1. Building Networked Business

2. The Organization Design Challenge
Simple &
Local
Stable &
Certain
Dynamic &
Uncertain
Environment
Complex &
Global
Entrepreneurial
Hierarchy ?
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan ,
Corporate Information Strategy and Management
. Burr Ridge, IL:
McGraw -
Hill/Irwin, 2002.
Chapter 3 Figure 3 - 1

3. Networked Organizational Models are Enabled by Networked Technologies
Information Requirements
Simple &
Local
Stable &
Certain
Dynamic &
Uncertain
Business Decision Making Environment
Complex &
Global
Local Intelligence
Centralized intelligence
Shared intelligence
Hierarchical Organization &
Mainframe Technology
Networked Organization &
Networked Technology
Entrepreneurial Organization &
PC & LAN Technology +
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan ,
Corporate Information Strategy and Management
. Burr Ridge, IL:
McGraw -
Hill/Irwin, 2002.
Chapter 3 Figure 3 - 2

4. Blueprint for a “Big - Small” Business
Sample Organizational
Sample Technology
Components
Components •
Human Resources Management •
HR Systems
Leading & Engaging •
Strategic Alliances •
Customer Relationship Management (CRM) •
Customer Loyalty •
Personalization •
Supplier Loyalty •
Communication Infrastructure •
Partnerships •
User Access Devices •
Planning and Budgeting •
Management Reporting •
Performance Monitoring •
Decision Support Systems and Tools
Managing & Learning •
Organization Structure and Reporting •
Business Intelligence Systems •
Organization Decision Making and •
Data and Knowledge Management
Learning •
Operating Process •
Enterprise Resource Planning (ERP)
Operating & Innovating •
New Product Development •
Supply Chain Management •
Business Venturing •
Order Fulfillment •
New Product Development •
Distributed Information Processing
Infrastructure
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McGraw -
Hill/Irwin, 2002.
McFarlan ,
Corporate Information Strategy and Management
. Burr Ridge, IL:
Chapter 3 Figure 3 - 3

5. Operating and Innovating Capabilities
Precision
Execution
Fast -
Cycled
Innovation
Entrepreneurial
Hierarchy
Networked

6. Business Design Requirements
Capabilities
Business Design Requirements
Precision execution
Streamlined, integrated, and efficient operations seamlessly link activities
performed inside the firm with those performed by customers, partners, and suppliers
Cost, cycle time and quality levels are benchmarks within the industry and
exceed customer/stakeholder requirements.
Fast-cycled innovation
Flexible, modular designs enable customization, personalization, and continuous
improvement.
Change processes are embedded within the company’s day-to-day operations - -
Employees are rewarded for devising new, innovative ways to serve customers
Resources for change are available.
There is a standardized and widely accepted process used to develop and
present the “business case” and implementation plan for a potential idea.
Customer and community
Executives and employees in all parts of the organization have the
connected
information required to understand th
e lifetime value of customers, suppliers
and partners and have the ability and authority to make decisions and take
(Note: All key stakeholders,
actions to improve satisfaction and loyalty.
including suppliers and partners are
Incentive systems reward success in attracting and retaining profitable
considered “customers” of an e-business.)
customers, suppliers, a
nd partners and in increasing the frequency and level
of engagement.
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan ,
Corporate Information Strategy and Management
. Burr Ridge, IL:
McGraw -
Hill/Irwin, 2002.
Chapter 3 Figure 3 - 4

7. Managing and Learning Capabilities
Networked
Efficiency &
Integration
Learning by
Doing
Entrepreneurial
Hierarchy
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan ,
Corporate Information Strategy and Management
. Burr Ridge, IL:
McGraw -
Hill/Irwin, 2002.
Chapter 3 Figure 3 - 5

8. Managing and Learning Capabilities
Control and
Integration
Learning by
Doing
Flexible and well-managed
boundaries
Business design requirements
Coordination and control of routine operations is embedded within the digital operating infrastructure.
Early warning systems enable close monitoring and immediate response to threats and opportunities
Critical failure factors” have been identified and “disaster recovery” procedures are in place.
Real-time information and interactive management systems – a mix of face-to-face decision making supplemented by high bandwidth communication systems – enable large dispersed teams of people to make informed decisions, take actions, and receive immediate feedback
Key operating metrics are directly linked to financial and market results to provide real time feedback.
Shared, actionable goals provide direction and the framework within which decisions can be made and evaluated.
Employees and partners have a clear understanding of the role they play and how to work with others to get things done. But, these clearly defined roles must not limit people’s ability to work across boundaries - inside the firm and with suppliers, partners and customers.
In a networked organization, companies are highly skilled at forming and successfully managing strategic alliances and partnerships.
If a company is growing by acquisition, companies must be highly skilled at identifying and effectively integrating people, processes, and systems that unite acquired companies.

9. Managing and Learning Capabilities (cont.)
Flexible and well-managed boundaries
Accessible knowledge assets
Business design requirements
Formal and informal communication systems support frequent two way interactions inside and outside the firm.
Coordinating mechanism (for example, advisory councils, governing boards, liaison roles, and information systems) enable effective coordination and control of activities that cross internal and external boundaries.
The information needed to make decisions and take actions is relevant, timely, and readily available to those who need it. It is presented in a form that is immediately actionable.
People are information literate and have the skills and incentives needed to turn information into action that is consistent with the best interests of the organization and its stakeholders.
Information and best practices are openly shared.
Politics, bureaucracy, and poorly aligned incentives do not get in the way of sharing and learning from information.
Processes are in place to ensure that information is accurate and reliable, and that employees, partners, customers, and suppliers trust the information they receive.
Privacy and confidentiality are safeguarded and security procedures are strictly enforced. -

10. Leading and Engaging Capabilities
Strategic Focus
& Resource Allocation
Shared Culture
& Commitment
Entrepreneurial
Hierarchy
Networked

11. Leading and Engaging Capabilities
Visionary yet pragmatic
Leadership
Energized participation
Skilled in conflict resolution, negotiation and consensus
Business Design Requirements
Credible leaders at all levels of the organization are able to articulate clear direction.
Leadership is trusted and well respected and, as a result, is able to attract and retain high quality partners and talented employees.
“Visions” are translated into actionable strategies that can be executed and deliver results while the window of opportunity is still open.
Leaders are able set tangible goals and make focused decisions.
Executives are directly involved in the business; they ensure that barriers are removed, resources are available, and employees have the skills and motivation to accomplish growth.
Culture and incentives foster innovation while also ensuring a strong commitment to delivering results. This requires that large projects be broken into smaller, more focused deliverables, and that senior management break down barriers and realign goals.
Employees, customers, suppliers, and partners believe that managers and other leaders possess the knowledge, skills, and experience needed to run the business.
“Stretch targets” energize action and motivate everyone to work at peak performance.
Leaders display a strong commitment to career development and learning for all.
Processes are in place to ensure that conflicting opinions are openly discussed without becoming destructive.
Employees and partners are skilled at negotiating “win-win” agreements
Despite conflicting opinions, consensus decisions can be quickly reached and implemented.

12. Options for Structuring Market Activities
Description
Vertical Integration
Locate all but the
most routine, transaction -
oriented activities inside the
firm.
Selective Sourcing
Source selected activities from the outside. Traditionally, sourced activities
were controlled through short
term contracts.
Virtual Integration
Become part of a network
of highly specialized, independent parties that
work together to perform, coordinate, and control value chain activities.
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan ,
Corporate Information Strategy and Management
. Burr Ridge, IL:
McGraw -
Hill/Irwin, 2002.
Chapter 3 Table 3 - 1

13. Relationship Options Transaction Contract Partnership Basis of
Interaction
Discrete exchange of
goods, services, a nd
payments (simple
buyer/seller exchange)
Prior agreement governs
exchange (e.g., service contract,
lease, purchase agreement)
Shared goals and processes for
achieving them (e.g.,
collaborative product
development)
Duration of
Immediate
Usual
ly short -
term and defined
by the contract
Usually long term and defined
by the relationship
Level of
Business
Integration
Low
Low to Moderate
High
Coordination
and Control
Supply and demand
(market)
Terms of contract define
procedures, monitoring, and r
eporting
Interorganizational structures,
processes, and systems;
Mutual adjustment
Information
Flow
Primarily one way;
Limited in scope and
amount;
Low level of customization
One or two way;
Scope & amount are usually
defined in the contract
Two
way (i
nteractive);
Extensive exchange of rich,
detailed information;
Dynamically changing;
Customizable
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan ,
Corporate Information Strategy and Management
. Burr Ridge, IL:
McGraw -
Hill/Irwin, 2002.
Chapter 3 Table 3 - 2

14. Integrated Organization within a Vertically Integrated Market AOL
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren
McFarlan ,
Corporate Information Strategy and Management
. Burr Ridge, IL:
McGraw -
Hill/Irwin, 2002.
Chapter 3 Figure 3 - 10

15. A Scenario-Based Approach to Valuation
Step 1: Define the purpose for the value assessment (e.g., seeking funding, buying a company, investing in an established business).
Step 2: Pick a point in the future when you expect your business strategy to deliver value (most venture capitalists choose 3-5 years, but you may wish to shorten the timeframe).
Step 3: Analyze the business concept and strategy and forecast market size, your share, and revenues. Identify yearly changes that reflect how your firm and the market would reach this future state. List key assumptions used in constructing revenue forecasts. Talk with others and adjust assumptions.
Step 4: Analyze the capabilities and resources required to reach the future state and forecast the cost of building those capabilities and acquiring resources. Identify yearly costs and resources that will be required by you, your partners, suppliers and customers. List key assumptions used in constructing cost forecasts. Talk with others and adjust assumptions.
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information and Strategy Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.

16. A Scenario-Based Approach to Valuation (2)
Step 5: Based on this analysis, construct estimates of financial performance and market value that reflect the "most likely" assumptions. Clearly state the performance drivers that form the foundation for the assumptions in your model.
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. Most plans include scenarios that reflect the "most realistic," "best case," and "worst case." However, additional scenarios may be needed. Test the sensitivity of your forecasts based on changes in key assumptions.
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. Keep in mind that this analysis is based on highly uncertain business judgments. As a result, it is important to stay informed of what is happening in the market and industry, your company and with your community. Use the analysis as a baseline and update it often based on what you learn as you execute strategy and conduct business. Finally, be sure to set up a dynamic and broad-based measurement system that collects real-time metrics of company and industry performance.

17. 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
Sample Measures: Decrease the cost and/or improve the performance of internal IT operations; enable new IT applications to be created at lower cost, in less time, and with less risk; expand the range of internal IT initiatives
Create an efficient, flexible online/offline platform for doing business with customers, suppliers, and partners
Sample Measures: Decrease the cost and/or improve the performance of doing business online; decrease the time, cost and risk of launching new online business initiatives; expand the reach of existing IT enabled businesses and the range of business opportunities that can be pursued.
Type II: Benefits from Doing Business on a Networked IT Infrastructure
Commerce
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
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
Content / Knowledge
Improve the performance of knowledge workers and enhance organizational learning
Sample Measures: Enable individuals to achieve and exceed personal performance goals; increase the speed and effectiveness of decision making; increase the ability of the organization to respond quickly and effectively to threats and opportunities
Improve the performance of knowledge workers in customer, supplier, and partner organizations; add “information value” to existing products and services; create new information-based products and services
Sample Measures: Provide information to customers, suppliers, and partners that enables better decision-making; charge a price premium for products and services based on information value-added; launch new information-based products and services; increase revenue per users and add new revenue streams
Community
Attract and retain top talent; increase satisfaction, engagement, and loyalty; create a culture of involvement, motivation, trust, and shared purpose
Sample Measures: Length of time to fill key positions; attrition rate, trends in hiring and retaining top talent (over time, by industry, by region)
Attract and retain high quality customers, suppliers, partners, and investors; increase external stakeholders satisfaction, engagement, and loyalty
Sample Measures: Customer, supplier, partner satisfaction and lifetime value; average revenues per customer and trend over time; level of personalization available and % that use it; churn rate