Business Planning Part one IS 208 Peter Lyman

Business Planning: Part one IS 208 Peter Lyman March 6, 2001

The premise…. IT professionals need to be able to map how their workplace makes strategic and operational decisions and how innovation is funded. This is the political context of IT work, shaping resources and implementation -- success and failure. Business planning is about these issues.

Outline I. IT and Organization: New Paradigms II. Models of Management and the Firm III. Startups: Entrepreneurial Investment IV. Assignment V. Next time

I. The network organization A new theory of firms and organizations is taking shape. Key postulate, IT has evolved from being tactical to being strategic: “IT deployment is marginal only if superimposed upon the existing organization. ” Venkatraman

Information management t Venkatraman’s postulate: Management is evolving from a command paradigm to the communications paradigm = flatter organizations, more local autonomy, management by coordination > command control t Information management has rationalized the organization, but real time network communication is changing it fundamentally --from hierarchy to enterprise (networks of self managed enterprises that operate like an internal market system).

Networks are strategic Walter Powell’s argument: Networks are changing the firm and its environment: tfrom EDI to B 2 B t. Rosegger: strategic alliances t. Powell: networks and firms t. Cisco: “web enterprises”

II. New models of management t. Eliasson t. Fahey

The firm as an experimental machine. Eliasson: Key knowledge is “know how, ” tacit knowledge that cannot be communicated, but is based upon experimentation in the marketplace. The organization of this experimental learning is the key to innovation: t“the competent team” is the key tthe market is being continuously reinvented t Rosegger: knowledge acquisition has

Eliasson’s entrepreneurial model of decision making t. Strategic selection by top competent team, answering “What? , ” based on career experience knowledge t. Control & coordination by executive staff, answering “In what order? , ” based upon expertise from professional education t. Operations, by managers, answering “How? , ” based upon training and experience.

Competency (Eliasson 211) The competency of organizations is a function of knowledge management, e. g. , entrepreneurial vision, experimental attitude towards markets, career management t Sense of direction (intuition) t Daring (risk-willingness) t Efficiency in identifying mistakes (analysis) t Effectiveness in correcting mistakes (activity) t Effectiveness in managing (coordinating) successful experiments

“The career” t. Eliasson’s model of the firm requires a theory of the career, since tacit knowledge acquired by experience is the basis of entrepreneurship. t. One of the key tasks of management is to provide a logical sequence of jobs to develop this capability.

Fahey: three dimensions of strategic management Competitive environment = Marketplace strategy Managing the organization = making & executing choices Strategic Management = Balancing the two _________________

Fahey’s model of the firm 1. 2. 3. 4. Strategic intent/market vision = Board Investment Programs = President Objectives = Executive team Operating goals = Management NOTE: Investment is the key to innovation in this model.

Investment IT involves investment. Understand the business model, culture and decision making process of your organization to figure out the politics of IT investment. (a) internal reallocation (b) loans (c) venture capital formation

Reallocation t. Operating budgets are cut to create onetime or recurring funding for investment toperating units can often apply to get the money back for new initiatives t. Example: The Library operating budget cut annually, but could apply for one time funding to use IT to create long term efficiencies, or get loans from savings funds.

III. Startups -- entrepreneurial capital formation Schumpeter = the association of IT, innovation and entrepreneurship with “creative destruction” t. Finding competitive advantage t. Creating markets

Christensen. Markets can also constrain innovation. t Innovative technologies often disrupt customer expectations and perceived needs t Innovative technologies often are not high priority within the firm, because they compete for resources, don’t fit the culture t Disruptive technologies require new business models, thus often are produced by startups or autonomous or spun out “tiger teams. ”

venture capital formation t. Investment (seed, first phase, second phase) t. Team investment (Options (when do they vest? )) t. Working capital (the current crisis, incubators) t. Business partners (legitimacy, business webs) t. IPO (investors out, public in)

Key themes t. The competent team (190) tcompetency > credentials = track record & reputation for success are the coin of the realm. t“outgrowing competency”

Key skills President and CEO VP marketing t inventing new markets t negotiating with customer VP Business development t strategic partnerships t networks Chief Financial Officer t Business plan: t conflict of interest? CFO vs VC

Sustainable competitive advantage t. Inventions and business models -- two different things, both need to be innovative tbusiness model = what makes the business plan sustainable? t. Competitive “unfair” advantage = what differentiates you from the competition? t. Knowledge acquisition = how do you protect your edge (IP, R&D,

5. Assignment. What is the business plan of the organization for which you are developing your project? t. Who is the target market? Customers? t. Who are the participants in the value chain? t. What is the competition? Their sustainable competitive advantage? Opportunity? t. What is the decision making structure?

Requirements Write this as a business briefing paper -concise, to the point, content rich, no “blah, blah. ” t. The executive summary should tell the whole story with precision. t. Maximum length, 5 pages double spaced. t. Due date: March 22, 5 PM. t. Individual work -- collaborate with others

Next time. t. Issue: What is the business plan of The Knot? Would you advise a VC to fund them? t. Skill: Reading financial statements (Livingstone) Balance sheets (230 & 236) -- apply to Amazon (100) and the Knot (278) Income Statements (232 & 236) -apply to Amazon (99) and the Knot (277) Cash Flow Statements (234 & 237) --