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IT impact on Business Models

Part 2

BCOR 200: Introduction to Management Information Systems

By : Saida Harguem, Ph.D., M.B.A.

Learning Objectives
Recognize that IT impacts the business model through its
effects on organizational capabilities

Learn how to analyze IT for its potential to enable new

capabilities e.g. facilitate new and improved organizational
structures and processes

RECAP: Understanding Business Models

RECAP: Understanding Business Models
The three components of a business model:

RECAP: Understanding Business Models
Successful strategies define how a company plans to achieve
a distinctive and unique position that woos customers from
established players or draws new customers into the market.
Capabilities enable a company to execute current strategy
while also providing a platform for future growth. They
define the resources needed to execute strategy and, in doing
so, define the cost model of an organization.
Value defines what that move is worth
The financial returns for business owners and investors
Stock price and market value.
Does the value have to be tangible?

IT impact on Business Models
Analyzing IT impact on capabilities
The design of hierarchical organizations assumed that
centrally located executives and decision makers had access to
the information they needed to understand local business
They had the time and expertise to analyze the information,
make decisions, and ensure that the decisions were executed
by operating employees.

The traditional VS. New organizational designs
Traditional organizational designs are inadequate for coping
with todays turbulent and increasingly networked world
characterized by lateral and horizontal interlinkages within
and among firms.

The traditional VS. New organizational designs
Executives in large, established firms find that their
organizations must become much more agile, innovative and
entrepreneurial while not losing the efficiency, power and
reach that come with size and scale.
Entrepreneurs and executives in small firms find that they
must tap into an extended network of partners to achieve scale
and power needed to succeed in industries dominated by large
global players

The traditional VS. New organizational designs
Today, executives must understand:
how organizational and design choices influence operational
efficiency and flexibility
They must determine how to best align the organization with the
environment and the chosen strategy to quickly and effectively
sense and respond to opportunities and threats.
Lets examine the capabilities required to build businesses
that can survive and prosper in todays fast-paced and
uncertain environment.
IT is an important enabler for developing the best-in-class
capabilities required for success.
The Need For New Capabilities
Executives spent much of the 20th century building and
perfecting hierarchies:
A hierarchy describes the relationship between managers and
subordinates from the top of the company to the bottom through the
definition of work specializarion, departmentalization, chain of
command, span of control, degree of centralization and formalization.
Tall hierarchy structure became popular as businesses grew larger.
In the 1990s and early 21st century, globalization and
increased technology led to downsized workforces and
therefore flatter organizations.
Downsizing, delayering, and reengineering swept through large
The Need For New Capabilities
In today business world
Rigid intra- and interfirm boundaries were shattered to enbale
companies to focus on core competencies while also delivering
customized solutions in global markets.
Strategic partnerships and alliances were formed to ensure access to
capabilities and expertise that could not be efficiently and effectively
build and managed inside organizations.

The Need For New Capabilities
The need of new capabilities that enable executives to work
more effectively and efficently within more dissuse and fluid
business networks.
Executives do not wish to sacrifice efficiency for speed; neither
abandon authority and control as they empower employees, partners,
or other loosely connected network members. To make decisions that
influence customer needs and business performance.
The dilemma:
Executives want their companies to be global and local, big and small,
and radically decentralized with centralized reporting and control.

The Need For New Capabilities
An example: LeapFrog
LeapFrog, the educational toy copany was founded in 1995, executives
outsourced manufacturing to seven Chinese factories and shipping and
distribution to global logistics firms that, by 2002, were shipping
LeapFrog products to Toys "R" Us and Wal-Mart retailers located in
over 28 countries. Operating as the creative design and marketing hub
of its global network of partners, LeapFrog rose from its position as the
number 15 toy company in 2000, to the number 4 position in 2001, and
the number 3 position in 2002-behind only Mattel and Hasbro, the
giants in an industry that had been called a duopoly.

IT impact on Business Models
An example: LeapFrog
But this rapid growth dramatically increased the complexity LeapFrog
In 2003, the company had launched five product platforms-hardware and
software that could run a wide variety of content-with over 100 different
content titles. In addition, the company had launched over 35 stand-alone toy
products and had entered the educational software industry with the launch of
its SchoolHouse division. Finally, its content had been translated into English,
Spanish, French, Italian, and Japanese, and its products were sold in countries
around the world.
With growth and increased complexity also came problems of control and
talent management. Faced with the need to install systems and structure,
founder and CEO Mike Wood worried that the company would lose its
creative talent. IT was seen as a key enabler of controlling operations while
also providing real-time information and analytical tools that allowed
employees, executives, and even the company's retail customers to
continue the steady stream of product innovation required for success in
the fad-driven toy industry.
The organization Design Challenge
All organizations
need to be
Global and local
Big and small
with centralized
reporting and

The hybrid organizations as a solution?
Descriptions of hybrid organizations designed to enable
companies to be lean and agile simultaneously were common
in the 1950s and 1960s
Widely used by rapidly growing technology start-ups in the
aerospace and computer industries
One of the hybrid designs the matrix structure
Matrix Structure- An organizational structure that assigns
specialists from different functional departments to work on on
or more projects being led by a project manager.
This design creates a dual chain of command: employees have two
managers (their functional area manager and their product or project
Exibit 11-2 Example of a Matrix Organizations

2013 Pearson Education
The hybrid organizations as a solution?
The matrix structure
An adaptive, information intensive, team-based, collaborative, and
empowered organization
Responds to the need for control and efficiency, while
simultaneously enabling flexibility and speed of response.
All characteristics of 21st century organizations

But companies that adopted the hybrid designs of the 1960s

through 1980s soon learned that the new structures and systems
bred conflict, confusion, information overload, and costly
duplication of resources.

The hybrid organizations as a solution?
Why the matrix failed? Why are we trying them again?
One of the major sources of difficulty with the matrix was the
dramatic increase in the need for timely information to manage it
Product managers had to coordinate their plans and operations with
functional managers
Country managers had to coordinate activities with headquarters
Senior managers, attempting to reconcile overall organizational
performance and plan corporate strategy, were faced with a dizzying
array of conflicting information.
The microcomputer revolution of the 1980s provided tools to
decentralize information processing-which helped improve local
decision making- but the technology to support both local and
entreprisewide information sharing and communication was
The hybrid organizations as a solution?
Why the matrix failed? Why are we trying them again?
Only recently has IT become capable of meeting the
information challenge the networked IT revolution
An On Demand enterprise is one that unites
information, processes, and people to create an enterprise
in which end-to-end processes are integrated across a
company, an industry, and globally to enable it to respond
with speed and flexibility to any customer demand,
market opportunity, or external threats.

Building Lean, Yet Agile Enterprises

Organizational design: learning from mistakes
Speed counts, but not the expense of control
When the business environment is highly competitive and turbulent,
speed counts
Executives of fast-cycled organizations need also to monitor business
operations and clearly define and enforce the rules of the road trough
Empowerment is not anarchy
Recognize that decisions concerning who is accountable nd has
authority to make a decision, take action, or commit resources on
behalf of the firm is tightly linked to a more complex set of
organization design features:
Structure: how people are grouped into units, how units coordinate activities to
develop and deliver products and services to customers
Reporting relationships and power: formal and informal
Incentives and performance management: compensation, measurment systems
Organizational design: learning from mistakes

Transforming an organization requires more than just

changing the sturcture
Changing the structure is not enough.
Need for change management to harness the energy of the workforce
to recreate an organization with a common purpose and direction.
Focus on the alignment of people, processes and information.

Organizational design: learning from mistakes
Learned lessons
Executive need to build the capabilities required to execute strategy in
a fast-paced business environment
A need for a comprehensive approach to organization design that
includes analysis and realignment of capabilities within 4 areas of
business model design:
Processes and infrastructure
People and partners
Organization and culture
Leadership and governance

Improved access to information and high-capacity

networked communication systems are core element of
redesign in all four areas
IT Impact on Capabilities
C. Morgan, Images of Organizations, 1997

Organizations are information systems. They are

communication systems. And they are decision-making
systems. If one think about it, every aspect of
organizational functioning depends on information
processing of one form or another.

IT Impact on Capabilities
Can IT enable agility and control?
Can IT enable accountability and collaboration?

IT Impact on Capabilities
Can IT Enable Agility and Control?
Frito-Lay Inc.
In the mid-1980s, executives attempted to accelerated the
rate of new product development
Failed twice
1st try: without ensuring that the supply chain,
manufacturing, and order fulfillment
processes could handle the increased
complexity. In doing so, they failed to view
their organization as a set of integrated,
horizontal operating processes that must be
redesigned in concert.

IT Impact on Capabilities
Can IT Enable Agility and Control?
Frito-Lay Inc.
Having failed in their first process redesign attempts,
executives at Frito-Lay launched a second project-this time
to integrate (end-to-end) processes. They failed to
redesign the organization and management systems
needed to control these accelerated, real-time processes

IT Impact on Capabilities
Can IT Enable Agility and Control?
Two common mistakes when attempting to balance
agility and control
Failed to redesign end-to-end process
Failed to realign faster-cycled operations with organization
structure, control, authority systems, incentives, and culture.

IT Impact on Capabilities
Can IT Enable Agility and Control?
Organizational control is determined by two tightly
integrated sets of processes:
Operating processes are the series of activities that define how
a firm designs, produces, distributes, markets, sells, and
supports its products and services.
Management processes are activities that define strategic
direction and coordinate and control operations.

IT impact on Business Models
Streamlining Operating and Management Processes

IT impact on Business Models
Redefining Control Systems The ability to share
information and
perspective is critical for
synchronizing operating
and management

IT Impact on Capabilities
Can IT Enable Accountability and Collaboration?
Traditionally, the formal distribution of authority within an
organization has been viewed as a trade-off between
centralization and decentralization
In hierarchical organizations, it is assumed that centrally
located executives and decision makers has access to the
information they needed to understand local business
As the complexity, uncertainty, and volatility in the
business environment intensified, decision making was
decentralized to self-managing teams. Although
decisions can be made more quickly, the cost of
coordination and control increased and decisions made
by local employees and teams often failed to consider
the overall goals of the company.

IT Impact on Capabilities
Redefining Authority Systems

IT Impact on Capabilities
Can IT Enable Accountability and Collaboration?
Phillips Petroleum recalled the "tyranny of control
attempts to maintain control over decentralized decision
added controllers in all of the newly formed business units
Resulted in checkers checking checkers

Eventually a business intelligence system was

implemented and teams of operating managers were
given authority for decision making