The Manager, the Organization and the Team

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IS577IS Strategy and Policy
Class Session 4 DePaul University CTI John
Fisher
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Businesses that Provide Networked Infrastructure

• Until recently, there was a distinct separation
  between businesses that were built using IT and
  those developing and selling IT.
• As we entered the 21st century, digital
  infrastructure was becoming embedded within the
  very fabric of how organizations create, produce,
  and distribute products and services.
• Charles Schwab is a technology company that just
  happens to be in the brokerage business.
  Everything we think about as we run our business
  has technology in the center of it with the goal
  of engineering cost down and service up
• If you want to constantly increase service while
  decreasing cost structure and the cost of
  service, then technology is the play.
• David Pottruck co-CEO of Charles Schwab

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Classification of Model

• Networked infrastructure provider business models
  are classified by using the same
  producer/distributor categories that define
  digital business built on internet.
• We have seen the emergence of powerful channel
  players
• Horizontal infrastructure portals (AT T and
  British Telecom)
• Vertical infrastructure portals (IBMs E-business
  Solutions)

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Businesses that Provide Networked Infrastructure

• Infrastructure Distributors can be differentiated
  by 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 possible
• Is there a physical product or service that must
  be distributed

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Businesses that Provide Networked Infrastructure

• Infrastructure Distributors
• Enable buyers and sellers to transact business.
• Infrastructure retailers
• Infrastructure marketplaces
• Infrastructure aggregators
• Infrastructure exchange

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Businesses that Provide Networked Infrastructure

• Infrastructure Retailer
• Comp-USA and Egghead
• Assume control of inventory
• Set a non negotiable price to the consumer and
  sell physical products online.
• The revenue model is based on product/service
  sales and
• The cost model includes procurement, inventory
  management, order fulfillment, and customer
  services

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Businesses that Provide Networked Infrastructure

• Infrastructure Marketplace
• Ingram Micro and Tech Data
• Sell computer and network hardware
• Often required by suppliers to take control of
  physical inventory and offer custom configuration
  for large business customers
• Revenue model includes product sales and may
  include commission or transaction fee on each
  sale
• Transaction is completed online.
• Cost include the cost of maintaining online
  business, electronically link to supplier
  databases, etc.

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Businesses that Provide Networked Infrastructure

• Infrastructure Aggregator
• Cnet.com and ZDNet
• Provide information on high-tech services that
  are sold by others in the channel.
• They enable comparisons of features and pricing
  and provide product reviews and technical reports
• Do not enable users to complete the final
  transaction online

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Businesses that Provide Networked Infrastructure

• Infrastructure Exchange
• Converge
• Auction new and used electronics, computer, and
  network equipments, software, and solutions

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Businesses that Provide Networked Infrastructure

• Infrastructure Portals
• Provide consumers and/or businesses with a wide
  range of network, computing, and application
  hosting services.
• Before the commercialization of the internet,
  many medium to large firms developed and ran
  their own networks and data centers, often
  leasing telephone services and data lines from
  network service providers or VAN providers
• In the 21st century an increasing number of small
  to midsize and even large organizations are
  choosing to rent rather than lease or buy,
  their digital infrastructure, which is hosted by
  an infrastructure portal player.
• Infrastructure portals are also classified as
  either horizontal or vertical

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Differentiating Infrastructure Portal

• 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?

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Businesses that Provide Networked Infrastructure

• Horizontal Infrastructure Portals
• ISP (America Online and Earthlink)
• Network SP (ATT, British Telecom, NTT Docomo,
  and Time Warner Cable)
• Data Center Outsourcing Providers (IBM, EDS, CSC)
• Web hosting SP (Digex)
• They all provide gateway access to wide range of
  network, data centers, and hosting services
• The revenue model includes access and maintenance
  fee, subscription services fee, and in some cases
  transaction fee and/or advertising fee (AOL)
• Costs include data and network operations,
  software development and maintenance, marketing,
  sale, and administration.

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Businesses that Provide Networked Infrastructure

• Vertical Infrastructure Portal
• IBMs E-Business Solutions and GE Global eXchange
  Services may also be called ASPs
• Host and maintain software applications (rather
  tan selling and licensing them),
• They enable businesses to log in and conduct
  business online
• Generate revenue through hosting and maintenance
  fees, consulting fees, and system integration
  fees.
• Costs includes cost of operating the data center
  and the network

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Businesses that Provide Networked Infrastructure

• Infrastructure Producers
• Design, build, market, and sell technology
  hardware, software, solutions and services.
• May provide after-sales services directly or with
  online/offline channel partners.
• Differentiated by
• Does the business manufacture computer or network
  components or equipments?
• Does the business develop package software
• Does the business provide infrastructure services
  and consulting

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Businesses that Provide Networked Infrastructure

• Equipment /Component Manufacture
• IBM, Sony, Lucent, and Intel
• Design, produce, and distribute computer and
  network hardware.
• Cost includes RD

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Businesses that Provide Networked Infrastructure

• Software
• SAP, Sieble, Oracle, Microsoft
• Design, produce and distribute operating systems,
  applications and package software
• Revenue includes sales, consulting, integration
  services, licensing, hosting
• Custom Software and Integration Service Providers
• Accenture and IBM Global Services
• Consulting and custom system development and
  integration services primarily for large firms
  projects
• Revenue come primarily from consulting and
  service fees
• Cost includes recruiting, training, retaining
  highly skilled professionals

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Evolving Business Models

• Network Businesses
• Are built by artfully combining a variety of
  business models.
• By incorporating multiple business models that
  generate revenue streams from the same
  infrastructure, a network of businesses can
• more efficiently use resources
• More effectively meet customer needs for
  integrated solutions,
• and drive additional value from the same level of
  investment
• When the network of businesses inside a firm is
  linked with a business network composed of a much
  larger network of businesses, an organization can
  leverage the resources of the community to
  further enhance the value delivered to all the
  members

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Evolving Business Models

• The four approaches to evolving a business model
  serve as a road map for evolving networked
  businesses.
• Enhance
• Expand
• Extend
• Exit

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Extend Enter into a new line of business and/or
add new business model
Enhance Add functionality or features to current
product/services offering or improve performance
of existing business
Exit Exit a business or market or drop a
product/service offering
Expand Add new product/service offering or enter
new geographic market
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Evolving Amazon.com Product/Service Enhancements
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Evolving Amazon.com Category and Geographic
Expansion
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Evolving Amazon.com Business Model Extension
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Evolving Amazon.com An Integrated View
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Evolving Network Economy Business Models

• It is just an incredible time to be in business
  and have the rules of business changing For many
  years we operated under a pretty consistent set
  of rules. They evolved may be but now theyre
  morphing and that presents a situation that
  challenges entrepreneurs to figure out Are these
  rules real, or are they temporary? Should we
  respond to them? Do we create new rules? How do
  we run a company in a world like this when we
  have 13,000 employees trying to figure out where
  we are going and what we should do?
• David Pottruck, President and co-CEO of Charles
  Schwab 1999.
• We are searching for new business models that
  enables a company to achieve the efficiency,
  power, resources, and reach of being big and the
  speed, agility, and responsiveness that come from
  being small.

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Evolving Network Economy Business Models

• The following questions can be used by executives
  to evaluate current and evolving business models
• What business model/models is your organization
  using today?
• Does your business infrastructure enable you to
  evolve your business model to increase revenue
  generated per customer and to respond quickly to
  opportunity and threats
• Do you have the capabilities and resources that
  you need today and in the future? How will you
  build capabilities and acquire resources to
  reduce gaps?
• Are you delivering benefits to all stakeholders?
  Can you demonstrate and communicate those
  benefits in ways that are objective and easy to
  evaluate and measure?

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New Networked Economy

• Continuous business redesign
• Partnership
• Technology
• Strategy