Building Networked Business

The Organization Design Challenge

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

Org

aniz

atio

n

Simple &Local

Stable & Certain

Dynamic & UncertainEnvironment

Complex &Global

Entrepreneurial Organization

Hierarchy

??

Chapter 3 Figure 3-1

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

Info

rmat

ion

Re

qu

irem

ents

Simple &Local

Stable & Certain

Dynamic & UncertainBusiness Decision Making Environment

Complex &Global

Local Intelligence

Centralized intelligence Shared intelligence

Hierarchical Organization &Mainframe Technology

Networked Organization &Networked Technology

Entrepreneurial Organization &PC & LAN Technology

+

+ +

Chapter 3 Figure 3-2

Networked Organizational Models are Enabled by Networked Technologies

Blueprint for a “Big - Small” Business

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren

McFarlan , Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.

Sample Organizational Components

Sample Technology Components

• Human Resources Management

• Strategic Alliances

• Customer Loyalty

• Supplier Loyalty

• Partnerships

• Planning and Budgeting

• Performance Monitoring

• Organization Structure and Reporting

• Organization Decision Making and Learning

• Operating Process

• New Product Development

• Business Venturing

• HR Systems

• Customer Relationship Management (CRM)

• Personalization

• Communication Infrastructure

• User Access Devices

• Management Reporting

• Decision Support Systems and Tools

• Business Intelligence Systems

• Data and Knowledge Management

• Enterprise Resource Planning (ERP)

• Supply Chain Management

• Order Fulfillment

• New Product Development

• Distributed Information Processing Infrastructure

Leading & Engaging

Managing & Learning

Operating & Innovating

Chapter 3 Figure 3-3

-

Operating and Innovating Capabilities

Precision

Execution

Fast -Cycled

Innovation

Entrepreneurial

Hierarchy

Networked

Precision

Execution

Fast -Cycled

Innovation

Entrepreneurial

Hierarchy

Networked

Business Design Requirements

Chapter 3 Figure 3-4

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL:

McGraw-Hill/Irwin, 2002.

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

connected

(Note: All key stakeholders,

including suppliers and partners are

considered “customers” of an e-business.)

Executives and employees in all parts of the organization have the

information required to understand th e lifetime value of customers, suppliers

and partners and have the ability and authority to make decisions and take

actions to improve satisfaction and loyalty.

Incentive systems reward success in attracting and retaining profitable

customers, suppliers, a nd partners and in increasing the frequency and level

of engagement.

Managing and Learning Capabilities

Chapter 3 Figure 3-5

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

Networked

Efficiency &

Integration

Learning by

Doing

Entrepreneurial

Hierarchy

Networked

Efficiency &

Integration

Learning by

Doing

Entrepreneurial

Hierarchy

Managing and Learning Capabilities

Capabilities

Control and

Integration

Learning byDoing

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 opportunitiesCritical 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’s ability 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 (cont.)

Business design requirements

Formal and informal communication systems support frequent two way interactions inside and 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 that employees, 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

-

Leading and Engaging Capabilities

Strategic Focus

& Resource Allocation

Shared Culture

& Commitment

Entrepreneurial

Hierarchy

Networked

Strategic Focus

& Resource Allocation

Shared Culture

& Commitment

Entrepreneurial

Hierarchy

Networked

Leading and Engaging CapabilitiesCapabilities

Visionary yet pragmaticLeadership

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” agreementsDespite conflicting opinions, consensus decisions can be quickly reached and implemented.

Options for Structuring Market Activities

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 3 Table 3-1

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.

Relationship Options

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 3 Table 3-2

Transaction Contract Partnership Basis of Interaction

Discrete exchange of goods, services, a nd payments (simple buyer/seller exchange)

Prior agreement governs exchange (e.g., service contract, lease, purchase agreement)

Shared goals and processes for achieving them (e.g., collaborative product development)

Duration of Interaction

Immediate Usually short -term and defined by the contract

Usually long term and defined by the relationship

Level of Business Integration

Low Low to Moderate High

Coordination and Control

Supply and demand (market)

Terms of contract define procedures, monitoring, and reporting

Interorganizational structures, processes, and systems; Mutual adjustment

Information Flow

Primarily one way; Limited in scope and amount; Low level of customization

One or two way; Scope & amount are usually defined in the contract

Two-way (interactive); Extensive exchange of rich, detailed information; Dynamically changing; Customizable

Integrated Organization within a Vertically Integrated Market AOL

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 3 Figure 3-10

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.

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.

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 qualitySample 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