BS3912 Week 1 1

Managing e-Business & High Technology

Introduction» Module handbook» Plans for the semester» Overview of module content» Goals of the assignment

This week» What’s special about high technology? » How does it affect the way we Operate and Market?

Example: IBM in over 90 years» E-Commerce and E-Business

Week 1

BS3912 Week 1 2

What has Technology done for us?

1953 “Middle-class” salary £800

House-price in Midlands £3K Small family car £800 <14” Television (B&W) £100 Radiogram (AM + disc) £60 Computer (very slow) £300K 10” record, per minute 6p Pint of milk 2p

2011 Comparable salary £18,000

House-price in Midlands £200K Small family car £11K 19” TV/DVD (TFT Colour) £125 FM/AM radio/CD (stereo) £50 Computer (much faster) £280 Music CD, per min. 2-25p Pint of milk 50p

We need to understand why these huge discrepancies arise

“Globalization” is part of it, as is the cost of input commodities

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There is a pattern

Labour-intensive products and services have stayed at fairly constant price in real terms

Manufactured goods have got cheaper because of:» Improved efficiency

(this greatly outweighs lower unit labour costs)» Reduced input content – things are smaller and lighter» Simplification of design – tiny transistors replaced valves;

then one integrated circuit replaces millions of transistors; mechanical components largely replaced

» Mass production – with increased degree of automation» Migration of other production to low-cost countries

Increasing share of GDP is intellectual property products» Movies, CDs, software – very cheap to reproduce

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High Technology

The things that have dropped fastest in price are what I class as “high technology”» Television, radio, stereo» Computers and equipment including microprocessors» Cars and white goods, to the extent they are hi-tech

» Note that there is now global production of these products

The same goes for services» Bank charges were significant until IT revolution» Mail Order companies used to take big admin mark-up» Photo processing is faster and cheaper (and in colour)» Online brokers offer bargain dealing charges

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High Technology Costs Largely “up front” costs

» Create and test the chip; then “print” millions» Design, code and test the program; then copy millions» Research and write the book, make the film/programme

Advantage to big players – same costs, more earnings» Especially if product is potentially global» Or can be given local features by software changes

Competitors need to make a better or cheaper product» Causes “feature creep” as in Office Packages» Moore’s Law – ever faster processors from Intel and AMD

(is this why Apple abandoned Motorola?)» Lower price memory, TFT screens…

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Keeping up with the Tanakas

Product must meet market requirement

Need to exploit all opportunities for: » Cost-reduction – better yield, fewer inputs… » Quality enhancement – fewer problems for customer» USPs (real or otherwise)

You can be sure that your competitors…» Have a new version under development» Will soon be able to undercut your price» (and there may be others preparing to enter the market)

You need to enhance margins or get a new version first

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So High Technology Companies...

Do best if they have a global market» Can be achieved through international alliances

Embrace change, to:» Increase sales» Enter new markets» Cut costs

Seek a fast “cycle time”» New products developed before tail-off of old ones» Product or production improvements before competitors

The conflict: Need a global organization with ability to take quick decisions and deploy new ideas worldwide

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Aside – Dilbert Episode 2

This may be a good time to see Scott Adams perspective on managing a high-technology company

In the first episode, they decided to call the new product the “Gruntmaster 6000”

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IBM: An International Business

Started in USA with machine for 1890 census» Applied “punch card” technology to Business» Introduced automated time-clocks» 1914: “International Business Machines” in Canada» 1922: Whole corporation renamed IBM, and started

subsidiaries in most developed countries Specialized in precision electro-mechanical products:

» Butcher-scales, time-clocks, card sorters and collators» Bought electric typewriter company in 1930s» Biggest manufacturer of gears in the world by 1945

US Government took action in 1950s to limit IBM’s dominance of punch-card business

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Years of Success 1914-1950

» Developed punch-card technology to dominate markets in most of 1st world (development almost exclusively in USA)

1950s» Became major player in new electronic computer business» Came under pressure for dominating punch card market» Established global development and manufacturing» Invented “systems engineers”

1960s» “Bet the company” on System/360 and succeeded» Developed “must have” memory technology

1970s» Abandoned this memory technology for semiconductor» Came under renewed Anti-trust Act pressure

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Management System

Highly centralized Development» Laboratories in USA, Canada, UK, Germany, France, Japan» All managed and funded by central Systems Development

Division (SDD) in USA

National Sales Organizations» Able to respond to local opportunities» Paying royalties back to Corporate

Manufacturing distributed but managed centrally» Located to exploit skills and market opportunities» and to keep IBM balance of trade approximately neutral» Example, Large computers in France, medium in UK

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International Structure Marketing and Manufacture managed by region

» “Domestic” (US) operations» “World Trade” initially dealt with the rest of the world

– then AFE (Americas/Far East) + Europe ME Africa– then AFE split into Latin America, Canada and FE– EMEA largely decentralized now

Development remained a Corporate responsibility» Divisions handled particular product lines, e.g.

– Small mainframes in UK, D, CDN and Endicott NY– Big mainframes based in Poughkeepsie NY– Research in Yorktown NY, Almaden CA, Zurich CH

» Strong interdependence between laboratories

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Strong Control – Brave Decisions

Mid-50s – switched from punched-card equipment to electronic computers» IBM was dominant in punched card, not in computers

1971 – ditched magnetic memory in favour of chips» IBM was most efficient producer of magnetic cores (competitors

all licensed the IBM patents)

Pre-emptive strikes against technology substitution

Alas, didn’t do the same in the 80s» PC developed on a shoestring» Not integrated into Corporate strategy» Grossly underestimated competence of Microsoft

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Over-complexity

1970sThreat of Anti-trust action led to separation of Divisions» Large Systems; Smaller Systems; Office Products» Consequence was duplication of development and marketing

effort, and increasing cycle time» But still appreciated risk posed by Apple II in 1979

1980 to 1995» Further separation of divisions into “Lines of Business”

(an extra layer of management)» PC developed outside traditional structure – incompatible

with IBM systems and dependent on Microsoft» Underestimated quality and market-awareness of Microsoft

(“Windoze” was much faster than IBM’s OS/2)

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1990s – Recovery Recognized value of customers’ investment in mainframe

software and systems New focus on “Servers” – mainframe and mid-range;

embraced Web Services Major effort to reduce mainframe cost of ownership

(already lower than PC equivalent, similar to Unix)» Developed new family of C-MOS processors» Software focus on parallelism and management tools to

conceal complexity» Virtual organizations for collaborative development

PCs – concentrated on Corporate niche» Bought Lotus and developed the “Notes” line» Too late to beat Microsoft: abandoned OS/2 and started

pushing Windows NT as associate for mainframes

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Parallel Sysplex Development

The problem» Mainframe technology (ECL*) fast, but hot and costly» Not competitive with PC technology (CMOS*)

The solution» Build collections of CMOS chips working in parallel» Find some way to make them run existing applications

Logistics» Boeblingen in Germany was brilliant at CMOS chips» Poughkeepsie could integrate mainframes» Hursley could make CICS efficient on new hardware » Santa Teresa and Toronto could fix up the database * you don’t need to know these are Emitter Coupled Logic

and Complementary Metal Oxide Semiconductors

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How do you communicate?

Used to be hierarchical, backed up with Executive visits» Later meetings video-recorded and played in cafeterias

Education was by» Classroom-based technical and management education

(local, national and regional – major centre in Belgium)» On-line instruction and reference services

Written communication from 1980 by “PROFS” » E-mail, calendars, document sharing and transmission» Extended to virtual notice-boards, online forms …» Based on VM/370 terminal and proprietary network» Same hardware used for computer conferencing

From 1995, moved on to PCs and Internet protocols

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Dynamic Workplaces

This was the subject of an IBM/Lotus seminar in 2002 Concept is that the nature of work is changing:

» Less geographically determined» Involves more and changing professional interactions» Personal goals are becoming more of a constraint» Geography and hierarchies are less constraining

This is largely driven by technology» Mobile phones and the “mobile office”» Hot-desking when you are in the office» Internet and distributed access to corporate data» Ability to get work done in a different time-zone» Impact of broadband only just being seen

More later

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Benefits to Employee

(from 2002 IBM seminar)

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Impact on Work Impact on Personal Life

Positive No Impact Negative

D071: The overall impact of mobile work/work at home on your work at IBM

Big evolution – Big Pay-Off

Benefits to IBM » e-learning: over $350 million

in 2001» Customer self-service:

over $700M» Blue Pages:

estimated $10M» Consolidating News Sources:

$2M» HR Process Reengineering:

reduced costs by 40% and increased satisfaction to 92%

» e-Workplace: Key tool to changing the culture of IBM

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Corporate homepageCorporate homepage

Software GroupSoftware Group

EMEAEMEA

Server GroupServer Group

Global ServicesGlobal Services

Sales & DistributionSales & DistributionResearchResearch

Asia PacificAsia Pacific

Personal SystemsPersonal Systems

Sites on Portal reflect a Federation Model

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e-Commerce and e-Business

IBM is in the business of making high-tech products

But any business can depend on technology whatever its product:» Either by how you make it – Computer Integrated

Manufacturing, Supply Chain Management» Or by how you market it » Or by how you sell it – e.g. by e-commerce» Or how you run the organization – Enterprise Resource

Planning, electronic HR…» Can also allow loose federations to function as a virtual

organization These will be key considerations over the next 11 weeks

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Assessment

This consists of two assignments, both based on an organization you choose to study

The organization can be a real one, ora start-up company you propose and describe

No two students will study the same company or proposal» Eric will maintain a list; make your bids as soon as you can

Each assignment carries 50% of the module mark» Don’t worry about stealing the thunder of your second

assignment in the first

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Assignment 1: Due date: 6 May 2011

Assignment takes the form of an initial business proposal for one of the following: » a start up e-business company, » introduction of a high-technology product, or » introduction of e-business activities to an existing company

You will need to come up with a suitable innovation:» Write enough to explain what is proposed» Analyse the opportunity, risks and capital requirement

The assessment is concerned with your ability to analyse the business-case, rather than with the quality of the innovative idea itself

Needs handing in BEFORE the lecture!

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Assignment 2: Due 6 June 2011

You need to prepare and write a detailed plan for deploying the change you proposed, into the same existing or start up e‑business company

Assessment criteria concentrate on your understanding of the issues involved in managing high-technology ventures, and the logic and clarity of your analysis

If you are not around to hand in the assignment in person, please make sure you use recorded delivery and that the package is postmarked on or before the due date» Or you could arrange electronic submission on the LN