Business Process Reengineering Innovation and Industry Disruptions

Management Information Systems MBA Program

The Innovators Dilemma

The management practices that allow firms to become industry leaders also make it difficult for them to identify and appropriate the disruptive technologies that ultimately overtake their markets

Why do firms miss new opportunities?

Lets look at some famous statements about new technologies
This telephone has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us. Western Union Internal Memo, 1876 The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular? Response of Associates of David Sarnoff, when invited to invest in
radio

There is no reason anyone would want a computer in their home. Ken Olsen, President and Founder of Digital Equipment Corp., 1977 640k ought to be enough for anybody Bill Gates in 1981 Everything that can be invented has been invented. Charles H.
Duell, Commissioner, U.S. Office of Patents, 1899.

The depressing message

Everything you are learning in your MBA will not help your firm avoid the dilemma
Managing better Working harder Avoiding dumb mistakes are not the solution

5 reasons why firms miss Disruptive Innovation

1. 2. 3. Firms rely on information from customers & investors for resources. Firms perceive small markets as incompatible with the growth needs of large companies. Disruptive technologies start with no substantive markets and markets that dont exist cant be analyzed. A firms capabilities are wrapped up in its processes and values. The supply of a technology may not equal market dominance.

4. 5.

Sustaining Technologies
Sustaining innovative technologies...
Actually help the firm by fostering improved product performance or cost effectiveness Align with the desired value proposition of established customers.

Disruptive Technologies
Disruptive Technologies
Does not have the performance or quality characteristics based on the value system used by the existing customer. Are often less expensive, simpler, smaller, and easier to use. Are first used in insignificant or narrow markets. The customers of the existing firm often dont value or cant use a disruptive technology.

Market Trajectories and Technology Change

Existing firms generally want to earn higher margins. To do so, they
Improve existing products Focus on existing competitors Dont want to make a product none of its current customers want or need and that has a low margin Often keep building on the product with the result that it overshoots market needs

As a result, technological capacity outpaces what the market needs Disruptive technologies fill in the over performance gap and become performancecompetitive.

Entry of Disruptive Technology

Produce Performance

Performance requirement for users

Disruption

Time

Characteristics of Disruptive Technologies

At first, disruptive technologies do not satisfy the demands of the high end of the market. Established firms overlook disruptive technologies because they dont appear attractive. With time and over-engineering of sustained technologies a disruptive technology begins to satisfy market demand at a lower costs. Large firms that forsook early investment in the disruptive technology have trouble catching up or are left behind.

In a nutshell
disruptive technologies are "simple, convenient-to-use innovations that initially are used by only unsophisticated customers at the low end of markets." Christiansen, 1997

Value Networks
Customers rank-order product attributes Firms operate with specific cost structures needed to provide valued products and services The success of an innovation depends upon the perceived needs of known network actors A new entrants advantage is that their agility (e.g., smaller size, openness to different perspectives, etc.) makes it easier for them to identify & make strategic commitments to develop emerging market opportunities

So, Everything in B-School is Wrong?

The resource allocation process effects a companys ability to identify and manage a disruptive technology
The Resources-Processes-Values (RPV) model highlights capabilities & disabilities of an organization
Firms have resources such as people, things, places They engage in processes that are routinized for efficiency They develop values that are used to define what we do and dont do

Firms do what they do well

The resource allocation process suggests that a rational manager aligns resources so that the firm does what it needs to in order to satisfy existing customers needs. We develop a lean, mean, fighting machine.

How to Respond?
Firms need to learn how to deal with disruptive technologies (e.g., develop internally or spin-out a separate organization)
Create an environment supportive of the different value network and this networks customers Match the size of the spin-off organization to the size of the market.

Capabilities for Coping with Disruptive Technologies

3 options exist for creating new capabilities:
Acquire an existing organization that has processes & values closely matched with the new opportunities. Change the existing firms processes & values. Spin-off a separate and independent organization that will develop the new processes & values that are needed to address the new market

Discovery-driven planning
Realize that the basis of competition changes when the rate of technological improvement exceeds that demanded by the market.
When disruptions occur, actions must be taken before plans can be made. So, plans need to be made for learning rather than implementation

Discovery-driven planning
Identify the assumptions upon which business plans are based
Test market assumptions before expensive commitments are made Agnostic marketing where no one knows exactly why, how, or to what degree a disruptive technology will be used
Dont talk to the same people Explore the boundaries of the market

 Performance oversupply results in a change in the basis of competition in a products market along four dimensions:
Functionality Reliability Convenience Price

Crossing the Chasm

IT Often Enables or Instigates Change

Business Process Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed.

BUSINESS PROCESSES
Business process a set of work activities and resources

One way managers can evaluate a business process

Process
Collection of activities that takes one or more kinds of input and creates an output that is of value to the customer

Of course, this is really a decision making process not a process map

BUSINESS PROCESSES
Business Process Redesign Business process reengineering (BPR) radical business redesign initiatives that attempt to achieve dramatic improvements in business processes by questioning the assumptions, or business rules, that underlie the organizations structures and procedures

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BUSINESS PROCESSES
Business Process Redesign

Six principles for redesigning business processes:

1. 2. 3. Organize business processes around outcomes, not tasks Assign those who use the output to perform the process Integrate information processing into the work that produces the information

BUSINESS PROCESSES
Business Process Redesign

Six principles for redesigning business processes:

4. Create a virtual enterprise by treating geographically distributed resources as though they were centralized Link parallel activities instead of integrating their results Have the people who do the work make all the decisions, and let controls built into the system monitor the process

5. 6.

BUSINESS PROCESSES
Business Process Redesign

PROCESSES AND TECHNIQUES TO DELIVER INFORMATION SYSTEMS

The Information Systems Life Cycle

PROCESSES AND TECHNIQUES TO DELIVER INFORMATION SYSTEMS

The Information Systems Life Cycle

Definition Phase:
End user and systems analysts conduct analysis of current system and business processes Analysis is:
Process-oriented Data-oriented

Business case generated and solution chosen

PROCESSES AND TECHNIQUES TO DELIVER INFORMATION SYSTEMS

The Information Systems Life Cycle

Construction Phase:
System designed, built, and tested System logically described, then physically Technology chosen Programs, inputs, and outputs designed Software programmed and tested User acceptance testing conducted

PROCESSES AND TECHNIQUES TO DELIVER INFORMATION SYSTEMS

The Information Systems Life Cycle

Implementation Phase:
Business managers and IS professionals install new system Data and procedures from old system converted

PROCESSES AND TECHNIQUES TO DELIVER INFORMATION SYSTEMS

Procedural-Oriented Techniques

Provides a baseline for the new system Includes both logical and physical models

PROCESSES AND TECHNIQUES TO DELIVER INFORMATION SYSTEMS

Procedural-Oriented Techniques

Critical appraisal of existing work processes to:

Identify major subprocesses, entities, and interactions Separate processing from data flow Capture relationships between data elements Determine entities and processes within scope

PROCESSES AND TECHNIQUES TO DELIVER INFORMATION SYSTEMS

Procedural-Oriented Techniques

Conducted by IS specialists Maps logical requirements to available technology

Schein Model of Change

Assumptions
Not only learning, but unlearning Motivation to change must exist Organizational change is mediated through individual changes Change involves attitudes and emotions and can be painful and threatening

Schein Model of Change

Change is multi-staged
Unfreeze Change Refreeze

Four Key Words for Reengineering

Fundamental Radical Dramatic Process

Fundamental
Why do we do what we do? Why do we do it the way we do?

Radical
Getting to the root of things: not making superficial changes or fiddling with what is already in place Disregarding all existing structures and procedures and inventing completely new ways of accomplishing work

Dramatic
Reengineering isnt about making marginal or incremental improvements but about achieving quantum leaps in performance Dramatic improvement demands blowing up the old and replacing it with something new

Characteristics That Typify Reengineered Process

Several jobs are combined into one. Workers are involved in making decisions. The steps in the process are performed in a natural order. Processes have multiple versions. Work is performed where it makes the most sense.

Characteristics That Typify Reengineered Process

Checks and controls are reduced. Reconciliation is minimized. A case manager provides a single point of contact. Hybrid centralized/decentralized operations are prevalent.

Changes During BPR

Work units change - from functional departments to process teams. Jobs change - from simple tasks to multi-dimensional work. Peoples roles change - from controlled to empowered. Job preparation changes - from training to education.

Changes During BPR

Focus of performance measures and compensation shifts - from activity to results Advancement criteria change - from performance to ability Values change - from protective to productive Managers change - from supervisors to coaches

Changes During BPR

Organizational structures change from hierarchical to flat Executives change - from scorekeepers to leaders

Overcoming Resistance to Change

Resistance to change is inevitable:
Expect it (70% of change initiatives fail)

Resistance doesnt always show its face:

Find it

Resistance has many motivations:

Understand it

Deal with peoples concerns not their arguments:

Confront it

Only one way to deal with resistance:

Manage it

Sometimes change needs to be pushed

Sirkin, Keenan, and Jacksons DICE Model
Duration: Minimize time between milestones Integrity: Project teams need to be good Commitment: Top management support Effort: Less work to get it done is better than more

Plus, change is a process

Kotters process model for change success
Establish a sense of urgency Form a powerful guiding coalition Create a vision Communicate a vision Empower others to act on the vision Plan for and create short term wins Consolidate improvements and move on to more change Institutional successful change

Change requires balance

Ducks model of change Change requires a balance between trust and empowerment
Employee Trust: Built through predictability (clarify goals) and capability (clarify roles of players) Empowerment: invite everyone to participate in change

Change requires balance

Make sure you do the following:
Establish context for change Stimulate conversations Provide resources Coordinate projects Ensure congruence of messages and behaviors Provide opportunities for joint creation Anticipate and address problems Prepare the critical mass

The Fad That Forgot People

Thomas H. Davenport

. . no one wants to be reengineered. No one wants to hear dictums like, Carry the wounded but shoot the stragglers No one wants to see 25-year-old MBAs in their first year of consulting making $80,000 per year with $30,000 signing bonuses, being billed out at six times their salaries, putting the companys veterans through their paces like theyre just another group of idiots who cant think out of the box.

The Fad That Forgot People

Thomas H. Davenport

The most profound lesson of business process reengineering was never reengineering, but business processes. Processes are how we work. For technologists, the lesson from reengineering is a reminder of an old truth: information technology is only useful if it helps people do their work better and differently. Companies are still throwing money at technology -- instead of working with the people in the organization to infuse technology.

Top Ten Ways To Fail At BPR

 Dont reengineer but say that you are  Make sure you know what BPR is and do it, not something else.  Dont focus on processes  Only processes can be reengineered, first you must identify them.  Spend a lot of time analyzing the current situation  Understanding your processes is essential, but you must limit the time spent on unproductive analysis.  Proceed without strong executive leadership  Weak leadership will doom you to failure.

Top Ten Ways To Fail At BPR

 Be timid in redesign
 Leaders must stretch people to think outside the box; rewards for creative ideas is a must.

 Go directly from conceptual design to implementation

 Create a lab setting to test your changes.

 Reengineer slowly
 To maintain momentum you must produce results quickly.

 Place some aspects of the business offlimits

 BPR in isolation wont work. Everything must be on the table.

Top Ten Ways To Fail At BPR

 Adopt a conventional implementation style
 BPR requires its own fast, improvisational, iterative
style.

 Ignore the concerns of your people

 You must take into account the personal needs and
feelings of the people who will be so directly affected by your changes.

IT PROJECT MANAGEMENT
IT Project management requires knowledge of system development methodologies:
SDLC Prototyping RAD Purchasing life cycle

IT PROJECT MANAGEMENT

Project Management Institute (PMI)

International society of project workers Certified thousands of professionals since 1984 PM competencies certified by PMI include eight areas:

Figure 12.1 Eight Project Management Competencies

IT PROJECT MANAGEMENT
Most projects share common characteristics:
1. Risk and uncertainty highest at project start 2. Ability of stakeholders to influence project greatest at project start 3. Cost and staffing levels lower at project start and higher toward end
(PMI, 1996)

IT PROJECT MANAGEMENT
Project:
Temporary endeavor to create unique product or service Typically a one-time initiative Can be divided into multiple tasks Requires coordination and control Has a definite beginning and end

IT PROJECT MANAGEMENT
Project:
Temporary endeavor to create unique product or service Typically is a one-time initiative Can be divided into multiple tasks Requires coordination and control Has a definite beginning and end

Program a group of projects managed in a

coordinated way to obtain benefits not available from managing(PMI, 1996) them individually

IT PORTFOLIO MANAGEMENT
IT Portfolio set of IT project initiatives currently in progress, as well as requests for IT projects that have not yet been funded

IT PORTFOLIO MANAGEMENT

Project categories to help with prioritization:

Absolute must A mandate due to security, legal, regulatory, or end-of-life-cycle IT issues Highly Desired/Business-Critical Includes shortterm projects with good financial returns Wanted Valuable, but with longer time periods for ROI (more than 12 months) Nice to Have Projects with good returns, but with lower potential business value

PROJECT INITIATION
Project charter Scope statement Feasibility analyses
Economic Operational Technical

PROJECT PLANNING
Three major components:
Schedule Budget Staff (project team)

PROJECT PLANNING
Scheduling

Work breakdown analysis:

Identifies phases and task sequence to meet project goals Estimates time of completion for each task Results in a project master schedule that identifies date and deliverable milestones

PROJECT PLANNING
Scheduling Timeboxing organizational practice in which a system module is to be delivered to user within a set time limit, such as 6 months

Work breakdown a basic management technique that systematically subdivides blocks of work down to the level of detail at which the project will be controlled

PROJECT PLANNING
Staffing

Project staffing involves:

1. Identifying IT specialist skill mix needed 2. Selecting personnel who collectively have necessary skills and assigning them to work 3. Preparing personnel for specific team member work 4. Providing incentives to achieve project goals

PROJECT PLANNING
Planning Documents Two typical planning documents: Statement of Work (SOW)
For the customer High-level document that describes what project delivers and when Contract between project manager and executive sponsor

Project Plan
Used by project manager to guide, monitor, and control execution of project Reviewed by managers or committees that oversee project

PROJECT PLANNING
Planning Documents Two typical planning charts: PERT (or CPM) Gantt

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PROJECT PLANNING
Planning Documents

(Reprinted from Valacich, George, and Hoffer, Essentials of Systems Analysis & Design, Prentice Hall, 2001)

(Reprinted from Valacich, George, and Hoffer, Essentials of Systems Analysis & Design, 1st Edition, Copyright 2001. Reprinted by permission of Pearson Education, Inc. Upper Saddle River, NJ)

PROJECT EXECUTION AND CONTROL

Managing Project Risks

PM Goal:
Manage risk of failing to achieve project objectives Human error Project scope changes Unanticipated technology changes Internal politics

Causes of Risk:

PROJECT EXECUTION AND CONTROL

Managing Project Risks

(Bashein, Markus, and Finley, 1997)

PROJECT EXECUTION AND CONTROL

Managing Business Change Lewin/Schein Change Model

PROJECT CLOSING
IT project deliverables completed Formal user acceptance obtained or failed project terminated Common questions for team members:
What went right on this project? What went wrong on this project? What would you do differently on the next project, based on your experience with this project?

SPECIAL ISSUE: MANAGING COMPLEX IT PROJECTS

Three factors critical to success of large, complex IT projects:
The business vision an integral part of project A testing approach used at program level (not just individual application level) Used a phased-release approach (rather than single rollout strategy)

Chapter 6 Understanding Network Effects

Information Systems: A Managers Guide to Harnessing Technology

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Introduction
Network effects: When the value of a product or service increases as its number of users expands
Also known as network externalities or Metcalfes Law

When network effects are present:

The value of a product or service increases as the number of users grows Theyre among the most important reasons youll pick one product or service over another

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Wheres All That Value Come From?

The value derived from network effects comes from three sources:
Exchange
Exchange creates value and every product or service subject to network effects fosters some kind of exchange

Staying power: The long-term viability of a product or service

Networks with greater numbers of users suggest a stronger staying power

Complementary benefits: Products or services that add additional value to the network

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Wheres All That Value Come From?

The three value-adding sources often work together to reinforce one another in a way that makes the network effect even stronger
When users exchanging information attract more users, they can also attract firms offering complementary products When developers of complementary products invest time writing software, switching costs are created that enhance the staying power of a given network

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One-Sided or Two-Sided Markets?

One-sided markets
A market that derives most of its value from a single class of users Have same-side exchange benefits Benefits derived by
interaction among members of a single class of participant

Two-sided markets
Network markets comprised of two distinct categories of participant, both of which that are needed to deliver value for the network to work Have cross-side exchange benefits
When an increase in the number of users on one side of the market creates a rise in the other side

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How Are These Markets Different?

Network markets experience early, fierce competition Firms are very aggressive in the early stages of these industries because:
Once a leader becomes clear, bandwagons form New adopters begin to overwhelmingly favor the leading product over rivals, tipping the market in favor of one dominant firm or standard
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How Are These Markets Different?

These markets are often winner-take-all or winner-take-most, exhibiting monopolistic tendencies where one firm dominates all rivals If a few strong players emerge they could even become an oligopoly The best product or service doesnt always win
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How Are These Markets Different?

Winning customers away from a dominant player in a network industry isnt as easy as offering a product or service that is better
Any product that is incompatible with the dominant network has to exceed the value of the technical features of the leading player, plus the value of the incumbents exchange, switching cost, and complementary product benefit The incumbent must not be able to easily copy any of the newcomers valuable new innovations

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How Are These Markets Different?

Technological leap-frogging can be really tough
Technological leap-frogging: Competing by offering a new technology that is so superior to existing offerings that the value overcomes the total resistance that older technologies might enjoy via exchange, switching cost, and complementary benefits

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Figure 6.1- Battling a Leader with Network Effects is Tough

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Strategies for Competing in Markets with Network Effects

Move early Subsidize product adoption Leverage viral promotion Expand by redefining the market to bring in new categories of users or through convergence Form alliances and partnerships Establish distribution channels
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Strategies for Competing in Markets with Network Effects

Seed the market with complements Encourage the development of complementary goods Maintain backward compatibility For rivals, be compatible with larger networks For incumbents, constantly innovate to create a moving target and block rival efforts to access your network For large firms with well-known followers, make pre-announcements
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