1. Using IT to add value: Innovation versus Efficiency
In 1985, Michael Porter developed the “value chain” framework which is now the accepted “model” for describing and analyzing the value creation logic within an organization. However, the value chain was developed to promote efficiencies within a manufacturing environment, and becomes difficult to apply outside of a sequential, recurring production environment. Two additional value creation models have been proposed in the academic literature: the value shop is focused on solving customer problems (suitable for firms that provide professional services as found in medicine, law, architecture, engineering and IT consulting), while the value network is focused on firms that provide mediating technologies to link and communicate with customers (such as banks and insurance companies).
The value models, using IT as the enabler, tend to focus on increased efficiency. Another way to enhance value within an organization is through innovation. IT is the lever that enables organizations to add value through innovation.
But herein lies the efficiency/innovation dilemma. If the IT infrastructure within your organization enables efficiencies via a value model, can it also be used to enable adding value through innovation? As an IT manager, how do you identify opportunities to add value? The presentation will end with a discussion of how IT managers can facilitate value creation based on both efficiency and innovation.

2. Value Configuration Analysis
Find
Solve
Evaluate
Execute
Choose
Shop
Network
Resolve Customer Problem
Facilitate Customer
Relationships
M A R G I N
Chain
Improve Internal Efficiencies

3. Value created by transforming inputs into products
Value Chain
Inbound Logistics
Operations
Outbound Logistics
Marketing & Sales
After-sales Service
Firm Infrastructure
Human Resources Management
Technology Development
Procurement
M A R G I N
Value created by transforming inputs into products

4. Value created by providing solutions, not services
Value Shop
Firm Infrastructure
Human Resources Management
Infrastructure Support
Technology Development
Procurement
Problem Finding & Acquisition
Problem Solving
Choice
Simon’s Problem Solving Model
Control/ Evaluation
Execution
Value created by providing solutions, not services

5. Value derived from service of linking customers
Value Network
Mediating technology facilitates exchange relationships
Firm Infrastructure
Human Resources Management
Technology Development
Procurement
Network promotion and contract management
Invite and select customers to join network
Initialize, manage and terminate contracts
Service provisioning
Establish, maintain and terminate links
Billing for value received
Infrastructure operation
Maintain and run physical and information network
Value derived from service of linking customers

6. Value Configuration Examples
Find
Solve
Evaluate
Execute
Choose
Shop
Network
Resolve Customer Problem
Facilitate Customer
Relationships
M A R G I N
Chain
Improve Internal Efficiencies

7. Do not confuse efficiency with innovation
“Price compression is killing innovation”
Michael Capellas, Compaq Computer CEO, Business Week (Sep 24, 2001), pg 102
“Don’t mistake reinventing the wheel for innovation”
Related to Goldman Sachs $100 million investment in Webvan – current value $0
Allan Sloan, “Dumb Deals 101”, Newsweek (Sep 10, 2001) pg 41

8. Types of Innovation (Christensen & Overdorf)
Sustaining Innovation
Respond to evolutionary market changes
Make a product or service perform better
Disruptive Innovation
Dealing with disruptive market changes
Create an entirely new market

9. Innovation as Value Proposition
Three components of value proposition
Value Shop (VS)
Value Chain (VC)
Value Network (VN)
Total Value Proposition (TVP) is the product
∆TVP = ∆VS * ∆VC * ∆VN
Disruptive innovation requires a new business model
Efficiency is incomplete sustaining innovation
VC is the focus

10. Value Added Strategies
Value Shop
Value Chain
Value Network
Innovation
Create truly new benefits
Develop new process as support
Enhance customer
navigation
Efficiency
Standardize Products & Services
Reengineer
(TQM, Fast cycle time)
Automate Interface

11. Value Configuration Strategies Where are Alibris and BBA?
Find
Solve
Evaluate
Execute
Choose
Shop
Network
Resolve Customer Problem
Facilitate Customer
Relationships
M A R G I N
Chain
Improve Internal Efficiencies

12. Value Configuration Strategies
Find
Solve
Evaluate
Execute
Choose
Amazon: shared information
Cisco: solves problems
M A R G I N
Compaq: mass production

13. Value Configuration Strategies
Find
Solve
Evaluate
Execute
Choose
Sun: Java enables internet
Amazon: shared information
Cisco: solves problems
EBay: auction network
Napster: music
distribution
Dell: mass customization
M A R G I N
Compaq: mass production

14. Where does IT fit into this?
Use IT as a ready lever for efficiency improvement
By improving products and services
By improving operations
By improving the customer interfaces
Use IT as a lever to aid innovation
By making new benefits possible
By developing new processes
By creating new customer networks
Use IT to create new business model
Extended Value Chain
Value Shop
Value Network

15. Value Added StrategiesVS VN VC

16. References
Chan K.W. and Mauborgne R. “Value Innovation: The Strategic Logic of High Growth”, Harvard Business Review, Jan-Feb 1997, pp
Christensen, C.M. and Overdorf. M. “Meeting the Challenge of Disruptive Change”, Harvard Business Review, Mar-Apr 2000, pp
Gobeli, D.H. & Rudelius, W. “Managing Innovation: Lessons from the Cardiac-Pacing Industry”, Sloan Management Review, 26:4 (Summer 1985), pp. 29 – 33
Hansen, M.T. and von Oetinger, B. “Introducing T-Shaped Managers: Knowledge Management’s Next Generation”, Harvard Business Review, Mar 2001, pp
Stabell, C.B. and Fjeldstad, O.D. “Configuring Value for Competitive Advantage: on Chains, Shops, and Networks”. Strategic Management Journal, 19 (1998), pp

17. Preview for Next Week 1:00 – 2:00: Open Source
2:15 – 3:30: Ben Berry – Wireless Applications
3:45 – 5:00: Outsourcing