summary of last week. oct, 1998 what was status of economy? dow jones at 8500 what was major it...

Summary of last week

Oct, 1998

What was status of economy? Dow Jones at 8500

What was major IT issue for firms? Y2K

“Putting Enterprise into Enterprise System” What was major message from Davenport?

Putting Enterprise into Enterprise System Major Message Why do ERP projects fail?

Require significant money, time and expertise Force firms to do business in ways that conflict with their best

interest If used by all companies in industry, erasing sources of

differentiation and competitive advantage How to prevent failure?

Clarify strategic and organizational needs and business implications of integration.

Change organizational structures to address information-flow problems

Create competitive advantage with your enterprise system Put right people in place Install system gradually

Putting Enterprise into Enterprise System Major Message – cont’d “If the development of an enterprise system is not

carefully controlled by management, management may soon find itself under control of the system.”

The most successful ERP deployments involved companies that viewed them in strategic terms. “ They stressed the enterprise, not the system.”

Main reason for “failures” is that companies fail to reconcile the technological needs of the ERP with the business needs of the enterprise. “The logic of the system may conflict with the logic of the

business.

Mar, 2001

What was going on in the economy? All time high of 11,723 in Jan 2000 Hovering above 11,000 in early 2001

What were the major IT issues? Gotta have a web site

“Strategy and the Internet” What was Porter’s major message?

Strategy and the Internet (Porter) We need to “…see the internet for what it is: an

enabling technology…” (pg 64) The “…greatest impact [of the internet] has been to

enable the reconfiguration of existing industries that had been constrained by high costs for communicating, gathering information, or accomplishing transactions.” (pg 66)

“The great paradox of the Internet is that its [benefits] also make it more difficult for companies to capture those benefits as profits.” (pg 66)

Myths associated with the Internet First mover advantage through increased

switching costs and network effects In reality, switching costs lower For network effects to provide entry barrier, must

be based on proprietary technologies Partnering is a “win-win” strategy

Complements can have negative effect Microsoft standardized operating systems which

increased rivalry in PC industry Outsourcing can lead to homogeneous industry

with lowered entry barriers

Principles for Internet Strategy (Porter)

Strategic Positioning Start with the right goal: long term ROI. Deliver a unique value proposition. Develop a distinctive value chain configuration. Make trade-offs for robust strategy. Fit all elements of company to the strategy. Maintain continuity of direction

Summer/Fall, 2001

“A Framework for CRM” What was Winer’s primary message?

“Data to Knowledge to Results ” What was Davenport’s primary message?

Nov, 2002

What was going on in the economy? On Oct 9th, 2002, Dow Jones falls 215.22 to close

at 7,286.27. The market has declined 4,436.71, or 38%, since January 14, 2000

By Oct 21, closed above 8,500 What were the major IT issues? “Six IT Decisions Your IT People Shouldn’t

Make” What was major message?

Six IT Decisions Major Message Senior executives failed to realize that adopting the

Enterprise systems posed a business challenge Consequentially, did not take responsibility for the

organizational and business process changes the systems required.

IT departments should not make choices that determine the impact of IT on business strategy.

Determine the strategic role that IT will play, and then establish company-wide funding level that will enable technology to fulfill the objective.

May, 2003

What was going on in the economy? On Jun 4th, closes above 9,000

What were the major IT issues? “IT Doesn’t Matter”

What was major message?

IT Doesn’t MatterMajor Message IT has lost its strategic value. Businesses should manage IT as a commodity.

Does partial standardization wipe out opportunities for gaining competitive advantage?

Firms using identical IT and spending comparable amounts on IT display enormous variability in profits.

IT is diminishing as a source of strategic differentiation. But – creates possibilities and options that did not exist before

IT functions will be homogenized, and proprietary applications are therefore doomed.

As corporations adopt generic applications, business processes become uniform and without competitive advantage

Oct, 2003

What was going on in the economy? Sep 2nd, closes above 9500 Closes above 10,000 on Dec 11th

What were the major IT issues? “The Real New Economy”

What was major message?

The Real New EconomyMajor Message New economy did not spring from internet

Rather from intensifying business competition Explains productivity growth in six sectors. Associated with dismantling of regulatory constraints

Managers needed to cut costs and increase value to buyers. In industries with complex operating processes, heavy

transaction loads, and technically sophisticated products, IT was powerful tool: enabled development of new products and business processes facilitated industry-wide diffusion of new innovations

To retain an edge, companies must couple diffusing technologies with other distinctive capabilities and processes

strong scale economies

The Real New EconomyMajor Message – cont’d Three practices distinguished companies who were

successful in IT investments target investment at productivity levers that matter. pay attention to sequencing and timing of investment

example of companies that invest in CRM before they had consistent and reliable repositories of customer data

Should only rush investments when it is clear that technology will advance business goals, enable true innovation, and is resistant to imitation

Pursue managerial and technological innovations in tandem Managerial practices must adapt to technological innovations

Feb 2004

What was going on in the economy? What were the major IT issues? “Getting IT Right”

Getting IT RightMajor Message IT can work if you focus on process

Presume that IT is a commodity – what should you do? Start with business strategy Develop common underlying infrastructure Develop support staff that ensures infrastructure

enables business strategy

Insights

Extracting value from IT requires innovations in business practice IT Spending rarely correlates with superior

financial results. Too many business insert IT without changing

business practices.

Insights – cont’d

Strategic Impact comes from cumulative effect of sustained initiatives to innovate business practices. Wal-Mart led innovations. As competitors adopted

practices, Wal-Mart continued to innovate – maintained productivity advantage.

Opportunities for innovation continue because advances in IT create possibilities not previously economically available

Opportunity for business practice innovations extend beyond the walls of the enterprise to include relationships with other companies


Transactions, by themselves, are not a source of competitive advantage You may be special, your transactions are not. Identifying common transactions across the

organization can lead to efficiency improvements.

Differentiation is not a result of IT – but the new practices IT enables


Big-bang IT-driven initiatives rarely produce expected returns. Successful projects proceed in waves of short-

term (6-12 months) operating initiatives designed to test and refine specific innovations in practices. Ties initiative to explicit operating performance metrics –

focus on tangible near-term returns


Why do IT projects fail? Require significant money, time and expertise Force firms to do business in ways that conflict with

their best interest If used by all companies in industry, erases sources of

differentiation and competitive advantage How to prevent failure?

Clarify strategic and organizational needs and business implications of integration.

Change organizational structures to address information-flow problems

Put right people in place Install system gradually


Need to look at IT use through several different lenses Efficiency: Improve cost savings and efficiencies Emulation: Use IT to support best practices Effectiveness & Efficacy: Incremental

improvements in products, services, organizational structure

Enabling: Creation of strategic advantage through extending competitive scope, partnerships, changing rules of competition, provision of new IT-based services.


Automate vs Facilitate Automation increases efficiency of existing

processes If existing processes are stupid, you are now doing

stupid things faster Facilitate: reduce information confusion

Provide consistent, reliable and accurate information to support decision making

Enabling new processes


ROI vs Innovation? Time-delay associated with ROI analysis

If you just go ahead with the project, you may save far more than if you have to delay the project for months pending ROI

"Any budget has some money in it devoted solely to innovation. Even if 80 to 85 percent of your budget is locked, most places still devote from 10% of the budget for innovation. In the confines of an innovation budget, you typically don't have to ask for management approval for spending. So use that money. The ROI will follow.“ Michael Liebow, Vice President of Web services and SOA for IBM

Global Services


Must align business and IT strategies

Observed characteristics of well-aligned companies (from Deloitte Survey) Executive agreement on the role of IT –

where and how IT adds value Executive agreement on the priorities and

focus areas for IT Follow through and delivery on IT

expectations

2004 Survey by Deloitte Consulting LLP (Advertising Supplement in CIO Magazine)

Strategic Alignment ModelFour Domains of Strategic Choice

ScopeCompetenciesGovernance

StructureProcesses

Skills

ScopeCompetenciesGovernance

InfrastructureProcesses

Skills

Strategy(External)

Infrastructure(Internal)

Business Information Technology

Need to recognize how decisions in one domain affects the other domains

Functional Integration

StrategicFit

Strategy Domains

Business Scope: What business are you in? Distinctive Competencies: What do you do well to distinguish

yourself from your competitors? Governance: What external business relationships do you

depend on? IT

Scope: What information technologies support or create strategic business opportunities?

IT Competencies: What characteristics of IT create business advantage?

IT Governance: What external relationships does IT depend on (outsourcing, vendors, etc.)

Infrastructure Domains

Business Structure: Organizational structure Processes: What are key business processes? Skills: What HR needed to accomplish specific competencies?

IT Infrastructure: Hardware, Software, Database, Networks Processes: Development, Maintenance, Operations Skills: What skills required to maintain architecture and execute

the processes?

Business StrategyScope

CompetenciesGovernance

Business InfrastructureStructure

ProcessesSkills

IT StrategyScope


IT InfrastructureInfrastructure

ProcessesSkills

Deloitte Consulting measured alignment of: IT operational goals to corporate business goals IT spending with corporate priorities IT operations to IT strategy IT org/gov with corporate org/gov

How to use the Strategic Alignment Model

Identify your strongest and weakest domain Need to develop

communication with and increase understanding of weaker domains

Understand relationship between domains when change in strategy occurs

IT is an Expense Infrastructure defined by business processes

Priority is to improve business processes, which places focus on changing business infrastructure. IT focus is on application development, driven by need to support business infrastructure




ProcessesSkills

IT StrategyScope



ProcessesSkills

Risk:

IT reacts to supportbusiness processes – not viewed asstrategic resource

Business Strategy Drives Need to Develop IT Strategy

Business strategy and infrastructure are aligned IT strategy needs to define technologies integral to business

strategy Focus is aligning IT strategy and IT infrastructure




ProcessesSkills

IT StrategyScope



ProcessesSkills

Risks:

IT is not integrated –IT infrastructure lags and does not adequatelysupport business

?

Providing IT services Information is a core product or service

Business strategy and IT strategy may be aligned Focus is to enable business infrastructure by fitting IT

infrastructure to IT strategy




ProcessesSkills

IT StrategyScope



ProcessesSkills

?Risks:

May lose sight of business strategy

IT viewed as a servicefunction independentof business strategy

Business processesdetermined by IT

IT Enables Strategic Opportunities

IT strategy and infrastructure are aligned IT strategy necessary to build distinctive core competency

Business infrastructure needs to evolve to fit new business opportunities enabled by IT




ProcessesSkills

IT StrategyScope



ProcessesSkills

?

Hey – let’s build anInternet Web Site

Just because you can, doesn’t mean you should!

Common problemwhen companies golive is that businessprocesses are not ready to handle newdemands

Review

Build a framework to analyze: How to develop a “business model” that takes

advantage of IT to add value Define what we mean by a business model

How to use IT to enable the business model

What is a business model?

ValueConfiguration

Value Proposition

Performance

What Profit Site?How Add Value?Which Customers?How Price Value?Who to Charge for Value?How Provide Value?How Sustain Value?

Key Drivers of Value?Who are Customers/ Suppliers/Competitors?What Activities Needed to Deliver Value?Distinctiveness?

FinancialCustomer SatisfactionInternal ProcessesGrowth & Learning

Value Proposition & Configuration What Activities Needed to Deliver Value?

Chain

Shop Network

Find Solve

Evaluate Execute

Choose

Complementary Assets Model

IT is easily imitated IP may not be

protected at the global level

The complements matter Emphasized by

Porter

IDifficult to

make money

IIHolder of

complementaryassets makes

money

IVInventor

makes money

IIIParty with bothtechnology and assets or with

bargaining powermakes money

Imita

bilit

y

Low

Hig

h

Freely Availableor Unimportant

Tightly Heldand Important

Complementary Assets

Strategic Alignment Model

Maintain functional integration of: Strategy (Bus & IT) Infrastructure (Bus & IT)

Maintain strategic fit between strategy & infrastructure Business IT

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