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The Net-enabled Business Innovation Cycle Bradley C. Wheeler Kelley School of Business Indiana University The Net-enabled Business Innovation Cycle Bradley C. Wheeler Kelley School of Business Indiana University [email protected] edu wheeler. kelley. indiana. edu ©Bradley C. Wheeler, Indiana University

What is ___ Good At? Ø Sony? Ø Proctor & Gamble? Ø Google? Ø What is ___ Good At? Ø Sony? Ø Proctor & Gamble? Ø Google? Ø BMW? Ø UPS? Why are they good at ___?

Capabilities Are Bundles of Organizational Routines Capabilities Are Bundles of Organizational Routines

Implications of Pervasive Digital Networks Ø Networks and IT provide a domain for innovation Implications of Pervasive Digital Networks Ø Networks and IT provide a domain for innovation in products and business processes based on IT capabilities and business opportunities. Ø IT investments should be targeted at specific “productivity levers, ” vetted for sequence and timing, and accompany purposeful changes in business processes. Ø Organizational capabilities and competences (collective learning) are essential to wisely chose net-enabled IT among innovation opportunities

Net-enabled Organizations (NEOs) NEOs employ innovative uses of digital networks to ü reduce barriers Net-enabled Organizations (NEOs) NEOs employ innovative uses of digital networks to ü reduce barriers of time and distance, ü substitute information for physical processes, and ü engage in innovation that aligns and favorably positions the firm in its competitive environment.

IT (IS!) to Value? Enabling Technologies lead to Economic Opportunities. These opportunities, when realized, IT (IS!) to Value? Enabling Technologies lead to Economic Opportunities. These opportunities, when realized, spur growth through Business Innovation that further makes possible the creation of Customer Value. ET EO BI CV Which firm can most quickly innovate ET into CV?

Net-enabled Business Innovation Cycle Value Realization Capabilities & Competencies Hi Assessing External Customer & Net-enabled Business Innovation Cycle Value Realization Capabilities & Competencies Hi Assessing External Customer & External Market Internal Organization Low Hi al ion t ng rni ea Internal Client Value (CV) L iza n rga O Taking Value Propositions to Market Value Potential Executing Business Innovation for Growth (BI) Matching with Economic Opportunities (EO) Low Choosing Enabling/Emerging Technologies (ET) ©Bradley C. Wheeler, Indiana University Conveying New IT Insights Time Communicating Business Initiatives ET ET ET

Value Realization Ne. BIC Example: Hi Assessing Customer preferences, loyalty, profits? External Market Internal Value Realization Ne. BIC Example: Hi Assessing Customer preferences, loyalty, profits? External Market Internal Organization Low Hi al ion t ng rni ea Efficiencies, reliabilities L iza n rga O Activating the website Value Potential Setting up distribution with book distributors Creating the company Choose Books! Web browsers, servers, PCs, Internet Low Where will the Internet create new possibilities? Time Business plans, Strategy, capital WAP Broadband Voice. Rec

Value Realization Choosing Capability Hi • Hardware Processors Storage & Retrieval • Networks • Value Realization Choosing Capability Hi • Hardware Processors Storage & Retrieval • Networks • Software Low Wired Wireless Mobility Applications Data Integration Security Value Potential Hi Choosing Enabling/Emerging Technologies (ET) Low Time

Choosing ET Capability Input Process • Emerging technologies • Enabling technologies • Vendors • Choosing ET Capability Input Process • Emerging technologies • Enabling technologies • Vendors • Trade shows • Briefings Choosing Enabling/Emerging Technologies (ET) Output • Choices for IT architecture • Results of ET experiments • Timing predictions • How are ET identified? Organizational Routines • Who has formal responsibility for ET selection? Time? • What mechanisms are used for filtering and deciding? • How are executives and line managers apprised of ET?

Virtuous Cycle of Rising Technical Potential Processor Speed Storage Speed/Mass Telecom Speed/Reach The challenge Virtuous Cycle of Rising Technical Potential Processor Speed Storage Speed/Mass Telecom Speed/Reach The challenge is the timely application of these in valueadding ways within firms and across industries.

Value Realization Matching Capability Value Potential Hi Matching with Economic Opportunities (EO) Low Choosing Value Realization Matching Capability Value Potential Hi Matching with Economic Opportunities (EO) Low Choosing Enabling/Emerging Technologies (ET) Conveying New IT Insights Time Communicating Business Initiatives

Matching with Economic Opportunities Capability Input • Vetted technologies • Current business strategy • Matching with Economic Opportunities Capability Input • Vetted technologies • Current business strategy • Environmental scanning • Customers, competitors Process Matching with Economic Opportunities (EO) Output • Strategic options • Timely business initiatives • Resource assessments • Capital allocations • Strategic choices without full knowledge of ET are choices from an incomplete set. • What mechanisms are used for matching? • How are priorities set for now, soon, and later? • How are strategic options setup and executed?

Value Realization Hi Matching EO Capability Supply Chain IOS Low Value Potential Hi Productivity Value Realization Hi Matching EO Capability Supply Chain IOS Low Value Potential Hi Productivity Equation Business Models Matching with Economic Opportunities (EO) Low Time

Productivity Equation Increase Outputs Increase Number of Units Decrease Inputs Increase Value of Portfolio Productivity Equation Increase Outputs Increase Number of Units Decrease Inputs Increase Value of Portfolio Reduce Labor Costs Increase Labor Efficiency Sell New Value-Added Goods Substitute Capital for Labor Increase Asset Utilization Shift to Higher Goods in Portfolio Reduce Non-labor Costs Deploy Labor More Efficiently Reduce Capital Costs Realize More Value from Goods in Current Portfolio The Real New Economy, HBR, Oct 03

Matching EO Questions Ø Ø Ø Which productivity levers does this business case target? Matching EO Questions Ø Ø Ø Which productivity levers does this business case target? Why now? Is this the right investment to achieve a result or are there antecedents? What changes in business processes are required to realize the benefits of this IT?

Inter-organizational Systems (IOS) Ø How do electronic links affect economic activity via Inter-organizational systems? Inter-organizational Systems (IOS) Ø How do electronic links affect economic activity via Inter-organizational systems? Ø Economic coordination by ü Electronic Markets? ü Electronic Hierarchies?

Markets & Hierarchies High Markets Transaction Costs e? Low Hierarchies Production Costs High Adapted Markets & Hierarchies High Markets Transaction Costs e? Low Hierarchies Production Costs High Adapted from Malone, Yates, Benjiman, 1987

Types of B 2 B Marketplaces What Businesses Buy Operating Inputs Systematic Sourcing Manufacturing Types of B 2 B Marketplaces What Businesses Buy Operating Inputs Systematic Sourcing Manufacturing Inputs Spot Sourcing Catalog Hubs Horizontal How Businesses Buy MRO Hubs Vertical Yield Managers Horizontal Exchanges Vertical y” h arc r ie “H t” e ark “M Adapted from Kaplan & Sawhney, 2000

B 2 B Exchange Governance? Ø Ø Who creates the exchange? Unbiased Channel (Neutral) B 2 B Exchange Governance? Ø Ø Who creates the exchange? Unbiased Channel (Neutral) ü New Third Party? ü Industry Players? » Can rivals really cooperate? Ø Biased Channel ü Industry Leader?

Supply Chain Design Choices Ø Competing as a virtual supply chain ü e-hierarchy, tight Supply Chain Design Choices Ø Competing as a virtual supply chain ü e-hierarchy, tight electronic integration among a few select suppliers Ø Competing on economic efficiencies via market-based procurement ü e-market, liquidity and transparency among large number of buyers and suppliers via a centralized exchange ü peer-to-peer (B 2 P), ad-hoc electronic relationships via electronic agents

What is a Business Model? Ø A business model is a description of an What is a Business Model? Ø A business model is a description of an interrelated set of business activities that collectively enable a firm to engage in profitable commerce.

What is a Business Model? Ø It has a top line component in how What is a Business Model? Ø It has a top line component in how revenue is generated Ø It also has a cost structure component in how the business chooses and organizes its activities to produce the product or service.

Top Line Revenue How is Revenue Generated? Ø Margin ü fixed pricing ü spot Top Line Revenue How is Revenue Generated? Ø Margin ü fixed pricing ü spot pricing Ø Metered (pay per use) Ø Subscription (recurring) Commission (performance-based) Subsidy (below cost) etc. . . . Ø Ø Ø

Cost Structure Ø Cost of primary activities directly engaged in the production of the Cost Structure Ø Cost of primary activities directly engaged in the production of the product/service Ø Cost of support activities ü Facilities, logistics ü Human resources function ü Finance, etc.

Business Models are a Choice Ø The companies in many industries choose to organize Business Models are a Choice Ø The companies in many industries choose to organize around highly similar business models -- with highly similar business results over the long term.

Value Realization Hi Executing Capability Low Hi Value Potential Executing Business Innovation for Growth Value Realization Hi Executing Capability Low Hi Value Potential Executing Business Innovation for Growth (BI) Matching with Economic Opportunities (EO) Low Choosing Enabling/Emerging Technologies (ET) Conveying New IT Insights Time Communicating Business Initiatives Taking Value Propositions to Market

Executing BI Capability Input • Technology/strategy choices • Prioritized strategic options • Business cases Executing BI Capability Input • Technology/strategy choices • Prioritized strategic options • Business cases • Resources • Clear time mandates Process Executing Business Innovation for Growth (BI) Output • Value propositions to market • Clear communications to customers/partners • Effective service delivery • Reconfigured resources • Classic change management w/heavy IT involvement. • What governance mechanisms should be used for ITenabled business initiatives – especially those that cut across organizational units? • How should initiatives be coordinated with faster/ slower moving business partners or customers?

Business Governance Challenges Ø Initiatives within and across business units ü Funding (business unit Business Governance Challenges Ø Initiatives within and across business units ü Funding (business unit or corporate subsidized? ) ü Timing ü Aligning priorities Ø Initiatives with trade partners and suppliers ü Funding, timing, aligning Ø Geography issues ü International/regional/country scope ü Fit…”but my market is different!”

Value Realization Hi Assessing Capability Assessing External Customer & External Market Internal Organization Internal Value Realization Hi Assessing Capability Assessing External Customer & External Market Internal Organization Internal Client Value (CV) Low Hi Value Potential Executing Business Innovation for Growth (BI) Matching with Economic Opportunities (EO) Low Choosing Enabling/Emerging Technologies (ET) Conveying New IT Insights Time Communicating Business Initiatives Taking Value Propositions to Market

Assessing CV Capability Input • Behaviors of clients/customers • Attitudes of client/customers • Socio-economic Assessing CV Capability Input • Behaviors of clients/customers • Attitudes of client/customers • Socio-economic trends Process Assessing Client/Customer Value (CV) Output • Measures are amplified back through the organization • Provides the market-driven data for changing understanding • Customers and clients create value through their choices. • The capability to assess should not be confused with the actual data from the assessment. • Where are the Assessing capabilities in the firm? • What organizational routines convey timely and useful assessments back to decision makers for choosing ET, matching EO, executing BI?

Value Realization Hi Assessing CV Capability Assessing External Customer & Internal Client Value (CV) Value Realization Hi Assessing CV Capability Assessing External Customer & Internal Client Value (CV) Low Financial Measures Hi Value Potential Perceptual Measures Behavioral Measures Low Time

Financial Measures Ø Income Statement Balance Sheet Statement of Cash Flows Ø … lagging Financial Measures Ø Income Statement Balance Sheet Statement of Cash Flows Ø … lagging indicators Ø Ø

Perceptual Measures Ø Surveys, questions Ø Asks about proposed or likely future behavior Ø Perceptual Measures Ø Surveys, questions Ø Asks about proposed or likely future behavior Ø … leading indicators

Behavioral Measures Ø Clickstream data Ø Data Warehouse Queries Ø Analyses actual behavior Ø Behavioral Measures Ø Clickstream data Ø Data Warehouse Queries Ø Analyses actual behavior Ø … leading/lagging indicators

Net-enabled Business Innovation Cycle Value Realization Capabilities & Competencies Hi Assessing External Customer & Net-enabled Business Innovation Cycle Value Realization Capabilities & Competencies Hi Assessing External Customer & External Market Internal Organization Low Hi al ion t ng rni ea Internal Client Value (CV) L iza n rga O Taking Value Propositions to Market Value Potential Executing Business Innovation for Growth (BI) Matching with Economic Opportunities (EO) Low Choosing Enabling/Emerging Technologies (ET) ©Bradley C. Wheeler, Indiana University Conveying New IT Insights Time Communicating Business Initiatives ET ET ET

The Net-enabled Business Innovation Cycle Bradley C. Wheeler Kelley School of Business Indiana University The Net-enabled Business Innovation Cycle Bradley C. Wheeler Kelley School of Business Indiana University [email protected] edu wheeler. kelley. indiana. edu ©Bradley C. Wheeler, Indiana University