What’s Happening?! Venture funding in Silicon Valley 22% in the 4th quarter--$1.7 billion. Venture capitalists are moving from trying to save older, struggling companies.
Download ReportTranscript What’s Happening?! Venture funding in Silicon Valley 22% in the 4th quarter--$1.7 billion. Venture capitalists are moving from trying to save older, struggling companies.
What’s Happening?! Venture funding in Silicon Valley 22% in the 4th quarter--$1.7 billion. Venture capitalists are moving from trying to save older, struggling companies to investing in youngest start-ups—the ones most likely to hire new people. “These are the kinds of jobs that won’t be leaving the country.” Andy Grove’s Five Key Principles 1. Enjoy your work. • It is impossible to like all of it. • Most people will like their work if they feel that what they do makes a difference. 2. Be totally dedicated to the end result. • Not how you got to it. • Or whose idea it was. • Or whether you look good or not. Andy Grove’s Five Key Principles 3. Respect the work of all those who respect their own work. 4. Be straight with everyone. 5. Always, when stumped, stop and think your way through to your own answers. Course Schedule Section I and II of ATP is due a week from this Thursday. Midterm exam pushed back to Thursday, Feb. 12. Midterm exam clinic on Thursday, Feb. 5 at 6 to 7 PM. Who is paying federal taxes? To be in the top 25% of all tax payers you need to earn: $52,965. To be in the top 50% of all tax payers you need to earn: $26,415 Who is paying federal taxes? Percentiles Share of AGI % of Fed. Taxes Paid Top 1% 19.5% 36.2% Top 5% 34.0% 55.5% Top 10% 44.9% 66.5% Top 25% 66.5% 83.5% Top 50% 86.8% 96.0% Bottom 50% 13.2% 4.0% Chapter 5 Summary Information Systems Can Redefine Competitive Boundaries Chapter Topics A. Interorganizational Systems B. Strategic Business Alliances C. Electronic Data Interchange (EDI) (extranets versus EDI) With an added dose of globalization. Interorganizational Systems Interorganizational Systems are defined as automated information systems shared by two or more companies. Enhance business relationships. Establish strategic alliances. Gain efficiencies. Gain effectiveness. Lower cost of doing business. Interorganizational System Goals Efficiency Effectiveness Competitive Advantage Interorganizational Systems Is this just another name for outsourcing? Is there any difference between sending work from Santa Cruz to San Jose and sending it from Santa Cruz to Bombay? The trend is not new and may be overstated. According to Gartner, 10 per cent of info tech jobs with US based technology companies will be based in countries in emerging markets by the end of 2004. It is unlikely that the federal government will do anything to limit or ban outsourcing. Strategic Alliances How (why) do they work? Companies bring strengths to the alliance table. Alliances create long term advantages. Alliances drive business growth. Alliances often represent a difficult transition. Strategic Alliances Why establish a strategic alliance? To build a combined capability that makes it a stronger competitor. Extended enterprise against the competitor’s extended enterprise. Difficult, costly and risky to try to deal with the challenges of a global business. EDI Electronic Data Interchange (EDI) (Predecessor to extranets) Exchange of routine business transactions in a structured computer-processed format. Traditional applications included purchasing, pricing, scheduling, payments and financial reporting. Why stay with an EDI system? 1. It is established and proven. 2. The network costs are not large enough to justify switching to an extranet approach. 3. There are other priorities within the organization. Global Motivation Offense/Defense—Opportunities/Threats Global economies of scale to recoup R&D and capital costs. Build and strengthen global brands—economies of scope. If your competitors have established a global position do you really have a choice as to whether you should also compete on a global basis? Acknowledge the better standard of living and increased mobility of a greater number of people in countries around the world. Possible Exam Questions 1. Explain the term extended enterprise and the possible benefits for a company in establishing a competitive position. 2. Explain and contrast the current extranet emphasis with the more traditional EDI approach. Chapter 6 Introduction Business Vision By Steven Levchenko Section II The Company Environment •Business Environment Specific Industry •Enterprise Environment The Company Itself •IT Environment Used for competitive advantage Business Success Business Vision “To carry out its work, the organization needs from its leader a clear statement of its vision and strategy.” Max DePree, Herman Miller, Inc. Business Vision The primary intent of this chapter is to position vision as the starting point in directing, posturing and running a business. Two company examples are provided: USAA Whirlpool The major point to remember is that vision triggers the entire business and information technology management process. Vision Leadership Strategy Tactics & Business Plan Agreement/Commitment Implementation Feedback Business Vision Process Sensing Opportunity Leadership A major premise of this course is that successful companies are the result of good leadership in two forms: 1. Companies need to be run well from an operational standpoint. 2. They also need to be well directed and this is accomplished through an effective vision that is communicated throughout the organization. Chapter 6 Business Vision CEO Job Description The primary job of a CEO is deal with the long-term viability of the business. Leaders combine vision with communication that leads to a shared purpose. A leader sets the vision which is different from being a visionary. The essence of competitiveness is vision, leadership and a hunger to succeed. P. R. Vagelos Chairman and CEO Merck A Business Vision • A vision is a photograph of the future. • It is a self-image that deals with what the business wants to look like over the long range future. • Business visions are realistic, credible and attractive to people within the organization. Jack Welch Vision for GE His vision was for GE to become the most competitive enterprise on earth. He wanted to create a small company spirit in a big company body, to build an organization out of an old line industrial company that would be high spirited, more adaptable, and more agile than companies one-fiftieth the size. He wanted GE to be a company where people dared to try new things—where people felt assured in knowing that only the limits of creativity and drive, their own standards of personal excellence, would be the ceiling on how far and how fast they move. Larry Ellison Vision for Oracle To be the world leader in providing software applications over a network and hardware designed and priced to serve those needs. Ellison suggests that the software industry as we know it today will vanish and be replaced by a service industry. Microsoft Vision Empower people through great software, anyplace, any time and on any device. Values Beliefs Principles Mission Vision Goals Strategies C u l t u r e Tactics Objectives and Measurements Business Plan Authority and Responsibility George Bush: The Vision Thing His inability to grasp "the vision thing" was an important part of George Bush's undoing in the '92 election; but he's not the only one to have a hard time articulating wishes and dreams for the future. Organizations are frequently brought to crisis by conflicts over basic issues of mission, values, and vision. Without these basic agreements in place, no organization is truly viable. Mission, values, and vision are the glue that holds an organization together. Gerstner’s Lack of Vision for IBM Lou Gerstner caused a stir at his first major press conference when he declared that the last thing IBM needed was to proclaim a grand vision. Gerstner proceeded to focus on cost-cutting and other management issues and proved the visionhungry pundits wrong. Culture Change Changing IBM's culture was Gerstner's most challenging long-term task. Early in his tenure, he told employees, “We've lost $16 billion in the last three years; Fortune magazine says we're a dinosaur. Don't you think we ought to change? It's pretty obvious what we're doing isn't working." Gerstner Approach Gerstner constantly asked managers, "What are your customers telling you? Do you understand your market? Have you segmented your market?" Managing change in the fast-paced technology business is extremely challenging and difficult to master. Gerstner Approach He managed IBM like the customer that he used to be. He had major discipline in how he used his time. He shifted IBM’s primary focus from hardware to services and from mainframes to the Internet and software. Executive Vision If a company has restructured where do they turn for business performance and financial improvement? Job experience can easily count more than intuition. A broad grounding in a particular industry is a prerequisite to successful direction setting. Visionaries can draw a conceptual roadmap to some imagined future. The most important thing that I have learned is that the time for a business to go from chump to champ to chump used to be two to three decades and now it is five to seven years. Bill McGowan Former CEO of MCI A Systematic Approach Vision Strategy Tactics Business Plan • Competitive Options • Roles, Roles and Relationships • Redefine and/or Define • Telecommunications as the Delivery Vehicle • Success Factor Profile A Shared Vision Positions IT 1. Achieves Strategic Synergy. 2. Puts the Onus on the Owners. 3. Leverages Learning. 4. Extends Externally. 5. Chucks the Organization Chart. 6. Indulges in Information. 7. Makes a Bee-line for Benefits. “The Vision Trap” Grand, abstract visions can be too inspirational. The company may wind up making more poetry than products. Gerard H. Langeler President, Mentor Graphics The Vision to Action Process Implementation (Action) Agreement & Commitment Tactics and Business Plan Strategy Feedback Vision Sensing Opportunity Figure 6-1 Vision Examples • Robert McDermott at USAA • David Whitwam at Whirlpool • Peter Lewis at Progressive Corp. • Gil Amelio at National Semiconductor If Starting Today Robert McDermott, USAA Jack Welch, General Electric David Whitwam, Whirlpool Jeff Bezos, Amazon.com Peter Lewis, Progressive Corp. Charles Schwab, Schwab & Co. Michael Dell, Dell Computer Sam Walton, Wal-Mart Stores Fred Smith, Federal Express Meg Whitman, eBay Louis Gerstner, IBM Akio Morita, Sony Lee Kuan Yew, Singapore, Inc. USAA • Financial Services Company. • Headquartered in San Antonio, Texas. • A member owned association. • Started by Army officers who had difficulty getting insurance. • Historically managed by former military officers. • Top-rated for customer service and financial performance. Information systems are strategic weapons, not cost centers. Robert F. McDermott, Former USAA CEO McDermott Leadership • Increased assets from $207 million to $8.5 billion. • Grew customer base from 650,000 to 2.4 million. • Significantly increased the level of customer service. • Broadened the product base. • Decreased the high annual employee turnover rate. • Redefined the business from a property and casualty insurance company to a financial services organization. USAA Vision 2000 An Events Oriented Organization Needs Member (Customer) Key Points Security Quality of Life Supporting Systems Insurance Products Consumer Services Products Wants Asset Management Financial Services Products Figure 6-2 USAA’s ultimate goal is to manage its customer relationships and not its individual products. How does this relate to information systems? USAA Videotape USAA Products and Services So integrated that members lose something if they go elsewhere. USAA Business and IS Goals 1. Customer Convenient 2. Operator Efficient 3. Cost Effective Information Systems Strategies • Executive Partnership • Strategic Architectures • Technology Experimentation • External Resource Leverage • Technology Assimilation • Horizontal Integration IT at USAA • • • • • 28,000 workstations for 22,709 employees. 7 mainframe computers. 750 client server systems. Own and operate a communications company. 4,300 AT&T Trunk Lines: 94 million annual telephone calls representing 90% of business transactions. • 1,300 Information Systems people. (ITCo) 12/31/99 USAA Image Processing Mainframe Computer A Folder Management P Application Document Database Direct Access Storage Drive Inner Server I A Storage P Manager Direct Access Storage Drive I API Token Ring LAN Application Workstation Application Workstation [ Image Workstation ] Scanner Image Workstation On-line Optical Disks Service Representatives Optical Storage Library (Not On-line) Figure 6-3 USAA Success Conclusions 1. Provides quality service. 2. Attracts, trains, retains and motivates employees. 3. Aggressively and successfully uses information technology. 4. Provides products and services to address the changing needs of its customers. 5. Maintains one of the lowest operating expense ratios in the industry. 6. Achieves financial results that warrant excellent to superior ratings. 7. Makes business, organizational and management changes on a timely basis. 8. Had an outstanding CEO in General McDermott. Whirlpool Corporation • Traditionally, a successful, well-managed company. • A new CEO in 1987 who initiated a global vision in 1988. • A global strategy that emphasized: - Product Technology -Procurement • Promoted a theme of “Thinking global but acting local.” Whirlpool Corp. Manufactures in 13 countries, has nearly 50 product technology centers and markets products under 13 brands in 170 countries. Has the patience to allow the global strategy to evolve. Is the only company with a presence in four of the five global markets. Has realized impressive growth in revenue but not profits. Has become a new Whirlpool. Financial Performance 1991 - $6.5 billion in global sales 2002 - $11 billion in global sales. 2003 - $11.8 billion in global sales. 1991 - $353 million in operating profit 2002 - $262 million in operating profit 2003 - $709 million in operating profit Stock Performance Whitwam Statement We entered 2003 with continuing economic uncertainty in most of the global markets we serve. We took the appropriate cost and productivity actions to deal with that uncertainty. We believe that Whirlpool’s global leadership position, the company’s unique global platform and innovation activities focused on building customer loyalty will drive continued performance improvements in 2004 and beyond. Whirlpool Corporation Principal Products Automatic Dryers Automatic Washers Dehumidifiers Dishwashers Freezers Microwave Ovens Ranges Refrigerators Trash Compactors Room Air Conditioners Who Buys Large Appliances 1. Contractors for new homes. 2. Home owners for replacements. 3. Appliance service businesses. 4. Businesses and public sector entities. 5. First time appliance buyers. Appliance Brands Whirlpool Maytag GE Electrolux Kitchen Aid Roper Whirlpool Admiral Hardwick Hoover Jenn-Air Magic Chef Maytag Norge GE RCA Hot Point Frigidaire Gibson Elna Eureka Kelvinator O’Keefe and Merritt Tappan WhiteWestinghouse Kenmore* * Manufactured for Sears Differentiation Strategy!? • Clothes Management System • Food Management System Whirlpool Strategic Design • Mission Statement • Vision • Value Creating Objectives • Shared Values • Worldwide Excellence System Whirlpool Corporation How We Must Work, Think, Plan and Manage to Reach Our Objectives Whirlpool People Leadership Quality of Processes and Products Fact-Based Management Strategic Planning Measurement and Results Customer Satisfaction Figure 6-4 Four Whirlpool Options 1. Stick to its large appliance knitting within the North American market and fight for increased market share with the hope that economic factors would improve its market conditions. 2. Diversify within the North American market. 3. Pursue a global strategy as a conservative player in multiple global markets. 4. Pursue an aggressive global strategy with the objective of leading the redefining of the worldwide large appliance industry. Whirlpool Mission Statement To shape and lead the major home appliance industry globally, becoming one of the world’s great companies while creating value for shareholders, employees, customers, suppliers, government leaders and communities. Whirlpool Vision Whirlpool, in its chosen lines of business, will grow with new opportunities and be the leader in an ever-changing global market. We will be driven by our commitment to continuous quality improvement and to exceeding all of our customers’ expectations. We will gain competitive advantage through this, and by building on our existing strengths and developing new competencies. We will be market driven, efficient and profitable. Our success will make Whirlpool a company that worldwide customers, employees and other stakeholders can depend on. Pyramid of Excellence Stakeholder Value Where Way What Value Creating Objectives How Worldwide Excellence System Whirlpool Corporation The market of tomorrow will be huge, filled with tough savvy customers with a wide range of preferences and choices. We must fulfill their needs and meet their expectations in quality and service. We must surprise them. David R. Whitwam Whirlpool CEO Platform for Global Success 1. Product Technology. 2. Procurement. 3. Information Systems GE Versus Whirlpool Has tried for years to dislodge Whirlpool as No. 1 in the US. GE spent $100 million to develop a new washer. Plastic washer basket versus traditional porcelain. Lost a major battle to win Sears’ washer business. Gained two percentage points in market share in 2000. (2% is $400 million in a $20 billion market.) Offered significant purchase rebates. Operating profits were 12% (low for GE). President of GE: “Being in this business is painful.” Worldwide Major Appliance Industry United States Whirlpool General Electric Maytag Japan Matshushita Electric Hitachi Sweden Electrolux Korea Samsung Figure 6-5 Morita and Sony Sony was started in 1946 when Morita, the oldest son of a rice wine brewer, joined former Japanese navy colleague Masaru Ibuka, a fellow engineer, to start a business repairing radios on borrowed $500. A significant number of firsts: - Japan’s first transistors in 1954. - Japan’s first transistor radio in 1955. - First Japanese company to be listed on the NYSE. - First Japanese company to build a U.S. factory. Sony Morita told engineers to make Walkmans despite the lack of market research. “We don’t believe in market research for a new product unknown to the public. So we never do any.” Preferred Approach: innovation in design, manufacturing and marketing. Lee Kuan Yew and Singapore Inc. Although no nation's history can ever be reduced to the story of one man, Lee Kuan Yew had such a paramount role in making modem Singapore that an understanding of that country, its society and its business environment cannot be complete without an attempt at understanding Lee himself. “Lee took the opportunity to assure Malays that they need not fear Hong Kong immigrants taking their jobs because the immigrants will all be high income earners.” A Good Vision Statement • Provides a clear picture of what the company wants to be in the future. • Excites and motivates people and gains consensus and commitment. • Focuses on operations. • Is measurable at least in general terms. • Establishes a standard of excellence. • Changes the basis for competition. Business Vision Increasingly, companies are using vision statements to explain who they are, where they are going and why customers and employees should follow them there. Good Vision Statement? We want to sell a variety of products on a daily basis to every living person on the earth. PepsiCo. Good Vision Statement? To be the world leader in transportation products and services. General Motors Corp. A Good Vision Statement? To continue to be the world’s best way to pay and be paid for consumers and businesses. Visa International Good Vision Statement? Absolutely, positively overnight! Federal Express Good Vision Statement? To make the maximum computing power available to a broad user audience through open technologies. Sun Microsystems Sun Vision Statement To be an industry leader, you need vision. But that’s just the beginning. You also need the people, products, and relationships to take your vision to market and turn it into a compelling reality. Good Vision Statement? To provide the best service and lowest fares to the short haul, frequent-flying, point-to-point, non-interlining traveler. Southwest Airlines When you have a vision and someone comes to you with some convoluted idea, you should be able to hold it up to the vision and ask: Does it fit? Does it fly? If not, don’t bother with it. The ingredient that catapulted Southwest to the top of the industry is simple, elegant and well publicized. Discipline, focus and execution. Throughout its existence, Southwest has consistently adhered to a clearly defined purpose and a well thought out strategy for accomplishing it. Good Vision Statement? Do it, try it, fix it! Wal-Mart Stores Wal-Mart Vision “I concentrated all along on building the finest retailing company that we possibly could. Period.” “Creating a huge personal fortune was never a goal of mine.” Sam Walton Wal-Mart Vision Sam Walton built incrementally, step by step from a single store until a rural discount store model popped out as a natural evolutionary step. Jim Collins states that it took almost twenty years for them to arrive at this conclusion. Wal-Mart If you are not serving the customer or supporting the folks that do, then we don’t need you. Wal-Mart Core Values 1. We exist to provide value to our customers—to make their lives better via lower prices and greater selection; all else is secondary. 2. Swim upstream, buck conventional wisdom. 3. Be in partnership with employees. 4. Work with passion, commitment and enthusiasm. 5. Run lean. 6. Pursue ever-higher goals. AMR Corporate Vision We will be the global leader in air transportation and related information services. That leadership will be attained by: • Setting the industry standard for safety and security. • Providing world class service. • Creating an open and participative work environment which seeks positive change, rewards innovation, and provides growth, security and opportunity to all employees. • Producing consistently superior financial returns for shareholders. Built to Last Conclusions 1. A visionary company does not by definition start with a great idea. 2. A charismatic leader is not required for a visionary company. 3. There are no standard core values to be a visionary company. 4. A visionary company is not built on frequent change but a focus over time on its core ideology. Built to Last Conclusions 5. Visionary companies may appear conservative to outsiders but they are not afraid to make bold commitments and/or establish ambitious goals. 6. Only those people who fit well with the core ideology and the demanding standards of a visionary company will find it a great place to work. 7. Visionary companies make some of their best moves by experimentation, trail and error, opportunism and accidentally. 8. Great visionary companies seldom go outside to hire a new CEO. Built to Last Conclusions 9. Visionary companies focus primarily on beating themselves. 10. Visionary companies believe they can accomplish major objectives simultaneously without making major negative trade-offs. 11. Visionary companies attained their successful status not so much because they made visionary pronouncements (although they frequently did) but by pursuing a never-ending process of emphasizing the above factors. Founding Dates 1812 Citicorp 1911 IBM 1837 Procter and Gamble 1915 Boeing 1847 Phillip Morris 1923 Walt Disney 1850 American Express 1927 Marriott 1886 Johnson & Johnson 1928 Motorola 1891 Merck 1938 Hewlett-Packard 1892 General Electric 1945 Sony 1901 Nordstrom 1945 Wal-Mart 1903 3Com Visionary Companies • Display a remarkable resiliency, an ability to bounce back from adversity. • They attain excellent long term performance. • These companies have frequently woven into the very fabric of society. Soft Visionaries? Visionary does not mean soft and undisciplined. Because the visionary companies have such clarity about who they are, what they are about and what they are trying to achieve, they tend to not have much room for people unwilling or unsuited to their demanding standards. Business Vision One of the myths of management is that an appropriate vision and good strategic planning will ensure an institutions future. This is not enough! A Logical Vision Process • Define the Business Environment. • Build a Company Vision. • Turn the Vision into a Plan. • Drive Action with the Plan. A Vision that Works • It gains commitment and energizes employees. • It creates meaning in employees lives. • It helps to establish a standard of excellence. • It bridges the past and the future. • It assures future business success. Invest Vision Save Money Asset Applications Networks Expense Strategic Tools Tactical By instilling: You create: Which results in: Leadership Improved Performance Vision Market Impact Strategy Tactical Excellence Innovation A Great Company Excellent Reputation Sustained Success Vision Which attitude would you support on this subject? 1. There is little hard evidence that companies with vision statements perform better than those without. 2. At the current rate of change in the business environment, companies need a clear, consistent sense of where they are going.