Upload
augustine-williamson
View
217
Download
0
Embed Size (px)
Citation preview
Making the Case for Networked Business
Chapter 4
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, 6 th
Edition, Irwin McGraw Hill, 2002
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.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th
Edition, Irwin McGraw Hill, 2002
Network Economies of Scale and Scope
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th
Edition, Irwin McGraw Hill, 2002
Source: A pplegate, L ynda M ., Robert D. A usti n, and F . W arren M cF arl an, Corporate I nformation Strategy and M anagement. B urr R idge, I L : M cG raw-H il l/I rwi n, 2002.
0% 20% 40% 60% 80% 100%% of Buyers/Sellers Involved in Market
Mar
ket M
aker
Val
ue-A
dd
ed
Market makers must capture 80% or more of a market to begin to generate value
Market makers are spending money, but not yet generating significant value.
0% 20% 40% 60% 80% 100%% of Buyers/Sellers Involved in Market
Mar
ket M
aker
Val
ue-A
dd
ed
Market makers must capture 80% or more of a market to begin to generate value
Market makers are spending money, but not yet generating significant value.
C hapter 4 F igure 4-3
D ave Perry’s V iew of H ow N etwork Economies E nable M arket M akers to C reate V alue
Source: A pplegate, L ynda M ., Robert D. A usti n, and F . Warren M cF arl an, Corporate I nformation Strategy and M anagement. B urr Ridge, I L : M cGraw-H ill/I rwi n, 2002.
PerformanceDrivers
FinancialResults
MarketResults
Revenue Drivers
Cost Drivers
I ntangible AssetsEmployee LoyaltyCustomer LoyaltyPartner LoyaltyBrand and I mage
Tangible/ Financial AssetsNet Working Capital Capital Expenditures (CAPEX)
I ntangible AssetsI nvestor Loyalty
C hapter 4 F igure 4-4
L inking Strategy to E xecution to Resul ts
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 market size, 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.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th
Edition, Irwin McGraw Hill, 2002
A Scenario-Based Approach to Valuation
•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.
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.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6 th
Edition, Irwin McGraw Hill, 2002
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 Measures: Decrease the cost / improve the performance of internal IT operations; 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 / improve
the performance of doing business online; decrease the time, cost and risk of launching new online business initiatives;
The IT Business Value Score Card
Categories of Benefits
Goals and Measures
Internal External
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 channelsSample 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
The IT Business Value Score Card
Categories of
Benefits
Goals and Measures
Internal External
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 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 decision-making; 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
The IT Business Value Score Card
Categories of
Benefits
Goals and Measures
Internal External
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
Comparing the three eras of IT Evolution
TimeframeMainframe Era1950s to 1970s
Microcomputer Era1980s & Early
1990s
Network Era1990s 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”“Information
Management”“Knowledge
Management”
Organization Metaphor
HierarchyEntrepreneurial
Organization
Networked Business
Community
“Centralized Intelligence”
“Decentralized Intelligence”
“Shared Intelligence”
Primary IT Role
Automate back-office activities
Provide information and tools to improve decision making and knowledge worker
performance
Transform organizations and markets to create
business value
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 expense
Business development and
strategic planning
Justification Cost savingsIncreased decision
quality and personal performance
Business value
Implementation
Independent projects
Ad-hocStrategic initiatives
TimeframeMainframe Era1950s to 1970s
Microcomputer Era
1980s & Early 1990s
Network Era1990s to present
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.
Time
Decreased cost to break even
0
$(-)
$(+)
Decreased time to break even
Re
turn
on
In
ve
stm
en
t
Time
Decreased cost to break even
0
$(-)
$(+)
Decreased time to break even
Re
turn
on
In
ve
stm
en
t
Time
Re
turn
on
In
ve
stm
en
t
Decreased initial investment
0
$(-)
$(+)
Decreased time to decommit
Time
Re
turn
on
In
ve
stm
en
t
Decreased initial investment
0
$(-)
$(+)
Decreased time to decommit
Time
0
$(-)
$(+)
Re
turn
on
In
ve
stm
en
t
Increased cumulative benefit from IT portfolio
Decreased initial investments
Time
0
$(-)
$(+)
Re
turn
on
In
ve
stm
en
t
Increased cumulative benefit from IT portfolio
Decreased initial investments
Chapter 4 Figure 4-5
Benefits of Investments in Infrastructure