CIO of the Future 2012 Masterclass - The Gap Between Business And IT

Leadership • Entrepreneurship • Stewardship

Strategic Consistency between IT and Business

The CIO of the Future 2011-2012 The Gap Between Business and IT

Professor dr. Christopher J. Voisey [email protected] 5 November 2012

[email protected] +31 (0)346-291 291 www.nyenrode.nl

Value creation and capture

Willingness-to-pay

Cost

Price

© Dr. Christopher J. Voisey

Value Created

Firm’s Share

Buyer’s Share

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Competitive advantage

•  A firm has a competitive advantage over its rivals if it has driven a wider wedge than competitors between the willingness to pay it generates among buyers and the costs it incurs >  A customer’s willingness to pay for a product or service is the maximum amount of

money that a customer would be willing to part with in order to obtain the product or service.

•  To create an advantage, a firm must configure itself to do something unique and valuable

•  Competitive advantage usually comes from the full range of a firm’s activities – from production to finance, from marketing to IT/ICT and logistics – acting in harmony


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Advantage: options for strategic positioning

Enabled Through Effective Use of

Technology

System Lock-In

Best Product Total Customer

Solutions

Horizontal Breadth Fidelity, Amazon

Exclusive Channel/Restricted Access Coca-Cola, Walls, rural Wal-Mart

Dominant Exchange eBay, Yellow Pages, Visa/

MasterCard Proprietary Standard

Microsoft, Intel, Cisco

Low Cost Southwest Airlines, Nucor

Customer Integration

SAS, HP Enterprise

Services

Differentiation Sony Wega, Rolls-Royce,

Château Lafitte

Redefining the Customer Relationship

Disney, McDonald’s

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© Dr. Christopher J. Voisey Source: Adapted from Hax (2001; 2010)

Example of customer segmentation: DMK

© Dr. Christopher J. Voisey Source: Hax (2005)

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Activity-system map of IKEA

•  A company’s strategic position is contained in a set of tailored activities designed to deliver it

•  In companies with a clear strategic position a number of higher-order themes (shaded) are implemented through clusters of lightly linked activities (unshaded)


Activities directly affecting the customer experience and value proposition shown in orange

Adapted from Porter (1996)

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A firm exists within an industry landscape of many peaks and interacting choices

II. Find a new emerging rock? ?

Decision 1 Decision 2

III. Create a new emerging rock?

IV. Change the underlying landscape to create new rocks

Dynamics of Strategy: The Games of Competitiveness


I. Compete on the current rock?

To improve long-run prospects a firm may have to step down and tread through the a

valley

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Tightly-bound sets of choices with high profitability


…harder to go down, harder for others to climb (imitate)

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The management team must guide their firm to a high point on a rugged and fog-enshrouded landscape

Dynamics of Strategy: The Games of Competitiveness


Where is the high ground?

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Mission and objective (ends)

•  Mission: Why do we exist? The underlying motivation for being in business >  an insurance company might define its mission as:“to provide

financial security to consumers” •  Objective: The precise outcome that will drive the

business over the next five years or so >  Boeing: from being the largest player in the aircraft industry to being

the most profitable


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What is your mission?

•  Mission: Why do we exist? The underlying motivation for being in business •  NEM: “Be the preferred

partner for custom-made solutions in the field of industrial, utility, and heat recover steam generators and related equipment.”


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What is your objective?

•  Which objective is likely to maximize shareholder value over the next several years? •  Specific •  Measurable •  Time-bound


…by 31 December 2014?

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What is your scope (domain)?

•  A firm’s scope encompasses four dimensions: >  Vertical integration >  Customer >  Offering (product or service) >  Geographic location

•  These four dimensions vary in relevance


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How will you deliver your advantage (means)?

•  The complete definition of a firm’s competitive advantage has two parts: >  External: a statement of the customer value proposition (answer to

why customers will buy your product or service) >  Internal: the unique activities or the complex combination of activities

that allows the firm alone to deliver the customer value proposition


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Identify your sources of competitive advantage

•  Positions •  Capabilities •  Values What are your current sources of advantage and which new sources must you acquire to deliver your customer value propositions?


There is no universal key to success, but three main categories of competitive advantage are from:

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What are your positional sources of advantage?

•  Brand name •  Customer relationships •  Government protection and

support •  Status •  Distribution channels •  Geographic incumbency •  Installed base and de facto

standards •  Gatekeepers in the flow of goods

or information


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What capabilities are your sources of advantage?

Examples •  “Low cost” from having

learned how to combine inputs more efficiently than other firms

•  Merck: a leading pharmaceutical with a capability for extraordinarily productive R&D

•  Georgia-Pacific: knows how to make high-quality paper


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Which values are your sources of advantage?

What we believe in… How we will behave… •  E.g., respect individual

differences, sustain the environment

•  Lycos CEO Davis: an abiding belief in the virtues of hard work and frugality

“People don’t bring their pets to work or play football in the cafeteria here.”


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Business strategy – concepts and linkages

Mission

Objective

Scope

Capabilities

Activities

Positions

Advantage

Values

Ends

Domain

External Means

Internal

Sources © Dr. Christopher J. Voisey

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Criteria for assessing a strategy

External Consistency >  Does the strategy tap opportunities and neutralize the threats of

the outside world in an effective and unique way? Internal Consistency >  Do the parts of the strategy fit together well to form a whole that is

greater than the sum of the parts? Dynamic Consistency >  Does the strategy call on the firm to do today what is required to

succeed tomorrow?


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Testing your business strategy

Mission

Objective

Scope

Capabilities

Activities

Positions

Advantage

Values

Ends

Domain

External Means

Internal

Sources © Dr. Christopher J. Voisey

External consistency (Our customers)

Dynamic consistency (Tomorrow)

Internal consistency (Our activities and sources)

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Edward Jones’ Succinct Strategy Statement

Jones aims to “grow to 17,000 financial advisers by 2012 [from about 10,000 today] by offering trusted and convenient face-to-face financial advice to conservative individual investors who delegate their financial decisions, through a national network of one-financial-adviser offices.”

© Dr. Christopher J. Voisey © Dr. Christopher J. Voisey

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“conservative”

Our investment philosophy is long-term buy and hold. We do not sell penny stocks, commodities, or other high-risk instruments. As a result we do not serve day traders and see no need to offer online trading.

We charge commissions on trades because this is the cheapest way to buy stocks (compared with a wrap fee, which charges annually as a percentage of assets) when the average length of time the investor holds the stock or mutual fund is over 10 years.

© Dr. Christopher J. Voisey © Dr. Christopher J. Voisey

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“individual” We do not advise institutions or companies.

We do not segment according to wealth, age, or other demographics. The company will serve all customers that fit its conservative investment philosophy. Brokers will call on any and every potential customer. Stories abound within Jones of millionaires who live in trailers – people all the other brokerages would never think of approaching.


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“investors”

Our basic service is investment. We do not seek to offer services such as checking accounts for their own sake, but only as part of the management of a client’s assets.


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“who delegate their financial decisions”

We do not target self-directed do-it-yourselfers, who are comfortable making their own investment decisions. We are also unlikely to serve validators, who are merely looking for reassurance that their decisions are correct.


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Competitive Advantage through Differentiation

Willingness-to-pay say, $120

Cost of a trade say, $20

EJ Trade Price: $100


Value Created:

$100 Edward Jones’s Share: $80

Buyer’s Share: $20

Edward Jones Product/Service Sale

WTP =

Cost of a trade $2

Online Trade Price: $8 Value

Created: $6

Online firm’s Share: $6

Buyer’s Share: $0

Online Competitor Product/Service Sale

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Edward Jones’s Activity System

Source: Harvardbusinessonline


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Edward Jones and IT

•  Historically a satellite-based IT/ICT system •  Traditional aversion to technology between broker and the

customer •  Financial advisors prohibited from using PCs •  No customers may trade online

•  Recent online access to customers’ accounts •  Direct email communication between brokers and customers

not allowed

Key: increasing technological sophistication does not imply increasing financial sophistication and that customers have the time to decide their own investments


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What element of Edward Jones’s strategy should it change?

Strategy Element Change to… Pricing Wrap fees and nothing/trade Product scope Add op2ons, IPOs, hedge funds, long-‐term care insurance to meet

the needs of HNW individuals and re2rees Location Shi@ to metropolitan areas and office buildings Service Begin to offer 2ered service to different customer segments e.g.,

spend more 2me and bundle pricing to HNWs Financial planning Offer a complete financial planning service Customers Give up accep2ng everybody who walks through the door and start

targe2ng HNWs, or at least the mass affluent FAs Start hiring more sophis2cated FAs who can deal with the

complexi2es of re2rement and distribu2on St. Louis Move some support personnel into the field as specialists Compensation Increase the payout to junior brokers to stop them job hopping, and

start paying for the book of re2ring brokers to stop them being stolen

Technology Add Internet capability to customers; redefine “convenient” to mean 24/7

Marketing Increase na2onal adver2sing to match compe2tors


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Strategic consistency

•  Strategy is about choosing to serve customers in a way that rivals cannot

•  Good strategy delivers sustainable competitive advantage

•  Identifying a firm’s strategy is a necessary prior to evaluating that strategy

•  The strategy’s essence must be communicated and easily internalized by everyone in the organization


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Strategic consistency •  Strategy is about making trade-offs •  Tradeoffs involve making choices >  Providing more (or less) of A necessitates less (or more) of B >  Serving customer X better (or worse) means serving customer Y worse (better)

•  Tradeoffs substantially increase the cost of imitation •  Tradeoffs cause competitors to not want to imitate


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CIO of the Future 2012 Masterclass - The Gap Between Business And IT

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