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INTRODUCTION PRODUCT INNOVATION CUSTOMER RELATIONSHIP INFRASTRUCTURE MANAGEMENT CONCLUSION March 2007 Internet + business = e-business Jl. Nakula I/5-11 Tel. +62243520165 - http://www.dinus.ac.id Universitas Dian Nuswantoro Business Strategic Table of content

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Chapter 5 <ul><li>Introduction > Business/IT alignment </li></ul><ul><ul><li>Individual decision > Task </li></ul></ul><ul><ul><li>Organizational behavior > Process </li></ul></ul><ul><ul><li>Business model > Value chain </li></ul></ul><ul><li>Product innovation and value proposition </li></ul><ul><li>Customer relationship and distribution channel </li></ul><ul><li>Infrastructure management and value configuration </li></ul><ul><li>Conclusion </li></ul>INTRODUCTION | PRODUCT INNOVATION | CUSTOMER RELATIONSHIP | INFRASTRUCTURE MANAGEMENT | CONCLUSION

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Business/IT alignment BUSINESS strategy I. TECHNOLOGY strategy Function integration Strategic fit BUSINESS IT strategy infrastructure I. SYSTEM infrastructure ORGANIZATION infrastructure Architecture Processes Skills Technology scope System competencies IT governance Administrative structure Business processes Skills Business scope Distinctive competencies IT governance [Henderson and Venkatraman, 1993] INTRODUCTION | PRODUCT INNOVATION | CUSTOMER RELATIONSHIP | INFRASTRUCTURE MANAGEMENT | CONCLUSION

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Business/IT alignment > individual decision BUSINESS strategy Function integration Strategic fit BUSINESS IT strategy infrastructure ORGANIZATION infrastructure I. TECHNOLOGY strategy I. SYSTEM infrastructure Internal/external USERS GOALs TASK Standards Architecture … Action Information Interaction APPLICATION USABILITY prototyping

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Order fulfilment (Pemenuhan order) Buyer Seller information Identify product Promote product influence Negotiate Negotiate payment BUY SELL goods Consume Serve information Query Answer Find source Find customer information product customer payment logistics after-sale order

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Business/IT alignment > organizational behavior BUSINESS strategy Function integration Strategic fit BUSINESS IT strategy infrastructure ORGANIZATION infrastructure I. TECHNOLOGY strategy I. SYSTEM infrastructure Intra/inter-organization Standards Architecture … Activity Resource Coordination WORKFLOW PRODUCTIVITY simulation PROCESS UNITs / AGENTs MISSIONs

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Business model > definition <ul><li>A buzzword with no precise definition? </li></ul><ul><ul><li>[…] Executives, reporters and analysts who use the term don't have a clear idea of what it means. They use it to describe everything from how a company earns revenue to how it structures its organization </li></ul></ul><ul><li>or … </li></ul><ul><li>An artifact aggregating … </li></ul><ul><ul><li>the value a company offers to one or several segments of customers, and </li></ul></ul><ul><ul><li>the architecture of the firm and its network of partners </li></ul></ul><ul><ul><li>for creating, marketing and delivering this value and relationship capital, </li></ul></ul><ul><ul><li>in order to generate profitable and sustainable revenue streams. </li></ul></ul>[Linder, 2000]

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Business/IT alignment > Business model BUSINESS strategy Function integration Strategic fit BUSINESS IT strategy infrastructure ORGANIZATION infrastructure I. TECHNOLOGY strategy I. SYSTEM infrastructure company/network Standards Architecture … Application Database Network INFRATRUCTURE PROFITABILITY ROI VALUE CHAIN CUSTOMERs VALUE PROPOSITION

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Business Model > questions Core capability Value configuration Partnership Customer segment Relationship Distribution channel VALUE proposition Revenue Cost HOW? WHAT? HOW MUCH? What do we offer to our customers? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? Who are our customers? How do we reach them? How do we get and keep them? WHO?  Trust

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Case study > Question <ul><li>A company … </li></ul><ul><li>created in 1997 by Alain Niccod and co </li></ul><ul><li>went on-line in 1998 </li></ul><ul><li>Bon appétit took over 33% of the capital stock in 1999 </li></ul><ul><li>Logistics center in Bremgarten in 2001 </li></ul><ul><li>Almost closed down in 2002 </li></ul><ul><li>Saved in 2003, following an overwhelming solidarity movement among customers </li></ul><ul><li>Strategic partnership with the No 1 of retail in 2004 </li></ul><ul><li>Evolution towards an on-line mall, with other “boutiques” in 2005 </li></ul>

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Value proposition 1 Core capability Value configuration Partnership Customer segment Relationship Distribution channel VALUE PROPOSITION Revenue Cost HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? Who are our customers? How do we reach them? How do we get and keep them? WHO? What do we offer to our customers? INTRODUCTION | PRODUCT INNOVATION | CUSTOMER RELATIONSHIP | INFRASTRUCTURE MANAGEMENT | CONCLUSION

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Value proposition > definition <ul><li>To characterize product innovation, the value proposition defines </li></ul><ul><ul><li>the actual product or service, and </li></ul></ul><ul><ul><li>the value or benefits perceived by customers of the products and services offered by the firm </li></ul></ul><ul><li>It defines the relationship between </li></ul><ul><ul><li>The performance attributes of products or services </li></ul></ul><ul><ul><li>The fulfillment of needs across multiple customer roles (acquiring, using, and disposing of products and services), and </li></ul></ul><ul><ul><li>The total cost </li></ul></ul>[Kambill, 1997]

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Value proposition > examples <ul><li>Facilitate research </li></ul><ul><ul><li>and reduced transaction costs </li></ul></ul><ul><li>Speed up distribution </li></ul><ul><ul><li>particularly for digital goods (written, music, image, software) </li></ul></ul><ul><li>Improve the quality of service </li></ul><ul><ul><li>by personalization, for example </li></ul></ul><ul><li>Improve facility and experience of buying </li></ul><ul><ul><li>capitalizing on ludic aspects </li></ul></ul><ul><li>Improve the transparency of information </li></ul><ul><ul><li>by opening up the information system </li></ul></ul><ul><li>Develop a sense of community </li></ul><ul><ul><li>and improve the diffusion of knowledge, contacts and trust </li></ul></ul><ul><li>Bind complementary products </li></ul>ticketless Yield Management Barcelone Loterie Romande reservation easyCar Illustration

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Value proposition > cost/performance COST PERFORMANCE Value frontier Underperformers Me-too Imitative innovation excellence innovation High-end market economy free Concorde EasyJet Exec jet High-end Quality, comfort … Low cost (frequent flight, on-time schedule, service) Major airlines [Kambill, 1997]

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Customer segment 2 Core capability Value configuration Partnership CUSTOMER SEGMENT Relationship Distribution channel Value proposition Revenue Cost HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? WHO? What do we offer to our customers? Who are our customers? How do we reach them? How do we get and keep them? INTRODUCTION | PRODUCT INNOVATION | CUSTOMER RELATIONSHIP | INFRASTRUCTURE MANAGEMENT | CONCLUSION

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Customer segment > definition <ul><li>Categorizations of the population into social class or psychologically defined groups </li></ul><ul><li>Area where a firm can specialize and gain competitive advantage </li></ul><ul><ul><li>By having lower costs or customer-satisfying differentiation </li></ul></ul>Large organization Home User Market Small Business Medium Business SOHO

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Distribution channel 3 Core capability Value configuration Partnership Relationship DISTRIBUTION CHANNEL Value proposition Revenue Cost HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? WHO? What do we offer to our customers? Who are our customers? How do we reach them? How do we get and keep them? Customer segment

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<ul><li>A channel can be defined as a set of links or a network via which a firm “goes to market” and delivers its value proposition. </li></ul><ul><ul><li>Owned channels - direct (i.e. Web, phone, fax…) </li></ul></ul><ul><ul><li>Owned channels - indirect (i.e. brand shops) </li></ul></ul><ul><ul><li>Partner channels (intermediation i.e. retail, shops, ...) </li></ul></ul><ul><li>More precisely it defines how a firm is “in touch” with its customers for a variety of tasks </li></ul><ul><ul><li>Customer Buying Cycle (CBC) </li></ul></ul><ul><ul><li>Customer Service Life Cycle (CSLC) </li></ul></ul>Distribution channel > definition The purpose is to make the right quantities of the right products or services available at the right place, at the right time

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Distribution channel > life cycle Implementation and Use Training Monitoring Maintenance Troubleshooting Reverse Logistics (Returns) Life Cycle Management Community Offer (Specification) Negotiation Decision Contract Order & Order Tracking Billing & Payment (Financing) (Risk taking) Fulfillment Information Consulting (&Requirements) Specification Testing (Community) Advertising Promotions Public Relations Partnerships AFTER SALES EVALUATION PURCHASE AWARENESS [Muther, 2000; Ives, 2000]

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Distribution channel > activities Illustration Promotion of authors and books Reading corners Coffee shops Sales person Cash registry (cash/credit card) Return books Banners to books etc. Search function Customer review Critics Excerpt Shopping cart checkout (Credit card) Order status Return books Transaction history Specialized affiliate Websites Expert commentaries Recommendation Free online courses Courses based on books etc. Mass advertising

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Customer relationship 4 Core capability Value configuration Partnership CUSTOMER RELATIONSHIP Distribution channel Value proposition Revenue Cost HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? WHO? Who are our customers? How do we reach them? How do we get and keep them? Customer segment What do we offer to our customers?

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Customer relationship > customer equity <ul><li>Customer Acquisition </li></ul><ul><ul><li>How do we get customers? </li></ul></ul><ul><ul><li>Growing market share </li></ul></ul><ul><li>Customer Retention </li></ul><ul><ul><li>How do we keep customers? </li></ul></ul><ul><ul><li>Nurturing customer loyalty </li></ul></ul><ul><li>Add-on selling </li></ul><ul><ul><li>How do we get customers to buy more? </li></ul></ul><ul><ul><li>Enhancing Average Revenue Per User (ARPU) </li></ul></ul>In some mobile firms, customer acquisition costs had reached almost a quarter of all operating expenses said Mr Zehle, CEO of [Blattberg, 2001]

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Customer relationship > trust <ul><li>Trust and security </li></ul>Certification Verification et authorization Escrow Notary, payments Expertise Guarantee of quality Rating Reputation of actors Insurance Risk management

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Customer relationship > customization Make recommendation 2 3 4a 5 4b Establish configuration Planing of production Listen to the customer Distribution CRM Production (internal) ERP Outsourcing (external) SCM One-to-one Mass-customization

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Infrastructure management upload images Print of images Delivery of items Marketing of product services Printing infrastructure Packing staff ColorMailer Website enables value for ACTIVITIES CAPABILITIES PARTNERS INTRODUCTION | PRODUCT INNOVATION | CUSTOMER RELATIONSHIP | INFRASTRUCTURE MANAGEMENT | CONCLUSION

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Business process > integration Order processing Order confirmation Planing of realization De-stocking loading Planing delivery Customer service Prevision Planing of stock Planing of capacity MRP choice supplier Availability stock Scheduling Stock allocation order of priorities Scheduling manufacturing Scheduling distribution Process Order planning Process Replenishment Process Production & assemblage Process Distribution <ul><li>profitable? </li></ul><ul><li>available in the inventory? </li></ul><ul><li>can be manufactured? </li></ul><ul><li>integration with shipping companies </li></ul><ul><li>tracking by the customers </li></ul><ul><li>return of goods </li></ul><ul><li>flexibilityy </li></ul><ul><li>integration </li></ul><ul><li>BPR (business process reengineering) </li></ul><ul><li>INTEGRATION WITH ERP & SCM </li></ul>[Kalakota, 2001]

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Core capabilities (resources) 5 CAPABILITY Value configuration Partnership Customer relationship Distribution channel Value proposition Revenue Cost HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? WHO? Who are our customers? How do we reach them? How do we get and keep them? Customer segment What do we offer to our customers?

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<ul><li>Resource </li></ul><ul><ul><li>ASSETS </li></ul></ul><ul><ul><li>available & useful </li></ul></ul><ul><ul><li>in detecting and responding to </li></ul></ul><ul><ul><li>market opportunities or threats </li></ul></ul><ul><li>Capability </li></ul><ul><ul><li>KNOW-HOW </li></ul></ul><ul><ul><li>Repeatable patterns of action in the use of assets </li></ul></ul><ul><ul><li>Aptitude to exploit and coordinate resources </li></ul></ul><ul><ul><li>to create, produce, and/or offer products and services to a market </li></ul></ul>Capability > definition DO OWN [Wallin, 2000]

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Value chain 6 capability VALUE CONFIGURATION Partnership Customer relationship Distribution channel Value proposition Revenue Cost HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? WHO? Who are our customers? How do we reach them? How do we get and keep them? Customer segment What do we offer to our customers?

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Value chain > definition <ul><li>Set of interdependent activities </li></ul><ul><ul><li>that add value </li></ul></ul><ul><ul><li>for the customers </li></ul></ul><ul><ul><li>to the company products or services </li></ul></ul>infrastructure Human resources Technology development Procurement inbound logistics production outbound logistics marketing & sale After-sale Main activities Support activities Value

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Value chain > Illustration

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Value configuration Value chain Value shop Value network [Stabell, 1998]

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Partnership agreement 7 capability Value configuration PARTNERSHIP Customer relationship Distribution channel Value proposition Revenue Cost HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? WHO? Who are our customers? How do we reach them? How do we get and keep them? Customer segment What do we offer to our customers?

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Partnership > Supply chain managment (SCM) SCM [Kalakota, 2001] manufacturer supplier seller distributor buyer information payment product «Bullwhip effect»

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Partnership > e-market Dutch Flower auction E-PROCUREMENT SCM [Pinker, 2003]

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Partnership > Alliances Author marketing Distributor inventory sales Information systems coordination contents Shipping transport tracking Affiliate sales Customer buy content Bank payment deliver deliver order sale order sales critics Credit card clearance returns network

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Revenue stream capability Value configuration Partnership Customer relationship Distribution channel Value proposition REVENUE Cost HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? WHO? Who are our customers? How do we reach them? How do we get and keep them? Customer segment What do we offer to our customers?

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Revenue stream > categories REVENUE one time recurrent sale registry subscription advertisement use Income of the subscription fees to become a member Paid by the buyer and/or the vendor transaction commission Income, percentage of a transaction made by the settlement (affiliate program) Income of online sales paid by the buyer Income of the ad banners posted on the shopfront Paid by the vendor <ul><li>Phone </li></ul><ul><li>registry </li></ul><ul><li>subscription </li></ul><ul><li>Usage </li></ul><ul><ul><li>Time </li></ul></ul><ul><ul><li>Services </li></ul></ul>combination Mobile: PRE-PAID card

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Profit and cost account capability Value configuration Partnership Customer relationship Distribution channel Value proposition Revenue COST HOW? WHAT? HOW MUCH? How do we operate and deliver? How do we collaborate? What are our key competencies? What are our revenues? Our pricing? What are our costs? WHO? Who are our customers? How do we reach them? How do we get and keep them? Customer segment What do we offer to our customers?

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Profit model <ul><li>PROFIT = (P – V C ).Q – F C </li></ul><ul><ul><li>P the unit price of a product </li></ul></ul><ul><ul><li>V C the variable cost of a unit </li></ul></ul><ul><ul><li>Q the number of products sold </li></ul></ul><ul><ul><li>F C fixed costs </li></ul></ul>Net income (loss) Income (loss) before tax Operating income (loss) Total operating expenses Operating expenses research and development sales and marketing general and administration Total Costs of goods sold Gross margin Total Costs of goods sold Cost of goods sold Total net revenue Revenues

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The Business Model Ontology (BMO) Channel Customer Proposition Configuration Capability Link Activity Cost Revenue Partnership Relationship Actor Needs requires Profit HOW? WHAT? HOW MUCH? WHO? Resource INTRODUCTION | PRODUCT INNOVATION | CUSTOMER RELATIONSHIP | INFRASTRUCTURE MANAGEMENT | CONCLUSION

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Business model > Bird’s eye view Illustration

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A company that defines it’s business model can... <ul><li>Understand </li></ul><ul><ul><li>The process of modeling social systems or ontologies– such as an e-business model – helps identifying and understanding the relevant elements in a domain and the relationships between them </li></ul></ul><ul><li>Share knowledge </li></ul><ul><ul><li>The use of formalized e-business models helps managers communicate and share their understanding of a business among other stakeholders </li></ul></ul><ul><li>React to rapid change </li></ul><ul><ul><li>Mapping and using e-business models facilitates change . Business model designers can easily modify certain elements of an existing e-business model </li></ul></ul>Formal Document

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A company that defines it’s business model can… (continued) <ul><li>Measure </li></ul><ul><ul><li>A formalized e-business model can help identifying the relevant measures to follow in a business, similarly to the Balanced Scorecard Approach </li></ul></ul><ul><li>Simulate & learn </li></ul><ul><ul><li>e-business models can help managers simulate businesses and learn about them. This is a way of doing risk free experiments, without endangering an organization </li></ul></ul>System thinking BSC

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Business model innovation <ul><li>Innovating in one or several of the business model components and as combining them in new and innovative ways </li></ul><ul><li>Managers and executives had a whole new range of ways to design their businesses, which resulted in innovative and competing business models in the same industries. </li></ul><ul><li>Before it used to be sufficient to say in what industry you where for somebody to understand what your company was doing because all players had the same business model. </li></ul><ul><li>Today it is not sufficient anymore to choose a lucrative industry, but you must design a competitive business model. </li></ul><ul><li>In addition increased competition and rapid copying of successful business models forces all the players to continuously innovate their business model to gain and sustain a competitive edge. </li></ul>[Osterwalder, 2005]

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Business model innovation > typology <ul><li>Supply-driven innovation </li></ul><ul><ul><li>New way of doing/supplying or new technology </li></ul></ul><ul><li>Demand-driven </li></ul><ul><ul><li>New or changing customer needs </li></ul></ul><ul><li>Similar business model </li></ul><ul><ul><li>Same value proposition </li></ul></ul><ul><li>Extended business model </li></ul><ul><ul><li>Adding new things </li></ul></ul><ul><li>New business model </li></ul><ul><ul><li>New rules of the game … </li></ul></ul>[Osterwalder, 2005]

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Business model innovation > examples [Osterwalder, 2005] E. 9. Cost structure C. 8. Revenue streams B. 7. Partnership agreement A. 6. Value configuration I. 5. Core capabilities F. 4. Customer relationship D. 3. Distribution channel G. 2. Target customer segment H. 1. Value proposition

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Questions … http://www.hec.unil.ch/yp/TALK/slides/SHS_Mar2006.ppt ? INTRODUCTION | PRODUCT INNOVATION | CUSTOMER RELATIONSHIP | INFRASTRUCTURE MANAGEMENT | CONCLUSION