MIS 6413 Chapter 3

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MIS 6413 Chapter 3
Extending the Enterprise

• Dr. Richard Segall
• Spring 2006

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Extending the Enterprise

• A fundamental shift in the economics of
  information is underway- a shift that is less
  about any specific new technology than about the
  fact that a new behavior is reaching critical
  mass. Millions of people at home and at work are
  communicating electronically using universal,
  open standards. This explosion in connectivity is
  the latest- and for business strategists, the
  most important- wave in the information
  revolution Over the next decade, a new economics
  of information will precipitate changes in the
  structure of entire industries and in the ways
  companies compete. Applegate, p. 79

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Extending the Enterprise

• Understanding Business Networks p.80-88
• Designing Hybrid Governance Models p.88-95
• Building Collaborative Community Lessons from
  the Field p.95-98
• Summary p.99-100
• Appendix 3A Emerging Network Business Models
  p.100-114

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Understanding Business Networks p.80-95

• I. Framing Decisions Concerning Network
  Differentiation and Unit Groupings p.82-83
• II. Framing Decisions Concerning Governance of
  Interdependencies p.84-86
• III. Framing Decisions Concerning Network
  Ownership p.86-88

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Understanding Business Networks p.80-95

• Companies need not trade off flexibility for
  integration in critical cross-company processes.
  By managing the activities of and relationships
  with suppliers as networks rather than production
  lines, companies can swap their tightly coupled
  processes for loosely coupled ones, thereby
  gaining much needed flexibility and improving
  their performance in the bargain. (Brown Hagel
  2002)

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Understanding Business Networks p.80-95

• Differentiation
• Subdivision into specialized work units (nodes)
• Horizontal subdivision
• Vertical subdivision
• Spatial subdivision
• Integration
• Relationships and links between nodes that UNITE
  specialized individuals, units organizations.
• Task-based relationships
• Information- or expertise-based relationships
• Social Relationships

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Understanding Business Networks p.80-95

• Sociologist Viewpoint
• Deeper network relationships are required in
  environments characterized by
• increased complexity, uncertainty, and
  turbulence-especially when the network contains a
  large number of highly differentiated nodes that
  must work together to achieve a common goal.

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Understanding Business Networks p.80-95

• Stronger deeper relationships are also required
  in the presence of
• Increased task interdependence
• Produce customer products or deliver shared
  services
• Increased information/expertise interdependence
• Share large amounts of real-time information
• Increased social interdependence
• Divergent subcultures that must develop shared
  beliefs and a sense of trust together.
• See page 81 for others.

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I. Framing Decisions Concerning Network
Differentiation and Unit Groupings p.82-83

• 1. Key capabilities and resources required to
  execute strategy and achieve their goals?
• 2. What activities must be performed to acquire
  or build those capabilities and resources?
• 3. How should these activities be grouped within
  specialized units?

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I. Framing Decisions Concerning Network
Differentiation and Unit Groupings p.82-83

• Table 3.1 on page 83 provides Options for
  Designing Differentiated Unit Groupings
• Functional
• Product or Service
• Customer or Geographical Market

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II. Framing Decisions Concerning Governance of
Interdependencies p.84-86

• 1. What are the key task, information/expertise,
  and affiliation/identity interdependencies that
  must be managed between specialized units located
• inside and
• outside the organization?
• 2. What organizational solutions are needed to
  coordinate and control key areas of
  interdependence among specialized units?
• 3. What configuration of organizational solutions
  should be used to ensure alignment and fit with
  the business environment and strategy?

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II. Framing Decisions Concerning Governance of
Interdependencies p.84-86

• Table 3.2 on page 85 provides Options for
  Designing Inter-Form Governance
• 1. Market models
• 2. Hierarchy models
• 3. Partnership models
• Table 3.2 on page 85 provides for these models
• Business context
• Task Interdependency
• Information/Expertise Interdependency
• Affiliation/Identity Interdependency
• Coordination and Control

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III. Framing Decisions Concerning Network
Ownership p.86-88

• Ownership models
• 1. The majority of specialized units may be
  located INSIDE a corporation or other legally
  defined organization.
• 2. An alliance may be formed between two (or a
  small number of players).
• 3. A diverse community, also called an
  ecosystem, of players representing different
  roles (e.g. suppliers, distributors, buyers) may
  work together to achieve shared goals.

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Figure 3.1 Emerging IT-Enabled Extended
Enterprise Models
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Designing Hybrid Governance Models p.88-95

• neither the market nor the hierarchy is the
  ideal form of organization. Instead, each form of
  organization has its costs and each has its
  benefits ..
• Collis and Montgomery 1997 and also p.88 of
  Applegate

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Designing Hybrid Governance Models p.88-95

• Key features that distinguish collaborative
  community are
• 1.Shared purpose and value stress an ethic of
  contribution.
• 2. Organizational configurations and solutions
  support horizontal relationships among peers.
• 3. Development of an interdependent firm of
  identity that motivates and engages active
  participation and affiliation over time.

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Designing Hybrid Governance Models p.88-95

• NASDAQ Securities Exchange A Collaborative
  Community in Action p.90-95
• NASDAQ business network is a worldwide markets
  of markets built on a network of networks.
• Laying the Foundation p.91-92
• From Flawless Execution to Innovation p.92-93
• Role of IT in Operating and Governing the NASDAQ
  Securities Exchange p.93-94
• Linking IT to the Evolution of Partnership and
  Trust
• 1. Process-based trust
• 2. Affiliation-based trust
• 3. Institution-based trust

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Building Collaborative Community Lessons from
the Field p.95-98

• cutting-edge companies are swapping their
  tightly coupled processes for loosely coupled
  ones. Thereby gaining much-needed flexibility and
  improving their performance and they are
  handling critical cross-company processes as
  though they were networks rather than production
  lines. The key roles in a loosely coupled
  business network is the central coordination or
  orchestrator. Brown et al.Loosening up
  (also Applegate p.95)

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Building Collaborative Community Lessons from
the Field p.95-98

• Key Insight Hybrid Forms of Governance Are
  Emerging That Unite Hierarchy, Market, and
  Partnership.p.96-97
• Key Insight A Network Orchestrator Role is
  Emerging to Coordinate Inter-Firm
  Interdependencies within Business Ecosystem, Like
  NASDAQ and GDX p.97
• Key Insight Network Orchestrator Design
  Organizational Solutions That Reflect the
  Interests of All Parties p.97-98
• Key Insight Collaborative Community and Trust
  Co-evolve Over Time p.98

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Figure 3.2 NASDAQ Extended Enterprise
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3. Blueprint for a Networked Organization

• Hierarchal Leadership
• Emphasis managing complexity and minimizing it.
• Management process overshadowed leadership
• Risk were minimized by centralizing decision
  making, segregating activities and structuring
  work rigidly.
• Entrepreneurial Leadership
• Create or seize an opportunity and pursue it
  regardless of the resources currently controlled
• Attract, motivate and engage people, partners and
  investors in the task of working together to
  create a clear and compelling vision that excites
  and deeply engaged all involved.

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3. Blueprint for a Networked Organization

• Networked Leadership
• In the Networked Economy, the free flow of
  information throughout the company enhances the
  ability of employees, customers, partners, and
  executives to share in defining both a clear and
  compelling vision for change and the necessary
  tactical initiatives required to achieve business
  goals
• When aligned with incentives and motivations that
  foster commitment rather than simply compliance.
• In complex global organizations senior executives
  cannot oversee every decision or action taken by
  empowered teams. So, it more important for them
  to identify key strategic risks critical
  success factors and ensure that they have
  effective control systems in place.

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Questions executives ask and the solutions sought
as they design 21st century on-demand network
businesses (p.99)

• 1. What are the key activities that make up the
  core operating processes in your business
  network?
• 2. What decisions have you made concerning which
  activities you will own and which you will
  source?
• 3. Can IT and the information it delivers be used
  to simplify, streamline, and better manage
  end-to-end processes within your business
  network?
• 4. Are you building the collaborative communities
  that will be required to do business in the
  future?
• 5. Have you selected partners wisely? Do you have
  a shared vision and common purpose?
• 6. Is the technical infrastructure you have in
  place the right one to enable the types of
  electronic commerce you are considering?

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Appendix 3A Emerging Network Business Models
p.100-114

• Two categories
• 1. Businesses being built and launched on the
  Internet.
• These network businesses include B2C, C2C,
  C2B,and B2B.
• 2. Companies that provide the digital
  infrastructure.
• Examples computer network equipment suppliers,
  software firms, custom suppliers.
• Sometimes the lines are blurred.

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Classifying Network Business Models
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III. Businesses Built on the Networked
Infrastructure

• 1. Focused Distributors
• 2. Portals
• 3. Producers

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1. Focused Distributors

• Provide products and services related to a
  specific industry or market niche (non
  technology)
• Five types
• (i.) Retailers
• (ii.) Marketplaces
• (iii.) Aggregators
• (iv.) Infomediaries
• (v.) Exchanges
• Distinguished by
• Control of inventory, do they have online sales,
  how is price set, is there a physical product or
  service that must be distributed

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1. (i) Retailers

• Assume control of inventory
• Set a non-negotiable price
• Sell physical products on line
• e.g. Toys R Us, Staples
• What is the revenue model?
• (in real words how do they make money?)

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1.(ii) Marketplaces

• Do not take control of physical inventory
• Set a non-negotiable price
• Sell products and services on line
• e.g. E-Loan, InsWeb
• What is the revenue model?

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1 (iii) Aggregators

• Provide information on products and services for
  sales by others in the channel
• Do not control physical inventory
• Do not set price online
• Do not sell products or services online
• e.g. AutoWeb.com
• What is the revenue model?

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Aggregator Example Concentrator

• Concentrates information about products and
  services from multiple providers at one central
  point
• Generates revenues via listing fees, links (B2C)
  or industry fees (B2B)

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Aggregator

• Mainly B2B, brings small companies together to
  facilitate purchasing as one large buyer -
  economies of scale.
• Generates revenues by selling the software and/or
  subscription fee.
• http//www.turner-creative.com/clients-mobshop.htm
  l

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1. (iv) Infomediaries

• An aggregator that unites sellers and buyers of
  information-based products
• Do not control physical inventory
• Price is set online
• No physical product is sold online, but
  transaction is completed online
• e.g. Internet Securities
• What is the revenue model?

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1. (v) Exchanges

• May take control of physical inventory
• Price is set online
• May sell products online
• Does not sell a physical product or service
• e.g. Ebay, Freemarket
• What is the revenue model?

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Exchange example Auction

• Provides electronic clearinghouse for products
  where price and availability are constantly
  changing.
• Auctioneer receives a fee or commission.

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2. Portals

• A doorway or gate
• Three types
• (i.) Horizontal
• (ii.) Vertical
• (iii.) Affinity
• Distinguished by
• Provide full range of service?
• Provide access to deep content?
• Provide service to all types of users?

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2(i.) Horizontal Portals

• Provide a gateway to the Internets vast store of
  content and services
• May provide deep content through partnerships
• May provide group focus through partnerships
• e.g. AOL, Yahoo, Quicken
• What is the revenue model?

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Portal

• Provides initial point of entry to the Web along
  with specialized content and other services.
• Generates revenues via advertisements and search
  engine fees.

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2. (ii) Vertical Portals

• Limited gateway access
• Deep content
• Does not provide affinity focus
• e.g. Covisint, WebMD
• What is the revenue model?

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Vertical Portal On-line Exchange

• Bid-ask system where multiple buyers can purchase
  from multiple sellers.
• Generates revenues via transaction fees.
• Covisint lowers transaction costs.

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2. (iii) Affinity Portals

• May provide full gateway access
• Provides deep content for affinity groups
• Focused on affinity groups
• e.g. Realtor.com, iVillage.com
• What is the revenue model?

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Virtual Community

• Provides on-line meeting where people with
  similar interests can communicate and find useful
  information. Supports heavy repeat usage.
• Generates revenues via advertisements, especially
  links.

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3. Producers

• Design, make, and possibly market, sell and
  distribute products, services and solutions.
• 3 types
• (i.) Manufacturers
• (ii.) Service Providers
• (iii.) Educators
• Distinguished by
• Sell physical products or face to face services,
  Sell information based products or services,
  Provide customized products or services?

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3.(i) Manufacturers

• Design, produce and distribute physical products
• e.g. Ford, Proctor and Gamble
• What is the business model?

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3. (ii) Service Providers

• Service offerings provided through multiple
  channels
• e.g. American Express, Singapore Airlines
• What is the business model?

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3. (iii) Educators

• Create and deliver online education programs,
  products and services
• e.g. Harvard, Virtual University
• What is the business model?

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IV. Businesses that Provide Networked
Infrastructure

• 1. Infrastructure Distributors
• 2. Infrastructure Portals
• 3. Infrastructure Producers
• 4. Infrastructure Service Providers

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IV(1)Infrastructure Distributors

• Enable technology buyers and sellers to transact
  business.
• Same revenue model as non-technology distributors
• (i.) Infrastructure Retailers
• CompUSA, Egghead
• (ii.) Infrastructure Marketplaces
• Ingram Micro, Tech Data
• (iii.) Infrastructure Aggregators
• Cnet.com, ZDnet.com
• (iv.) Infrastructure Exchanges
• Converge

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IV(2) Infrastructure Portals

• Provide consumers and businesses access to
  network, computing and application hosting
  services
• Same revenue model as non-technology portals
• Horizontal Infrastructure portals
• ISPs, network service providers, data center
  outsourcing providers, web hosting service
  providers
• Vertical Infrastructure portals
• Host and maintain software applications (ASPs)

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IV(3) Infrastructure Producers

• Design, build, market and sell technology
  hardware, software, solutions and services.
• Equipment/component manufacturers (IBM, Sony,
  Lucent)
• Software firms (SAP, Oracle, Microsoft)
• Custom software and integration providers
  (Accenture)
• What is the business model?

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IV(4) Infrastructure Service Providers

• Provide online/offline services to support
  logistics, marketing, and other shared services.
• Agency.com, Federal Express
• What is the business model?

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MIS 6413 Chapter 3
Extending the Enterprise

• Dr. Richard Segall
• Spring 2006