Lucas Chapters 3&9 2013

NEW BUSINESS MODELS CHAPTER 3
ITs Impact on Business Models
The value of technology includes

New
business models Extensions to existing models The possibility of serving new customers The possibility for entering new markets Sales growth
MIS Strategy
Lucas, Chapters 3 & 9
Metrics of the Impact of IT on Business Models
Market share Number & type of new markets the firm has entered Sales growth Size of the average sale Sales per employee Many more
Does
this stuff look familiar?

MIS Strategy
New Business Models

4
A business model is a description of how an organization functions. The model:

the firms major activities Identifies the firms customers, products, & services Provides information about the firms organization Identifies how the firm generates revenues & profits Identifies the firms key business processes
Describes
Business models combine with strategy to the major decisions of the firmLucas, Chapters 3 & 9 MIS guide Strategy
Evolution of Business Models

5
The traditional business model was a manufacturing or services company

Selling
product(s)/service(s) to customers Maintaining a physical location Maintaining its own workforce Utilizing IT to make internal operations more efficient, though some companies were also using IT strategically to generate revenue
The Internet & the Web have in recent years enabled new & creative business models
MIS Strategy
Examples of Businesses on the Internet
Business to Consumer (B2C)

e.g.,
Amazon.com, L.L.Bean, CarsDirect.com
Business to Business (B2B)

e.g.,
Ciscos linkages to its contract manufacturers
Hubs (Exchanges)
Vertical:
MIS Strategy
within the same industry Horizontal: across industries Can be public or private based on whether group membership is required to use the hub An exchange with many buyers & sellers that is both vertical & horizontal is called an electronic market
Examples of Businesses on the Internet (Continued)
Information providers Electronic communication networks Outsourcers Entertainment services providers
MIS Strategy
Electronic Commerce
8
Even before the advent of the Internet, companies used electronic data interchange (EDI) for commerce
Today
EDI is classified as a business-to-business (B2B) form of commerce EDI initially utilized private networks or value added network providers (VANs)
Electronic commerce on the Internet

Retail
Sales (e.g., Amazon.com & CDNow) B2B commerce & EDI on the Internet
These
MIS Strategy
will likely dwarf retail sales in the future

The Retail Sales Model

9
Traditional Model (bricks & mortar)
Goods transit from a manufacturer to a wholesaler to a retail store to the customer

Pure model (clicks)
Eliminates retail store Distributor becomes fulfillment partner & ships orders to the customer
Internet-based Model
Variations to the pure model

Amazon.com now has its own warehouses Conventional retailers are allowing Web ordering (bricks & clicks)
MIS Strategy
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MIS Strategy
11
Characteristics of the Electronic Commerce Retail Business Model

No physical store
No
No
real estate purchase or lease
No retail store employees

retail salaries or benefits No transportation between distributor & retail store The addition of a Web site The substitution of credit cards for cash & checks The substitution of a fulfillment partner for a distributor The addition of a shipping firm to deliver merchandise
Lower cost structure & overhead than bricks-andmortar retailer

MIS Strategy
12
The Response of Traditional Retailers
The bricks-and-clicks model

Maintains a physical store & an online store Uses the Internet as a sales channel
Advantages of the bricks-and-clicks model

Brand recognition of the retailer Availability of financial resources to support the online store Customers can order online & pick up or return the product at a store
Danger of the bricks-and-clicks model
Cannabalization of bricks channel

MIS Strategy
13
Business-to-Business Electronic Commerce
B2B Internet commerce will result in more traffic & more dollar volume than retail sales B2B Models
Traditional
Electronic
MIS Strategy
14
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15
Lean & Agile Manufacturing, Mass Customization
The Dell Model

Phone
& Internet orders Little or no in-process inventory No finished goods inventory Purchasing agreements with companies, universities, & government agencies
Customized
Web ordering pages
Mass
customization
MIS Strategy
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MIS Strategy
17
Lean Manufacturing (Continued)
The Cisco Model

Virtual
manufacturing Primarily Internet orders Web-based technical support
MIS Strategy
18
MIS Strategy
New Businesses on the Web #1

19
The Portal
A
place to begin a session on the Internet Provides services such as search engines, shopping, online chats, etc. Revenues generated through advertising & referrals Benefits from network externalities & critical mass Example
Yahoo!
JUMP
MIS Strategy

20
The Hub or Exchange

Electronic
broker or intermediary Connects two groups that wish to interact Benefits from network externalities & critical mass (Chapter 2) Describes vertical or horizontal marketplaces Creates a network of firms Example
Avendra: A vertical
exchange in the hotel industry
MIS Strategy

21
The Service Provider

Internet
Private
service providers
networks that connect to the Internet & host applications for customers
Web
hosting companies service providers
Develop Offer
Application
the use of an application or parts of it through the Internet to the customer
MIS Strategy
New Markets
22
A market needs a central meeting place

The
Internet provides the mechanism for such a meeting It eliminates time & location barriers that affect many physical markets, e.g., auctions
MIS Strategy
Auctions (not on an exam)

23
Types of Auctions
Sealed bid auction Open outcry Dutch auction
Auctioneer begins at a high price & then decreases it till the buyer stops the process Favours the seller
Reverse auction (or demand aggregation) eBay FreeMarkets Priceline

Internet Auctions
Retail auctions: B2B purchases: Reverse auction:
MIS Strategy
24
Business Models Need Revenue Models
Examples of Revenue Generation in Internet Business Models

Traditional
markup on a product sold: Amazon Allowing other companies fee-based use of Web site to sell products: Amazon Charging sellers in an auction: eBay Purchasing airline tickets & hotel rooms at low prices & selling to customers at a markup: Priceline Advertising
Targeted
MIS Strategy
to the interests of the Web customer: Google is the sine qua non (the master)
25
Electronic Commerce: Pervasive Technology Application
In a truly electronic business, all aspects of strategy & operations involve IT The auto industry uses IT heavily
EDI
Electronic
markets for supplies (e.g., Covisint) Trends include

Internet-based
car ordering Internet-enabled cars

Car manufacturers may even become ISPs Microsoft SYNC & Ford Motor Company
MIS Strategy
26
Atomic Elements to Characterize Business Models
How does one differentiate between different kinds of models?

The firm of interest A supplier A consumer Allies Electronic relationships Primary relationships The flow of money The flow of product The flow of information
MIS Strategy
Analyzing a Business Model to Evaluate its Value Proposition: WebVan

27
Home delivery of Internet-ordered groceries to customers

Flow of Information: From customers to WebVan & from WebVan to suppliers Flow of Money: From customers to WebVan & from WebVan to suppliers Flow of Product: From suppliers to Webvan & from WebVan to customers
Weaknesses
Assumed customers would be willing to pay higher prices for convenience & would be able to plan their purchases in advance Customers could not inspect merchandise Company needed costly physical infrastructure & distribution system
MIS Strategy
IMPLEMENTING IT CHAPTER 9
Implementation
29
Implementation refers to the design teams strategy & actions for seeing that a system is successful & makes a contribution to the organization
Mostly
concerned with behavioural phenomena Implementation becomes more important & difficult as systems design becomes more radical
All implementation is change for someone
MIS Strategy
Degrees of Change
30
Incremental

Small change Little need for change management

Large change Need for a lot of change management
New Type of Change
Radical

Architectural

Seems to designer/implementer like small change, but seems to user like a large change Need for change management
MIS Strategy
31
Determining Success or Failure of Implementation
Cost-Benefit Analysis
It
is difficult to estimate benefits
Successful Implementation Indicators

High
levels of use for voluntary systems User satisfaction with the system Accomplishment of system objectives Impact on performance either for individuals or the organization
MIS Strategy
Research on Implementation
32
Attempts to discover factors associated with success Implementation success is generally measured by
Actual
use Intended use Satisfaction with the system
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33
Independent Variables Associated with Implementation Studies #1
Information Services Department
Policies, systems design practices, operations policies

User origination of systems, involvement & influence, appreciation Personality type, business history, social history, past experience Problem urgency
User Involvement
User Demographics
Users Personal Stake
MIS Strategy
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Independent Variables Associated with Implementation Studies #2
System Characteristics
Quality,
ease of use
Decision Style
Cognitive
style
Management
Actions,
support, managerial style Note: This is where communication comes in!
Organizational Support
Ease
of access, current technology

User Performance (efficacy issues)
MIS Strategy
35
Dependent Variables Associated with Implementation Studies
Implementation
Frequency
of inquiries Reported use Monitored frequency of use User satisfaction
MIS Strategy
An Implementation Model
36
Personal stakes, system characteristics, user demographics, & organizational support are likely to impact system use High levels of system use should lead to high levels of satisfaction, & high satisfaction is likely to increase levels of use Research has shown that use of technology is related to performance in certain instances
MIS Strategy
37
MIS Strategy
A Process Implementation Model

Stage
Initiation Exploration
Activity (NOTE: This is only 1 model!)

The first contact between users & designers Getting a feel for the problem
Commitment Making a decision to proceed with a system Design Testing Developing the logical design & specifications for the system (includes coding) Verifying that the system works
Installation
Termination Operations
38 MIS Strategy
Converting to the new system

Design team finished; users must now own the business Routine operations plus enhancements & maintenance
An Implementation Strategy: Encourage Users to Participate in & Influence Design

39
Participation builds self esteem which results in more favourable attitudes Participation can be challenging & intrinsically satisfying, leading to positive attitudes Participation results in more commitment to change Users learn more about the change, get to control more of the technical properties of the system, & become better trained to use it Technical quality of the system will be better because users know more about the problem domain than the IS staff Users retain much of the control over their activities & therefore have more favourable attitudes towards the system
Trust Feeling of Control Commitment/Ownership
MIS Strategy
The Role of Design Teams

40
Managers, end users, & systems professionals Teams discuss the functions the system has to perform & sometimes even develop high level data flow diagrams for the system Analysts then work with users to determine requirements & to design the system This strategy also applies to the selection & implementation of packaged solutions, such as ERP systems
MIS Strategy
Text Problem
41
I disagree with the text; implementation of custom systems is at least equally difficult compared to packaged systems
MIS Strategy
An Implementation Framework
42
A complete implementation strategy emerges by combining the most important implementation success factors with the stages of the process model This combined implementation model can help develop successful systems that are actually used
MIS Strategy
The Implementation Framework

43
See framework (Table 9-3) on p. 180 Do you understand this framework?
MIS Strategy
Emergent Change
44
Not all organizational changes can be planned

Individuals adapt to technology in diverse & interesting ways Emergent changes can be positive, unintended consequences of a new application Or they can be very negative consequences Support & encouragement from management can help take advantage of emergent changes as they become evident
MIS Strategy
Benefits of Implementing IT-Based Transformation of Organizations

45
Leanness Responsiveness Minimized overheads Low fixed costs due to virtual components Customer & supplier orientation More competitiveness Employee orientation
MIS Strategy
Costs of Implementing IT-Based Transformation of Organizations

46
Investment in IT Management of IT Need for employees to learn new technologies & constantly update their knowledge Increasing the span of control for managers Increasing the ability of managers to monitor remote workers (harder to manage remote workers why?) Need to manage close relationships with partners & companies in various alliances
MIS Strategy
47
Analyzing the Costs & Benefits of Change

Benefits Costs
Increase benefits & decrease costs
MIS Strategy
Threats Users Feel Besides Their Fear of Change

48
Downsizing (sometimes referred to as rightsizing) Entrenched bureaucracy (people) Entrenched SOPs (standard operating procedures (Weve always done it that way!) Threat of mergers, acquisitions, etc. History (Were previous implementations successful?)
MIS Strategy
49
Motivating Organizational Change
Situations that might motivate a firm to change structures

A merger or acquisition A major crisis (e.g., substantial losses) Bankruptcy Rebellion by the board of directors (or their replacement) Legal or regulatory reversal
MIS Strategy
50
Model of Change (Lewin/Schein)
Unfreezing
Prepare
those affected by change Communicate reasons Solicit feedback

Moving
Training
of those affected by change
Refreezing
Routinization
of the change Becomes second nature
Unfreeze
MIS Strategy
Move
Refreeze
Next Class
51
Midterm #2: March 13

5:30-7:30
p.m. Scotiabank Computer Lab Same instructions as for previous midterm EXCEPT Modelling question
MIS Strategy

Lucas Chapters 3&9 2013

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Lucas Chapters 3&9 2013

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NEW BUSINESS MODELS CHAPTER 3

ITs Impact on Business Models

The value of technology includes

Lucas, Chapters 3 & 9

Metrics of the Impact of IT on Business Models

this stuff look familiar?

New Business Models

A business model is a description of how an organization functions. The model:

Evolution of Business Models

The traditional business model was a manufacturing or services company

Examples of Businesses on the Internet

Business to Consumer (B2C)

Amazon.com, L.L.Bean, CarsDirect.com

Business to Business (B2B)

Ciscos linkages to its contract manufacturers

Lucas, Chapters 3 & 9

Examples of Businesses on the Internet (Continued)

Information providers Electronic communication networks Outsourcers Entertainment services providers

Lucas, Chapters 3 & 9

Electronic commerce on the Internet

will likely dwarf retail sales in the future

The Retail Sales Model

Traditional Model (bricks & mortar)

Goods transit from a manufacturer to a wholesaler to a retail store to the customer

Variations to the pure model

Lucas, Chapters 3 & 9

Lucas, Chapters 3 & 9

Characteristics of the Electronic Commerce Retail Business Model

real estate purchase or lease

No retail store employees

Lower cost structure & overhead than bricks-andmortar retailer

The Response of Traditional Retailers

The bricks-and-clicks model

Advantages of the bricks-and-clicks model

Danger of the bricks-and-clicks model

Cannabalization of bricks channel

Business-to-Business Electronic Commerce

Lucas, Chapters 3 & 9

Lucas, Chapters 3 & 9

Lean & Agile Manufacturing, Mass Customization

The Dell Model

Web ordering pages

Lucas, Chapters 3 & 9

Lucas, Chapters 3 & 9

Lean Manufacturing (Continued)

The Cisco Model

manufacturing Primarily Internet orders Web-based technical support

Lucas, Chapters 3 & 9

Lucas, Chapters 3 & 9

New Businesses on the Web #1

Lucas, Chapters 3 & 9

New Businesses on the Web #2

The Hub or Exchange

exchange in the hotel industry

Lucas, Chapters 3 & 9

New Businesses on the Web #3

The Service Provider

hosting companies service providers

the use of an application or parts of it through the Internet to the customer

Lucas, Chapters 3 & 9

A market needs a central meeting place

Lucas, Chapters 3 & 9

Auctions (not on an exam)