LEVERAGE IT TO CREATE BUSINESS ADVANTAGE

Part IV
Analyzing Value

Company business value evaluation can be done by looking at its financial statements. Financial ratios that involves comparison with other companies and historical performance are used to provide answers to questions regarding the economics of the business model. These ratios can help to understand the impact of the strategic decisions. Example of the financial metric is using the DuPont Formula to determine return on equity (ROE):

ROE = (Profit margin)*(Asset turnover)*(Equity multiplier) = (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)= (Net Profit/Equity)


ROE is important to understand business model performance.

If company is growing rapidly the financial return is not enough to understand its value. Drivers for value creation needs to be understood. The ability to offer value-added services to customers can be a key driver to revenue growth.

In business model value audit there are 3 ares which are listed below.

Identify internal and external stakeholders:  assess the internal and external stakeholders interests and expectations. Question to answer:

• What do stakeholders require and what they are willing or able to provide?
• Can company attract, retain, and motivate key customers?
• Are these customers willing and able to pay?
• How do the interests of other stakeholder groups (e.g. employees, partners,
• government, society)
• What are the objective and subjective benefits that every key stakeholder receives while doing business with the company?

Identify business model drivers and alignments: assess the insights gained. Questions to answer:

• What are the key opportunities and threads identified during the strategy audit?
• What are the key strength and weaknesses during capability audit?

The SWOT analysis can help to identify key revenue, cost, and asset efficiency drivers.  If you develop a business model dashboard, you can show the linkage and alignments between different components. You can identify how IT can help to enable every key driver of economic value.

Develop the financial model and determine financial needs: - after the business model drivers and value delivered to key stakeholders is identified, you can develop the financial model for the company.

In summary, the power of business model audit comes from linkage between strategy, capability and value drivers of business performance. According to S. Shapiro, when strategy, capabilities and value are aligned with each other and external environment, a business model can create a "virtuous cycle" of innovation, productivity and increasing returns. The contemporary dynamics of business models makes it even more important to understand these linkage to be able to adjust to the environment.

Resources:
L. Applegate, R. Austin, D. Soule. Corporate Information Strategy and Management, 2009

LEVERAGE IT TO CREATE BUSINESS ADVANTAGE

Part III
Analyzing Capabilities

After strategic goals are defined, the next step is to get resources to build capabilities needed to achieve these goals. Capabilities let company fulfill the current strategy and to grow.

 A business model capability audit frames analysis in the four areas:

Analyze processes and infrastructure: includes evaluation of core operating processes to produce products, deliver services, acquire and serve customers, manage relationship with key stakeholders and deliver innovations. It also includes analysis of processes where company involved with suppliers, customers, and partners. Then a question "do end-to-end support processes  (payroll, finance, HR, etc.) enable the efficient and effective strategy execution?' should be answered. "Do participants at all levels have needed information and infrastructure required to support them? Are operations defined as the best in class for speed, quality, cost, and production? Is IT structured to form the foundation for execution? IT should not only enable firms to coordinate activities and share information within the organization and across extended network of suppliers, customers and partners, but also let have an up to day current information for executive to take action which will create value,

Evaluate people and partners:  with all core processes defined company needs to identify if there is needed expertise withing company resources and how easy it it to attract, develop, motivate, and retain the expertise to carry the core processes execution. Some questions to answer:

• Does company have the image to attracts talents?
• Are culture and incentives in place to enable leadership to engage and inspire?
• Are performance targets, measurements systems, rewards, and punishments in place to provide fairness and transparency?

Examples of salesforce quality and productivity  measurements are sales per employee, customer retention per employee, and customer profitability per employee. IT is a tool for increasing business intelligence.

Assess organization and culture: identify if organization design makes it easy or harder fro people to make decisions and get work done. Questions to answer:

• Do people have grouped into right units?
• Do they have accountability authorities to make their  decisions about the work they are doing to meet performance targets?
• Are roles and responsibilities are clear?
• Are mechanisms like formal reporting relationship, steering committees and liaison positions, information and communication systems in place to coordinate work across units?
• Does the informal culture support individuals and groups?
• Do shared visions and values enable employees and partners to work effectively together?
• Does everyone understand boundaries for decision making and actions beyond which they should not cross?

The ability to use IT to supports sharing information related to above challenges and monitor decisions and actions makes company agile and flexible to changes.

Evaluate leadership and governance: assess  the level  of company's leadership strength. Effective leaders use governance structure and system that includes:

• strategic control - observing the environment, determining strategic positions,  setting goals,  prioritizing projects and investments
• operating control - setting clear short-term objectives, and controlling business operations and projects
• effective risk management - identification and management of key risks
• effective development and management of the shared culture and values that helps in decision making

Questions to answer:

• Have leaders communicated compelling and clear vision for the future that unites people and partners around common goals?
• Do leaders at all levels balance creativity and innovation with disciplined execution?
• Can they set goals and deliver results?
• Are leaders well connected and have they demonstrated a track record of success?
• Are there a high-performing board of directors and an executive team that closely monitor strategic and operating performance/
• Do the board and executive team have a systems in place to identify and manage risks while also ensuring that the organization's culture and values guide decisions and behavior levels?

Resources:
L. Applegate, R. Austin, D. Soule. Corporate Information Strategy and Management, 2009

LEVERAGE IT TO CREATE BUSINESS ADVANTAGE

Part II
Analyzing Strategy

Analysis include 4 areas:

Assess business context: helps define company's boundary positioning by analyzing the industry’s trend's and disruptors, by defining what opportunities can be pursued and their associated risks, and sorting out the opportunities that will not be pursued. It provides the high level of industry understanding. It helps framing choices concerning company's boundary’s positioning. It also include analysis and identification of IT trends, disruptors, opportunities and risks.

Analyze customers: includes analysis of current and future customers by identifying pressing customer's problems and determination how existing and future products and services can resolve these problems. It is done by talking and observing customers, involve them in designing the products. The goal is to help framing the choices regarding a company's market positioning. IT solutions for collection the a real time data and interact with future and current customers is an important foundation for market positioning decisions.

Analyze competitors and substitutes: helps understand what alternatives customers have, which firms offers different solution, how different this solutions are, how much customers are willing to pay. The goal is to help framing the choices regarding a company's product positioning. IT can serve as a source of differentiation and proprietary advantage.

Assess the business network: analyzes the network of suppliers, distributors and other partners who will be included to implement the strategy. It helps frame more choices regarding the role a company plays and its positioning within business network.

Resources:
L. Applegate, R. Austin, D. Soule. Corporate Information Strategy and Management, 2009

LEVERAGE IT TO CREATE BUSINESS ADVANTAGE

PART 1
A good business model is essential to every successful business.

During the previous century the well-established business model was used by most executives to drive their companies. Dot-com era destroyed this model. In today's global network economy new business models are emerging. Radical changes how companies create value within industry requires a new management tools to define strategy and its execution - framework of a business model. IT has great impacts on the three components of a business model - strategy, capabilities, and value. It plays bigger roles in transforming business models.

Business Model definition:

A business model defines how an organization interacts with its environment to define a unique strategy, attract the resources and build the capabilities required to execute the strategy, and create value for all stakeholders.

There are fundamental principles how to run a sustainable business. Using these fundamentals is very important during the turbulent time. An enterprise's business model frames these fundamentals. It can be used for strategic analysis and decision making. It also used to assess the IT impact on the business.

Strategy:

According to Michael Porter, strategy is a set of choices that determine the opportunities you pursue and the market potential of these choices.

These choices define strategic positioning along four key dimensions:
• Market positioning - customers to serve and channels to reach the customers
• Product positioning - products and services to offer and the price to be charged
• Business network positioning - role within extended network of suppliers, producers, distributors, and partners
• Boundary positioning - markets, products, and businesses that will NOT be pursued.

A successful positioning attracts many copy cats. Sustainable advantage happens when barrier for entrance is high and it is difficult for competitors to imitate.

Business model audit can by done by analyzing strategy, capabilities, and value created for all stakeholders.

Resources:

L. Applegate, R. Austin, D. Soule. Corporate Information Strategy and Management, 2009