Lecture 4-6

TIM158 Business Informa3on Strategy Lectures 4-­‐6 Instructor: Safwan Shah Teaching Assistant: TBD To maintain consistency. Lectures throughout TIM158 adapted or borrowed from Kevin Ross. Addi3onal material added as needed. Amazon •  Between 2000 and 2001 – over 350 Internet companies closed their doors. •  This case captures the drama of one of those companies … Amazon.com •  From wall street darling to nearly dead … •  We will see strategy, entrepreneurship, innova3on and IT. Bezos Quotes •  We've had three big ideas at Amazon that we've stuck with for 18 years, and they're the reason we're successful: Put the customer first. Invent. And be pa3ent.” •  “In turbulent 3mes an enterprise has to be managed to withstand sudden blows and avail itself of sudden opportuni3es. This means that in turbulent 3mes, the fundamentals have to be managed and managed well.” – Peter Drucker •  Business model is the “enduring” fundamental Case for Lecture 4 •  Amazon.com: The brink of bankruptcy Amazon dot com Visa Apple Google Ques3ons •  How would you rate Bezos as an opera3ng manager? •  Trace the evolu3on of the Amazon.com business. •  What impact does the Toys “R” Us deal have on Amazon.com’s business model in early 2000? •  Compare AMZN with other $100 Billion plus companies … Today (5) 1.  Recap 2.  News Presenta3on Hunter Ke, Kenny Leaven, & Kevin Nguyen) would like to present our news topic on quantum computers specifically a recent breakthrough on quantum switches on Tuesday April 15. Due April 28 3.  Group Project Teams 1.  Due Thursday 4.  Review Strategy and Business Models 5.  Lecture – IT and Organiza3on (Chapter 3) 14 Strategic Alignment Model Ideally, all four quadrants align to create value Categories of Strategic Risk Op3ons for Evolving Strategy Strategic Shifts
•  Strategy changes over time
•  Flow of information makes this possible
–  Enhancement (improve existing)
–  Expansion (launch new)
–  Extension (new business or business model)
–  Exit (drop product/category/market/channel)
Lecture 5 IT Impact on Organiza3on (Chapter 3) Transi3on in Economic order Interplay between structure and func3on Networked Industrial Agrarian Wow Organiza3ons are informa3on systems. They are communica3on systems. And they are decision-­‐making systems ... If one thinks about it, every aspect of organiza3onal func3oning depends on informa3on processing of one form or another. -­‐ Morgan •  1. The machine view which dominates modern management thinking and which is typical of bureaucracies. •  2. The organismic view which emphasizes growth, adapta3on and environmental rela3ons. •  3. Organiza3ons as informa3on processors that can learn (brain metaphor). •  4. Organiza3ons as cultures based on values, norms, beliefs, rituals and so on. •  5. In poli3cal organiza3ons interests, conflict and power issues predominate. •  6. Some organiza3ons are psychic prisons in which people are trapped by their mindsets. •  7. Organiza3ons can adapt and change, and •  8. Some organiza3ons are instruments of domina3on with the emphasis on exploita3on and imposing your will on others. Organizational Controls
• Organizational controls
•  guide strategy,
•  compare actual with expected results, and
•  suggest corrective actions if necessary.
–  Strategic controls
•  Subjective assessment of the fit between what
the firm might do (opportunities) and what it
can do (competitive advantage)
–  Financial controls
•  Objective assessment of firm performance
I. Dynamic Forces in Firm Evolution
Basis of
Competitive
Advantage
in the
Industry
Official
Corporate
Strategy
Internal
Selection
Environment
Distinctive
Competence
of the Firm
Robert A. Burgelman, Stanford Graduate School of Business Strategic
Action
I. Dynamic Forces in Firm Evolution
What it Takes !
to Win!
Basis of
Competitive
Advantage
in the
Industry
What We SAY!
Official
Corporate
Strategy
What We DO!
Internal
Selection
Environment
Distinctive
Competence
of the Firm
What We’ve
Got!
Robert A. Burgelman, Stanford Graduate School of Business Strategic
Action
Rubber Band Model What we need
to Win
Basis of Competitive
Advantage in the
Industry
What We SAY
Official Corporate
Strategy
Source: Burgelman, Robert A., Strategy is
Destiny: How Strategy Making Shapes a
Company’s Future, The Free Press, 2002.
What We DO
CULTURE
Internal Selection
Environment
Distinctive
Competence
of the Firm
What we have
Strategic Action
Organizational Structure
•  Organizational structure specifies:
–  The firm’s formal reporting relationships, procedures,
controls, authority, and decision-making processes
–  The work to be done and how to do it, given the firm’s
strategy or strategies
•  It is critical to match organizational structure to the
firm’s strategy!
IT Impact on Organiza3ons •  IT impacts the business model through its effects on organiza3onal capabili3es •  ‘Organiza3on’ as an effort to simultaneously manage informa3on complexity and uncertainty •  Learn how to analyze IT for its poten3al to enable new capabili3es e.g. facilitate new and improved organiza3onal structures and processes Hierarchy in Business •  Large firms have always run with some form of hierarchy –  They have usually sought to minimize or eliminate it “We set out to shape a global enterprise that preserved the classic big company advantages while elimina3ng the big company drawbacks” (Jack Welch, CEO, General Electric) Most companies fail to grow large without geqng centralized control – it is very complex 29 The Organiza3on Design Challenge Building Lean, Yet Agile Enterprises What is wrong with hierarchy? …and what can go wrong without it? 32 Streamlining Opera3ng and Management Processes Redefining Control Systems Redefining Authority Systems Some key ideas •  Differen'a'on how organiza3ons are subdivided into specialized work units (nodes) –  Horizontal (opera3ng units) –  Ver3cal (power/authority levels) •  Integra'on rela3onships and links between nodes required to unite specialized units and enable shared value –  Task-­‐based (groups work together on processes) –  Informa3on/exper3se based (groups provide informa3on or exper3se) –  Social rela3onships (affilia3on and iden3ty separate from work) 36 Sociology of rela3onships •  Stronger rela3onships needed in presence of –  Increased complexity, uncertainty –  Task interdependence eg. Shared services –  Innova3on –  Large real-­‐3me informa3on sharing –  Diverse subcultures –  Leader preferences 37 Framing decisions of differen3a3on •  What capabili3es and resources are required to achieve goals? •  What ac3vi3es must be performed to get there? •  How should these ac3vi3es be grouped within specialized units? 38 Framing Decisions of Interdependence •  What key tasks must be managed between specialized groups? •  What organiza3onal solu3ons are needed to coordinate and control interdependence? •  What configura3on of organiza3onal solu3ons should be used to ensure alignment and fit with the business environment and strategy? 39 Network Ownership •  Corpora3on = legally defined organiza3on •  Alliance = between a small number of players •  Community/Ecosystem = players working together to achieve shared goals 40 Hybrid Governance •  Is market or hierarchy bewer? –  Transac3on cost theory says markets give greater efficiency and effec3veness unless cost and risk of using market mechanisms to coordinate and control interdependencies are higher than the cost and risk of hierarchy •  Cost and risk increases with – 
– 
– 
– 
Duplica3on of costly assets that cannot be shared Seqng frequent disputes Cost related to informa3on access Need to join others to increase market power •  Hierarchy used when high risk of market failure –  Execu3ves given authority to determine shared purpose and goals –  Unified leadership gives focus •  Hierarchy op3mizes ver3cal informa3on processing •  Markets op3mize horizontal informa3on processing 41 IT enables governance models •  Informa3on sharing, processing, crea3ng –  Shared purpose of mul3ple firms –  Enable configura3ons and solu3ons between firms but do not preclude market-­‐based transac3ons as well –  Shared projects/values encourages increased ac3vity over 3me 42 Business Opportuni3es from New Market •  Several new roles have emerged due to communica3on and market changes •  Each presents business opportunity with unique characteris3cs 43 Partnerships and Trust •  Process-­‐based trust –  Par3es manage interdependencies over recurrent transac3ons •  Affilia3on-­‐based trust –  Iden3ty between groups/within group •  Ins3tu3on-­‐based trust –  Tied to formal organiza3onal and social structures 44 Three Main factors in Organiza3onal Design 1.  Size 2.  Technology 3.  Environment 45 Size
•  This refers to capacity, number of personnel, outputs
(customers, sales), resources (wealth).
•  Blau's studies show that differentiation (# of levels,
departments, job titles) increases with size, but at a
decreasing rate. In contrast, the % of the organization that
is involved in administrative overhead declines with size,
leading to economies of scale.
•  Increasing size is also related to increased structuring of
organizations activities but decreased concentration of
power.
•  Managerial practices, such as flexibility in personnel
assignments, extent of delegation of authority, and
emphasis on results rather than procedures, are related to
the size of the unit managed.46 Environment • 
• 
• 
• 
Adapta-on Natural Selec-on Dependence Ins-tu-onaliza-on 47 Strategy and Structure
•  Strategy and structure have a
reciprocal relationship:
–  Structure follows the selection of the
firm’s strategy, but…
–  … once in place, structure can influence
current strategic actions as well as
choices about future strategies
Patterns of Strategy and Structure
•  Firms grow in predictable patterns:
–  First by volume
–  Then by geography
–  Then integration (vertical, horizontal)
–  And finally through product/business
diversification
•  A firm’s growth patterns determine its
structural form
Patterns of Strategy and Structure
•  All organizations require some form of
organizational structure to implement
and manage their strategies
•  Firms frequently alter their structure
as they grow in size and complexity
•  Three basic structure types:
–  Simple structure
–  Functional structure
–  Multidivisional structure (M-form)
Simple Structure
•  Owner-manager
–  Makes all major decisions directly
–  Monitors all activities
•  Staff
–  Serves as an extension of the manager’s
supervisor authority
•  Matched with focus strategies and
business-level strategies
–  Commonly compete by offering a single
product line in a single geographic market
Simple Structure: Growth Problems
•  Growth creates:
–  Complexity
–  Managerial and structural challenges
•  Owner-managers
–  Commonly lack organizational skills and
experience
–  Become ineffective in managing the
specialized and complex tasks involved
with multiple organizational functions
Lecture 6 •  News Presenta3on •  Rubber band model … •  Boeing e-­‐enabled advantage Geqng e-­‐enabled opera3ons to work in an organiza3on involves personali3es, it involves careers and culture – Chris Kewering Boeing •  Boeings challenges and opportuni3es in the 90’s •  What is e-­‐enabled advantage? •  What advantage would such an approach give to Boeing? •  What challenges did Boeing face in execu3ng this strategy? Boeings situa3on in the 90’s •  Similarity to IBM … •  During the market downturn in early 90’s, Boeing focused more on cost cuqng and less on innova3on. •  The only compe3tor Airbus was heavily subsidized by its consor3um owners so Boeing was even more disadvantaged. •  Acquired MD, Hughes and other companies. •  Re-­‐org and launched CAS •  2001 events were an inflec3on point for airline industry – Boeing wisely posi3oned itself well. E-­‐Enabled strategy •  Solu3ons and services strategy whereby all data and IS rela3ng to airplane flight ops, passenger services and maintenance would be seamless interconnected to effec3vely bring the airline itself into the ‘airline network’ during flight. •  Boeing described airplane and ‘factory’ of airline where services were offered. But this factory was ‘mobile’ inaccessible for up to 15 hours every day … E-­‐enabled Advantage •  Seamless and end to end integra3on of data and communica3on to drama3cally reduce cost and increase efficiency. •  Provide solu3ons versus products •  Listen to customers Implemen3ng e-­‐enabled advatage •  Created a new business unit to refocus resources Insights 1.  First Boeing execs fixed the internal core and org structure/culture 2.  Then they leveraged the core to evolve their strategy to bewer fit the changing market 3.  Created new revenue fron3ers by becoming a solu3ons provider versus product provider These steps gave Boeing proprietary advantage.