Lecture 5Communication (r)evolutionBusiness networksSome key ideasTable 3.1 Options for designing differentiated unit groupingsSociology of relationshipsFraming decisions of differentiationFraming Decisions of InterdependenceNetwork OwnershipSlide 10Slide 11Appendix Revenue, Cost, Asset modelsHybrid GovernanceIT enables governance modelsTable 3.2 Options for designing inter-firm governanceInternet Business ClassesFocused DistributorsFocused DistributersSlide 19Slide 20Slide 21Slide 22PortalsProducersDigital Infrastructure ProvidersInfrastructure PortalsSummary tables from appendixExample: NASDAQSlide 29Foundation of NASDAQRole of IT in NASDAQPartnerships and TrustGlobal Healthcare ExchangeHistory and EvolutionGHX visionGHX StrategyKey Insights from examplesProject Teams and TopicsLecture 5Extending the Organization(Chapter 3)2Communication (r)evolution•Open communication between firms is new!•Compare with advent of telephone•This chapter extends chapter 2 discussion to include how decisions are made in a networked organization3Business networks•“Companies need not trade off flexibility for integration in critical cross-company processes. By managing the activities of and relationships with suppliers as networks rather than production lines, companies can swap their tightly coupled processes for loosely coupled ones, thereby gaining much needed flexibility and improving their performance in the bargain” (page 80)4Some key ideas•Differentiation how organizations are subdivided into specialized work units (nodes)–Horizontal (operating units)–Vertical (power/authority levels)•Integration relationships and links between nodes required to unite specialized units and enable shared value–Task-based (groups work together on processes)–Information/expertise based (groups provide information or expertise)–Social relationships (affliation and identity separate from work)5Table 3.1 Options for designing differentiated unit groupings6Sociology of relationships•Stronger relationships needed in presence of–Increased complexity, uncertainty–Task interdependence eg. Shared services–Innovation–Large real-time information sharing–Diverse subcultures–Leader preferences7Framing decisions of differentiation•What capabilities and resources are required to achieve goals?•What activities must be performed to get there?•How should these activities be grouped within specialized units?•See table 3.18Framing Decisions of Interdependence•What key tasks must be managed between specialized groups?•What organizational solutions are needed to coordinate and control interdependence?•What configuration of organizational solutions should be used to ensure alignment and fit with the business environment and strategy?•See table 3.29Network Ownership•Corporation = legally defined organization•Alliance = between a small number of players•Community/Ecosystem = players working together to achieve shared goals•See figure 3.110Figure 3.1 Emerging IT-Enabled Extended Enterprise Models11Figure A3.1 Classifying Network Business Models12Appendix Revenue, Cost, Asset models13Hybrid Governance•Is market or hierarchy better?–Transaction cost theory says markets give greater efficiency and effectiveness unless cost and risk of using market mechanisms to coordinate and control interdependencies are higher than the cost and risk of hierarchy•Cost and risk increases with–Duplication of costly assets that cannot be shared–Setting frequent disputes–Cost related to information access–Need to join others to increase market power•Hierarchy used when high risk of market failure–Executives given authority to determine shared purpose and goals–Unified leadership gives focus•Hierarchy optimizes vertical information processing•Markets optimize horizontal information processing14IT enables governance models•Information sharing, processing, creating–Shared purpose of multiple firms–Enable configurations and solutions between firms but do not preclude market-based transactions as well–Shared projects/values encourages increased activity over time15Table 3.2 Options for designing inter-firm governance16Internet Business Classes•Producers–Package work of creators into products, services and solutions to meet market need•Distributors–Enable buyers and sellers to connect, communicate and transact business•Portals–Aggregate products, services and/or information for use by members of community17Focused Distributors•Provide products/services for specific industry•Differentiating business models–Does business assume control of inventory?–Does business sell online?–Is price set outside the market or is online price negotiation and bidding permitted?–Is there a physical product or service that must be distributed?18Focused Distributers•eRetailers–Amazon.com–Control inventory, set prices–Revenue = sales of products/services–Cost = precurement, inventory management, order fulfillment, customer service–Started as bookstore–In 2000, changed business model to eLogistics19Focused Distributors•eMarkets–Global Healthcare exchange–Links buyers and sellers–Take cut from transactions – no direct control of physical inventory–Often also provide system integration and custom software development20Focused Distributors•eAggregators–insWeb–Provide information on products or services for sale by another channel–Catalogs, comparisons, reviews–Don’t complete final sale transaction–Pass customer to supplier – obtaining referral fee and advertising revenue21Focused Distributors•Infomediaries–Internet securities–Unites sellers and buyers of information–No physical product–Often subscription fees, advertising fees–Barriers to entry are low (information is freely available)–Companies evolve to allow transactions22Focused Distributors•Exchanges–NASDAQ, eBay–Sometimes control inventory–Price is negotiated by buyer and seller–Various fee structures used23Portals•AOL•Provide access to internet and tools•Subscription fee24Producers•Business models have evolved•Manufacturers use internet to design, produce, distribute products•Service providers deliver widerange of online services•Educators•Advisors•News services25Digital Infrastructure Providers•Hardware•Software•Components26Infrastructure Portals•Combine access to range of hosting services•Horizontal Portals–ISPs,
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