Business and Innovation in Networked Economy

8/10/2019 Business and Innovation in Networked Economy

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Business and Innovation in

Networked EconomyDr. Susmi Routray

IMT Ghaziabad


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Encyclopaedia Brittanica

Lost half of its sales and revenues in the mid-1990s

Organization sold to a new owner in 1996

What Happened ?


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The Encyclopedia Industry a general education More comprehensive than thesaurus or dictionaries 1728 ; Chambers Cyclopaedia Multivolume ; 1920 1950s and 1960s ; text heavy; multiple volumes bookedition; direct sales force going door-to-door; World Book, Encyclopaedia Brittanica, Encyclopedia

Americana, Colliers and Funk and Wagnalls 1980s price - $500 - $2000 ;$5 - $7 dictionary

No other broad -appeal content product in any category in anymedium has a well established single user price pointanywhere close to this


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Encyclopaedia Brittanica First edition 3 volumes 1768 -1771 in Scotland America 1790 George Washington, Thomas Jefferson and

Alexander Hamilton owned EB Contributors brightest thinkers and Nobellaureates

American ownership in 1901 1911 eleventh edition; 29 volumes and 40,000entries; general audience Moved headquarters Chicago, Illinois ; 1930


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1970s - PC development began. EB had acquiredan iconic status.

William Benton a senator from Connecticutserved as chairman of the board and publisher ofEB from 1943 1973.

After Bentons death Brittanica came under fullownership of the William Benton Foundation,sole beneficiary University of Chicago.

1980s EB had differentiated itself; authoritativeknowledge, history of trustworthiness.

august repository of serious information


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Production Production costs averaged about $250 per set of books. Hired best brains Knowledgeable encyclopedia representative visiting homes childs

education 1929 first edition 1974 15 th edition Buyers subscribe - Brittanica Book of the Year annual sales 1

million volumes Answers to any question not addressed in the volumes Educational books, movies and vedios 1964 purchase of G. & C. Merriam Co. (Merriam-Webster) Merriam Webster New International Dictionary Merriam Webster New Collegiate Dictionary


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Sales Force and Organization Brittanica was healthy throughout 1980s Encyclopedias were sold door to door Highest quality ; price range: $1,500 - $2,000 Goal to support full time sales force Better at sales and distribution compared to others 1932 building sales force Elkan Harrison Powell helped build one of the most aggressive and direct

sales force in the world. Approx 2000 sales representative door to door with a commission $500 -

$600 per sale. Sales force representatives and sales managers believed in the product Capitalized on the aspirations parents had for their children Financing options down payment + monthly payments over three to five

years


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Scholars + Sales person Editorial Sales force

Imminent innovations in the market forknowledge dissemination


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Microsoft 1975 Bill Gates and Paul Allen 1985 - $140 million in revenue Primary business OS for IBM PC Application s/w for Apple computers Spent heavily on R&D 12% of sales in 1985 Eager to diversify, innovate and invests in new

projects Bill Gates CD-ROM encyclopedia high -price,

high-demand type of product


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Microsoft Offer Min Yee approached Brittanica Brittanica refused Larry Grinnell, Brittanicas director of public

relations saidThe Encyclopaedia Brittanica has no plans to

be on a home computer. And since the

market is so small only 4 or 5 percent ofhouseholds have computers we would notwant to hurt our traditional way of selling


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A wrong decision by EB?


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Microsoft & Brittanica Reasons:

Effect on traditional way of selling Feared the reaction of its sales people Selling just information without books was abhorrent

to them R&D Director Perceived CD ROM as a mere childs toy No reason to take risk with young, unproven company

like Microsoft Risking strong business model Multimedia reference source may take years to gain

popularity.


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Alternative Formats for Encyclopedias In 1980s management thought about alternative formats customer demand 1983 salespeople refer to a prepared list of talking points Investing funds in exploring the future A few years after Yees overture -launched the first multimedia CD-ROM

encyclopedia Comptons Encyclopedia - $895 Price point feasible for high end of the market Official launch 1991 1993 -Sold to Chicago Tribune for $57 million Brittanicas management continued experiments with electronic version April 1993 Advanced Technology Group was formally organized EB.com was registered www became the focus of the group With the release of mosaic browser the whole article was up and running in

HTML September 1994 Brittanica online 1.0 was formally released Was positioned to take advantage of the Webs growth


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Encarta 1989 Funk & Wagnalls 1991 Craig Bartholomew new head (innovative idea) Named Encarta Distinguished it from the others graphics and sound Lead user studies hyperlinking Digital encyclopedia Funk & Wagnall more structured than EB More current information break the mold popular culture and

business events 1993 MS PC

Multimedia features and low price $99 Employees with the skills in creative editing skills withdifferentiating factors


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Timeline of Events


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Learnings To master the new format, an old incumbent has to invest just like

an entrant A new entrant gains advantage , when leading firm does not invest

in the new learning curve in a timely manner. Incumbent organization cannot change easily Entrants may design entry strategies that exploit inflexible features

of the leading firm Entrant can use technology to differentiate itself from leader. Organizational conflicts between old and new divisions. A small project inside a company that remains organizationally

distant from its core business. Pricing decision sales manager?


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strategic issues in markets undergoing creativedestruction.

Consider strategic issues in a setting wherediffusion of a new technology has thepotential to reduce the market dominance ofa leading organization.

Reaction of leading firms in networkedeconomy


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Statistics on Gangnam Style

PSYs Gangnam Style video will hit 1 billionviews on YouTube in December and becomethe first video to do so

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The course is called -

Business & Innovation in

Networked Economy


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So ..

What is Business ?


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And .

What was Business ?

When . Stone Age Bronze Age Iron Age Steam Age Electricity Age Nuclear Age Electronic Age Space Age Information Age ..YOUR AGE..


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History of Internet

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Global Innovation Economy

What is innovation ?

What drives innovation ?

From 1980 2005 and beyond Tangible to intangible assets Session_1___WHERE GOOD IDEAS COME FROM by

Steven Johnson.mp4
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Creativity: coming up with ideas Innovation: bringing ideas to life


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Your inputs !

Think of innovations/evolutions in any sphereof your choice . and shoot !


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The traditional foundation of economic and businessthinking has been shaking.

The nature of economic value and wealth creation has

changed. Technological contribution to

Value creation Creating Innovating

Value capture Using up the output and benefits of the innovation

Value sustainability Sustaining the innovation


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Nothing has really changed, old economy isAlive and Well

?Just more information and

knowledge based


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How value is :

Created

Captured

Sustained


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Boundaries of firms are decided by the transactioncost

Firms typically Value Create in one departmentand Value Capture in another

Typically Produce and Sell Vertical integration But as the costs decline de- integrate loosely couple.


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Speed of technological change hasimpacted:

Created

Captured

Sustained


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G.M. Plans To Spin Off Parts Division

The General Motors Corporation announced yesterday that it planned to spin off itsgigantic auto parts subsidiary to its shareholders next year, a move that couldreignite the labor troubles that led to nearly eight-week-long strikes that endedonly last Wednesday.

If completed, the move would represent a historic shift away from vertical integration,

a corporate strategy in which a company produces most of the parts as well as thefinal product. Through the 1970's, G.M. promoted its vertical integration as asource of financial strength and savings.

But John F. Smith Jr., the G.M. chairman and chief executive, said yesterday thatGeneral Motors wanted instead to be a company that assembles and markets cars,but does not necessarily make a large proportion of the parts inside.

The spinoff of the auto parts subsidiary, Delphi Automotive Systems, ''representsnothing less than a fundamental shift away from vertical integration,'' Mr. Smithsaid.


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Innovation Economy

Continuous innovation in: Products Services Processes Business models Management approaches


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Caselet 3 M


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Eight Drivers of the InnovationEconomy

New Global Infrastructure for wealth Creation:Networks

New Sources of Value: knowledge and intellectual capital Innovations in processes, services, business models and management

approaches and also in physical products

New Ownership of Wealth: entrepreneurs New enterprenurs , stock ownerships. Collaboration Facebooks , Wipro .

New Educational Models and Institutions:interactive, dispersed, self paced learning


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Eight Drivers of the InnovationEconomy

New Business Models: disintermediation of vertically integratedbusiness

Engineering to Innovation

Empowered Customers: CKM, CRM 3M , The need, co-creation , not only CRM but CKM !!

Leveraging of Global Supply and Demand Chains:globalization

As the focus shifts from suppliers to the co-creation of value with the customers the focusshifts from supply chain to demand chain. push to pull. From consuming to prosuming .

New Governance Structures: network-driven governancestructure

Your inputs on theseexamples. 3M


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From the industrial economy to innovationeconomy


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New Business Logic

From things to the value provided by things Production is clearly not where the value is

created Industrial age was mass hypnosis

Happiness to the customer meant owning somethingnew

Essentially it is the benefits that the customer islooking for ( in effect the services ..)


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New Business Logic

So what is the implication in terms of new businessmodels ?

Is it from selling carpets to providing floor coverageservices

For Carrier it is renting cooling services rather thanselling air conditioners


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New Business Logic

For IKEA it is providing service to convert ahouse to a home rather than sellingfurniture

So the key is higher profits from selling bettersolutions rather than selling equipments !

Discuss IT Service provisioning ..


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Key requirements of management in theinnovation economy

Foresight & insight into global changes at alllevels of society.

Co-creating mentality Broad innovations an all aspects of a business ability to adapt to a climate for continuous

and speedy disruptive innovations


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Caselet The challenges facingGermany in the Global Economy

f


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Information CommunicationTechnology

ICT affects all aspects of human endeavor Managing and operating organizations

Business enterprises Government organizations Social and charitable organizations


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Operating Environment

Due to the growth and pervasiveness of ICTorganizations are operating in a differentenvironment :

Globalization

E-enablement Knowledge Sharing and Knowledge

Management


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Industrial Era Information Era1957

Information Workerssurpassed workers in allother sectors combined1980


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Information Age To perform manual information work more

quickly and more efficiently To manage work better Makes pervasive changes in the:

structure and the operation of work business practices

organizations industries global economies


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ICT and its use management

Does ICT drives changes in the organization

ORmerely supports it ???


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The Organizational Environment

The external business environment How their firm competes? Turbulent business world includes shorter and

shorter product cycles

The internal organizational Environment How organization operates or are managed.

Th l b i i


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The external business environment The internet economy

B2C B2B Encompassing old ways and new ways of operating

with IT as an interface

Global marketplace Mergers Internet allows companies to work globally (Three

main operating arenas)

Th l b i i


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The external business environment

Business ecosystems Ecosystem is a web of relationships surrounding one or few

companies. Wintel ecosystem PC ecosystem, Internet ecosystem, Wireless ecosystem Relationships and co-evolutions require a different mindset from the

command-and-control mindset of the past

Decapitalization

Tangible : capital, equipment, and buildingsIntangible : ideas, intellectual capital, and knowledgeManaging talent has become as important as managing finance


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The external business environment

Faster business cyclesSpeed has become the essenceTo accelerate time to market or reduce cycle time oftendepend on innovative use of IT

Accountability and TransparencyGreater transparency of corporate operationsGreater accountability of corporate officers

IT play a role in allowing transparency and even perhapsfostering accountability

Government regulations

The internal organizational


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The internal organizationalEnvironment

From supply-Push to Demand-Pull IT creating the demand that pulls a specific product Suppliers and customers co-creating products and

services Ex: Amazon.com

Self-Service Ex: ATMs Indian railways website

Real-Time Working

Th i t l g i ti l


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The internal organizationalEnvironment

Team-Based Working Anytime, Anyplace Information Work

Communication capabilities more important thancomputing capabilities

Outsourcing and Startegic Alliances Extended enterprises

Demise of Hierarchy team basedorganizational structure


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Goals of the new work Environment

Leverage knowledge globallyTacit knowledgeKnowledge-based strategiesEx: Knowledge transfer + DownsizingFoster sharing and support the sharing with IT

Organize for complexityAlliances and specialization increase complexity

Work electronically

Handle continuous and discontinuous changeInnovate continually Quality management & process re-engineering


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The Technology Environment

Hardware Trends Software Trends Data Trends Communication Trends

Documents

Business and Innovation in Networked Economy