MI 720 IT for Management

MI 720 IT for Management

Session #13: Course Review

Session #13: Course Review

• Agenda

– Team Presentations

– Final Exam Information

– Course Review

Robert G. Fichman – MI 720 IT for Management Slide 2

Final Exam

• Will be held Friday Dec 16th 11am-1:00 pm

– Section 1: Fulton 130, Section 2: Fulton 150

• Main Focus: Managerial, not technical

– Except, you have to understand key features of technologies to really understand managerial implications…

• Exam will be open book & open note, closed computer

– Emphasis: Analysis and applications

– Format: Essay

• Will have some choice on which questions to answer

• Will curve if necessary. Rarely necessary.


What are you responsible for?

• Responsible

– All required readings & cases, all class discussions

• Readings: Should have mastered key concepts and frameworks

– Especially important: Lecture notes (Sessions 2, 10, 11, 12),

Gallaugher chapters on Strategy and Social Media, “Options

Thinking” Article

• Cases: Should be familiar with the high points of each case, and know where to look for reminders on key details. But don’t need to memorize details

– See study guide to be posted on the wiki for details

• Not responsible

– Tech basics web site, optional readings, team wiki projects, blog postings, individual wiki pages


Course Goals

• Prepare students to be astute and critical observers of IT in business and society

– Tech resources: Tech basics page, Team Project pages, Student blogs

– Case studies: NetFlix, Harrah’s, Google, Threadless

– Articles: Friedman (World is Flat)

• Prepare students to take on IT responsibilities of the general manager

– Identify the strategic role of IT (if any)

• NetFlix, Shinsei, Harrah’s, Zara, ITC eChoupal

– Select the right IT and justify the investment

• Zara, Global Airlines

– Managing IT adoption & deployment

• Rich-Con, Shinsei Bank, BP, eChoupal

– Exploiting IT appropriately to maximize value after implementation

• IFA/ShopSens e, eChoupal


Unique Economics of IT

1.

Exponential improvements in price performance

2.

Digital products, Long Tail economics

3.

Network effects

4.

One-to-one marketing

5.

Paid search

6.

Peer-production

7.

Crowdsourcing

8.

Option value

9.

Complements/complementarities


Key cases and frameworks by session

#2 - NetFlix

#3 - Rich-Con Steel

#4 - Shinsei Bank

#5 - Harrah’s Entertainment Inc.

#2 - Distinctive Characteristics of IT

#4 - IT innovation types, process/stages

#5 - Conditions for sustainable competitive advantage from IT

#5 - Creating an analytic capability

#6 - Zara: IT for Fast Fashion

#7 - Global Airlines #7 - How to incorporate “options thinking” in to IT project mgmt

#8 - Google Inc.

#9 - Threadless #9 - Determinants of value generated by social media communities

#10 – BP Advocate Model

#11 - The Dark Side of Customer

Analytics – IFA/ShopSense

#12 - The ITC eChoupal Initiative

#10 - Innovation diffusion drivers & pitfalls;

IT deployment barriers and tactics

#11 - Ethical reasoning process

#12 - Determinants of IT business value

Session 2: NetFlix/Distinctive Characteristics of IT

• Fundamental Question

– What is it about IT that make it such a strong driver of innovation and value creation?

• NetFlix Case - Goals

– Learn about an interesting IT-enabled business model

– Apply framework (below) to a tangible example

• Framework - Distinctive IT Characteristics:

1. Moore’s Law

2. Digitalization of content

3. Network effects/virtuous cycles in adoption

4. Switching costs and lock-in

• Key points:

– Each characteristic has key implications for value creation, and for IT strategy and management


Framework: Network Effects/Virtuous Cycles

• Network effects

– Many kinds of IT increase in value to each adopter in direct proportion to the other number of other adopters

• Sources of network effects (Brian Arthur)

– Direct “network” externalities (consumer-to- consumer)

– Producer side effects (EOS, learning curves)

– Ecosystems (complementary products, services and

“people”)

What are the specific mechanisms behind this cycle?

More adopters

Increased value per adopter


Framework: Implications of Network Effects:

• Distinctive adoption dynamics

– Self-reinforcing adoption processes (virtuous cycles)

– “Standards wars”

– Winner-take-all outcomes

– Path dependency

– Lock-in

• Implications for vendors

– Understand “natural” sources of network effects

– If strong, much attention to managing virtuous cycles

– Any way to ADD network effects to product/service?

• Implications for adopters

– Pick the winner! Or at least, preserve a migration path…


Session 3: Rich-Con/IT Roles of the General Manager

• Central question:

– How can managers effectively identify, select, configure and deploy enterprise technologies?

• Goals of the Rich-Con case:

1. Introduce the first three of the four IT roles/responsibilities

(strategy, selection, deployment)

2. Introduce how modern enterprise IS works (operations vs. analysis, integrated vs. non-integrated systems)

3. Understand why enterprise-level IT projects are inherently difficult/risky

4. To see that IT implementation and use are primarily managerial phenomena, not technical ones, and therefore not primarily the responsibility of outside vendors or even an internal IT department


Session 4: Shinsei Bank/ IT Innovation Fundamentals

• Central Question:

– How can IT innovation drive business innovation, and viceverse?

• Goals of the Shinsei Bank Case:

1. Reinforce formal innovation terminology and concepts

2. Show exemplar of process and product innovation

3. Start understanding how process and product innovation relate and entwine

4. Illustrate importance of a robust/flexible IT architecture


Framework: IT Innovation - Types

“Product” Innovation

(New products, services, business models)

“Process” Innovation

( New business processes, technologies, policies, structures…)

IT-Embodied

Innovation

(the digital technology itself is the innovation)

IT-Enabled

Innovation

(the digital technology enables something else)

1

4

2

3


Framework: Innovation Stages

Product Innovation

Discovery

Generation,

Selection

Development

Packaging &

Configuration

Diffusion Impacts

Deployment &

Assimilation

Appropriation

& Transformation

Process Innovation


Session #5: Harrah’s /IT Strategy & Competitive Advantage,

Business Analytics

• Central questions:

– What are the conditions for a sustainable competitive advantage from some IT resource (system, initiative)?

– What are the diverse organizational elements that have to come together to create a genuine analytic capability?

• Goals of the Harrah’s Case

– Understand what one-to-one (database) marketing and business analytics look like “on the ground”

– Understand what it takes (beyond data and technology) to create an genuine analytic capability

– Provide an opportunity to discuss the conditions for creating a sustainable competitive advantage from IT


Framework: IT & Sustainable Competitive Advantage

(Gallaugher, Chp 2 Strategy & Techology)

• What is sustainable competitive advantage?

• Determinants of sustainability: V.R.I.N.

– “Resources” that are valuable, rare, inimitable, nonsubstitutable

• How can IT provide competitive advantage? Use IT:

… to help build an imitation resistant value chain

… to build/reinforce a brand

… to create/reinforce scale economies

… to impose switching costs on buyer/suppliers

… to differentiate your product

… to create positive network externalities (network effects)

…to create new distribution channels


Framework: Building an Analytic Capability

(Davenport et al 2003)

Business Analytics: Using detailed transaction level data on some entity

(customers, suppliers, products, processes) to build sophisticated mathematical models that categorize and/or predict things about that entity

Outcome

Financial

- - - - - - - -

Process &

Program

- - - - - - - - - - - - -

Behavioral

Transformation

Context

Analysis

Strategy

Skills &

Experience

Organization

& Culture

Decision

Making

Technology

& Data


Session 5: Zara/IT Investment Selection &

Justification, Supply Chain Management


– How can managers do an effective job of selecting the right

IT to meet organizational goals?

• Goals of the Zara Case (Session #6)

– Provide a rich example of how a radically different business model and supply chain strategy is enabled by IT

– Reinforce the importance of a good qualitative process of selection/justification

– Demonstrate the value of taking a discriminating approach to IT investment

• If low-tech or no tech is needed, fine. Keeps costs low

• If high-tech is needed, not shy about being leading edge


Session 7: Global Airlines/IT Investment, Options

Thinking


– How can managers use “options thinking” to improve IT investment decision and IT project management?

• Goals of the Global Airlines Case (Session #7)

– Illustrate how real options/options thinking can be used to:

• PROPERLY quantify things that would otherwise be left as intangibles (“flexibility”, “risk”)

• Provide guideline on structuring and managing projects to maximize value


Framework: Real Options & Options Thinking

• Real options in an IT context:

– A small investment that gives information about the payoffs of a larger follow on investment

– The opportunity to redirect the path of a project through active management based on new information

• “Options Thinking”

– Understanding that managerial flexibility has a value

– Taking the value of flexibility into account

(in some way) in making investment decisions

– Finding ways to structure and manage IT investments so as to create and exploit flexibility (i.e., embedding options)

Passive Management

Active

Management

NPV

© Kellogg School of

Management


Framework: Common types of Real Options

• Deferral Option : A decision on whether to invest can be deferred for some period without imperiling the potential benefits

• Abandon Option : A project can be terminated midstream and still redeploy remaining project resources

• Stage Option : A project can be divided into distinct stages where pursuit of each stage is contingent on a reassessment of costs and benefits at the time the preceding stage is completed

• Strategic Growth Option : An initial baseline system opens the door to pursue a variety of potential follow-on opportunities


Framework: Guidelines for Bringing Options Thinking into

Project Management

1.

Place a value on flexibility in some systematic way

2.

Be willing to initiate high-risk/high-reward projects when the risks can be contained with options

3.

Look for ways to shift “must do” product elements to “may do”

4.

At the outset, explicitly identify factors that create uncertainty

5.

Use incremental project funding and staging

6.

Use design practices that create growth options by promoting future flexibility of delivered applications

7.

Use implementation tactics that create operating options

8.

Build-in explicit options checkpoints

9.

Nominate an “ exit champion ” to balance the project champion

10.

Create incentives for proper options exercise


Takeaways on Real Options

• Any time managers have the flexibility to defer, abandon, stage, grow, scale, or switch an investment there is a potential option value to be had

– In the right circumstances, this value can be considerable

• This potential value will only be realized if managers learn to recognize and embed these options (“options thinking”)

• Embedded options have a value whether or not managers go the extra step of computing that value

– But quantifying the value can lead to better decisions

• Options thinking is not easy

– Requires new project manage guidelines

– Cultural changes


Session 7: Google/Sponsored Internet Search


– What impact is Internet Search having on the world of advertising?

• Goals of the case – to understand how “Google works”:

– Technically , i.e., how its search technology determines the order of search results, and how it differs from the search technologies that came before.

– As a business model , i.e., how Google makes money with

Adwords and Adsense, and the important implications of

Google’s business model for the advertising business.

– In terms of culture and philosophy


Session 8: Web 2.0 & Social Media/Threadless

• Central Questions:

– What is “peer production”? What is “crowdsourcing”?

– What determines the extent and nature of the value generated by social medial communities?

– How do various Web 2.0 techs work? What are their essential features?

• Goals of the Threadless Case

– Provide exposure to a unique “crowdsourcing” model of product development and innovation

– Provide opportunity to analyze the conditions leading to successful social media communities of this sort

Peer Production: People collaborating on a large scale, usually without pay, to produce economic products without hierarchical control (firms) or market exchanges (prices, contracts) to guide them .

Crowdsourcing: The act of taking a job traditionally performed by a designated agent (usually an employee) and outsourcing it to an undefined, generally large group of people in the form of an open call [Jeff Howe]


Framework: The Value of Social Media Communities

Technology

- Features

People

- Motivations

- Knowledge

- Tastes

Governance

- Norms

- Rules

Patterns of

Interaction &

Use

Value

- Nature

- Extent

In Society Within Organizations

Web 2.0

(W2.0)

Role: A platform for “peer production” and an enabler for the “gift” economy

Community

Relations 2.0 (CR2.0)

Role: A new way to reach, understand, & collaborate w/ customers (and other stakeholders)

Enterprise 2.0

(E2.0)

Role: a new platform for collaboration and knowledge mgmt within firms

Robert G. Fichman – MI720 IT for Management Slide 26

Key Web 2.0 Uses & Features

(adapted from Gallaugher 2011)

Web 2.0

Platform

Blogs

Wikis

Electronic

Social

Network

Social

Tagging

Key Uses

Share ideas, obtain feedback, mobilize a community.

Collaborate on common tasks or to create a common knowledge base.

Discover and reinforce affilia-tions, identify experts, message individuals or groups, share media.

Mark content with key words to enhance searching and filtering.

Features

- Reverse chronology

- Comment threads, trackback

- Persistence

- Searchability, Tags

- All changes are attributed

- Complete revision history, easy reversion

- Automatic notification of updates

- Searchability, Tags

- Detailed personal profiles using multimedia

- Affiliations with groups

- Affiliations with individuals

- Messaging, public discussions, media sharing

- “Feeds” of recent activity among members

- User defined keywords

- Key words are multi dimensional

- Can search/filter content based on own/other’s key words


Session 10: Innovation Adoption/Deployment, BP

• Central questions (from the lecture notes):

– What sorts of drivers and pitfalls determine the rate and pattern of IT innovation diffusion?

– What typical barriers do managers face during IT implementations, and what managerial tactics are available to overcome them?

• Goals of the BP Case:

– Provide an example of how to design and manage an internal advanced technology group to promote ITenabled innovation

– Illustrate the trend towards a more “open” approach to innovation, one that encourages a much freer flow of ideas between a firm and its ecosystem


Framework: Analyzing Diffusion Trajectories

• Diffusion Drivers

1.

Inherent Superiority

(aka, “relative advantage”)

2. Other Generic

Attributes

(compatibility, low complexity, trialability, observability)

3.

Network Effects

(network externalities, producer

EOS/Learning, ecosystem)

100

%

%

Adoption

Technology S-Curve

Time


Framework: Diffusion Pitfalls

1. Losing a Standards War

 First mover advantage

 Leveragable installed base

 Strong IP protection

 Robust ecosystem

 Strong brand/reputation

 High switching costs

100

%

%

“Adoption”

2. Large Assimilation Gap

Acquisition

Assimilation

Gap

Thorough assimilation

3: Bandwagon Pressures and “Hype”

Time


Framework: Implementation Barriers & Tactics

Barriers

High uncertainty about costs & benefits

Organizational inertia

Org Learning

& Murphy

Curve

Resistance to change

Tactics

 Do an especially thorough technology evaluation

 Do technology scanning to gain deployment knowledge

 Invest in hands-on learning (trials, prototypes, pilots)

 Use incremental implementation

 Empower an Innovation Champion

 Align with a crisis (or “construct” one?)

 Foster a culture of innovation

 Do a self-assessment : can we handle it?

 Promote organizational learning

 Use incremental implementation

 Diagnose likely forms of resistance and develop counter measures

 Promote end user involvement in adoption and deployment

 Promote grass-roots diffusion with lead users


Framework: The Murphy Curve

The Murphy Curve

Expected performance

Historic performance Start up

Adjustment costs

Actual performance

Time


Session 11: IFA ShopSense Case/IT Ethics

• Central Questions:

– How can managers make ethically-sound decisions surrounding the use of IT?

– How can managers avoid creating an environment that encourages ethically questionable behavior?

• Goals of the IFA/ShopSense Case

– Gain exposure to the potential “dark side” of customer analytics

– Learn how to apply an ethical reasoning process


Framework: The ethical reasoning process

1.

Choose (in advance) the ethical principle to be used to guide you for a class of decisions

– e.g., Utilitarianism, Rawls' "Veil of Ignorance" Principle,

Universal Application Principle , Golden Rule, Shining Light

Principle , Human Rights

2.

Identify the key facts that pertain to a particular decision situation.

3.

Apply your ethical principle.

– Draw the correct logical conclusion about the suggested ethical course of action based on the facts of the situation, and then choose that course of action.


Five Barriers to an Ethical Organization

[Brazerman & Tenbrunsel 2011]


Session 12: ITC eChoupal/IT Business Value


– What key factors affect the level of business value produced by a given level of IT investment?

• Goals of ITC eChoupal Case

– Provide an example of the trend towards social entrepreneurship model

– Provide exposure to a rich example of effective IT deployment and exemplary IT business value creation


Framework: Business Value of IT Framework

A. Level of IT

Investment

C. How IT is

Deployed and Used

B1. IT & Business

Strategy

B3. Organizational

Practices & Assets

(“Digital

Organization”)

B2. Technological &

Competitive

Context

B4. IT Capabilities

D. IT-Enabled

Business

Value

What key factors affect the level of business value produced by a given level of IT investment?


Framework: Complementary Organizational Practices

• Automation of routine tasks

• Highly skilled labor

• Decentralized decision making

• Improved info flow vertically & laterally

• Strong performance-based incentives

• Increased emphasis on training and recruitment

A. Level of IT

Investment

C. IT Deployment

B1. IT & Business

Strategy

B3. Complementary

Organizational

Practices

B2. Technological &

Competitive

Context

B4. IT Capabilities

D. IT-Enabled

Business

Value


Framework: IT Capabilities

• IT Human Assets (senior management strategic IT vision and support; highly skilled IT staff)

• IT Technical Assets (robust IT architecture and infrastructure)

• IT Relationship Assets (effective management of internal and external linkages)

• IT Processes (defining an IT strategy & architecture; valuing & justifying IT investments; deploying IT systems; operating IT efficiently & reliably.)

A. Level of IT

Investment

C. IT Deployment

B1. IT & Business

Strategy

B3. Complementary

Organizational

Practices

B2. Technological &

Competitive

Context

B4. IT Capabilities

D. IT-Enabled

Business

Value


Framework: Conclusions

• Business value (D) does not automatically flow from IT investments (A)

– Investment has to be joined with favorable positions on four related organizational elements (B1-B4)

– The resulting IT systems have to actually be assimilated, and joined with initiative-specific organizational changes (C)

• Certain general organizational practices and assets (B3) complement most kinds of IT investment

– But each IT initiative has unique complements also

• IT Capabilities (B4) can be judged by results, but they are driven by valuable IT assets and valuable IT processes

– Non-IT managers play a crucial role in building and sustaining IT capabilities

Robert G. Fichman – MI 703 Computer Information Systems Slide 40

MI 720 IT for Management

MI 720 IT for Management

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