Business Transformation: Lessons from the Matrix of Change Prof. Erik Brynjolfsson Center for...
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Transcript of Business Transformation: Lessons from the Matrix of Change Prof. Erik Brynjolfsson Center for...
Business Transformation: Lessons from the Matrix of Change
Prof. Erik BrynjolfssonCenter for eBusiness, MIT Sloan School
October, 2004 Generous support for this research was provided by the Center for
eBusiness under grants from BT and CSK
Copyright © 2004 Erik Brynjolfsson. Reproduction prohibited
ebusiness.mit.edu
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What are the key assets at Dell?
Michael Dell
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Computerization > Computers
Image by Ralph Clevenger
IT Capital (10%)
Technological Complements (15%)
Organizational Complements (75%)
Intangible Assetsare more important in
the Information Economy
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Digital Business requires changes throughout the enterprise
“Amazon’s on-line account maintenance system
provides its customers with secure access to
everything about their account at any time. …
they can ...customize virtually everything about
the system to their own tastes...
…such information flow to and from customers
would paralyze most old-line companies.”
--Denise Caruso, New York Times
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CustomerCustomerCustomerCustomer Global Global InternetInternetGlobal Global
InternetInternetWeb Web
serverserverWeb Web
serverserver
FirewallFirewallFirewallFirewall
CorpCorpI/SI/S
CorpCorpI/SI/S
InventoryInventoryInventoryInventory
ProductsProductsProductsProducts
CustomersCustomersCustomersCustomers
DataDatabasesbasesDataData
basesbases
Provide Access to Corporate Databases Internally and Externally
End to End Integration Provides:• Real-time Order Status• Transaction Records• Product Information
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Lessons from the Research1. Use technology to leverage existing assets
– Transformation doesn’t mean cannibalization: Large firms should build on their competitive advantages.
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The Organization as aCollection of Processes
Evolution:– Many business processes “evolve” over time
Co-Evolution:– Ecology of “memes” will tend toward stable clusters of
technologies, structures and processes
Design:– “Supermodularity” can prevent piece-meal trial and
error from finding optimal cluster
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Managing Change
Business processes are the basic building blocks of all business models.
How can managers identify the processes that leverage their new business model?
How can the identify the processes that need to change?
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Web servers and email-based Interactions
Physical Retail Front Office
Case study:Digital Business is Not (just) New Technology
Traditional Brokerages
Online Brokerages
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Web servers and email-based InteractionsOutsourced, Generic informationFocus on frequent tradersSalaried compensationAlliances with other service providersDiversified revenue stream including adsLow Fees on trading
Physical Retail Front Office
Assigned Broker Provides Personal Advice
Focus on “high net worth” investors
Specialized research staff
Commission-based compensation
Proprietary, Custom information
High fees tied to trading
Case study:Digital Business is Not (just) New Technology
Traditional Brokerages
Online Brokerages
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Web servers and email-based InteractionsOutsourced, Generic informationFocus on frequent tradersSalaried compensationAlliances with other service providersDiversified revenue stream including adsLow Fees on trading
Physical Retail Front Office
Assigned Broker Provides Personal Advice
Focus on “high net worth” investors
Specialized research staff
Commission-based compensation
Proprietary, Custom information
High fees tied to trading
Both are Coherent Systems
Traditional Brokerages
Online Brokerages
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The Matrix of Change Helps identify critical enforcing and conflicting
interactions within an existing organizational system Helps identify critical enforcing and conflicting
interactions within a proposed organizational system Helps identify how to transition to a proposed
organizational system; Can provide useful insights regarding
– change feasibility– implementation sequence– location– implementation pace
The Matrix of Changepredicts a rough transition
Copyright © 1994-1998 Erik Brynjolfsson IT, Productivity and Organization 26
Proprietary, custom Information
Retail Front
High Fees
Old Practices
+
+
+ -
Grid Rankings
+ Reinforcing practices
- Opposing Practice
+
+
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The analysis of Schwab Online is
much more encouraging
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Lessons from the Research1. Use technology to leverage existing assets
– Transformation doesn’t mean cannibalization: Large firms should build on their competitive advantages.
2. Understand business process complementarities using the Matrix of Change
– Business processes are valuable only to the extent they support and are supported by the rest of the system
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One Stop Financial Supermarket
Wrap Account with Single Annual Fee
Multiple Access Points
Access to Specialized research
Personal Broker via multiple channels
Proprietary, Custom information
No fees for trading
A New Model for Merrill
New Online Brokerage
Model
“Unlimited Advantage”
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Merrill Lynch’s New Business Model
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Last Laugh?“Now, Schwab is embarking on what may well prove its
riskiest move yet… Instead of trying to drive revenue through low-cost trades, Schwab says it will focus on providing investment advice to its clients. It is opening several new brokerage offices, where for the first time Schwab-employed "financial advisers" will provide investment tips and other services for a fee ….
In the not-too-distant future, "Schwab will be a lot closer to Merrill Lynch than it is to the Schwab of yesterday," predicts Charles "Chip" Roame, a former Schwab executive.”– Gasparino and Brown, Wall Street Journal, page 1 feature
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Lessons from the Research1. Use technology to leverage existing assets
– UPS
2. Understand business process complementarities using the Matrix of Change
– Merrill Lynch, Schwab
3. Be ready to re-invent, not just follow – A deep understanding of your real assets catalyzes creativity
To Learn More about the Matrix of Change – and to get your own free copy of the software – please visit:
http://ebusiness.mit.edu/moc
The Center for eBusiness is the largest industry-sponsored research program at the MIT Sloan School. To learn about the Center, visit http://ebusiness.mit.edu
The Internet and the Dynamo