Introduction Challenges of Managing in a Network Economy

Evolution of Compu ting Performa nce

Price Performance Trends of Mainframes and PCs
$/MIPs 1,000,000

8:1*
100.000

Mainframe
10,000

286:1*
1,000

PCs and workstations

100

900:1*

10

1 1980 *Ratio of MIPs per Dollars (Mainframes:PCs) 1990 1996

Adapted from: McKenney, J., Waves of Change: Business Evolution through Information Technology , Boston: Harvard Business School Press, 1995.

Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McFarla n., Corporate I nfor mation Strategy and Management . Bur r Ridge, IL: McGr aw-Hill/Irwin, 2002.

I ntroduction Figure I-1

Themes presented in this book

Market structure and industry dynamics Evolving business models IT impact Prioritizing IT investment Assimilation and organizational learning Buy versus make Partnership among key constituencies as IT evolves Protecting IT assets and managing risks Pervasive computing

Theme 1: Market Structure and Industry Dynamics

New choices for designing and building industries, markets, and organizations. IT expands processing capacity enabling convergence of voice, video, and data. Real-time transactions, interactivity and connectivity.

The Value Ch ain Defines Ind ust ry Str uctu re a nd Relationships

Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McF arla n, Corporate I nfor mation Strategy and M anagement . Bur r Ridge, IL: McGr aw-Hill/Irwin, 2002.

Chapter 1 Figur e 1-3

Theme 2: Evolving Business Models

The business models that dominated the Industrial Economy are evolving to take advantage of the capabilities of the new technologies and business practices of the Network economy, giving rise to new sources of power and differentiation.

Componen ts of a Business Model

Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McFarla n, Corporate I nfor mation Strategy and Management . Bur r Ridge, IL: McGr aw-Hill/Irwin, 2002.

Chapter 2 Figur e 2-1

Theme 3: IT Impact
Important dimensions are:
The impact of IT on core operations and The impact of IT on core strategy.

The Impact of IT
High

Factory
IT Impact on Core Operations
Goal: Improve performance of core processes Leadership: Business unit executives Project Management: Process reengineering

Strategic
Goal: Transform organization or industry Leadership: Senior executives & board Project Management: Change management

Support
Goal: Improve local performance Leadership: Local level oversight Project Management: Grassroots experimentation

Turnaround
Goal: Identify and launch new ventures Leadership: Venture incubation unit Project Management: New venture development High

Low

IT Impact on Core Strategy

Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McFarla n., Corporate I nfor mation Strategy and Management . Bur r Ridge, IL: McGr aw-Hill/Irwin, 2002.

I ntroduction Figure I-4

Theme 4: Prioritizing IT Investments

Shift in IT investment priorities and decisions from a cost-avoidance, project centered approach to an asset-based, strategic option approach.

The IT Business Value Scorecard

Goals and Measures Categories of Table Benefits 4-2:
The IT Business Value Scorecard

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.

The IT Business Value Scorecard Contd.

Categories of Benefits Commerce Goals and Measures

Internal

External

Type II: Benefits from Doing Business on a Networked IT Infrastructure Improve internal operating Streamline and integrate channels efficiency and quality to market, create new Sample Measures: Internal channels, and integrate multiple online/offline channels process performance and work flow improvements; cost Sample Measures: Supply chain or savings or cost avoidance; distribution channel increased quality; decreased performance improvements; cycle time 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

The IT Business Value Scorecard Contd.

Categories of Benefits Content / Knowledge Goals and Measures Internal External

Type II: Benefits from Doing Business on a Networked IT Infrastructure Improve the performance of Improve the performance of knowledge workers and enhance knowledge workers in customer, organizational learning supplier, and partner Sample Measures: Enable organizations; add information individuals to achieve and exceed value to existing products and personal performance goals; services; create new informationbased products and services increase the speed and effectiveness of decision making; Sample Measures: Provide increase the ability of the information to customers, organization to respond quickly suppliers, and partners that and effectively to threats and enables better decision-making; opportunities 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

The IT Business Value Scorecard Contd.

Categories of Benefits Community Goals and Measures

Internal

External

Type II: Benefits from Doing Business on a Networked IT Infrastructure 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

Theme 5: Assimilation and Organizational Learning

The time required for successful organizational learning and assimilation of rapidly changing technologies limits the practical speed of change.

Identifying and Assimilating IT

Phase 1 Opportunity Identification and Investment Success Lack of attention and commitment

Phase 2 Organizational Learning and Adaptation Success

Stagnation Block A Narrowly focused and not marketed

Phase 3 Rationalization and Continuous Evolution Success

Stagnation Block B

Too efficiency dominated

Stagnation Block C

Widespread Technology Transfer

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan., Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Introduction Figure I-5

Theme 6: Buy versus Make

External industry, internal organizational, and technological changes are increasing the pressure on organizations to buy rather than make IT applications and services.

Theme 7: Partnerships among Key Constituencies as IT Evolves

High levels of engagement and cooperation among four key constituencies:
Business Executives IT Executives Users Technology Providers / Partners

Three Er as of IT Evolution
Administrative Framework Target for IT Use Justification/ Benefits

Era I Mainframe

Regulated monopoly

Back office automation

Organizational productivity

Era II Microcomputer

Free market

Individual decisionmaking and productivity Electronic integration and learning

Individual effectiveness

Era III Internetworking

Shared partnership

Business advantage

Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McFarla n., Corporate I nfor mation Strategy and Management . Bur r Ridge, IL: McGr aw-Hill/Irwin, 2002.

I ntroduction Figure I-6

Theme 8: Protecting IT Assets and Managing Risks

The ability to ensure high levels of security, privacy, reliability, and availability is a core capability that determines an organizations ultimate success and survival.

Theme 9: Pervasive Computing: Opportunities and Risks

Shift in IT that has dramatically changed the way people access and use technology, the way organizations exploit it, and the way it is developed and managed.