Post on 03-Jun-2018
8/12/2019 Making Case Networking
1/17
MAKING THE CASE FOR
NETWORKED BUSINESS
Chapter 4
8/12/2019 Making Case Networking
2/17
Example of Industrial Economies of Scale
In the early 1900s, Ford Motor Company executives demonstrated that industrial technologies and
management principles could enable the company to dramatically lower the cost and increase the output
of cars in its assembly plants.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6th
Edition,Irwin McGraw Hill, 2002
8/12/2019 Making Case Networking
3/17
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 new plants be built. In fact, assembly plants were closed for several weeks each summer to enable new
models of cars or trucks to be built in existing plants.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6th
Edition,Irwin McGraw Hill, 2002
8/12/2019 Making Case Networking
4/17
Network Economies of Scale and Scope
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6th
Edition,Irwin McGraw Hill, 2002
8/12/2019 Making Case Networking
5/17
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan,Corporate Information Strategy and Management. Burr Ridge, IL:
McGraw-Hill/Irwin, 2002.
0% 20% 40% 60% 80% 100%% of Buyers/Sellers Involved in Market
MarketMaker
Value
-Added
Market makers mustcapture 80% or more ofa market to begin togenerate value
Market makers are spendingmoney, but not yet generatingsignificant value.
0% 20% 40% 60% 80% 100%% of Buyers/Sellers Involved in Market
MarketMaker
Value
-Added
Market makers mustcapture 80% or more ofa market to begin togenerate value
Market makers are spendingmoney, but not yet generatingsignificant value.
Chapter 4 Figure 4-3
Dave Per rys View of How Network Economies
Ena ble Market M akers to Create Value
8/12/2019 Making Case Networking
6/17
8/12/2019 Making Case Networking
7/17
A Scenario-Based Approach to
Valuation
Step 1: Define the purpose for the value assessment
Step 2: Pick a point in the future when you expect your business
strategy to deliver value
Step 3: Analyze the business concept and strategy and forecast marketsize, your share, and revenues.
Step 4: Analyze the capabilities and resources required to
reach the future state and forecast the cost of building those
capabilities and acquiring resources.Step 5: Based on this analysis, construct estimates of financial
performance and market value that reflect the "most likely"
assumptions.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6th
Edition,Irwin McGraw Hill, 2002
8/12/2019 Making Case Networking
8/17
A Scenario-Based Approach to
Valuation
Step 6: Factor in the uncertainty in your assumptions bydeveloping several scenarios that represent upper and lower
bounds on key variables in your forecasts.
Step 7: When appropriate, validate your model by using alternativeapproaches, such as Discounted Cash Flow and ComparableCompany Analysis.
Step 8: Discuss the value analysis scenarios you have constructedwith others and critique the findings and assumptionsnot
just oncebut on a regular basis.
Source: Applegate, L.M; Austin, R. D; McFarlan, F. W; Corporate Information Strategy and Management, 6th
Edition,Irwin McGraw Hill, 2002
8/12/2019 Making Case Networking
9/17
The IT Business Value Score Card
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 Measur es: Decrease the
cost / improve the
performance of internal IT
operations; new ITapplications 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 Measur es:
Decrease the cost / improve the
performance of doing business
online; decrease the time, cost
and risk of launching new onlinebusiness initiatives;
8/12/2019 Making Case Networking
10/17
The IT Business Value Score Card
Categories of
Benefits
Goals and Measures
Internal External
Commerce Improve internal operating
efficiency and quality
Sample Measures:
Internal process performanceand 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
8/12/2019 Making Case Networking
11/17
The IT Business Value Score Card
Categories
of Benefits
Goals and Measures
Internal External
Content /
Knowl
edge
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 ofdecision making;
increase the ability of
the organization to
respond quickly to
threats and opportunities
Improve the performance of knowledge
workers in customer, supplier, and
partner organizations; add
information valueto existing
products and services; create new
information-based products and
services
Sample Measures:
Provide information to customers,
suppliers, and partners that enablesbetter decision-making; charge a
price premium for products and
services based on information value-
added; launch new information-
based products and services; increaserevenue per users and add new
8/12/2019 Making Case Networking
12/17
The IT Business Value Score Card
Categories ofBenefits
Goals and Measures
Internal External
Community Attract and retain top talent;
increase satisfaction,
engagement, and
loyalty; create a cultureof 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; levelof personalization available and %
that use it; churn rate
8/12/2019 Making Case Networking
13/17
Comparing the three eras of IT
EvolutionTimeframe
Mainframe Era
1950s to 1970s
Microcomputer Era
1980s & Ear ly 1990s
Network Era
1990s to present
Dominant
Technology
Mainframe, stand-alone
applications, databases
Stand-alone
microcomputer and end-
user tools (e.g., word
processing, spreadsheets)
Client-server, Internet,
browser and hypertext
Data Management InformationManagement
KnowledgeManagement
Organization
Metaphor
HierarchyEntrepreneurial
Organization
Networked Business
Community
Centralized
Intelligence
Decentralized
Intelligence
Shared Intelligence
Primary IT RoleAutomate back-office
activities
Provide information and
tools to improve decision
making and knowledge
worker performance
Transform
organizations and
markets to create
business value
8/12/2019 Making Case Networking
14/17
Comparing the three eras of IT
Evolution
Typical User IT specialistsIT literate business
analystsEveryone
Location of Use Computer room Desktop Everywhere
Planning Process Yearly budgeting Individual expenseBusiness development
and strategic planning
Justification Cost savings Increased decision qualityand personal performance
Business value
Implementation Independent projects Ad-hoc Strategic initiatives
Timeframe Mainframe Era1950s to 1970s
M icrocomputer Era1980s & Ear ly 1990s
Network Era1990s to present
8/12/2019 Making Case Networking
15/17
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan,Corporate Information Strategy and Management. Burr R idge, IL: McGraw-Hill/Irwin, 2002.
Time
0
$(-)
$(+)
Returnon
Inve
stment
Increased cumulative benefitfrom IT portfolio
Decreasedinitialinvestments
Time
0
$(-)
$(+)
Returnon
Inve
stment
Increased cumulative benefitfrom IT portfolio
Decreasedinitialinvestments
Chapter 4 Figure 4-5
Benefits of Investments in Infrastructure
8/12/2019 Making Case Networking
16/17
Some Cases
BigCo
Appendix 3 A
8/12/2019 Making Case Networking
17/17
Questions