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(cont’d)

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(cont’d)

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(cont’d)

Internal domainHow 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(cont’d) Business strategy

externalproduct market offering

pricing,quality,channelsmake /buy of products

internaladmin structuresbusiness processeshuman resources

IT strategy external

information technology scopesystemic competenceIT governance

internalIT architectureIT processesIT skills

1.2.1 IT strategy: External

Information technology scopeI.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 (cont’d)

Systemic competence the attributes of the IT -strategy which

can be used as a competitive weapon to support actual or future business strategies

system reliabilitycost performanceinterconnectivityFlexibility…

1.2.1 IT strategy: External (cont’d)

IT governance selection and use of mechanisms for

obtaining the required IT competenciesjoint ventures with vendors,competitorsoutsourcingjoint researchalliances...

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(cont’d)

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

Business strategy IT Strategy

Business scope

Distinctive competencies

Businessgovernance

Technology scope

systematic competencies

ITgovernance

Administrative infrastructure

processes skills

architectures

processes skills

Strategy integration

Operational integration

External

Internal

Fig 1:Strategic Fit

Dominant alignment perspectives

ITinfrastructure

Organisational infrastructure

Business strategy

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

Business strategystrategy formulatorstrategy implementercost/service center

Fig 2:Strategy execution alignment perspective

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

Business strategytechnology visionarytechnology architecttechnology leadership

Business strategy ITstrategy

IT infrastructure

Fig 3:Technology transformation alignment perspective

e.g. Colruyt

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

IT strategybusiness visionarycatalystbusiness leadership

Organisational infrastructure

Business strategy IT strategy

Fig 4:competitive potential alignment perspective

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

IT strategyprioritizerexecutive leadershipcustomer satisfaction

Organizational infrastructure

IT infrastructure

IT strategy

Fig 5:service level alignment perspective

1.4:4 dominant alignment perspectives

Strategy execution:fig 2 most common

Technology transformation:fig 3 f.e. Colruyt

Competitive potential:fig 4

Service level:fig 5

1.5 Comments

External and internal IT strategyCompanies 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 marketplacedynamic model:changes in time based on shifts in the business environment

1.5 Comments(cont’d)

Performance criteria of IT should be reconceptualized= mix of 4 criteria costcenter:competition with

outsourcing service center:offered SLA versus

best- in- industry profitcenter:revenue +outside

delivery investment center:possibility to

reinvest+R&D

1.6 conclusionsExternal focus becomes very importantField 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

competenceCost of

restructuring versus

flexibility

competence

value

Governance/alliance

Measures and control

Business concepts in a networked world

Ref: CORPORATE INFORMATION SYSTEMS MANAGEMENT

6th editionLynda Applegate,F.Warren Mc Farlan,James Mc Kenney

Chapter 2

ValueDelivery

Risk Management

Strategic Alignment

PerformanceMeasurement

StakeholderValue

External

Internal

business it

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 difficultto achieve before the commercialisation of the www.

ValueDelivery

Risk Management

Strategic Alignment

PerformanceMeasurement

StakeholderValue

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

ValueWhat is it? How will we…?

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?

Capabilities and Community

What is it? How will we…?

An organization’s 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

• 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 Concept

What is it? How will we…?

An organization’s business concept defines:

• Market opportunity• Products and services offered• Competitive dynamics• Strategy for capturing a dominant position

• Strategic options for evolving the business

• 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?

External

Internal

business it

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 Network Business Models

Classifying business capabilities

Business build on a networked infrastructure Focused distributors Portals producers

Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Focused distributorsProvide products and services related to a specific industry or market nicheThere 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

Likely revenues

RetailerStaples.com

yes yes no yes Product/service sales

MarketplaceEloan.com

possibly yes no no -Transaction fees-Service fees-commissions

AggregatorAutoweb.com

no no no possibly -referal fees-advertising fees-marketing fees

InfomediaryInternet securities

no yes yes no -subscription fees-advertising fees

ExchangeEbay.com

possibly possibly yes possibly Depends on model

Focused distributor capability trends

Those with no”online business transaction”are losing powerAggregators are evolving into marketplaces and/or vertical portalsMultiple capability models are required to ensure flexibility and sustainabilityFocused 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

Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

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,e-mail,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

Affinity group focus

Likely revenues

Horizontal portalsAOL.comYahoo.com

yes Possible,often through partnership with vertical and affinity portals

Possible,often through partnership

AdvertisingAffiliation and

slotting feesSubscription or

access fees

Vertical portalwebMD.comCovisint.com

limited yes no -Transaction fees-commissionsAdvertisingAffiliation and

slotting fees

Affinity portalRealtor.comIvillage.com

possible Focused on affinity groups

yes -referal fees-advertising fees-Affiliation and slotting fees

Portal trendsHorizontal and vertical portals are emerging as dominant sources of power within consumer and business marketsHorizontal portals are joining forces with horizontal infrastructure portals to provide not just access to content and services but also access to network and hosting servicesLarge 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 chainB2B 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

Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

producersProducers 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 producersModels and examples

Sell physical product/services

Sell information based product/services

Level of customisation

Likely revenues

ManufacturersFord motor companyProcter&gamble

yes possibly Low to moderate

Product salesService fees

Service providersAmexSingapore airlines

yes possibly Moderate to high

-Transaction fees-Service fees-commissions

EducatorsHarvard UniversityVUB

possibly possibly Moderate to high

-registration or event feeSubscription feeHosting fee

Information and news servicesDow joneseuromoney

yes yes Moderate to high

Transaction fees-Service fees-commissionsSubscription fee

Producer portalsCovisintGlobal healtcare

possibly yes high Transaction feeService feeMembership feeConsulting feeIntegration fee

AdvisersAccentureMckinsey

yes yes Moderate to high

registration or event feeSubscription feeMembership fee

Producer capability trends

Producers must be best in class to surviveSome 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 agreementsIndustry 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

Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Infrastructure distributors

Enable technology buyers and sellers to transact businessThere 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 distributorsModels and examples

Controlinventory

Sell online Price set online

Physical product or service

Likely revenues

Infrastucture retailerscompUSA.com

yes yes Not usually yes Product salesservice fees

Infrastucture MarketplaceingramMicro

usually yes Not usually but may be customised

yes -Transaction fees-Service fees-commissionsChannel assembly fee

Infrastructure Aggregatorc/netZD Net

no no no possibly -referal fees-advertising fees-marketing fees

Infrastructure Exchangeconverge

possibly possibly yes yes Depends on model

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 channelsThose distributors that take ownership of inventory are searching for inventoryless,just-in-time business modelsDistributors 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

Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Infrastructure portalsThey provide consumers and/or business with access to a wide range of network,computing and application hosting servicesThey 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 portalsAmerica onlineBritish telecom

yes Trough partnership with noninfrastructure portals and ASPs

Service feesHosting feesAccess feesCommissionTransaction fees

Vertical infrastructure portalsIBM e-business Solutions

Often Trough partnership with horizontal infrastructure portals

yes -Transaction fees-Service fees-hosting feesMaintenance and update fees

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 brandConvergence 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

Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers

Infrastructure producers

They design,build,market and sell technology hardware,software,solutions and servicesThey 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 manufacturerIBMIntel

yes possibly possibly Product sales or licencesservice feesMaintenance feesUpdate feesInstallation and

integration

SoftwarefirmsSAPSiebel

rarely yes possibly Product sales or licencesservice feesMaintenance feesUpdate feesInstallation and

integrationfee

Custom software and integration service providersEDS

possibly possibly yes -commissionService feesTransaction fees

Infrastructure servicesFederal express

rarely possibly yes commissionService feesTransaction fees

Approaches to Business Model Evolution

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

Expand

Enhance

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nd

Exit

EnhanceAdd functionality or features to current

product/service offerings or improve

performance of existing business

ExpandAdd new product/service offerings

or enter new geographic markets

ExtendEnter new line of business and/or add new

business models

ExitExit a business or market or drop a

product/service offering

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nd

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Expand

Enhance

Exte

nd

Exit

EnhanceAdd functionality or features to current

product/service offerings or improve

performance of existing business

ExpandAdd new product/service offerings

or enter new geographic markets

ExtendEnter new line of business and/or add new

business models

ExitExit a business or market or drop a

product/service offering

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

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

Evolving American Express Interactive:

EnhanceEnhance

Product/Service Category Expansion

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

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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. Chapter 2 Figure 2-8

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An Integrated View

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 2-9

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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

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

Enhance

Category and Geographic Expansion

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

ExpandExpandExpand

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. Chapter 2 Figure 2-13

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An Integrated View

An Integrated View

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

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Forces Influencing Industry and Competitive Advantage

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 1 Figure 1-5