Digital Strategy
(for MBA Students and IT Fans)
Professor Jay Rajasekera
Lecture 1 Introduction
1
Digitization-I
• Computer
• PC
• Telephone
• Music
• Photography/Movies
• Money
• Digital TV
• Automobile??
2
Digitization-II
Software (MB)
120
99
100
80
60
40
20 16
0.016
0
Analog TV Digital TV PC
Source: Sony vs Samsung by S-J Chang
3
Digitization-III
Transistor Intensity (1000s)
45000
40000
40000
35000
35000
30000
25000
20000
15000
10000
5000
800
0
Analog TV Digital TV PC
"Toyota Type Value Co-Creation in Digital Businesses Using Social Networks", 4
Effective Executive (Volume XIII, No. 04 April 2010, pg 22-28) by Jay Rajasekera
Digitization-IV
Automobile
• Electronic Throttle Control
• Electronic Stability Control
• Electronic Brake Control
• Electronic Fuel Injection
• Electronic Speed Control
5
Other Major Digitized
Businesses
• Banking
• Payment Systems
• Security Business
• Telephone, Mobile networks
• Transportation systems, Airlines
• Smart Cities (first city: Rio de Janeiro)
• Smart Grids (Electricity Grids)
6
Coca-Cola Google
7
Technology Trends
• A Giga-PC in 2000
– Billion operations per second,
– Billion bits of memory
– Billion bits per second Network bandwidth
– Less than $2 k
• A Tera-PC by the year 2015
• A Peta-PC by the year 2030
Ref: Prof. Raj Reddy, Carnegie Mellon University
Exponential Growth Trends in Computer Performance
1638400 Tera PC
819200
Doubling every 15 months
409600
204800
100G PC
102400
51200
M25600
I
10G PC Doubling every 2 years
P12800
S 6400
3200
1600
Giga PC
800
400
200
100
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year
Ref: Prof. Raj Reddy, Carnegie Mellon University
What do we do with all this power?
• Social systems not affected:
– Food we eat
– Clothes we wear
– Mating rituals
• The computing will transform the way, we
– Live
– Learn
– Work, and
– Communicate
Ref: Prof. Raj Reddy, Carnegie Mellon University
Using Technology In Service of Humanity
• Helping Aging population
• Disaster Rescue
• Accident-Avoiding Cruise Control
• Access to Information and Digital Libraries
• Access to Education
– Literacy
– Urban/Rural Divide
• Access to Healthcare
– Lifeline
– Emergency Healthcare
Ref: Prof. Raj Reddy, Carnegie Mellon University
IT is Everywhere
How can we use it??
12
Can we think of IT as a resource
Resources
• Water
• Money
• …
• ….
13
What is the major difference
between these and IT?
Resources
• Water
• Money
• …
• ….
14
Physical World vs Digital World
15
What do Managers Manage?
Money Factories Logistics
Sales Employees Information
16
How Economists Think
Y = F (L,K,H,T)
Y = Output
L = Labor Employees
K = Capital (money, factories,..) Money Factories
H = Human Capital (Skills in labor) Sales Experience
T = Technology Information Logistics
17
Cobb-Douglas Technology Function
Are parameters significant?
β1, β2, β3, β4, ≠ 0 ?
18
IT Spending vs Productivity
Source: Managing IT for Business Value by Martin Curley
19
Internet Age and Development
After Internet
ICT has the characteristics of a general-purpose technology (GPT) – Takaya’s Book
Internet Difference
One to one
Many to many
E-readiness
Wealth of Country
Source: Center for International Development, Univ of Maryland (2000)
[Link]
[Link]
23
24
25
26
Income Disparity: GINI Index
Gini Index vs e- readiness rank
80
Poor on
70
e- readiness ranking
e-commerce
60
50
40
30
20
Good on
10
e-commerce
0
0.00 10.00 Low 30.00
20.00 40.00 50.00High 60.00 70.00
Income disparity Income disparity
Gini Index
Data: EIU and UN (Rajasekera 2006 and 2007)
How A CEO/CFO Thinks
An Online Mall Example
T = transaction based fee, Money
Formula of
F = fixed fee,Profit Margin
A = advertisement income Logistics
N = No. of items sold per month
M = No. of Shops added per month
Sales Experience
K = No. of shops already in the mall
X = Variable Transaction cost
Z = Fixed Transaction costs Information
TxN + F x (M+K) + A x a x K
Profit Margin =
(M x m + N x n + K x k ) X + X
32
Enterprise Resource Planing (ERP)
Sales Distribution Advertising
ERP
Accounting Research
Manufacturing
33
Supply Chain Management (SCM)
Material
Suppliers Purchasing Production Distribution Customers
Information
34
Customer Relationship Management (CRM)
Learn Increasing
Intelligence
Discover
Density
Clean
Transform
Row Data
35
What is IT?
Period HW SW Data Information Knowledge
1950-60’s Mainframe Developer Operational Designers
SW
1970’s Mini Reports Programmers
1980’s PC Application Strategic DSS type Middle
SW Managers
1990’s Internet ASP SW Competitive Strategic CEOs,
(SCM, ERP) Opportunists
Now Mobile Downloadable Client Cross- Strategists,
SW Oriented Functional Business
(CRM, Cost) Modelers,
CEOs,
General 36
Public, SNS
Strategically Managing Information
Money
Money Money Money
Factories Factories Factories
Top Management IT Strategic
Employees Employees Employees
Sales Sales Sales
Mid-Level Logistics Logistics
IT
Programmers
IT Operational
Operational Staff
1950-1970s 1980-1990 1990-Now
37
IT Process Flow
Plan Implement Monitor
• DeLone &
• MDA
McLean
Strategy? • Waterfall
• BSC
• Lean
• Strategy Map
38
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