Chapter
Instructor’s Manual
2
IT Impact on Business Models
Key
Learning Objectives for Chapter 2:
Understand that IT can impact the business model through its effects
on strategy and/or organizational capabilities
Learn how to analyze the potential of IT to create strategic
opportunities
Understand how to evaluate IT as a potential source of strategic risk
Applegate, L.M., Austin, R.D, and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
In the past

IT is considered a tool to automate back-office activities-for
example, payroll and accounts receivable
Even Now
a huge proportion of IT investments fail to deliver their
intended return each year; in the United States alone, this
number is estimated at 40 percent.
 On average, companies spend nearly 5 percent of revenues on
IT (11/2004)

Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
In Taiwan

從IT預算佔營收比從去年的1.78％，到今年增加到了
2.05％，也反映了同樣的趨勢，臺灣企業願意將全年
營收的2％用於IT建置(來源：http://www.ithome.com.tw/article/93934)
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
In Taiwan
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
In Taiwan
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Today’s Chief Information Officers (CIOs) must
enable the organization to meet its strategic goals
and to envision goals that were never before
possible.

Only recently has IT become an important tool for
defining new strategic opportunities and building
the capabilities needed to execute them.
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Analyzing IT Impact

Given that a company’s business model links decisions
executives make to business performance, IT Impact map also
serves as a useful tool for analyzing the impact of IT on business
performance

IT impact on strategy



Defines the role that IT plays in determining product, market,
business network, and boundary positioning.
It seeks to explain the mechanisms through which IT drives
differentiation, sustainable advantage, and the development of
proprietary assets
IT impact on capabilities


Defines the role that IT plays in building capabilities needed to
execute strategy.
It is important to note that these capabilities may be located inside
an organization or may be dispersed over a network of business
partners
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Analyzing IT Impact

IT Impact Map can be used to analyze the impact of a single
project or it can be used to analyze a series of projects
through which a company evolves its strategy over time

Local Improvements: (strategy low & capability low)


Business Process Design/Reengineering (strategy low &
capability high)


Use IT to improve end-to-end operating processes
Emerging Opportunities (strategy high & capability low)


Use IT to improve local operating performance
Pursue business opportunities that enable launch of new
products or business or entry into new markets（個資系統）
Business Transformation (strategy high & capability high)

Transform your organization and industry, differentiate strategy,
and develop proprietary assets（Siri, Google Glass, Yelp?）
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
IT Impact Map: IBM Path to Business Transformation
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
IT Impact Map

Medtronic is a medical device company that invented the
first wearable and first implantable cardiac pacemakers
(心律調節器）
monitoring  collect information from installed
cardiac pacemakers
 Expand to other devices such as diabetes（糖尿病）, spinal
（脊髓）, and neurological（神經系統） devices
 Remote
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
IT Impact Map: Medtronic (MDT) Path to Business Transformation
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
The Search for Opportunity
Jeff Timmons, a pioneering expert on new venture
creation, described the search for opportunity as the
"heart of the entrepreneurial process.”
 An opportunity has the qualities of being attractive,
durable, and timely and it must be anchored in a
product or service that creates or adds value for the
buyer or the end user



Cloud? Big Data? Internet of Things?
Wearable devices such as glasses, watches, etc.
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
The Search for Opportunity

How do I know an opportunity is NOT a disaster





Is this a unique value proposition?
Do we have a real shot at being first in the market?
Is this a compelling enough business that people are going to
be drawn to it, [initially employees and] managers and
ultimate customers?
Are there barriers to entry that we can erect so that when
other people see our good ideas they don’t pile in?
Can we build it with a reasonable amount of capital in a
reasonable period of time?
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
The Search for Opportunity

Opportunity identification requires a more analytically
driven evaluation of the viability of the business model.





Can IT change the basis of competition?
Can IT change the nature of relationships and the balance of
power in buyer-seller relationships?
Can IT build barriers to entry?
Can IT raise switching costs?
Can IT add value to existing products or services or create
new ones?
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Can IT change the basis of competition?

IT was first used to automate routine. As it automates, IT can also be used
to both inform and to transform





Late 1960s, American Airline (AA) giving large travel agencies computer
terminals that allow them to check airline schedule posted within AA’s internal
reservation systems

Both hardware and training are free to travel agencies.
About the same time, American Hospital Supply Corporation (AHSC) created a
system that enabled hospital purchasing clerks to order supplies across telephone
lines using punch cards and primitive card-reading computers

AHSC gave hospitals the card readers … and taught hospital supply clerks
how to use them. AHSC even helped hospital personnel redesign their
internal purchasing processes to fit with the new online process.
Charles Schwab pioneered online trading -- a new market segment that had
dominated for over 20 years.
All firms were able to differentiate existing services and to offer new
information-based services to customers
ex. iTune  iPod  iPhone/iPad
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Can IT change the nature of relationships and the
balance of power in buyer-seller relationships?

AHSC rose to power within the hospital supply industry by
dramatically decreasing cost, improving order accuracy, and
streamlining the supply chain between suppliers (e.g., Johnson
& Johnson, Baxter, and Abbott) and hospital buyers



Hospital buyers encouraged this channel consolidation
In 1985, Baxter bought AHSC; but a few years later, due to pressure
from other participants, Baxter was force to spin out; in 2000, five of
the largest health care suppliers launched Global Healthcare
Exchange (GHX); in 2003, GHX became a neutral shared services
platform; in 2006, GHX is the only player left.
太強勢之後所造成的疑慮：Google, Apple 等
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Can IT build barriers to entry?

Entry barriers


Offering attractive products and services at a price and level
of quality that competitors cannot match
Possess assets and specialized expertise that would be costly,
time consuming, and difficult to duplicate


AHSC and AA built up an e-marketplace
Over time, however, these technology-based advantages
decreased

United Airlines also launched a similar reservation system.
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Can IT build barriers to entry?

Second-order barriers: Exploit the value of information
generated by the technology and leverage proprietary capabilities
and assets to continuously innovate and evolve business strategy
 Learn, respond, and innovate more quickly and more
effectively than others.
 Build proprietary capabilities that are not easily replicable
 Create a large, loyal community that remains committed
and engaged despite the availability of seemingly
comparable alternatives

Amazon case!（值得一讀）

超有效率的訂貨系統(四億美金)Robots無人運送機
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Can IT raise switching costs?


An IT system should ideally be easy to start using but difficult to stop
using.
In the past, when proprietary technologies were the norm, switching costs
were high.


On the Internet, switching costs are often substantially reduced.


Ex. AA, AHSC, Wal-Mart, etc.
ex. Amazon  Barnes & Noble’s; PCHome  Yahoo
How Intuit (a company provides low-cost financial services software such
as Quicken, TurboTax) did it?
In 1983, Intuit provided a much simpler and easier way to complete timeconsuming and repetitive tasks.
 A decade later, Intuit launched online service
 By 2001, personal and small business services included pay bills, bank online,
calculate and pay taxes, manage a portfolio of investment. Small business owners
could also manage payroll, inventory, and customer accounts, and could purchase
supplies.

Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Can IT add value to existing products or services or
create new ones?
 Today, computer chips control everything from a
car's internal air temperature to the braking system,
and they also provide valuable information to service
mechanics and auto manufacturers to guide after-sales
service and future product design.
 Consumers can now tap into on-board computers,
like General Motors' OnStar service, to get driving
directions, make dinner reservations, contact police
and rescue personnel, and even open the car door to
retrieve keys inadvertently left inside.
 保全公司切入居家照護
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Can IT add value to existing products or services or
create new ones?

Information-enabled products and services possess some very
interesting properties.
 information is reusable


information is easily customized


information can be "sold" without transferring ownership and
"used" without being consumed
The same information can be presented in different forms and in
varying levels of detail. It can be combined with information from
other sources to communicate different messages and to create new
products and services
information-based products and services possess an inherent
"time value.”
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Can IT add value to existing products or services
or create new ones?

Books, magazines, music, videos, and games in a purely
digital form.
 “The

Smart phones such as iPhones and Android phones.
 extra

Piano Guys” releases videos and asks for buying!
services such as messages, calendar, cloud drives, etc.
Online banking and stock trading.
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Sources of IT Risk


Strategic risk
Project risk
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Strategic Risk



Can emerging technologies disrupt our current
business model by enabling new business models with
decidedly superior economics?
Can IT lower entry barriers, change industry power
dynamics, or increase competitive intensity?
Can IT trigger regulatory action?
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009
Chapter 2: IT Impact on Business Models
Project Risk






Is the project larger than our typical projects?
How much uncertainty is there in the project? Do we know the
requirements for key deliverables at the start of the project or are
these requirements are still evolving?（個資推動）
Do we have experience with the technologies? If new
technologies involved, are they new to the world or just new to
us? (SDN?)
Do we have resources (time, money, talent, information) needed
to implement the project?
Do we have the support from key stakeholders?
Is the organization (including the extended enterprise and
industry) ready to implement and use what we deliver?
Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-Hill/Irwin, 2009