build barriers to entry Raise switching costs Add value to existing products or services or create new ones

Can IT change the basis of competition? 1950s and 1960s: To automate routine, information intensive back-office transactions increase efficiency and productivity To inform and transform across business boundaries Information is by-product of automation Real-time information could be used to drive new benefits Enhanced strategic positioning and differentiation of existing products and services Creation of IT-enabled products and services Generate new revenue streams American Airlines (1960s) Giving large travel agencies computer terminals allowed them to check airline schedules posted within AA’s internal reservation systems Self-serve, reduce cycle time 為什麼要花錢送電腦? Other examples?

Can IT change the nature of relationships and the balance of power in buyer-seller relationships? Health care supply Convenience online  lock-in effect  marketplace Late 1990s: Power shift from suppliers to channel players and buyers 2000s: health care suppliers regain position by eliminate inefficiencies in every step in the supply chain Other examples?

Can IT build barriers to entry? Before Internet Build operate proprietary networks, transaction system and databases…are significant barriers Now? (e.g. Amazon) Be innovative First-mover advantage Build proprietary capabilities Business intelligence infrastructure Create a large, loyal community Understand customers and feed information to suppliers Brand, customers, technology, distribution capability, deep e-commerce expertise Other examples?

Can IT raise switching costs? IT system should ideally be easy to start using but difficult to stop using Before Internet Switching costs HIGH Now Other methods to “hook” the user… How? Other examples?

Can IT add value to existing products or services or create new ones? Interesting properties of information-enabled products and services Information is reusable Information is easily customized “time value” Boeing “e-Enabled Advantage” Acquired airline industry software companies Partner with airlines Other examples?

The management of risk Strategic risk Project risk Can emerging technologies disrupt our current business model by enabling new business models with decidedly superior economics? Can IT lower entry barriers, change industry power dynamics, or increase competitive intensity? Can IT trigger regulatory actions? Project risk Is the project larger than our typical projects? How much uncertainty is there in the projects? Do we know the requirements for key deliverables at the start of the project or are these requirements still evolving? Do we have experience with the technology? If new technologies are involved, are they new to the world or just new to us? Do we have the resources needed to implement the projects? Do we have the sponsorship and buy-in from key stakeholders? Is the organization (including the extended enterprise and industry) ready to implement and use what we deliver?