Making Case Networking

8/12/2019 Making Case Networking

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MAKING THE CASE FOR

NETWORKED BUSINESS

Chapter 4


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Example of Industrial Economies of Scale

In the early 1900s, Ford Motor Company executives demonstrated that industrial technologies and

management principles could enable the company to dramatically lower the cost and increase the output

of cars in its assembly plants.

Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6th

Edition,Irwin McGraw Hill, 2002


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Example of Industrial Economies of Scope:

Because of the specialized nature of the technology and processes used, Ford Motor Company executives

found that economies of scope were limited. The decision to introduce new products, like trucks, required

that new plants be built. In fact, assembly plants were closed for several weeks each summer to enable new

models of cars or trucks to be built in existing plants.




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Network Economies of Scale and Scope




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Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan,Corporate Information Strategy and Management. Burr Ridge, IL:

McGraw-Hill/Irwin, 2002.

0% 20% 40% 60% 80% 100%% of Buyers/Sellers Involved in Market

MarketMaker

Value

-Added

Market makers mustcapture 80% or more ofa market to begin togenerate value

Market makers are spendingmoney, but not yet generatingsignificant value.

0% 20% 40% 60% 80% 100%% of Buyers/Sellers Involved in Market

MarketMaker

Value

-Added

Market makers mustcapture 80% or more ofa market to begin togenerate value

Market makers are spendingmoney, but not yet generatingsignificant value.

Chapter 4 Figure 4-3

Dave Per rys View of How Network Economies

Ena ble Market M akers to Create Value


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A Scenario-Based Approach to

Valuation

Step 1: Define the purpose for the value assessment

Step 2: Pick a point in the future when you expect your business

strategy to deliver value

Step 3: Analyze the business concept and strategy and forecast marketsize, your share, and revenues.

Step 4: Analyze the capabilities and resources required to

reach the future state and forecast the cost of building those

capabilities and acquiring resources.Step 5: Based on this analysis, construct estimates of financial

performance and market value that reflect the "most likely"

assumptions.




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A Scenario-Based Approach to

Valuation

Step 6: Factor in the uncertainty in your assumptions bydeveloping several scenarios that represent upper and lower

bounds on key variables in your forecasts.

Step 7: When appropriate, validate your model by using alternativeapproaches, such as Discounted Cash Flow and ComparableCompany Analysis.

Step 8: Discuss the value analysis scenarios you have constructedwith others and critique the findings and assumptionsnot

just oncebut on a regular basis.




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The IT Business Value Score Card

Categories of

Benefits

Goals and Measures

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 Measur es: Decrease the

cost / improve the

performance of internal IT

operations; new ITapplications 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 Measur es:

Decrease the cost / improve the

performance of doing business

online; decrease the time, cost

and risk of launching new onlinebusiness initiatives;


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Categories of

Benefits

Goals and Measures

Internal External

Commerce Improve internal operating

efficiency and quality

Sample Measures:

Internal process performanceand 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


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Categories

of Benefits

Goals and Measures

Internal External

Content /

Knowl

edge

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 ofdecision making;

increase the ability of

the organization to

respond quickly to

threats and opportunities

Improve the performance of knowledge

workers in customer, supplier, and

partner organizations; add

information valueto existing

products and services; create new

information-based products and

services

Sample Measures:

Provide information to customers,

suppliers, and partners that enablesbetter decision-making; charge a

price premium for products and

services based on information value-

added; launch new information-

based products and services; increaserevenue per users and add new


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Categories ofBenefits

Goals and Measures

Internal External

Community Attract and retain top talent;

increase satisfaction,

engagement, and

loyalty; create a cultureof 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; levelof personalization available and %

that use it; churn rate


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Comparing the three eras of IT

EvolutionTimeframe

Mainframe Era

1950s to 1970s

Microcomputer Era

1980s & Ear ly 1990s

Network Era

1990s to present

Dominant

Technology

Mainframe, stand-alone

applications, databases

Stand-alone

microcomputer and end-

user tools (e.g., word

processing, spreadsheets)

Client-server, Internet,

browser and hypertext

Data Management InformationManagement

KnowledgeManagement

Organization

Metaphor

HierarchyEntrepreneurial

Organization

Networked Business

Community

Centralized

Intelligence

Decentralized

Intelligence

Shared Intelligence

Primary IT RoleAutomate back-office

activities

Provide information and

tools to improve decision

making and knowledge

worker performance

Transform

organizations and

markets to create

business value


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Comparing the three eras of IT

Evolution

Typical User IT specialistsIT literate business

analystsEveryone

Location of Use Computer room Desktop Everywhere

Planning Process Yearly budgeting Individual expenseBusiness development

and strategic planning

Justification Cost savings Increased decision qualityand personal performance

Business value

Implementation Independent projects Ad-hoc Strategic initiatives

Timeframe Mainframe Era1950s to 1970s

M icrocomputer Era1980s & Ear ly 1990s

Network Era1990s to present


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Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan,Corporate Information Strategy and Management. Burr R idge, IL: McGraw-Hill/Irwin, 2002.

Time

0

$(-)

$(+)

Returnon

Inve

stment

Increased cumulative benefitfrom IT portfolio

Decreasedinitialinvestments

Time

0

$(-)

$(+)

Returnon

Inve

stment

Increased cumulative benefitfrom IT portfolio

Decreasedinitialinvestments

Chapter 4 Figure 4-5

Benefits of Investments in Infrastructure


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Some Cases

BigCo

Appendix 3 A


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Questions

Documents

Making Case Networking