Building Networked Business

1. Building Networked Business

2. Complex & ? ? Global Hierarchy Organization Simple & Entrepreneurial Local Organization Stable & Dynamic & Environment Certain Uncertain The Organization Design Challenge Corporate Information Strategy and Management Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , . Burr Ridge, IL: Chapter 3 Figure 3 - 1 McGraw - Hill/Irwin, 2002.

3. Hierarchical Organization & Networked Organization & Complex & Mainframe Technology Networked Technology Global + + Centralized intelligence Shared intelligence Information Requirements Entrepreneurial Organization & PC & LAN Technology + Simple & Local Intelligence Local Stable & Dynamic & Business Decision Making Environment Certain Uncertain Networked Organizational Models are Enabled by Networked Technologies Corporate Information Strategy and Management Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , . Burr Ridge, IL: Chapter 3 Figure 3 - 2 McGraw - Hill/Irwin, 2002.

4. Blueprint for a “Big - Small” Business - Sample Organizational Sample Technology Components Components • Human Resources Management • HR Systems • Strategic Alliances • Customer Relationship Management (CRM) Leading & Engaging • Customer Loyalty • Personalization • Supplier Loyalty • Communication Infrastructure • Partnerships • User Access Devices • Planning and Budgeting • Management Reporting Decision Support Systems and Tools • Performance Monitoring • Managing & Learning • Organization Structure and Reporting • Business Intelligence Systems • Organization Decision Making and • Data and Knowledge Management Learning • Operating Process • Enterprise Resource Planning (ERP) • New Product Development • Supply Chain Management Operating & Innovating • Business Venturing • Order Fulfillment • New Product Development • Distributed Information Processing Infrastructure Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McGraw - Hill/Irwin, 2002. Corporate Information Strategy and Management McFarlan , . Burr Ridge, IL: Chapter 3 Figure 3 - 3

5. Precision Precision Execution Execution Hierarchy Hierarchy Fast Fast - - Cycled Cycled Innovation Innovation Entrepreneurial Entrepreneurial Networked Networked Operating and Innovating Capabilities

6. Business Design Requirements Capabilities Business Design Requirements · Precision execution Streamlined, integrated, and efficient operations seamlessly link activities performed inside the firm with those performed by customers, partners, and suppliers · Cost, cycle time and quality levels are benchmarks within the industry and exceed customer/stakeholder requirements. · Fast-cycled innovation Flexible, modular designs enable customization, personalization, and continuous improvement. · Change processes are embedded within the company’s day-to-day operations - - · Employees are rewarded for devising new, innovative ways to serve customers · Resources for change are available. · There is a standardized and widely accepted process used to develop and present the “business case” and implementation plan for a potential idea. · Customer and community Executives and employees in all parts of the organization have the connected information required to understand th e lifetime value of customers, suppliers and partners and have the ability and authority to make decisions and take (Note: All key stakeholders, actions to improve satisfaction and loyalty. including suppliers and partners are · Incentive systems reward success in attracting and retaining profitable considered “customers” of an e-business.) customers, suppliers, a nd partners and in increasing the frequency and level of engagement. Corporate Information Strategy and Management Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , . Burr Ridge, IL: McGraw - Hill/Irwin, 2002. Chapter 3 Figure 3 - 4

7. Efficiency & Efficiency & Integration Integration Hierarchy Hierarchy Learning by Learning by Doing Doing Entrepreneurial Entrepreneurial Networked Networked Managing and Learning Capabilities Corporate Information Strategy and Management Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , . Burr Ridge, IL: McGraw - Hill/Irwin, 2002. Chapter 3 Figure 3 - 5

8. Capabilities Control and Integration Learning by Doing Flexible and well-managed boundaries Business design requirements Coordination and control of routine operations is embedded within the digital operating infrastructure. Early warning systems enable close monitoring and immediate response to threats and opportunities Critical failure factors” have been identified and “disaster recovery” procedures are in place. Real-time information and interactive management systems – a mix of face-to-face decision making supplemented by high bandwidth communication systems – enable large dispersed teams of people to make informed decisions, take actions, and receive immediate feedback Key operating metrics are directly linked to financial and market results to provide real time feedback. Shared, actionable goals provide direction and the framework within which decisions can be made and evaluated. Employees and partners have a clear understanding of the role they play and how to work with others to get things done. But, these clearly defined roles must not limit people’sability to work across boundaries - inside the firm and with suppliers, partners and customers. In a networked organization, companies are highly skilled at forming and successfully managing strategic alliances and partnerships. If a company is growing by acquisition, companies must be highly skilled at identifying and effectively integrating people, processes, and systems that unite acquired companies. Managing and Learning Capabilities

9. Business design requirements Formal and informal communication systems support frequent two way interactions insideand outside the firm. Coordinating mechanism (for example, advisory councils, governing boards, liaison roles, and information systems) enable effective coordination and control of activities that cross internal and external boundaries. The information needed to make decisions and take actions is relevant, timely, and readily available to those who need it. It is presented in a form that is immediately actionable. People are information literate and have the skills and incentives needed to turn information into action that is consistent with the best interests of the organization and its stakeholders. Information and best practices are openly shared. Politics, bureaucracy, and poorly aligned incentives do not get in the way of sharing and learning from information. Processes are in place to ensure that information is accurate and reliable, and thatemployees, partners, customers, and suppliers trust the information they receive. Privacy and confidentiality are safeguarded and security procedures are strictly enforced. Capabilities Flexible and well-managed boundaries Accessible knowledge assets Managing and Learning Capabilities (cont.) -

10. Strategic Focus Strategic Focus & Resource Allocation & Resource Allocation Hierarchy Hierarchy Shared Culture Shared Culture & Commitment & Commitment Entrepreneurial Entrepreneurial Networked Networked Leading and Engaging Capabilities

11. Capabilities Visionary yet pragmatic Leadership Energized participation Skilled in conflict resolution, negotiation and consensus Business Design Requirements Credible leaders at all levels of the organization are able to articulate clear direction. Leadership is trusted and well respected and, as a result, is able to attract and retain high quality partners and talented employees. “Visions” are translated into actionable strategies that can be executed and deliver results while the window of opportunity is still open. Leaders are able set tangible goals and make focused decisions. Executives are directly involved in the business; they ensure that barriers are removed, resources are available, and employees have the skills and motivation to accomplish growth. Culture and incentives foster innovation while also ensuring a strong commitment to delivering results. This requires that large projects be broken into smaller, more focused deliverables, and that senior management break down barriers and realign goals. Employees, customers, suppliers, and partners believe that managers and other leaders possess the knowledge, skills, and experience needed to run the business. “Stretch targets” energize action and motivate everyone to work at peak performance. Leaders display a strong commitment to career development and learning for all. Processes are in place to ensure that conflicting opinions are openly discussed without becoming destructive. Employees and partners are skilled at negotiating “win-win” agreements Despite conflicting opinions, consensus decisions can be quickly reached and implemented. Leading and Engaging Capabilities

12. Options Description Vertical Integration Locate all but the most routine, transaction - oriented activities inside the firm. Selective Sourcing Source selected activities from the outside. Traditionally, sourced activities were controlled through short - term contracts. Virtual Integration Become part of a network of highly specialized, independent parties that work together to perform, coordinate, and control value chain activities. Options for Structuring Market Activities Corporate Information Strategy and Management Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , . Burr Ridge, IL: Chapter 3 Table 3 - 1 McGraw - Hill/Irwin, 2002.

13. Transaction Contract Partnership Discrete exchange of Prior agreement governs Shared goals and processes for Basis of goods, services, a nd exchange (e.g., service contract, achieving them (e.g., Interaction payments (simple lease, purchase agreement) collaborative product buyer/seller exchange) development) Immediate Usual ly short - term and defined Usually long term and defined Duration of by the contract by the relationship Interaction Low Low to Moderate High Level of Business Integration Supply and demand Terms of contract define Interorganizational structures, Coordination (market) procedures, monitoring, and processes, and systems; and Control r eporting Mutual adjustment Primarily one way; One or two way; Two - way (i nteractive); Information Limited in scope and Scope & amount are usually Extensive exchange of rich, Flow amount; defined in the contract detailed information; Low level of customization Dynamically changing; Customizable Relationship Options Corporate Information Strategy and Management Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , . Burr Ridge, IL: Chapter 3 Table 3 - 2 McGraw - Hill/Irwin, 2002.

14. Integrated Organization within a Vertically Integrated Market AOL Corporate Information Strategy and Management Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , . Burr Ridge, IL: Chapter 3 Figure 3 - 10 McGraw - Hill/Irwin, 2002.

15. 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. Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information and Strategy Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.

16. A Scenario-Based Approach to Valuation (2) 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. 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.