Business Models

1 Strategic alignment theory

REF:Henderson &Venkatraman IBM SYSTEMS JOURNAL, VOL 38, NO 4, 1999 http://researchweb.watson.ibm.com/journal/sj/382/henderson.pdf

1.1Strategic alignment Model

Answer to the question: How to reconcile the dramatic increase in the role of IT in organisations and markets with the evidence of minimal productivity gains at a aggregate level of the economy?

1.1Strategic alignment Model(contd)

Inability to realize value from IT-investments is due to the lack of alignment between the business and the IT strategies of the organisations(companies)

1.1Strategic alignment Model(contd) The model is based on two fundamental assumptions:

the economic performance is related to the ability of management to create a strategic fit between the external position of an organisation in the competitive market and the internal appropriate administrative structure to support its execution This strategic fit is a dynamic process

1.2 Concept of Strategic Fit

Business Strategy :

external domain(view)
company versus competitive market

products make or buy decision partnership distribution channels ...

1.2 Concept of Strategic Fit(contd)

Internal domain
How do we support the external domain?

Business processes product development customer services human resource skills

IT-strategy: same concept as for the business strategy:internal and external views

1.2 Concept of Strategic Fit(contd)

Business strategy

IT strategy

external
product market offering pricing,quality,channels make /buy of products

external
information technology scope systemic competence IT governance

internal
admin structures business processes human resources

internal
IT architecture IT processes IT skills

1.2.1 IT strategy: External

Information technology scope
I.e specific information technologies that support current business initiatives or could shape new business strategy initiatives for the company

electronic imaging internet business expert systems E-business Wireless communications

1.2.1 IT strategy: External (contd)

Systemic competence

the attributes of the IT -strategy which can be used as a competitive weapon to support actual or future business strategies
system reliability cost performance interconnectivity Flexibility

1.2.1 IT strategy: External (contd)

IT governance

selection and use of mechanisms for obtaining the required IT competencies

joint ventures with vendors,competitors outsourcing joint research alliances ...

1.2.2 IT strategy: Internal

IT architecture

portfolio applications configuration of HW/SW data model

IT processes

operations development monitoring and control systems

1.2.2 IT strategy: Internal(contd)

IT skills

extern/intern training knowledge level

1.3 Functional integration

Strategy integration

business strategy

IT strategy

Operational integration

organisational infrastructure

IT infrastructure

see fig 1

Fig 1:Strategic Fit Business strategy

Strategy integration
Business scope Technology scope E x t e r n a l I n t e r n a l

IT Strategy

Distinctive competencies

Business governance

systematic competencies

IT governance

Administrative infrastructure

architectures

processes

skills

processes

skills

Operational integration

Dominant alignment perspectives

Fig 2:Strategy execution alignment perspective

Business strategy

Organisational infrastructure
Driver: role of top mgt: role of IT mgt: performance criteria: Business strategy strategy formulator strategy implementer cost/service center

IT infrastructure

Fig 3:Technology transformation alignment perspective

Business strategy

ITstrategy

IT infrastructure
Driver: role of top mgt: role of IT mgt: performance criteria: Business strategy technology visionary technology architect technology leadership

e.g. Colruyt

Fig 4:competitive potential alignment perspective

Business strategy

IT strategy

Organisational infrastructure

Driver: role of top mgt: role of IT mgt: performance criteria:

IT strategy business visionary catalyst business leadership

Fig 5:service level alignment perspective

IT strategy

Organizational infrastructure

IT infrastructure

Driver: role of top mgt: role of IT mgt: performance criteria:

IT strategy prioritizer executive leadership customer satisfaction

1.4:4 dominant alignment perspectives

Strategy execution:fig 2

most common
f.e. Colruyt

Technology transformation:fig 3

Competitive potential:fig 4 Service level:fig 5

1.5 Comments
External and internal IT strategy Companies have to realize that the source of IT competencies is not entirely within the company but involves a complex area of alliances and partnerships with a wide ranging set of firms in the marketplace dynamic model:changes in time based on shifts in the business environment

1.5 Comments(contd)
Performance criteria of IT should be reconceptualized= mix of 4 criteria

costcenter:competition with outsourcing service center:offered SLA versus best- inindustry profitcenter:revenue +outside delivery investment center:possibility to reinvest+R&D

1.6 conclusions
External focus becomes very important Field research proves that the inadequate fit between external and internal domains of IT is a major reason for failure to derive benefits from IT investments

MIS: PILOT PARAMETERS Measures and control Governance/alliance value competence Cost of restructuring competence versus flexibility

Business concepts in a networked world

Ref: CORPORATE INFORMATION SYSTEMS MANAGEMENT

6th edition Lynda Applegate,F.Warren Mc Farlan,James Mc Kenney Chapter 2

Business models and E-business?

business it
E x t e r n a l

Value Delivery

Strategic Alignment

Stakeholder Value

Risk Management

Performance Measurement

I n t e r n a l

business concepts in a networked world

Introduction Classifying business capabilities Evolving business capabilities

Technology is changing the business

Technology is providing

Flexible channels for procuring and distributing products and services Tools to create and package content in all its many forms,including data,voice and video

Offering of new opportunities and enables the development of new capabilities that were difficult to achieve before the commercialisation of the www.

Value delivery/evolution
Value Delivery Strategic Alignment Stakeholder Value Risk Management

Performance Measurement

Linking Strategy to Value

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Chapter 2 Figure 2 -2

Value
What is it?
An organization returns value to stakeholders by:
Increasing equity cash flows available to owners and investors that hold stock in a company Decreasing the cost or increasing the benefits returned to non-equity stakeholders. Meeting an expectation or need of a customer, supplier, partner or employee. Generating trust and confidence that the organization will deliver what it promises. Ensure strong growth in earnings? Generate positive equity cash flow? Increase market value? Personalize our products and services to meet the expectations and needs of all members of the business community. Increase reputation and image among all stakeholders? Generate confidence and trust?

How will we?

Capabilities and Community

What is it?
An organizations capabilities and community enable it to:
Improve operating performance Leverage information, knowledge and expertise Achieve rapid penetration and loyalty of the business community(including customers, suppliers and partners) Increase ability to respond quickly to opportunities and threats

How will we?

Achieve best-in-class operating performance? Develop a modular, scalable, and flexible infrastructure? Build and manage strong partnerships with employees and the community? Increase the lifetime value of all members of the community? Build, nurture, and exploit knowledge assets? Make informed decisions and take actions that increase value? Organize for action and agility

business

it
E x t e r n a l I n t e r n a l

Business Concept
What is it? How will we?
Attract a large & loyal community? Deliver value to all community members? Price our product to achieve rapid adoption? Become #1 or #2? Erect barriers to entry? Evolve the business to cash in on strategic options? Generate multiple revenue streams? Manage risk and growth?

An organizations business concept defines: Market opportunity Products and services offered Competitive dynamics Strategy for capturing a dominant position Strategic options for evolving the business

business concepts in a networked world

Introduction Classifying business capabilities Evolving business capabilities

Classifying Network Business Models

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management Burr Ridge, IL: McGraw . Hill/Irwin, 2002.

Chapter 2 Figure 2 3 -

Classifying business capabilities

Business build on a networked infrastructure

Focused distributors Portals producers Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Business providing the network infrastructure

Focused distributors
Provide products and services related to a specific industry or market niche There are 5 types of focused distributors in function of the following characteristics:

Does the business assume control of inventory? Does the business sell online? Is the price set outside the market or is online price negotiation and bidding permitted? Is there a physical product and service that must be delivered?

Types of focused distributors

Models and examples Own inventory Sell online Price set online Physical product or service yes Likely revenues Retailer Staples.com Marketplace Eloan.com yes yes no Product/service sales -Transaction fees -Service fees -commissions -referal fees -advertising fees -marketing fees -subscription fees -advertising fees Depends on model

possibly

yes

no

no

Aggregator Autoweb.com

no

no

no

possibly

Infomediary Internet securities Exchange Ebay.com

no

yes

yes

no

possibly

possibly

yes

possibly

Focused distributor capability trends

Those with noonline business transactionare losing power Aggregators are evolving into marketplaces and/or vertical portals Multiple capability models are required to ensure flexibility and sustainability Focused distributors are aligning closely with vertical and horizontal portals and are evolving their model to become vertical portals

Classifying business capabilities

Business build on a networked infrastructure

Focused distributors Portals producers Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Business providing the network infrastructure

Portals
Definition:a doorway or gate ,especially one that is large and imposing There are 3 types of portals in function of the following characteristics:

Does the business provide gateway access to a full range of online information and services including search,email,messaging,chat ? Does the business provide access to deep content,products and services within a vertical industry? Does the business provide information and services for all types of users ,or are the information and services specific to a well-defined affiliation group(fe.students,women,)

Types of portals
Models and examples Gateway access Deep content and solutions Possible,often through partnership with vertical and affinity portals yes Affinity group focus Possible,often through partnership Likely revenues Horizontal portals AOL.com Yahoo.com yes Advertising Affiliation and slotting fees Subscription or access fees -Transaction fees -commissions Advertising Affiliation and slotting fees -referal fees -advertising fees -Affiliation and slotting fees

Vertical portal webMD.com Covisint.com

limited

no

Affinity portal Realtor.com Ivillage.com

possible

Focused on affinity groups

yes

Portal trends
Horizontal and vertical portals are emerging as dominant sources of power within consumer and business markets Horizontal portals are joining forces with horizontal infrastructure portals to provide not just access to content and services but also access to network and hosting services Large media and entertainment portals that represent the convergence of data ,telephone,television and radio networks are emerging in the consumer space.These portals unite content development,packaging and distribution components of the value chain B2B portals provide both horizontal access to business networks and vertical industry wide solutions

Classifying business capabilities

Business build on a networked infrastructure

Focused distributors Portals producers Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Business providing the network infrastructure

producers
Producers design and make and also may directly market,sell and distribute products,services and solutions There are 3 types of producers in function of the following characteristics:

Does the business sell physical products and/or provide face-to-face services?

Does the business sell information-based products and/or services?

Does the business provide customised products and/or services?

Types of producers
Models and examples Manufacturers Ford motor company Procter&gamble Service providers Amex Singapore airlines Educators Harvard University BU VUB Information and news services Dow jones euromoney Sell physical product/services yes Sell information based product/services possibly Level of customisation Low to moderate Likely revenues Product sales Service fees -Transaction fees -Service fees -commissions -registration or event fee Subscription fee Hosting fee Transaction fees -Service fees -commissions Subscription fee

yes

possibly

Moderate to high

possibly

possibly

Moderate to high

yes

yes

Moderate to high

Producer portals Covisint Global healtcare

possibly

yes

high

Transaction fee Service fee Membership fee Consulting fee Integration fee
registration or event fee Subscription fee Membership fee

Advisers Accenture Mckinsey

yes

yes

Moderate to high

Producer capability trends

Producers must be best in class to survive Some large full-service producers (amex,citigroup,..)are acquiring a full range of services and products and then integrating them to provide vertical solutions required by the customers.These solutions are offered through company-owned portals and also through a wide variety of distribution agreements Industry supplier coalitions are forming to enable virtually integrated B2B commerce within and across industry groups

Classifying business capabilities

Business build on a networked infrastructure

Focused distributors Portals producers Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Business providing the network infrastructure

Infrastructure distributors
Enable technology buyers and sellers to transact business There are 4 types of infrastructure distributors in function of the following characteristics:

Does the business assume control of inventory? Does the business sell online? Is the price set outside the market oris the price negotiation and bidding permitted?

Types of infrastucture distributors

Models and examples Control inventory Sell online Price set online Physical product or service yes Likely revenues Infrastucture retailers compUSA.com Infrastucture Marketplace ingramMicro yes yes Not usually Product sales service fees -Transaction fees -Service fees -commissions Channel assembly fee -referal fees -advertising fees -marketing fees Depends on model

usually

yes

Not usually but may be customised

yes

Infrastructure Aggregator c/net ZD Net Infrastructure Exchange converge

no

no

no

possibly

possibly

possibly

yes

yes

infrastucture distributors capability trends

The speed of obsolescence of the technology,coupled with the complexity of the solution and slim margins,has forced massive consolidation in networkand computing technology channels Those distributors that take ownership of inventory are searching for inventoryless,just-in-time business models Distributors that have the capability for custom configuration of products and services are gaining power

Classifying business capabilities

Business build on a networked infrastructure

Focused distributors Portals producers Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Business providing the network infrastructure

Infrastructure portals
They provide consumers and/or business with access to a wide range of network,computing and application hosting services They are differentiated by the following characteristics/

Does the firm provide gateway access to networks,data centers or Web services? Does the firm host,operate,and maintain networks,data centers or Web services? Does the firm provide access to hosted application services?

Types of Infrastructure portals

Models and examples Internet/network access and hosting Hosted apllications and solutions Likely revenues

Horizontal infrastructure portals America online British telecom

yes

Trough partnership with noninfrastructure portals and ASPs

Service fees Hosting fees Access fees Commission Transaction fees -Transaction fees -Service fees -hosting fees Maintenance and update fees

Vertical infrastructure portals IBM e-business Solutions

Often Trough partnership with horizontal infrastructure portals

yes

Infrastructure portals trends

Horizontal infrastructure portals are merging or partnering with horizontal content portals to increase value created through intangible assets such as information,community and brand Convergence of voice,data,and video channels and global acceptance of a common set of standards are leading to global industry convergence at the content and the infrastructure level

Classifying business capabilities

Business build on a networked infrastructure

Focused distributors Portals producers Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Business providing the network infrastructure

Infrastructure producers
They design,build,market and sell technology hardware,software,solutions and services They are differentiated by the following characteristics:

Does the business manufacture computer or network components or equipment? Does the business develop packaged software? Does the business provide infrastructure services or consulting?

Types of Infrastructure producers

Models and examples Manufacture equipment Develop software Services/consulting Likely revenues Equipment/component manufacturer IBM Intel yes possibly possibly Product sales or licences service fees Maintenance fees Update fees Installation and integration Product sales or licences service fees Maintenance fees Update fees Installation and integration fee -commission Service fees Transaction fees

Softwarefirms SAP Siebel

rarely

yes

possibly

Custom software and integration service providers EDS InsWeb Infrastructure services Federal express

possibly

possibly

yes

rarely

possibly

yes

commission Service fees Transaction fees

business concepts in a networked world

Introduction Classifying business capabilities Evolving business capabilities

Evolving business capabilities

Networked businesses are built by combining a variety of business models Value:

Efficiently use of resources Integrated solutions/products for the customer Additional value for the same level of investment

Creation of business communities

Business communities
Customers
Portal Site Cert. Auth. Directory Services. Customer Care

Trading Partners

Access Platform

Trading Platform

WEB

Approaches to Business Model Evolution

Enhance
Add functionality or features to current product/service offerings or improve performance of existing business

Extend
Enter new line of business and/or add new business models

Extend Extend Extend

Exit Exit Exit

Enhance Expand Expan d

Exit
Exit a business or market or drop a product/service offering

Expand
Add new product/service offerings or enter new geographic markets

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Chapter 2 Figure 2 -4

Evolving American Express Interactive: Timeline of Events

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Chapter 2 Figure 2 -5

Product/Service Enhancements
Evolving American Express Interactive:

Enhance

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Chapter 2 Figure 2 -6

Product/Service Category Expansion

Expand

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Chapter 2 Figure 2 -7

Business Model Extension

Extend Extend
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002. Chapter 2 Figure 2 -8

An Integrated View

Extend Extend Enhance Expand

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Exit
Chapter 2 Figure 2 -9

Evolving Amazon.com: Timeline of Events

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Chapter 2 Figure 2 -10

Product/Service Enhancements

Enhance

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Chapter 2 Figure 2 -11

Category and Geographic Expansion

Expand

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Chapter 2 Figure 2 -12

Business Model Extension

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002.

Extend Extend
Chapter 2 Figure 2 -13

An Integrated View
An Integrated View

Extend Enhance Expand Exit Exit

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL: McGraw -Hill/Irwin, 2002. Chapter 2 Figure 2 -14