Chap00.ppt

Applegate, L.M., Austin, R.D., and Soule, D.L., Corporate Information Strategy and Management, 8th edition, Burr Ridge, IL: McGraw-

Hill/Irwin, 2009

Introduction

IT is a source of opportunity and advantage but also uncertainty and risk

Chasm between viewpoints Business executives: IT detached from real

business problems Technical executives: Business leaders lack

vision

Undeniable rapidity of change In system architecture and interfaces In business In work and the workforce


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Introduction

The Embedding of IT IT now embedded in:

Definition and execution of strategy Organization and leadership of businesses Definitions of unique value propositions

IT is changing our understanding of: Markets Industries Strategies Firm designs

Information is now a major economic good


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Introduction

Riding the IT Rollercoaster Mid 1990s:

World Wide Web demonstrated IT potential Structural and technical hurdles remained in using IT

Late 1990s: Capital markets caught the fever Venture capitals eager to spend on IT, regardless of long-

term path to profitability

21st Century: Speculative bubble burst Downward spiral until 2003


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Introduction

What Now? What we know:

World is forever changed; IT will never return to the basement

Technology as core enabler, primary business channel Global village is here to stay Rigid organization boundaries have fallen

What we need to do: Engage in sense-making of the transformation Mine the last decade of business experimentation Synthesize in order to choose a path forward


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Introduction

Let the Story Telling Begin

This book examines stories of executives who are exploring uncharted waters Through the lens of the decades of research and

experience of the authors Through rich dialogue during class discussion of

chapters, cases, and articles


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Introduction

Focal Themes IT and Business Advantage

IT impacts the business through its effects on the three components of the business model: strategy, capabilities, and value

The Business of IT Managing IT operations, services, and project delivery

requires managing trade-offs among costs, opportunities, and risks

IT Leadership High-level management, leadership, and governance

activities set the context for leveraging IT-enabled strategic insight and ensuring IT operational excellence


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Introduction

Other issues How about legal and regulatory policy?

Facts! Business practice outpaces them

Have we full realized the impact of IT? There are still new frontiers to explore, new challenges to

meet, and new magic in store.


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Introduction

Goal Help business executives

recognize the tremendous potential of technology in creating business advantage

Assume a leadership role in IT-enabled business transformation

Help IT executives Assume leadership positions, not just in defining and

executing technology and managing IT function, but also in defining and executing business strategy.


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Introduction

Case: IBM’s Decade of Transformation: Turnaround to Growth 1914~1952: Thomas J. Watson

Dark-suited salespeople Strong corporate culture pride and loyalty Work ethic: “THINK”

1952~1971: Thomas Watson, Jr. TIME Magazine's 100 most influential people of the 20th

century. Invested $5 billion to develop System/360

1973~1981: Frank T. Cary Laucned IBM PC in 1981


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Introduction

The Downfall Began

1984: Returns on sales, assets, and equity began to decline “very much in denial around client/server and networked

computing” Mainframe camps vs. PC camps.

1986~1993: John F. Akers In 1991, earnings dropped to negative 2.8 billion. In early 1993, mainframe business was in freefall. What to do? Cost cutting, of course. But is it the ONLY solution? Or, is it a solution?

Late 1992 forecasts suggested continued losses


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Introduction

IBM Timeline


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Introduction

The Rise of the Fallen

1993~2002: Louis V. Gerstner, Jr. The first outsider CEO in the history of the company The one who made IBM turnaround

2002~date: Samuel J. Palmisano


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Introduction

What Gerstner did?

Originally, his assigned job was to break up the company and sell.

Make “putting the customer first” no more a slogan. Heard from customers: “the one thing that you guys do that no

one else can do is help us integrate and create solutions”. Market as “One IBM” “Bear-hug” customers

Asked each executes to write two papers: one on the executive’s business, the other on key issues and recommendations for solving problems and pursuing opportunities.

“Bear-hug” employees Change key employee’s options


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Introduction

What Gerstner did?

Cost cutting Benchmarking study to determine how IBM’s costs in each of its

business compared with those of competitors. Results in layoffs of over 75,000 employees in early 1993. Only ThinkPad was kept in the PC division IBM’s internal IT organization contributed to 7 billion cost

reduction One common network protocol: TCP/IP Reduce the number of data centers (client/server and network

computing) Centralized IT leadership: one CIO System development process was also reengineered: component

reuse increased by 34%

By the 4th quarter of 1993, 382 million profit was posted.


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Introduction

What Gerstner did? Re-organization

Pull divisions into larger groups The sale organizations, which had been organized by geography

and product, was re-organized into global sales teams Changing Culture

One group of middle management (who ran IBM’s country organizations) found the move to “One IBM” was difficult – initiatives and instructions from IBM corporate needed to be “customized” for particular countries.

“We needed to have a sense that we were going to operate as a team, as a global entity….”

Discussions: compare IBM’s original “Basic Beliefs”, Gerstner’s eight principles, and three core values in 2003.


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Introduction

What Gerstner did? Reengineering Global Functions and Processes

(1) get cost out as quickly as possible; (2) “clean-sheet” the process and redesign it for global use

Initial targets were core processes such as procurement, manufacturing, etc. (results: costs down and development time decreased)

“If there was someone on the outside that could perform the activity better, faster, and cheaper than us, we outsourced the physical activity and kept the strategy, planning, and management.”


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Introduction

What Gerstner did? Sought a unifying strategic vision to serve as a platform to

reignite growth and industry leadership Due to the success of 1994 IBM’s Winter Olympic Web site, “web

movement” became a corporate strategy – led by Abby Kohnstamm

In 11/1995, Gerstner announced “e-Business” as IBM’s strategic vision. “Internet” and “strategy” A shift to network computing (which required increasingly

powerful computers – called servers) Questions: compared to current terms “cloud computing”,

“web services”, “SaaS” (Software as a Service), etc.

Then what?


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Introduction

IBM’s Network Computing Vision


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Introduction

Then what? “Middleware” becomes important

Served as the interconnections between distributed data sources, applications, and computers. In 1995, acquired Lotus (a collaborative

messaging/middleware platform)Shifting focus from proprietary to open technology

Provide the integration point

By 2000, IBM Global Services had grown to the world’s largest IT consulting and Web services organization.


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Introduction

Organizing for Growth By 09/1999, revenue growth is 5.7%. (below the red-

hot technology industry average)

Seeking for new businesses, but many failed Pre-occupied with current markets; current

approach is inadequate for emerging markets (rewards based on short-term results; business models, etc.); lack established disciplines and processes for selecting, experimenting, funding, and terminating new businesses; and poor execution research conclusions made by B. Harreld (head

of corporate strategy)


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Introduction

Best Practices for Commercializing InnovationHarreld learned from “The Alchemy of Growth”

H1 businesses were mature and well established and accounted for the bulk of profits and cash flow

H2 business were on the rise and experiencing rapid, accelerating growth

H3 businesses were emerging and represented the “seeds of a company’s future strategy” Read thru Exhibit 9 (p.29-30)

IBM’s problem lied in using one approach for all 3 types of businesses.


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Introduction

Best Practices for Commercializing InnovationCategorized IBM’s businesses as H1, H2, and H3

The Corporate Strategy group continuously monitored H3 businesses

H3 businesses would be designated as Emerging Business Opportunities (EBOs) Problems: selection of EBOs, where to put EBOs in

the company’s architecture. Due to “One IBM” vision, they chose centralized model (under supervision of Corporate Executive Committee; CEC). Gerstner prompted Thompson as “EBO czar”

Under Thompson, the corporate EBO process functioned effectively but relatively informally for its first two years.


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Introduction

Best Practices for Commercializing InnovationThe criteria for selecting EBOs:

The need for cross-business cooperation and resources

The maturity of the business plan and strategy (eg., key market and technology risks appeared manageable and expertise was available to build the first offering and take it to the market)

The forecasted size of the market The potential for generating over $1 billion in

three to five years


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Introduction

Best Practices for Commercializing Innovation The evaluation for EBOs’ performance:

Like traditional approach, each EBO head had to report progress, discuss plans, and solve problems

Not focus on financial performance versus plan, focus on verifications and refinement of business plans and measurement on the progress made as the EBO moved thru the innovation process. Clarified assumptions and risks; and assessed progress

against key project-based milestones. Success against these project-based milestones could

include clarifying market demand and willingness to pay by interviewing key customers or reducing technology risk by completing a key phase of the product development process.


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Introduction

Best Practices for Commercializing Innovation Categories of Risks and Uncertainty (& Sample

Approaches and Project-based Metrics) in Exhibit 11. (read thru them) Market/User Adoption Risk and Uncertainty Technology/Product Risk and Uncertainty Resource Risk and Uncertainty Implementation Risk and Uncertainty

By 2003, revenue growth up 2% Life Science and Business Transformation Services: $1

billion Linux: $2 billion Pervasive computing (or Ubiquitous computing): $2.4

billion


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IntroductionIT Impact Map: IBM Path to Business Transformation

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