Matakuliah
Tahun
Versi
: J0422 / Manajemen E-Corporation
: 2005
:1/2
MODULE 7 :
Making the Case for Networked Business
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Learning Outcomes
 In this chapter, we will study:
 Comparing Industrial and Network Economic, there
was scale and scope of Industrial and Network.
 Business model that consist of concept, capabilities,
and value.
 Scenario Based Approach to Validation concept for
making networked business.
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Outline Topic
 Changing Economics.
 Linking Strategy to Execution to Results.
 Developing the Business case for IT.
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Content
The valuation of New Economy players represents a
bet by the world’s financial markets that a few
companies will leverage the Internet to fundamentally
change the competitive game in their industries. It is
a gamble that powerful, low-cost business models will
emerge, that new businesses will rise from disintermediated value chains, and that some
companies will exert such influence that they will
generate extraordinary long-term shareholder
returns. [While] we cannot predict the winners of the
e-races… we can be sure that the winners will be few
and the losers will be many.
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Changing Economics
Comparing Industrial and Network Economics
 Industrial Economies of Scale and Scope
 Economies of scale – the ability to produce and distribute
products and services faster, better, and cheaper than
competitors can – by building specialized plants, creating
specialized jobs, and hiring specialized workers.
 Economies of scope – the ability to leverage an existing
business infrastructure to produce and distribute new
products or launch new businesses – were limited to
enhancements in products design or features.
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Changing Economics
Comparing Industrial and Network Economics
 Network Economies of Scale and Scope
 Network Economies of scale are achieved when a
“community” of firms uses a common infrastructure and
capability to produce and distribute products and services
faster, better, and cheaper.
 Network Economies of scope are achieved when a
“community” of firms uses a common infrastructure and
capabilities to launch new products and services, enter new
markets, or build new businesses.
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Changing Economics
Ind ustrial Economies of Scale and Scope
Example of Industrial Economies of Scale:
In the early 1900s, Ford Motor Company executives demonstrated t hat ind ustrial technologies and management principles could
enable the company to dramatically lower the cost and increase t he outp ut of cars in its assembly plants.
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 n ew plants be built. In fact, assembly plants were closed for se veral weeks each summer to
enable new models of cars or trucks to be built in existing plan ts.
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Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McF arla n, Corporate I nfor mation Strategy and M anagement . Bur r Ridge, IL:
McGr aw-Hill/Irwin, 2002.
Chapter 4 Figur e 4-1
Changing Economics
Network Economies of Scale and Scope
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Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McF arla n, Corporate I nfor mation Strategy and M anagement . Bur r Ridge, IL:
McGr aw-Hill/Irwin, 2002.
Chapter 4 Figur e 4-2
Changing Economics
Market Maker Value-Added
Dave Per ry’s View of How Network Economies
E n able Ma rket Makers to Crea te Value
0%
Market makers are spending
money, but not yet generating
significant value.
20%
40%
Market makers must
capture 80% or more of
a market to begin to
generate value
60%
80%
100%
% of Buyers/Sellers Involved in Market
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Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McF arla n, Corporate I nfor mation Strategy and M anagement . Bur r Ridge, IL:
McGr aw-Hill/Irwin, 2002.
Chapter 4 Figur e 4-3
Linking Strategy to Execution to Results
The business model consists of:
 A Concept that defines the opportunity and strategy.
 Capabilities that identify the resources required to exploit the
opportunity and execute the strategy.
 A value proposition that identifies the benefits returned to all
stakeholders and the results executives have achieved or
expect to achieve.
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Linking Strategy to Execution to Results
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Linking Strategy to Execution to Results
 Analyzing Performance Drivers
 Business concept
 Capabilities (Operating and innovating, Managing and
Learning, Leading and Engaging)
 Value (Financial drive and market performance)
 Scenario Based Approach to Validation (Table 4.1)
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Linking Strategy to Execution to Results
 Business Concept
 A firm business concept defines the opportunities a firm
will pursue and its strategy for capturing a dominant
position in its industry and markets.
 Opportunity analysis includes a market assessment,
analysis of product/service offerings and pricing,
assessment of competitive and industry dynamics, and
plans for evaluation and growth of the business.
 The business concept frames the assumptions used to
forecast revenues.
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Linking Strategy to Execution to Results
 Capabilities (Operating and innovating, Managing and
Learning, Leading and Engaging)
 Capability analysis begins with an assessment of resource
requirements and availability (including leadership, people,
partners, expertise, time and money).
 Analysis of an organization’s capabilities frames the
assumptions used to forecast costs.
 Operating and innovating capabilities include:
• The core processes through which an organization converts inputs
to outputs that create value for customers, suppliers, and partner
(e.g., procurement, product development)
• The processes through which an organization continuously
improves existing operations and launches new products, services,
and businesses e.g., new product development
• The IT infrastructure that supports these processes (e.g., distributed
information processing and transaction systems)
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Linking Strategy to Execution to Results
 Managing and learning capabilities include :
• The processes through which a firm plans, budgets, and
monitors performance
• The organization design (e.g., units and divisions, reporting
structure, authority structure, and governance)
• Information, knowledge management, and decision-making
processes
• The IT infrastructure that supports these processes (e.g.,
management reporting and business intelligence system)
 Leading and engaging capabilities include :
•
•
•
•
Human resource management system
Alliance and partnership management
Customer and supplier relationship management systems
The IT infrastructure that support these processes (e.g.,
communication infrastructure and tools such as email and
voice mail).
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Linking Strategy to Execution to Results
 Value refers to:
• The benefits delivered to investors and other stakeholders in
an organization.
• Value analysis begins with an assessment of the subjective
and objective benefits delivered to customers, suppliers,
partners, and employees.
• These benefits, in combination with an organization’s
concept and capabilities, create the assets that drive financial
and market performance.
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Linking Strategy to Execution to Results
Scenario Based Approach to Validation (Table 4.1)
Table 4-1: A Scenario-Based Approach to Valuation
Step 1: Define the purpose for the value assessment (e.g., seeking funding, buying a company,
investing in an established business).
Step 2: Pick a point in the future when you expect your business strategy to deliver value (most
venture capitalists choose 3-5 years, but you may wish to shorten the timeframe).
Step 3: Analyze the business concept and strategy and forecast market size, your share, and
revenues. Identify yearly changes that reflect how your firm and the market would reach this
future state. List key assumptions used in constructing revenue forecasts. Talk with others and
adjust assumptions.
Step 4: Analyze the capabilities and resources required to reach the future state and forecast
the cost of building those capabilities and acquiring resources. Identify yearly costs and
resources that will be required by you, your partners, suppliers and customers. List key
assumptions used in constructing cost forecasts. Talk with others and adjust assumptions.
Step 5: Based on this analysis, construct estimates of financial performance and market value
that reflect the "most likely" assumptions. Clearly state the performance drivers that form the
foundation for the assumptions in your model.
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Linking Strategy to Execution to Results
Scenario Based Approach to Validation (Table 4.1)
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. Most plans include
scenarios that reflect the "most realistic," "best case," and "worst case." However,
additional scenarios may be needed. Test the sensitivity of your forecasts based on
changes in key assumptions.
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. Keep in mind that
this analysis is based on highly uncertain business judgments. As a result, it is important to
stay informed of what is happening in the market and industry, your company and with your
community. Use the analysis as a baseline and update it often based on what you learn as
you execute strategy and conduct business. Finally, be sure to set up a dynamic and
broad-based measurement system that collects real-time metrics of company and industry
performance.
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate
Information and Strategy Management. Burr Ridge
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Developing the Business Case for IT
 Benefits from investments in infrastructure
 Benefits from doing business on a Networked
Infrastructure
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Developing the Business Case for IT
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 and/or improve the
performance of internal IT operations; enable 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 and/or improve the
performance of doing business online; decrease the time, cost
and risk of launching new online business initiatives; expand
the reach of existing IT enabled businesses and the range of
business opportunities that can be pursued.
Type II: Benefits from Doing Business on a Networked IT Infrastructure
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 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
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 and effectively 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
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
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Developing the Business Case for IT
Table 4-3: Comparing the Three Eras of IT Evolution
Since it was first introduced in organizations, IT has progressed through three eras. During the Mainframe Era, IT was primarily used to
automate back office activities. During the Microcomputer Era, IT savvy individuals used personal computers, spreadsheets, and word
processing to support decision making and individual work. The Network Era began with early client-server technologies where attempts were
made to integrate the islands of automation that arisen during the first two eras and, in the process, to streamline and integrate core IT-enabled
business processes. The commercialization of the Internet, browsers, and the World Wide Web, enabled full realization of anywhere, anytime,
anyplace computing that is transforming global business, society, and policy. As technology evolved, so too did the benefits and impacts. Yet,
the benefits of earlier eras did not go away when we transitioned to a new era. Instead, new opportunities emerged.
Mainframe Era
1950s to 1970s
Microcomputer Era
1980s & Early 1990s
Network Era
1990s to present
Mainframe, stand-alone applications,
databases
Stand-alone microcomputer and enduser tools (e.g., word processing,
spreadsheets)
Client-server, Internet, browser
and hypertext
“Data Management”
“Information Management”
“Knowledge Management”
Hierarchy
Entrepreneurial 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
Typical User
IT specialists
IT literate business analysts
Everyone
Location of Use
Computer room
Desktop
Everywhere
Planning Process
Yearly budgeting
Individual expense
Business development and
strategic planning
Justification
Cost savings
Increased decision quality and
personal performance
Business value
Implementation
Independent projects
Ad-hoc
Timeframe
Dominant Technology
Organization Metaphor
Strategic initiatives
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Chapter Summary
 The challenge of integrating new technologies into the “legacy” of
computers, networks, and systems already in place within
companies adds to the problem.
 To achieve the grand vision of the network economy, a new
approach to building businesses and measuring performance is
needed.
 Executives should consider the following questions as they
attempt to forecast the value of digital business strategies and the
ability of their organizations to execute them:
• How well do you understand the link between your strategies, the
capabilities and infrastructure built to execute those strategies, and
the value created for all stakeholder (e.g., customers, suppliers,
partners, etc.)
• What are the key performance drivers for your business, including
revenue and cost drivers? How do the benefits delivered to
stakeholders create financial, physical, and intangible assets?
• What are the key areas where a change in strategy or an
improvement in infrastructure and organizational performance could
create significant short-term and long-term-value?
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