Chapter 5: Dynamics and Appraisal of Business Models

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Chapter 5 Dynamics and Appraisal of Business
Models

• Dr. Tom Housel
• Professor
• Information Science

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Overview

• E-Bus life cycle
• Strategies for dealing with industry, market
  dynamics
• Issues in appraising E-Bus models
• Research on E-Bus value assessment

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Dynamics of the Internet
Determine strengths and weaknesses of business
model Build business model
Defend competitive advantage
Locate profit site
MATURE or STABLE
Sales
GROWTH or TRANSITIONAL
EMERGING or FLUID
Time
Build capabilities Build network Invest in
infrastructure Win customers Build brand
name Team-up/Run
Where in the internet value network do you want
to be?
Internet actions
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Generic strategies and complementary assets
Complementary assets
Tightly held and important
Freely available or unimportant
I
II
Team-up Joint venture Strategic
alliance Acquisition Internal development
Run
High
Inimitability
Block Team-up Joint venture
Strategic alliance Acquisition
III
IV
Low
Block
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Pressure to Comply Ease to Produce Model
Law
Sweet Spot
Pressure to Compy
Nice to have
Simple Manufacturing
Consulting
Ease to Produce
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Appraising a business model
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Appraising a Business Model
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Appraising a Business Model (continued)
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E-business Value Assessment
Center for Research in Electronic Commerce
(CREC) McCombs School of Business, The University
of Texas at Austin http//crec.bus.utexas.edu
Study sponsored by DELL Computer Corporation
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Productivity Paradox
We see computers everywhere except in the
productivity statistics. -- Nobel Laureate
Robert Solow
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Motivation behind the study

• Internet economy is about the transformation of
  traditional businesses to e-business, and just
  not a dot com revolution.
• Confusion regarding the true potential of the
  Internet economy.
• The Internet economy is big, but how good is it?
• Are e-business initiatives paying off? If yes
  where and how? If no why not?
• Wide range of sizes
• Industry sectors manufacturing, retailers,
  wholesalers and distributors.
• Ongoing research activity of CREC since late 1980s

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Measuring E-business Value

• E-business success measured ultimately by
  financial performance
• To see financial benefits (e.g., increase revenue
  per employee), choose measures of operational
  excellence (e.g., of customers doing business
  online, online procurement)
• To achieve operational excellence, invest in
  e-business drivers (e.g., online IT capabilities
  for customers and suppliers), and e-business
  processes.
• Synergistic investments in e-business technology
  coupled with restructuring of processes that
  emphasize online interaction with customers and
  suppliers, and developing online support for
  customer and suppliers relationship management.

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A Model of E-Business Value
Financial Measures
Revenue/employee, Gross Profit Margin, Return on
Assets, etc.
Online Business, Online Procurement,
Customer Service Provided Online Order Delivery
Time, etc.
Operational Excellence Measures
E-Business Drivers
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Data collection

• A 74-item questionnaire developed by CREC
  researchers
• Over 4500 U.S. and European firms contacted by
  MarketVision Research.
• Approximately 1200 firms responded to the survey

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Study Results Highlights

• Firms that have observed increase in financial
  performance have significantly better operational
  excellence performance (e.g., existing customer
  doing business online, online procurement) and
  higher-levels of investments in e-business
  drivers (e.g., integration of Web and back-office
  systems).
• Smaller firms observe much higher percentage
  gains in financial performance with e-business
  relative to larger firms.
• There is significant potential to gain
  efficiencies with online supplier relationships
  (e.g., Ron Tudors approach to e-procurement).
• Firms have not leveraged the power of online
  product customization.
• Firms need to invest in increasing the e-business
  readiness of customers and suppliers (e.g.,
  electronic bonding and e-supply chains)
• Firms must redesign their customer and supplier
  processes for e-business transformation

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Summary

• Need to understand and predict life cycles of
  E-Bus services in the DoD as well as in the
  commercial sector
• Strategies for achieving and sustaining
  competitive advantages can be adapted to ensure
  the success of DoD E-Bus applications
• Level 1 and 2 profitability measures and
  predictors are based on actual core process
  performance just as they should be in the DoD
• Use the Level 3 Component Attributes checklist to
  evaluate companies and organizations
• E-Bus commercial sector research points to the
  need for operational excellence through
  reengineering to take advantage of E-Bus
  Technology Its all about implementation
• Lessons learned from last session E-Bus
  Technology enables new business models and allows
  us to reinvent old business models with core
  competencies. Even in E-Bus in the DoD, branding
  is useful. Implementation, via strong leadership
  and qualified-committed people, is the critical
  part of making the models work but we need to
  overcome resistance to change to take full
  advantage.

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Promoting Commerce while Securing __________

• Goals Enhance commercial environment and secure
  (internally and externally) the country
• Statement of philosophy in accomplishing goals
• Enhancing commerce
• Securing country
• Statement of Principles for using E-Business to
  accomplish goals (e.g., increasing efficiency
  and improve effectiveness)
• Output One slide presentation of philosophy and
  principles (15 minute presentation)
• Dos and Donts
• Try not to refer to how we do DoD business
  today (get out of the box)
• Apply best practices where ever you find them
  (commercial and/or DoD)
• Current country conditions-demographics
• Relatively stable democracy
• Rising middle class
• Friendly nations on its two borders two coast
  lines
• High level of secondary education
• Only telephone-based network infrastructure (no
  CATV or dish networks)
• Dominant industries Agriculture, tourism,
  growing tech sector, some light industrial
• Ally of USA, large USA population permanently in
  country (mostly retirees)