Lecture 5 IT Impact on Organization (Chapter 3)

2 Today 1.Last week’s lecture 2.IT and Organization 3.Tips for Business Case

Last week’s lecture 1.Analyzing the impact of IT 2.The role of IT in strategy 3.Limits and risk for IT 4.Performing a strategy audit 5.How does strategy evolve?

Anti-competitive (Barrier to entry) Fairness (Yield management) Invasion of Privacy (Micro-marketing) Data Security (Medical records) Reliability (Credit report) Limits in the Use of Information

Risks Can emerging technologies disrupt current business models? Are we too early or too late to exploit IT opportunity? Does IT lower entry barriers? Does IT trigger regulatory action?

Categories of Strategic Risk

Last week’s lecture 1.Analyzing the impact of IT 2.The role of IT in strategy 3.Limits and risk for IT 4.Performing a strategy audit 5.How does strategy evolve?

Strategy Audit of Company Market/Channel position –Who are customers? –How to reach them Product position –What products/services to offer –Features, price Value chain/value network position –Role with respect to suppliers, producers, distributors, partners Boundary Position –What won’t you do?

Product/Market Positioning in the US Retail Financial Services Industry, 1990

Strategic Vision Service Concept What are important elements of the service to be provided, stated in terms of results produced for customers? How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others? How do customers perceive the service concept? What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed?

Strategic Vision Operating Strategy What are important elements of the strategy: operations, financing, marketing, organization, human resources, control? On which will the most effort be concentrated? Where will investments be made? How will quality and cost be controlled: measures, incentives, rewards? What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

Strategic Vision Service Delivery System What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures? What capacity does it provide, normally, at peak levels? To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?

Strategic Alignment Model Ideally, all four quadrants align to create value

Last week’s lecture 1.Analyzing the impact of IT 2.The role of IT in strategy 3.Limits and risk for IT 4.Performing a strategy audit 5.How does strategy evolve?

Strategic Shifts Strategy changes over time Flow of information makes this possible –Enhancement (improve existing) –Expansion (launch new) –Extension (new business or business model) –Exit (drop product/category/market/channel)

Options for Evolving Strategy

McFarlan’s Strategic Grid

18 Today 1.Last week’s lecture 2.IT and Organization 3.Tips for Business Case

IT Impact on Organizations Recognize that IT impacts the business model through its effects on organizational capabilities Understand organization as an effort to simultaneously manage information complexity and uncertainty Learn how to analyze IT for its potential to enable new capabilities e.g. facilitate new and improved organizational structures and processes

Hierarchy in Business Large firms have always run with some form of hierarchy –They have usually sought to minimize or eliminate it “We set out to shape a global enterprise that preserved the classic big company advantages while eliminating the big company drawbacks” (Jack Welch, CEO, General Electric) Most companies fail to grow large without getting centralized control – it is very complex 20

The Organization Design Challenge

Building Lean, Yet Agile Enterprises

23 What is wrong with hierarchy? …and what can go wrong without it?

Streamlining Operating and Management Processes

Redefining Control Systems

Redefining Authority Systems

27 Some key ideas Differentiation how organizations are subdivided into specialized work units (nodes) –Horizontal (operating units) –Vertical (power/authority levels) Integration relationships and links between nodes required to unite specialized units and enable shared value –Task-based (groups work together on processes) –Information/expertise based (groups provide information or expertise) –Social relationships (affiliation and identity separate from work)

28 Sociology of relationships Stronger relationships needed in presence of –Increased complexity, uncertainty –Task interdependence eg. Shared services –Innovation –Large real-time information sharing –Diverse subcultures –Leader preferences

29 Framing decisions of differentiation What capabilities and resources are required to achieve goals? What activities must be performed to get there? How should these activities be grouped within specialized units?

30 Framing Decisions of Interdependence What key tasks must be managed between specialized groups? What organizational solutions are needed to coordinate and control interdependence? What configuration of organizational solutions should be used to ensure alignment and fit with the business environment and strategy?

31 Network Ownership Corporation = legally defined organization Alliance = between a small number of players Community/Ecosystem = players working together to achieve shared goals

32 Hybrid Governance Is market or hierarchy better? –Transaction cost theory says markets give greater efficiency and effectiveness unless cost and risk of using market mechanisms to coordinate and control interdependencies are higher than the cost and risk of hierarchy Cost and risk increases with –Duplication of costly assets that cannot be shared –Setting frequent disputes –Cost related to information access –Need to join others to increase market power Hierarchy used when high risk of market failure –Executives given authority to determine shared purpose and goals –Unified leadership gives focus Hierarchy optimizes vertical information processing Markets optimize horizontal information processing

33 IT enables governance models Information sharing, processing, creating –Shared purpose of multiple firms –Enable configurations and solutions between firms but do not preclude market-based transactions as well –Shared projects/values encourages increased activity over time

34 Business Opportunities from New Market Several new roles have emerged due to communication and market changes Each presents business opportunity with unique characteristics

35 Partnerships and Trust Process-based trust –Parties manage interdependencies over recurrent transactions Affiliation-based trust –Identity between groups/within group Institution-based trust –Tied to formal organizational and social structures

36 Today 1.Last week’s lecture 2.IT and Organization 3.Tips for Business Case

Basics Grammar and spelling matter – even for great ideas! There are NO excuses for spelling mistakes in today’s world Avoid repetition Use subject headers appropriately 37

38 Basics Think about your audience. –Who are they? –Why are they reading this? –What do they want to find out? Make it easy for them

39 Basics Citations and references 1.Use quotes when you quote. 2.Use a numbering system so that the reader can easily find the source of your information. 3.Using a bibliography at the end of your document, include the Author, date, title and location of your source –An html address is not sufficient – that ONLY gives the location

40 Structure Adapt the structure to your presentation, but typically a business case should include: 1.Executive summary 2.Problem Definition 3.Recommendation 4.Delivery Plan 5.Cost-Benefit Analysis Don’t forget a contents page and bibliography

41 Making a case for change Make a structured argumentfor your recommendation. Here is a good technique for persuasive writing, known as the Minto Pyramid Principle: S: Situation – Where are we now C: Complication – What has changed Q: Question – What should we do? A: Answer – We need to… This technique can be used for speeches, documents, presentations, etc. These are NOT section headers – and often work better integrated subtly

S: Situation This should be something everyone agrees on Establishes that you know what you are talking about, and the relevance of the situation. This part is facts, not opinion E.g. Japan is one of the world’s largest economies. Approximately 30% of their power comes from nuclear power plants. 42

C: Complication Something has happened to upset the status quo. A recent event or discovery The audience should instantly see that is raises a question E.g. A massive earthquake then resulting tsunami have caused damage to some of Japan’s nuclear plants. The fallout may cost lives and environmental damage, and will damage confidence in nuclear power. 43

Q: Question The question should be obvious from the complication This should lead to an answer E.g. How should Japan plan for an economical, safe energy future? 44

A: Answer The answer is your main point. Summarize first, then break down to details The main body should all support this answer E.g. Japan should build 50 foot walls around their northern coastline, while investing in geothermal power stations for energy growth 45

Logical arguments Your answer should actually address the question that was asked Start with the main point and break down the parts of it “Japan should build 50 foot walls around their northern coastline, while investing in geothermal power stations for energy growth” –Why 50 feet? –Why northern? –Why geothermal? 46

Types of logical arguments Deductive –Premises –Inference –Conclusion Start with a premise. If all the premises are true then the conclusion must hold. Inductive –Premises provide evidence –Open to debate 47