Transcript Building Networked Business

Building Networked
Business
The Organization Design Challenge
Organization
Complex &
Global
?
Hierarchy
Simple &
Local
Entrepreneurial
Organization
Stable &
Certain
Environment
Dynamic &
Uncertain
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
Networked Organizational Models are
Enabled by Networked Technologies
Information Requirements
Complex &
Global
Hierarchical Organization &
Mainframe Technology
Networked Organization &
Networked Technology
+
Centralized intelligence
+
Shared intelligence
Entrepreneurial Organization &
PC & LAN Technology
+
Simple &
Local
Local Intelligence
Stable &
Certain
Business Decision Making Environment
Dynamic &
Uncertain
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
Blueprint for a “Big - -Small” Business
Sample Organizational
Components
Leading & Engaging
Managing & Learning
Operating & Innovating
Sample Technology
Components
• Human Resources Management
• HR Systems
• 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
• Organization Structure and Reporting • Business Intelligence Systems
• Organization Decision Making and
Learning
• Data and Knowledge Management
• Operating Process
• Enterprise Resource Planning (ERP)
• 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
Operating and Innovating Capabilities
Precision
Execution
Hierarchy
Fast - Cycled
Innovation
Entrepreneurial
Networked
Business Design Requirements
Capabilities
Precision execution
Fast-cycled innovation
Customer and community
connected
Business Design Requirements

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.

Flexible, modular designs enable customization, personalization, and continuous
improvement.

- - operations
Change processes are embedded within the company’s day-to-day

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.

Executives and employees in all parts of the organization have the
information required to understand th e lifetime value of customers, suppliers
and partners and have the ability and authority to make decisions and take
actions to improve satisfaction and loyalty.

Incentive systems reward success in attracting and retaining profitable
customers, suppliers, a nd partners and in increasing the frequency and level
of engagement.
(Note: All key stakeholders,
including suppliers and partners are
considered “customers” of an e-business.)
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
Managing and Learning Capabilities
Efficiency &
Integration
Hierarchy
Learning by
Doing
Entrepreneurial
Networked
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
Managing and Learning Capabilities
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.
Managing and Learning Capabilities (cont.)
Capabilities
Flexible and wellmanaged 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.
Leading and Engaging Capabilities
Strategic Focus
& Resource Allocation
Hierarchy
Shared Culture
& Commitment
Entrepreneurial
Networked
Leading and Engaging Capabilities
Capabilities
Business Design Requirements
Visionary yet pragmatic
Leadership
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.
Energized participation
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.
Skilled in conflict resolution,
negotiation and consensus
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.
Options for Structuring Market Activities
Options
Vertical Integration
Description
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
Relationship Options
Basis of
Interaction
Duration of
Interaction
Level of
Business
Integration
Coordination
and Control
Information
Flow
Transaction
Discrete exchange of
goods, services, a nd
payments (simple
buyer/seller exchange)
Immediate
Low
Supply and demand
(market)
Primarily one way;
Limited in scope and
amount;
Low level of customization
Contract
Prior agreement governs
exchange (e.g., service contract,
lease, purchase agreement)
Usually short -term and defined
by the contract
Low to Moderate
Terms of contract define
procedures, monitoring, and
reporting
One or two way;
Scope & amount are usually
defined in the contract
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL:
McGraw -Hill/Irwin, 2002.
Partnership
Shared goals and processes for
achieving them (e.g.,
collaborative product
development)
Usually long term and defined
by the relationship
High
Interorganizational structures,
processes, and systems;
Mutual adjustment
Two -way (interactive);
Extensive exchange of rich,
detailed information;
Dynamically changing;
Customizable
Chapter 3 Table 3 -2
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
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.
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.
Goals and Measures
Categories of Benefits
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 decisionmaking; 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