1. Summary of last week

2. Oct, 1998 What was status of economy?  Dow Jones at 8500 What was major IT issue for firms?  Y2K “Putting Enterprise into Enterprise System”  What was major message from Davenport?

3. Putting Enterprise into Enterprise System Major Message Why do ERP projects fail?  Require significant money, time and expertise  Force firms to do business in ways that conflict with their best interest  If used by all companies in industry, erasing sources of differentiation and competitive advantage How to prevent failure?  Clarify strategic and organizational needs and business implications of integration.  Change organizational structures to address information-flow problems  Create competitive advantage with your enterprise system  Put right people in place  Install system gradually

4. Putting Enterprise into Enterprise System Major Message – cont’d “If the development of an enterprise system is not carefully controlled by management, management may soon find itself under control of the system.” The most successful ERP deployments involved companies that viewed them in strategic terms.  “ They stressed the enterprise, not the system.” Main reason for “failures” is that companies fail to reconcile the technological needs of the ERP with the business needs of the enterprise.  “The logic of the system may conflict with the logic of the business.

5. Mar, 2001 What was going on in the economy?  All time high of 11,723 in Jan 2000  Hovering above 11,000 in early 2001 What were the major IT issues?  Gotta have a web site “Strategy and the Internet”  What was Porter’s major message?

6. Strategy and the Internet (Porter) We need to “…see the internet for what it is: an enabling technology…” (pg 64) The “…greatest impact [of the internet] has been to enable the reconfiguration of existing industries that had been constrained by high costs for communicating, gathering information, or accomplishing transactions.” (pg 66) “The great paradox of the Internet is that its [benefits] also make it more difficult for companies to capture those benefits as profits.” (pg 66)

9. Myths associated with the Internet First mover advantage through increased switching costs and network effects  In reality, switching costs lower  For network effects to provide entry barrier, must be based on proprietary technologies Partnering is a “win-win” strategy  Complements can have negative effect Microsoft standardized operating systems which increased rivalry in PC industry  Outsourcing can lead to homogeneous industry with lowered entry barriers

10. Principles for Internet Strategy (Porter) Strategic Positioning Start with the right goal: long term ROI. Deliver a unique value proposition. Develop a distinctive value chain configuration. Make trade-offs for robust strategy. Fit all elements of company to the strategy. Maintain continuity of direction

11. Summer/Fall, 2001 “A Framework for CRM”  What was Winer’s primary message? “Data to Knowledge to Results ”  What was Davenport’s primary message?

12. Nov, 2002 What was going on in the economy?  On Oct 9 th, 2002, Dow Jones falls 215.22 to close at 7,286.27. The market has declined 4,436.71, or 38%, since January 14, 2000  By Oct 21, closed above 8,500 What were the major IT issues? “Six IT Decisions Your IT People Shouldn’t Make”  What was major message?

13. Six IT Decisions Major Message Senior executives failed to realize that adopting the Enterprise systems posed a business challenge  Consequentially, did not take responsibility for the organizational and business process changes the systems required. IT departments should not make choices that determine the impact of IT on business strategy. Determine the strategic role that IT will play, and then establish company-wide funding level that will enable technology to fulfill the objective.

14. May, 2003 What was going on in the economy?  On Jun 4 th, closes above 9,000 What were the major IT issues? “IT Doesn’t Matter”  What was major message?

15. IT Doesn’t Matter Major Message IT has lost its strategic value. Businesses should manage IT as a commodity.  Does partial standardization wipe out opportunities for gaining competitive advantage?  Firms using identical IT and spending comparable amounts on IT display enormous variability in profits. IT is diminishing as a source of strategic differentiation.  But – creates possibilities and options that did not exist before IT functions will be homogenized, and proprietary applications are therefore doomed. As corporations adopt generic applications, business processes become uniform and without competitive advantage

16. Oct, 2003 What was going on in the economy?  Sep 2 nd, closes above 9500  Closes above 10,000 on Dec 11 th What were the major IT issues? “The Real New Economy”  What was major message?

17. The Real New Economy Major Message New economy did not spring from internet  Rather from intensifying business competition  Explains productivity growth in six sectors.  Associated with dismantling of regulatory constraints Managers needed to cut costs and increase value to buyers.  In industries with complex operating processes, heavy transaction loads, and technically sophisticated products, IT was powerful tool: enabled development of new products and business processes facilitated industry-wide diffusion of new innovations  To retain an edge, companies must couple diffusing technologies with other distinctive capabilities and processes strong scale economies

18. The Real New Economy Major Message – cont’d Three practices distinguished companies who were successful in IT investments  target investment at productivity levers that matter.  pay attention to sequencing and timing of investment example of companies that invest in CRM before they had consistent and reliable repositories of customer data Should only rush investments when it is clear that technology will advance business goals, enable true innovation, and is resistant to imitation  Pursue managerial and technological innovations in tandem Managerial practices must adapt to technological innovations

19. Feb 2004 What was going on in the economy? What were the major IT issues? “Getting IT Right”

20. Getting IT Right Major Message IT can work if you focus on process Presume that IT is a commodity – what should you do?  Start with business strategy  Develop common underlying infrastructure  Develop support staff that ensures infrastructure enables business strategy

21. Insights Extracting value from IT requires innovations in business practice  IT Spending rarely correlates with superior financial results.  Too many business insert IT without changing business practices.

22. Insights – cont’d Strategic Impact comes from cumulative effect of sustained initiatives to innovate business practices.  Wal-Mart led innovations. As competitors adopted practices, Wal-Mart continued to innovate – maintained productivity advantage.  Opportunities for innovation continue because advances in IT create possibilities not previously economically available  Opportunity for business practice innovations extend beyond the walls of the enterprise to include relationships with other companies

23. Insights – cont’d Transactions, by themselves, are not a source of competitive advantage  You may be special, your transactions are not.  Identifying common transactions across the organization can lead to efficiency improvements. Differentiation is not a result of IT – but the new practices IT enables

24. Insights – cont’d Big-bang IT-driven initiatives rarely produce expected returns.  Successful projects proceed in waves of short- term (6-12 months) operating initiatives designed to test and refine specific innovations in practices. Ties initiative to explicit operating performance metrics – focus on tangible near-term returns

25. Insights – cont’d Why do IT projects fail?  Require significant money, time and expertise  Force firms to do business in ways that conflict with their best interest  If used by all companies in industry, erases sources of differentiation and competitive advantage How to prevent failure?  Clarify strategic and organizational needs and business implications of integration.  Change organizational structures to address information-flow problems  Put right people in place  Install system gradually

26. Insights – cont’d Need to look at IT use through several different lenses  Efficiency: Improve cost savings and efficiencies  Emulation: Use IT to support best practices  Effectiveness & Efficacy: Incremental improvements in products, services, organizational structure  Enabling: Creation of strategic advantage through extending competitive scope, partnerships, changing rules of competition, provision of new IT- based services.

27. Insights – cont’d Automate vs Facilitate  Automation increases efficiency of existing processes If existing processes are stupid, you are now doing stupid things faster  Facilitate: reduce information confusion Provide consistent, reliable and accurate information to support decision making Enabling new processes

28. Insights – cont’d ROI vs Innovation?  Time-delay associated with ROI analysis If you just go ahead with the project, you may save far more than if you have to delay the project for months pending ROI  "Any budget has some money in it devoted solely to innovation. Even if 80 to 85 percent of your budget is locked, most places still devote from 10% of the budget for innovation. In the confines of an innovation budget, you typically don't have to ask for management approval for spending. So use that money. The ROI will follow.“ Michael Liebow, Vice President of Web services and SOA for IBM Global Services

29. Insights – cont’d Must align business and IT strategies

30. Observed characteristics of well-aligned companies (from Deloitte Survey) Executive agreement on the role of IT – where and how IT adds value Executive agreement on the priorities and focus areas for IT Follow through and delivery on IT expectations

31. 2004 Survey by Deloitte Consulting LLP (Advertising Supplement in CIO Magazine)

32. Strategic Alignment Model Four Domains of Strategic Choice Scope Competencies Governance Structure Processes Skills Scope Competencies Governance Infrastructure Processes Skills Strategy (External) Infrastructure (Internal) BusinessInformation Technology Need to recognize how decisions in one domain affects the other domains Functional Integration Strategic Fit

33. Strategy Domains Business  Scope: What business are you in?  Distinctive Competencies: What do you do well to distinguish yourself from your competitors?  Governance: What external business relationships do you depend on? IT  Scope: What information technologies support or create strategic business opportunities?  IT Competencies: What characteristics of IT create business advantage?  IT Governance: What external relationships does IT depend on (outsourcing, vendors, etc.)

34. Infrastructure Domains Business  Structure: Organizational structure  Processes: What are key business processes?  Skills: What HR needed to accomplish specific competencies? IT  Infrastructure: Hardware, Software, Database, Networks  Processes: Development, Maintenance, Operations  Skills: What skills required to maintain architecture and execute the processes?

35. Business Strategy Scope Competencies Governance Business Infrastructure Structure Processes Skills IT Strategy Scope Competencies Governance IT Infrastructure Infrastructure Processes Skills Deloitte Consulting measured alignment of:  IT operational goals to corporate business goals  IT spending with corporate priorities  IT operations to IT strategy  IT org/gov with corporate org/gov

36. How to use the Strategic Alignment Model Identify your strongest and weakest domain  Need to develop communication with and increase understanding of weaker domains Understand relationship between domains when change in strategy occurs

37. IT is an Expense Infrastructure defined by business processes  Priority is to improve business processes, which places focus on changing business infrastructure. IT focus is on application development, driven by need to support business infrastructure Business Strategy Scope Competencies Governance Business Infrastructure Structure Processes Skills IT Strategy Scope Competencies Governance IT Infrastructure Infrastructure Processes Skills Risk: IT reacts to support business processes – not viewed as strategic resource

38. Business Strategy Drives Need to Develop IT Strategy Business strategy and infrastructure are aligned IT strategy needs to define technologies integral to business strategy  Focus is aligning IT strategy and IT infrastructure Business Strategy Scope Competencies Governance Business Infrastructure Structure Processes Skills IT Strategy Scope Competencies Governance IT Infrastructure Infrastructure Processes Skills Risks: IT is not integrated – IT infrastructure lags and does not adequately support business ?

39. Providing IT services Information is a core product or service  Business strategy and IT strategy may be aligned Focus is to enable business infrastructure by fitting IT infrastructure to IT strategy Business Strategy Scope Competencies Governance Business Infrastructure Structure Processes Skills IT Strategy Scope Competencies Governance IT Infrastructure Infrastructure Processes Skills ? Risks: May lose sight of business strategy IT viewed as a service function independent of business strategy Business processes determined by IT

40. IT Enables Strategic Opportunities IT strategy and infrastructure are aligned IT strategy necessary to build distinctive core competency  Business infrastructure needs to evolve to fit new business opportunities enabled by IT Business Strategy Scope Competencies Governance Business Infrastructure Structure Processes Skills IT Strategy Scope Competencies Governance IT Infrastructure Infrastructure Processes Skills ? Hey – let’s build an Internet Web Site Just because you can, doesn’t mean you should! Common problem when companies go live is that business processes are not ready to handle new demands

41. Review Build a framework to analyze:  How to develop a “business model” that takes advantage of IT to add value Define what we mean by a business model  How to use IT to enable the business model

42. What is a business model? Value Configuration Value Proposition Performance What Profit Site? How Add Value? Which Customers? How Price Value? Who to Charge for Value? How Provide Value? How Sustain Value? Key Drivers of Value? Who are Customers/ Suppliers/Competitors? What Activities Needed to Deliver Value? Distinctiveness? Financial Customer Satisfaction Internal Processes Growth & Learning

43. Value Proposition & Configuration What Activities Needed to Deliver Value? Chain Shop Network FindSolve EvaluateExecute Choose

44. Complementary Assets Model IT is easily imitated  IP may not be protected at the global level The complements matter  Emphasized by Porter I Difficult to make money II Holder of complementary assets makes money IV Inventor makes money III Party with both technology and assets or with bargaining power makes money Imitability Low High Freely Available or Unimportant Tightly Held and Important Complementary Assets

45. Strategic Alignment Model Maintain functional integration of:  Strategy (Bus & IT)  Infrastructure (Bus & IT) Maintain strategic fit between strategy & infrastructure  Business  IT