1. Business Planning: Part one
IS208
Peter Lyman
March 6, 2001

2. The premise….
IT professionals need to be able to map how their workplace makes strategic and operational decisions and how innovation is funded. This is the political context of IT work, shaping resources and implementation -- success and failure.
Business planning is about these issues.

3. Outline I. IT and Organization: New Paradigms
II. Models of Management and the Firm
III. Startups: Entrepreneurial Investment
IV. Assignment
V. Next time

4. I. The network organization
A new theory of firms and organizations is taking shape. Key postulate, IT has evolved from being tactical to being strategic:
“IT deployment is marginal only if superimposed upon the existing organization.” Venkatraman

5. Information management
Venkatraman’s postulate: Management is evolving from a command paradigm to the communications paradigm = flatter organizations, more local autonomy, management by coordination > command and control
Information management has rationalized the organization, but real time network communication is changing it fundamentally --from hierarchy to enterprise (networks of self managed enterprises that operate like an internal market system).

6. Networks are strategic
Walter Powell’s argument: Networks are changing the firm and its environment:
from EDI to B2B
Rosegger: strategic alliances
Powell: networks and firms
Cisco: “web enterprises”

7. II. New models of management
Eliasson
Fahey

8. The firm as an experimental machine.
Eliasson: Key knowledge is “know how,” tacit knowledge that cannot be communicated, but is based upon experimentation in the marketplace. The organization of this experimental learning is the key to innovation:
“the competent team” is the key
the market is being continuously reinvented
Rosegger: knowledge acquisition has become the heart of enterprises [23]

9. Eliasson’s entrepreneurial model of decision making
Strategic selection by top competent team, answering “What?,” based on career experience knowledge
Control & coordination by executive staff, answering “In what order?,” based upon expertise from professional education
Operations, by managers, answering “How?,” based upon training and experience.

10. Competency (Eliasson 211)
The competency of organizations is a function of knowledge management, e.g., entrepreneurial vision, experimental attitude towards markets, career management
Sense of direction (intuition)
Daring (risk-willingness)
Efficiency in identifying mistakes (analysis)
Effectiveness in correcting mistakes (activity)
Effectiveness in managing (coordinating) successful experiments
Effectiveness in feeding acquired experience back into a sense of direction.

11. “The career”
Eliasson’s model of the firm requires a theory of the career, since tacit knowledge acquired by experience is the basis of entrepreneurship.
One of the key tasks of management is to provide a logical sequence of jobs to develop this capability.

12. Fahey: three dimensions of strategic management
Competitive environment = Marketplace strategy
Managing the organization = making & executing choices
Strategic Management = Balancing the two
________________________________________

13. Fahey’s model of the firm
1. Strategic intent/market vision = Board
2. Investment Programs = President
3. Objectives = Executive team
4. Operating goals = Management
NOTE: Investment is the key to innovation in this model.

14. Investment
IT involves investment. Understand the business model, culture and decision making process of your organization to figure out the politics of IT investment.
(a) internal reallocation
(b) loans
(c) venture capital formation

15. Reallocation
Operating budgets are cut to create one-time or recurring funding for investment
operating units can often apply to get the money back for new initiatives
Example: The Library operating budget cut annually, but could apply for one time funding to use IT to create long term efficiencies, or get loans from savings funds.

16. III. Startups -- entrepreneurial capital formation
Schumpeter = the association of IT, innovation and entrepreneurship with “creative destruction”
Finding competitive advantage
Creating markets

17. Christensen. Markets can also constrain innovation.
Innovative technologies often disrupt customer expectations and perceived needs
Innovative technologies often are not high priority within the firm, because they compete for resources, don’t fit the culture
Disruptive technologies require new business models, thus often are produced by startups or autonomous or spun out “tiger teams.”

18. venture capital formation
Investment (seed, first phase, second phase)
Team investment (Options (when do they vest?))
Working capital (the current crisis, incubators)
Business partners (legitimacy, business webs)
IPO (investors out, public in)
Rollups (left with paper)

19. Key themes The competent team (190)
competency > credentials = track record & reputation for success are the coin of the realm.
“outgrowing competency”

20. Key skills President and CEO VP marketing inventing new markets
negotiating with customer
VP Business development
strategic partnerships
networks
Chief Financial Officer
Business plan:
conflict of interest? CFO vs VC

21. Sustainable competitive advantage
Inventions and business models -- two different things, both need to be innovative
business model = what makes the business plan sustainable?
Competitive “unfair” advantage = what differentiates you from the competition?
Knowledge acquisition = how do you protect your edge (IP, R&D, partnerships?)

22. 5. Assignment.
What is the business plan of the organization for which you are developing your project?
Who is the target market? Customers?
Who are the participants in the value chain?
What is the competition? Their sustainable competitive advantage? Opportunity?
What is the decision making structure? What’s the quality of the leadership?
Could IT improve their business plan?

23. Requirements
Write this as a business briefing paper -- concise, to the point, content rich, no “blah, blah, blah.”
The executive summary should tell the whole story with precision.
Maximum length, 5 pages double spaced.
Due date: March 22, 5PM.
Individual work -- collaborate with others in your group only on the executive summary.

24. Next time.
Issue: What is the business plan of The Knot? Would you advise a VC to fund them?
Skill: Reading financial statements (Livingstone)
Balance sheets (230 & 236) -- apply to
Amazon (100) and the Knot (278)
Income Statements (232 & 236) -- apply to Amazon (99) and the Knot (277)
Cash Flow Statements (234 & 237) -- apply to
Amazon (101) and the Knot (279)