Transcript Wk3_Lecture - W06.ppt

BA572
Slides - Week # 3
Dr. V.T. Raja and Dr. James Coakley
Oregon State University
ERP – Review
• What is ERP?
• Who are the major ERP vendors?
• Major messages
– ERP may erase sources of differentiation and
competitive advantage
– Force firms to do business in ways that may
conflict with their best interest
– 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.”
ERP - Major Messages (Continued)
• The most successful ERP deployments
involved companies that viewed them in
strategic terms.
– “ They stressed the enterprise, not the system.”
• Clarify strategic and organizational
needs and business implications of
integration.
• Change organizational structures to
address information-flow problems
ERP - Major Messages (Continued)
• “If the development of an enterprise system is not
carefully controlled by management, management may
soon find itself under control of the system.”
• Require significant money, time and expertise
– Careful selection of ERP vendor
– Customization is very expensive - may need to
customize only to sustain competitive advantage
– Put right people in place
– Phased or big-bang implementation (but not rash
implementation)
Are these lessons restricted to ERP
systems?
“Implementation” failures
• System:
– Lack of user involvement!!!!!
– Insufficient training of end-users
– Inadequate infrastructure in place
– Run over time and budget
– Inadequate systems integration testing
– Conversion problems -- data
• People: natural resistance to change
• Politics: IT can change basis of power
IT Project Success
• Key factors for successful project?
– End-user involvement
• Involvement does not guarantee success, but lack of
involvement guarantees failure
– User-designer communication gap
– Top management support
• Ensures funding and management support
– Appropriate level of complexity and risk
– Management of the implementation process
• Alignment of IT with business strategy
Goal for Today
• Framework that focus on aligning IT with
Business Strategy
– How to develop a “business model” that adds
value?
• Define what we mean by a business model
– How to use IT to enable the business model?
Start with Conceptual Framework
from Afuah-Tucci
Environment
Internet
Key Drivers of Value?
Who are Customers?
What Activities are
Needed to Deliver
Value?
Distinctiveness?
Performance
Business
Model
What Profit Site?
What Customer Value?
Which Customers?
How to Price Value?
Who to Charge for Value?
How to Provide Value?
How to Sustain Value?
Environment
• Competitive and Macro Environment
• Porter’s Competitive Forces Model
– “Strategy and the Internet” & Chapter 10
• Threat of New Entrants
• Threat of Substitute Products
• Bargaining Power
– Customers
– Suppliers
• Rivalry among Existing Competitors
Provide examples of Entry Barriers
•
•
•
•
•
•
•
•
Economies of Scale
Proprietary product differences
Brand identity
Switching costs
Capital requirements
Access to channels
Expected retaliation
Absolute cost advantages (proprietary
learning curve)
• Regulation
What Influences the
Threat of Substitute Products?
• Relative price/performance of substitutes
• Switching costs
• Buyer propensity to substitute
Conceptual Framework
from Afuah-Tucci
Environment
Internet
Key Drivers of Value?
Who are Customers?
What Activities Needed
to Deliver Value?
Distinctiveness?
Performance
Business
Model
What Profit Site?
What Customers Value?
Which Customers?
How Price Value?
Who to Charge for Value?
How Provide Value?
How Sustain Value?
Which Customers?
• Broad scope
• Narrow scope
• Target market defined based on:
– Geographic Scope
• Operations
• # of competitors
– Range of products/services
What are the determinants of
customer value?
• Cost
• Differentiation
Cost
• Low cost producers sell standard, no frills
• Emphasis on using scale & cost
advantages from all sources
• Must achieve parity or proximity in
differentiation
– parity in features
– proximity in price
• More than one firm pursuing cost
leadership raises rivalry
Differentiation
• Unique along some dimension that is
widely valued by buyers
– Based on: Product, Timing, Location, Service,
Linkages, Reputation
– Should choose attributes different from rivals’
– Aim for parity or proximity in cost
Strategy Choices
Cost
Broad
Scope
Narrow
Scope
Differentiation
cost
leadership
differentiation
cost
focus
differentiation
focus
Environment
• Analyze competitive forces acting on
industry
• Identify competitive force(s) that are
critical to the firm
• Use IT effectively to combat critical
competitive force(s)
Rivalry among existing
competitors
• How to use IT to
combat force?
Change/Alter :
Scope of
competition
Strategy
Interrelationship
among
industries
How can we use IS/IT to combat
these forces?
• Use IT to change scope of competition
Example: Wall Street Journal
• Use IT to enhance strategy
Examples: Caesar’s Palace
Nexis/Lexis
• Use IT to change strategy
Examples: ‘ICE’ age
Conceptual Framework
from Afuah-Tucci
Environment
Internet
Key Drivers of Value?
Who are Customers?
What Activities Needed
to Deliver Value?
Distinctiveness?
Performance
Business
Model
What Profit Site?
What Customer Value?
Which Customers?
How Price Value?
Who to Charge for Value?
How Provide Value?
How Sustain Value?
Value Configuration Analysis
Chapter 7
Find
Solve
Choose
Evaluate
Execute
Shop
Network
Chain
Value Chain
Firm Infrastructure
Human Resources Management
Technology Development
Procurement
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Aftersales
Service
• What is basic premise of value chain?
– Value created by transforming inputs into products
Value Chain Structure
• IT can facilitate each value chain activity
and also linkages within/across chain
• Critical Linkages
– Internal linkage: Information shared across
activities within firm
• Tend to be sequential flows between activities
– External linkage: Information shared across
activities between different firms
• Extended value chain
Value Chain Analysis
• Understand
– Industry
Competitive Forces Analysis
– Strategy
– Activities of the organization
• Identify the activities and linkages along value
chain that are critical
• Add value by focusing on those critical activities
and linkages
– Lower cost by increasing efficiency, scale or
capacity
Value Chain Use
• Directly applicable to manufacturing activities
• Less applicable in some situations
– Hospitals (sick patients – healthy patients)
– Education (Freshman – Graduates)
Value Shop
Firm Infrastructure
Human Resources Management
Technology Development
Procurement
Problem Finding
& Acquisition
Problem
Solving
Simon’s Problem Solving Model
Control/
Evaluation
Infrastructure
Support
Choice
Execution
• What is basic premise of value shop?
– Value created by providing solutions to customer
problems
Find
Value Shop (cont’d)
Choose
Evaluate
• Value creation based on:
– Information asymmetry between firm and
client
• Firm has information to satisfy client needs
– Rely on intensive information to solve a
customer problem
• Firm has standardized information acquisition
process
– Cyclical, iterative solution process
• Can be resolved by non-experts
• Need experts to recognize unique cases
Solve
Execute
Find
Value Shop (cont’d)
Solve
Choose
Evaluate
Execute
• Key driver is value, not cost
– “Value” depends on quality of professionals
assigned to client projects
• Learning across projects is critical
– Need for “knowledge base”
Value Network
Firm Infrastructure
Human Resources Management
Technology Development
Procurement
Network promotion and contract management
• Invite and select
Service provisioning
customers to
 Establish,
Infrastructure
join network
maintain and
operation
• Initialize,
terminate
 Maintain and
manage and
links
run physical and
terminate
 Billing for
information network
contracts
value received
• What is basic premise of value Network?
– Value created by providing intermediary services
Value Network (cont’d)
• Value derived from scale and capacity
– Each additional participant adds value
– Value of new service dependent on who else
adopts it
Discussion Question
• Provide an example of a firm that uses a
value chain.
• Provide an example of a firm that uses a
value shop.
• Provide an example of a firm that uses a
value network.
Combinations of Value
Configuration Strategies
Find
Solve
Choose
Evaluate
Execute
HMO
Cisco: solves
problems
EBay:
auction
network
Amazon?
Dell: mass
customization
Napster: music
distribution
Automobile manufacturers: mass production
Conceptual Framework
from Afuah-Tucci
Environment
Internet
Key Drivers of Value?
Who are Customers?
What Activities Needed
to Deliver Value?
Distinctiveness?
Performance
Business
Model
What Profit Site?
What Customer Value?
Which Customers?
How Price Value?
Who to Charge for Value?
How Provide Value?
How Sustain Value?
What is needed to perform activities
that underpin customer value?
• Resources: things and assets that can be
acquired.
– Flexible: asset acquired for one task may be used on
another
• Processes: procedures developed to accomplish
a task.
– Designed to be inflexible to ensure consistency and
promote efficiency
• Process developed to accomplish one task may not be used
to accomplish another
• Values: criteria by which employees make
decisions about priorities
– Organizational structure & culture?
Leading for Innovation by Clayton M. Christensen
Discussion Question
• What is a “core competency”?
– Makes high contribution to value
– Unique or higher level than competitors
– Extendable to multiple lines
• Is there a distinction between core
competencies and competitive advantage?
1
How do you make a competitive
advantage sustainable?
• Three strategies in text
– Block
• Limit access (intellectual property)
• Undercut price
– Run
• Continual innovation of products/services
– Team-up
• Joint ventures
• Strategic Alliances/Acquisitions
Run Strategy:
Two types of innovation
• Sustaining innovation: Make product or
service better based on metrics in
mainstream market
• Disruptive innovation: New product or
service that is actually worse based on
mainstream metrics
– Examples?
Discussion Question
• Given an example of how internet
technologies have created disruptive
technological change.
2
Christensen study of disk
manufacturers
• 116 new technologies introduced
– 111 were sustaining: improve performance of
disk drives
• 100 percent of these were from established firms
– 5 were disruptive innovation: smaller drives
that were slower and had less capacity
• No new technologies were involved
• Diskette
• None of the established firms remained
atop the market after the disruptive
innovations entered the market!
Innovation
• Christensen cites numerous instances
where companies failed to react to
disruptive changes
– Seeing the disruption coming was not the
problem
– Organizations did not have capability to react
in a way that enabled them to keep pace with
the required changes
What limits a firms ability to react?
• Established companies develop RPV (resource/
process/value) models focused on sustaining
innovations
– Processes and values focused on introducing
improved products to gain competitive edge.
• Disruptive innovations:
– Could not be handled by routine processes
– Had lower profit margins (did not fit the values of the
organization)
– Were not suited for existing “best” customers
– Evolved in emerging markets that were surrendered
by established companies
• PC market initially ignored by IBM
Three options to create new
capabilities
• Acquisition
• Create new capabilities internally
• Spin-out ventures
Acquisitions
• If acquired companies processes and
values are basis for success, cannot
easily integrate into parent organization.
– HP and Compaq merger?
• If acquired companies resources are
basis for success, then can integrate
– Cisco?
Create new capabilities
• If organization acquires new resources,
cannot use same processes and values
• Processes and values define how
resources are combined to create value
• Processes are hard to change
Spin-out ventures
• “A separate organization is required when
the mainstream organization's values
would render it incapable of focusing
resources on the innovation project”
– A threatening disruptive technology requires a
different cost structure to be profitable and
competitive
– The current size of the opportunity is
insignificant relative to the growth needs of
the mainstream organization
Start with Conceptual Framework
from Afuah-Tucci
Environment
Internet
Key Drivers of Value?
Who are Customers?
What Activities are
Needed to Deliver
Value?
Distinctiveness?
Performance
Business
Model
What Profit Site?
What Customer Value?
Which Customers?
How to Price Value?
Who to Charge for Value?
How to Provide Value?
How to Sustain Value?
Components of a Business Model
• Profit Site
– Location in a value
configuration vis-à-vis
customers, suppliers,
rivals, potential new
entrants, complementors
and substitutes
– Look at value
configuration, competitive
forces, complementary
assets model (brand name,
relationship with clients or
suppliers)
Components of a Business Model –
cont’d
• Pricing Strategy
– Menu/Fixed
– Bargaining
– Auction
– Reverse Auction
– Barter – exchange
good and services
Components of a Business Model –
cont’d
• Source of Revenue
– Commission
– Advertising
– Markup
– Production (direct to
consumer)
• Software
– Referral
– Subscription
– Fee-for-Service
Components of a Business Model –
cont’d
• Value & Scope
– Cost vs Differentiation
– Broad vs Focus
• Commerce Strategy
–
–
–
–
–
B2C
B2B
C2B
C2C or P2P
B2E
Strategic Alignment Model
Four Domains of Strategic Choice
Need to recognize how decisions in one domain affects the other domains
Strategy
Scope
Competencies
Governance
Scope
Competencies
Governance
Strategic
Fit
Infrastructure
Structure
Processes
Skills
Business
Infrastructure
Processes
Skills
Information Technology
Functional Integration
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?
Strategic Alignment Model
• Alignment is a dynamic and evolving process
Business Strategy
Scope
Competencies
Governance
IT Strategy
Scope
Competencies
Governance
Organizational Infrastructure
Structure
Processes
Skills
IT Infrastructure
Infrastructure
Processes
Skills
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
Business Strategy
Scope
Competencies
Governance
IT Strategy
Scope
Competencies
Governance
Business Infrastructure
Structure
Processes
Skills
IT Infrastructure
Infrastructure
Processes
Skills
Risk:
IT reacts to support
business processes –
not viewed as
strategic resource
Discussion Question
• Provide an example of a firm that uses a
value chain.
– How do they price the value?
– Who do they charge for the value?
– What is the revenue model?
– What is the commerce strategy?
5
Discussion Question
• Provide an example of a firm that uses a
value shop.
– How do they price the value?
– Who do they charge for the value?
– What is the revenue model?
– What is the commerce strategy?
5
Discussion Question
• Provide an example of a firm that uses a
value network.
– How do they price the value?
– Who do they charge for the value?
– What is the revenue model?
– What is the commerce strategy?
5