Strategies performed by companies

The Effective Organization

The Nuts and Bolts of Business Value

Lee SchlenkerAlan Matcham

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The Nuts and Bolts of Business Value

Lee SchlenkerAlan Matcham

Copyright 2005 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester,West Sussex PO19 8SQ, England

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Library of Congress Cataloging-in-Publication Data:

Schlenker, Lee.The effective organization : the nuts and bolts of business value / Lee

Schlenker, Alan Matcham.p. cm.

Includes index.ISBN-13 978-470-02492-8ISBN-10 0-470-02492-5

1. Organizational effectiveness. 2. Value added. 3. Informationtechnology Economic aspects. 4. Organizational change. 5. Success inbusiness. I. Title: Business value. II. Matcham, Alan. III. Title.

HD58.9.S347 2005658.401 dc22

2004027308

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN-13 978-470-02492-8 (HB)ISBN-10 0-470-02492-5 (HB)

Typeset in 10/16pt Kuenstler by Laserwords Private Limited, Chennai, IndiaPrinted and bound in Great Britain by TJ International, Padstow, CornwallThis book is printed on acid-free paper responsibly manufactured from sustainable forestryin which at least two trees are planted for each one used for paper production.

Contents

Foreword by Sergio Giacoletto vii......................................................................................................

Preface ix......................................................................................................

Acknowledgements xv......................................................................................................

Chapter 1 In Search of Business Value 1......................................................................................................

Chapter 2 The House of Mirrors 29......................................................................................................

Chapter 3 Is What You Measure What You Get? 51......................................................................................................

Chapter 4 It Takes Two (or More) to Tango 79......................................................................................................

Chapter 5 Going Around in Circles 103......................................................................................................

Chapter 6 The Joined-up Economy 123......................................................................................................

Chapter 7 Soldiers of the Shadows 147......................................................................................................

The Effective Organization 169......................................................................................................

Index 175......................................................................................................

ForewordSergio Giacoletto EVP Oracle EMEA

Most organizations today operate in a networked, highlyconnected environment where remaining competitiverequires different strategies from those previously deploy-ed. Information, knowledge, innovation and organizational exibilityare becoming the pillars of success as we enter an era where we movefrom the law of diminishing returns, based only on efciency improve-ments, to the law of enriching returns, based on the information ageand the knowledge economy.

We are witnessing a signicant shift from delivering value throughproduct functions and features to a service- and solution-basedapproach, a solution being dened here as a combination of productsand services, together with the human touch that enables understand-ing, trust and relationships to develop. In this context responsibilityfor delivering real value today, particularly in the service industry,lies as much with people who manage relationships as it does withproduct experts.

I nd it helpful to think of my own organization as a web of humaninteractions facilitated by a web of electronic connections. Valuewithin the business is created from experience and passed from oneperson to another, one country to another and one industry to another.

v i i i / F O R E W O R D

In our search for greater exibility we foster the development of socialnetworks and less formal structures. Employees are encouraged tobecome members of several communities in order to stimulate thecreation of innovative solutions to our clients problems. However,there is always more one can do and that is why I welcome thecontribution of this book.

Through this book, Lee Schlenker and Alan Matcham shed light ona number of critical points that enable the reader to reframe theway value can be created in todays business environment. Takinga range of examples, they begin by examining the inherent linksbetween business value, business models and corporate strategy. Theydescribe how the impact of ICT on management has inuenced ourperceptions of value and they propose the Business Value Matrixas a guide to determining how best to deploy talent, organization andtechnology to produce value.

I believe this book represents an important milestone in our under-standing of how business value is evolving and addresses the challengeof business value whilst delivering tested strategies to build a moreeffective business organization.

Preface

Dorothy,1 one of the guests on the 1950s television show,This is Your Life, explained that her job over the pre-ceding thirty years was attaching nuts to bolts. When theshows host, Groucho Marx, inquired what products her rm producedand the importance of her work, she readily admitted that she didntknow . . .

Patrick, a sales developmentmanager for a leading European hardwaresupplier, recently explained that his job for the foreseeable future wasproducing euros and cents. When we inquired as to how he plannedon reaching this objective, he admitted that he really didnt know . . .

Over the last several decades customer demands for quality, forservice and for value have changed signicantly in both industry andcommerce. During the same time span, managements formula forimproving corporate productivity has remained quicker + cheaper =better. Our rms today have never been so efcient, and yet ouremployees and managers complain of ever-increasing levels of apathy,stress and rigidity in our organizations. The following pages do notpropose a quick x for the efciency paradigm, but a fundamentallydifferent vision of howwe add value to our work and our organizations.

As a manager, your job is adding value to your organization. Yourcompetitive position in your company, in your profession and in your

x / P R E F A C E

career is based on client perceptions of the value of the products andservices you have to offer. Client perceptions of value have changedsignicantly over the years as the global economy has encouraged theprogressive outsourcing of products, business processes and talent.Unfortunately, most of themanagement books you will read miss thispoint in just focusing on producing better products or more efcientorganizations. In the pages that follow we will directly address thechallenge of business value, and propose practical strategies to buildan effective business organization.

This book is intended for all employees actively searching for themeans to add measurable value to their careers and their organiza-tions. Our objective is to explore with you the issues and challengesof leveraging information technology to respond more effectively toclients needs and objectives both within your company and withinyour market. Based upon our own clients successes and failures overthe last decade, we hope that this contribution can provide a commonforum for discussion within your organization and between your rmand its different business partners.

Exploring business value requires coming to grips with a number ofissues. Let us begin by trying to ask the right questions:

To what extent is business value the key indicator in determiningsuccess for both a manager and his or her organization?

How has business value been inuenced by the evolution ofmanagement wisdom over the last two decades?

How has our perception of business value been formed and dis-torted by organizational and technological innovation?

How can we broaden the focus of our employees, managers andbusiness partners from efciency gains to building more effectiveworking relationships?

P R E F A C E / x i

What are the implications of the networked economy on buildingbusiness value today?

What needs to be learned to put the ideas presented in this bookinto practice?

Several threads will be woven into the fabric of the chapters thatfollow. The rst chapter will lay the foundations for our argumentsin examining the inherent links between business value, businessmodels and corporate strategy. We will contend that business valueis fundamentally different from either performance or productivity.We demonstrate that the notion of business value has evolved sig-nicantly over the last 15 years. We argue that there is no one bestway for adding value to organizations; the search for business valueis a perpetual quest that involves adapting physical and informationresources to the evolving reality of distinct business communities.We conclude in proposing the Business Value Matrix as a guideto determining how we can best deploy talent, organization andtechnology to produce value in each organization and in each market.

The second chapter examines the complex relationship betweenrecent innovations of information technology and the evolution ofthe practice of management. The impact of IT on management overthe last two decades has been less a question of processing speedthan how information technology has shaped, and been shaped by,new concepts of management, productivity and value. The last threedecades have witnessed distinct revolutions in business informationsystems: the invention of the personal computer, the dissemination ofrelational databases, the development of clientserver architecturesand the introduction of the Internet have all tested deeply rootedbeliefs on both how the rm should be structured and how valueshould be measured. The notion of personal productivity, whichdirectly threatened classical conceptions of industry and commerce

x i i / P R E F A C E

in the late 1970s, has been contested in turn by new models of thevalue chain, of reengineering, of the extended enterprise and mostrecently by the networked economy. Since neither of these evolutionshas replaced the others, all compete for managements attention inthe corporate agenda.

If information technology helps us be quicker, cheaper and better,why are we not more productive? This productivity paradox is essen-tially due to the fact that we view information technology as both ameasurement tool and a source of corporate performance. Businessvalue is the result of a number of factors of production, as well as ofthe corporate vision of where the organization has been and whereit would like to go. We will argue in the third chapter that produc-tivity depends not only on how we measure performance but on theinformation technology we use to do so. We will explore how goodintentions concerning information technology often lead to poor busi-ness practice. We will conclude that the most signicant contributionof information technology is not in its ability to precisely measurevalue, but in its capacity to push us to think differently about therelationship between what we measure and how we wish to improveour business practice.

The fourth chapter examines how the trend from producing productstowards focusing on services and clients has impacted our perceptionsof business value. We will begin this analysis with an overview of theevolution of process-centric applications from enterprise resourceplanning to supply chain management to client relationship man-agement. We will investigate how the client perceives value, and theextent to which clients contribute to value creation. We will examinehow client-centric approaches have challenged how we use IT tocapture business value, where we attempt to improve processes, andwhat results we measure. We will conclude with a discussion of how

P R E F A C E / x i i i

these challenges can impact strategies for change management inyour business.

The fth chapter examines the role of IT in facilitating change inindividuals, rms andmarkets. To what extent can technology-drivenchange be a catalyst for improving organizational performance? Thedynamics of change have led in some cases to a virtuous circle reinforc-ing an organizations ability to respond to evolving market conditions,and in others to a vicious circle disrupting organizational focus, erod-ing competitive position and inevitably leading to problems with thebottom line. We will conclude this chapter with a discussion of whyin certain cases IT appears to reinforce virtuous circles of creativityand passion, and in others leads to vicious circles of standardization,demotivation, and apathy towards work and the workplace.

In the sixth chapter of this work, we introduce the notion of thejoined-up economy as a vision for driving business value. In the lastdecade, innovative business executives have transformed their rmsinto networked businesses characterized by the digitalization of keybusiness processes, the integration of market norms for informationexchange, the development of business communities around visionsof shared benets and the co-engineering of newmarket opportunities.In the next decade, business value in the joined-up economy will betied to the ability to build bridges both between your organizationand its market and between current practice and your vision of thefuture. How will information technology evolve to add value in thisjoined-up economy?

The nal chapter will explore what your managers and employeesneed to learn about using information technology to build businessvalue, learning about business as a process integrated in your busi-ness community rather than in management theory of notions of best

x i v / P R E F A C E

practice. The value of information technology is not in increasing thedistance between employees, the organization and their customers,but in building bridges over culture, time and space to bring man-agement and their clients together. Successful implementations useinformation technology to break down the physical and mental barri-ers between learning and work rather than pushing learning outsideof the workplace or promoting quicker, cheaper, more efcient pro-cesses. Finally, successfully building a learning community dependsupon designing information strategies that complement companyculture and current technology investments.

In sum, we hope to share with you how our Business Value Matrixcan help you breed business value into your projects, teams andorganizations. The reality of the joined-up economy encourages usto focus on how we can work together with our clients and businesspartners to build business value. A new generation of informationtechnology, based on collaborative strategies, can be used to cap-ture, store and communicate new metrics on the effectiveness ofour relationships with internal and external clients. Built upon thefoundations of efciency, a new mindset around effectiveness, talentand innovation can help provide the nuts and bolts of business valuefor your careers, professions and organizations.

Lee Schlenker Ecole de Management de Lyon [email protected] Matcham The Oracle Corporation [email protected]://leeschlenker.typepad.com

Note

1. The stories that illustrate this work have been taken from real-lifeexperience certain names have been changed to help ensure anonymity.

Acknowledgements

One of the central ideas of this book is that business valueis a product of human interaction. Nowhere has the realityof the joined-up economy appeared clearer to us than inthe support, advice and suggestions that we have received from our

friends and colleagues in the preparation of this book.

There are many whose interviews and observations provided the

backdrop for the work presented here. We would particularly like to

thank Sergio Giacoletto and Juan Rada of the Oracle Corporation,

David Burt of Deutsch Ltd, David Henshaw of Liverpool City Council,

Dietmar Kirchner of Lufthansa, Kees Pronc of Microsoft, Rosemarie

Dissler of Swiss Re and Philippe Vial of the Caisse dEpargne.

As many readers will note, the ideas of John Seely Brown, Erik Bryn-

jolfsson and Ralph Stacy have greatly inuenced our thinking. David

Mitchell and Toby Thompson have also made particularly important

contributions. In acknowledging them specically we do not ignore

the help of many others who contributed in the development of our

ideas. This said, we alone rest accountable for the pages to come.

We are also very grateful for the enthusiastic support of John Wiley

& Sons Ltd. We thank in particular our energetic editor Sarah Booth,

whose support and encouragement proved both efcient and effective,

x v i / A C K N O W L E D G E M E N T S

but also Rachel Goodyear, Lorna Skinner and Amelia Thompsonwhose logistical support was outstanding.

Last and certainly not least, we would like to underline the contribu-tions, both directly and indirectly, of our wives and families. Theirideas, support and passion greatly surpasses anything we could putinto words in this book, or any other.

Some of the work developed here has been presented elsewhere.In particular, Chapter 1 In Search of Business Value was initiallyprepared for theUKIAS 2004 conference, and the background materialfor Chapter 7 Soldiers of the Shadows was developed for variousEuropean Commission projects on the Information Society.

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1In Search of Business

Value

How Clear Is Your Picture of Business Value?

After a superb meal of local dishes at the Auberge de Talloires on theeastern bank of the lac dAnnecy, we retired to the drawing room foran after-dinner drink. The waiter suggested a 125-year-old bottle ofCalvados as a perfect complement to the richly appointed atmosphereof this fourteenth-century abode. The eyes of our Scottish colleague,reecting the intelligence, organization and mischief of thirty yearsof consulting for the IT industry, suddenly beamed in expectationof another treasured moment. He was not to be disappointed. Hesavoured the rst taste, comparing this unique pleasure to previousexperience. In his long career, he concluded, he had never experienceda clearer denition of value.

A managers job is adding business value to his or her organization.In the preface to The Value Enterprise (Donovan et al., 1998), theauthors suggest that the most signicant challenges facing manage-ment today are communicating clearly what they want their rmsto become and how to get there. If we can come to grips with thisapparent contradiction between managements quest for value andtheir apparent inability to share this vision with their employees,customers, business partners and shareholders, we will have taken a

2 / T H E E F F E C T I V E O R G A N I Z A T I O N

major step towards plotting a course for building business value inthe future.

The following pages contest a number of commonly accepted man-agement practices. We contend that business value is fundamentallydifferent from either performance or productivity. We demonstratethat the notion of business value has evolved signicantly over thelast 15 years. We argue that there is no one best way for addingvalue to organizations or to your careers. We conclude that thesearch for business value is a perpetual quest that involves apply-ing talent, process and technology to the evolving reality of eachbusiness community.

To support our claims, let us explore a number of questions together:

What do we mean by value, and what is the specicity of businessvalue?

Why should we measure value, and why should we care abouthow we measure it?

How can we measure value, and to what extent can technologyfacilitate this task?

To what extent has the evolution of organization and technologychanged the way we look at value?

What are the paths of a roadmap to adding business value to ourorganizations?

What Do We Mean by Business Value?

Over the years economists have offered generally consistent views onvalue, prots and business value. Value is a product of labour andis captured in the price of goods and services that is itself set by the

I N S E A R C H O F B U S I N E S S V A L U E / 3

balance of supply and demand. Value may be dened as the essenceof an organizations identity: why stakeholders (internal and externalclients) choose to do business with that organization. Prots aresurplus value derived from the proper allocation of capital and labour.Business value has been viewed as a characteristic of industrialinnovation, while the function of management has been denedas maintaining competitive differentiation (Schumpeter, 1934). Theadvent of globalization of markets, technologies and organizationshas increasingly provided managers with opportunities to becomeinnovators in their own right, not in producing new products but inelaborating new strategies for value creation.

Simply put, companies invest in a product and/or service offer in thehope of receiving a proportionally greater return on their investment.If they succeed, they have created business value. Since most com-panies compete in markets with other rms offering similar productsand services, creating sustainable business value is intimately linkedto the coherence of the rms business model over time. Businessmodels, formulated either explicitly or implicitly, are built upon fourcornerstones:

The client base: How has the company targeted its client base andthen segmented it by client needs and objectives?

Expected benets: What benets are clients looking for in theirrelationship with the rm?

Process architecture: How has the organization (human andtechnological resources) been designed to offer the products andservices that meet clients needs and objectives?

Metrics: How is the organization measuring the revenues gener-ated by these products and services in light of the market and thecompetition?


Building a coherent business model

Profile your clients needs and objectives

Understand why they wish to work with you

Design the processes that provide the desired products/services

Measure the efficiency and/or effectiveness of your efforts

Figure 1.1 Business models

Several points can be underlined here. Business value does not comedirectly from either your products or your company; business value isdetermined by the relationship you nurture with your clients. Com-panies have internal (employees, managers and stockholders) andexternal (distributors, customers, regulatory agencies) clients, eachwith potentially differing needs and objectives. Clients perceptionsof value change over time, requiring companies to revise their busi-ness strategies to maintain their competitive advantage. Informationtechnology plays several roles in shaping business value: it can helpus understand this business challenge, enhance the advantages of ourproduct/service offer, and measure and communicate the results ofour efforts.

Why Measure Business Value?

Given the difculty in understanding the roots of business value,it can be legitimately asked why we should go to the trouble of


measuring it at all? As with the concepts of productivity, quality andlearning, measurement systems reveal both what is actually producedwithin an organization and what can be done better.

In discussing productivity, Drucker underlined the importance ofmeasurement: Without productivity objectives, a business does nothave direction. Without productivity measurement, a business doesnot have control (Drucker, 1974). In analysing quality, Demingargued that operational denitions give communicable meaning toconcepts by specifying how the concept is measured and appliedwithin a particular set of circumstances (Deming, 1982). Scott, Sinkand Morris (1995) have in turn stressed the link between mea-surement and organizational learning in that measurement fostersorganizational learning when management teams become skilled atconverting data to information and information to knowledge.

Management can provide a strong link between corporate vision andreality in developing operational measures of business value. Mea-sures of business value are designed to promote three objectives: toraise awareness about what business value means to the organization,to establish guidelines to understand the relationships between busi-ness value, productivity and performance, and to identify a learningagenda to heighten the business value of future products and services.

How Have Measures of Business ValueEvolved over Time?

Measures of business value have evolved over time with the evolutionof markets and technologies. In the not-too-distant past, businessvalue was directly associated with a rms product offer. As a case


in point, consider the invention of the Bic pen. In 1950, MarcelBich created a revolutionary ball-point pen which he called Bic.1

Ball-point, clear-barrelled, smooth-writing, non-leaky and inexpen-sive, the advantages of the Ball-point Bic were clearly visible toconsumers throughout the world. The products characteristics werecommonly perceived as better value than anything else on the mar-ket. As a result, the future Baron Bich built his company in 1953 todevelop the machines and the industrial processes needed to producethis innovative product and assure its high quality.

Can the same be said of most products today? Is the value of ChanelNo. 5 perfume, Michelin tyres, or the A380 jet in the productsthemselves or in the information and services that are packaged withthe product? On what criteria do we purchase perfume, tyres oraeroplanes? Why do we choose one product rather than another?Are the rms Chanel, Michelin and Airbus Industries structured toproduce themachines and industrial processes needed tomanufacturethese products or organized to service the brand and its market? Towhat extent do these companies design, manufacture, distribute andservice their own products? Is the business value of these companiesin their products, in their organization, or in the relationships theymaintain with their clients?

It can be argued convincingly that the nature of business valuehas evolved signicantly over the last several decades. For prod-ucts ranging from tennis shoes to higher education, the impor-tance of criteria such as price, reliability, performance and technol-ogy have given way to privileging brand name, service, packagingand appearance. In an era of shopping centres and web stores,the importance of product knowledge, maintenance and proximityhas given way to client perceptions of reputation, responsivenessand service.


From the value of products . . .

. . . to business value

Intrinsic (Product) Performance PriceReliabilityTechnology

Extrinsic (Vendor) Operator trainingMaintenance training PartsPost-purchase costs Warranty

ContextReputationReliabilityResponsivenessService

AppearanceBrand name StylingPackaging

Figure 1.2 Elements of business value

How Do We Add Value to a Company Today?

Empirically, the relationship between a rms nancial performanceand its stock price is becoming increasingly difcult to demonstrate.A companys non-nancial performance now plays a critical rolein how the company is evaluated: strategy, execution, managementexperience and attractiveness are currently accepted measures ofperformance. As a result, investments in brand development, trainingand R&D now exceed total investments in tangible assets. Theaccounting rm Cap Gemini Ernst & Young concludes that at leasta third of a mature companys value is attributable to non-nancialinformation. For small and medium-sized companies, the proportionis even larger (Low and Cohen Kalafut, 2002).

In a similar vein, the relationship between a products cost andthe customers perception of the value of a vendor relationship hassteadily diminished. Loyalty to a brand or a vendor is increasinglydependent on a number of cost factors not directly associated witheither specic products or services. These include:


the nature of the relationship/business model with the supplieror vendor;

acquisition/purchasing and decision-making processes; supplier capability, consistency and dependability; learning, knowledge and information transfer and solution devel-

opment.

In this light, to what extent does business value depend on a rmsability to manufacture, sell and service its own products? From acustomers perspective, product or service differentiation becomesincreasingly more difcult, not only because of diminishing differ-ences in technology and performance, but because productivity gainsfrom one vendor to another have become increasingly marginal overtime. In sharp contrast to the formulas for success fty years ago,improving the machines and processes needed to manufacture therms products may be less a guarantee of adding business value thanefforts devoted to improving the quality of client relationships.

How Do We Measure Value?

Is what you measure what you get? From a customers point ofview, value is measured in a number of ways. We refer to attribute-based value when a customer privileges a products characteristics orfunctions. Marketing specialists have also referred to consequence-based value when customers identify value with their perceptionsof the impact of their use of a product on their own performance.Finally, we can refer to value when customers associate the value ofa purchase with an outcome they would like to achieve.

These measures of value are quite different from those deployedby most companies for evaluating the value of their business.


Accountants have suggested a panoply of measures (recorded value,assessed value, earning potential, etc.) that reect their own concep-tion of business and business logic. Economists offer much the samein proposing notions of use value, exchange value or cost value thatcorrespond to their views of economic units and market mechanics.Purchasing and materials management offer yet another set of met-rics (stock value, esteem value or replacement value) that are closelytied to theories on stock management and logistics.

Accounting and Finance Economists Purchasing and Materials Management

Consumers

Recorded value Use value Replacement value Attribute-based valueExchange value Esteem value

Stock valueConsequence-based value

Cost value Goal-based valueAssessed valueEarning potential Liquidation value

Figure 1.3 Client valueSource: Adapted from Wilson and Jantrania (1994)

There is no best way of measuring value, but there are metricsthat have been designed to measure how business value is createdand enhanced. Managers, in recognizing the importance of intan-gibles, are increasingly adopting non-traditional methodologies ofmeasurement. Current approaches include the Balanced Scorecard,Economic Value Added, Total Cost of Ownership, and Value-basedManagement.2

Consider how the efciency paradigm of bigger, faster, better hasconditioned the way managers look at business and business value.Process-centric applications have focused managements attentionon organization and technology rather than people. Organizationalculture, individual and team competencies and the quality of humanrelationships have taken a back seat while driving down cost isthe predominant aim. In many cases, strategic decision-making has

1 0 / T H E E F F E C T I V E O R G A N I Z A T I O N

been performed using spreadsheets and process diagrams rather thanobserving how people and markets actually work. Taken to theextreme, as with the examples of WorldCom and Enron, the paradigmhas even distorted the reasons why, and how, we do business.

Can information technology be designed to offer a different visionof reality? Can we design information architectures that will helpmanagement focus on factors other than cost and time, on the qualityof interaction rather than the quantity of transactions, and on humanmotivation and innovation as the primary source of sustainablecompetitive advantage? This vision will require the introduction of anew paradigm of business value, new metrics for measuring better,and newmodels for structuring howwe interpret data on our products,companies and markets.

What Are the Ingredients of Value?

Different client conceptions of exactly what constitutes value leadto conicting visions of business value. As a result, informationtechnologys measurable impact on the organization depends uponwhich elements or components of value we take into account. Theseelements include the following.

Efciency

Efciency can be seen as an input/output ratio that addresses the ques-tion of how work is being done today and what can be done tomorrow.Measuring efciency involves capturing transaction costs of how peo-ple and/or technologies perform in a given process. Process-centric

I N S E A R C H O F B U S I N E S S V A L U E / 1 1

application systems, such as enterprise resource planning suites, focusour attention on the costs involved in managing key processes.

Protability

Protability measures the added value of an organization in compar-ing the cost of its resources with that of its products and/or services.Financial performance is usually equated with business success. Therelated concept of budgetability allows nancial measurement ofinterdependent organizational units: cost centres, government depart-ments or internal services. Measures of protability usually form thenucleus of decision-making software packages.

Utilization

Utilization focuses on the extent to which company resources areemployed at any given time.Measuring utilization involves evaluatinghow people, machines and materials are used in the productionprocess. Stock management systems, for example, are often used notonly to measure resource allocation, but also to suggest optimal usesof physical resources.

Quality

Quality has been dened variously as conformance to standardsand as conformance to expectations. A common characteristic ofquality measures is the evaluation of organizational products andservices against external norms, legislation or objectives. Since theseare basically benchmarking techniques, they can be easily adapted


to measuring value in supply chains, markets or industries. Clientrelationship management software, to take one example, has beenbuilt on the premise that we can measure quality.

Innovation

Innovation can be understood in the context of an organizationsability to react to real or perceived changes in the market or in theeconomy. Although it is a response, reactive or proactive, to thecurrent state of affairs, it is a measure more of potential than ofpast performance. Current applications of information technologyare often ill-designed to measure innovation, because they focusboth on the past (rather than the future) and on norms (ratherthan exceptions).

Passion

Passion represents the affective response of people to their workenvironment. Perhaps the most difcult of all measurements, pas-sion is concerned less with conformance to requirements than withalignment of personal and professional expectations. Variables thatinuence passion include client perceptions of the workplace andwork culture. Most implementations of information technology havefailed to capture measures of passion, but have contributed directlyto a decrease in company culture, individual passion and investmentin the organization.

Knowledge

Knowledge is the lens through which employees apply, translate andcreate meaning out of the masses of data and information available


to them. It can be viewed as a cultural ingredient, something thatcontributes to the feel of an organization, its climate and its atmo-sphere, and hence something that is tangible enough to be felt,experienced or transferred through to the customer. Surrogate mea-sures may include the transparency of decision-making, levels ofinvolvement, number of mistakes made and the ability to challengeconventional wisdom. Knowledge management systems have beendesigned around the premise that we can capture and communicateknowledge.

Effectiveness

Effectiveness can be viewed as an outputinput ratio that addressesthe question of doing the right things to meet customer needs andobjectives. Effectiveness measures the added value of an organizationin adapting its product or service offer to the evolution of its clientsneeds. Effectiveness is an evaluation of how people, rather thanprocesses ormarkets, react to client demands. The inability of process-centric applications to capture or improve effectiveness has led to anincreasing demand for collaborative technologies.

Box 1.1: Has the efciency paradigm run out of steam?

A vice-president of one of the worlds leading software housesexplained his business challenge in drawing two parallel lineson the board. He described his company as one of the most


efcient on the planet: so efcient that most companies hadalready purchased their software. His challenge: convincing hissales managers that there was something else to sell. He pointedto the bottom line and lamented that his sales force knew itsimportance only too well. He pointed to the top line and contin-ued: how can you convince sales managers who have been bredon reducing costs to sell innovation, creativity and passion as ameans of helping their clients apply information technology tobuild business value? He concluded that the efciency paradigmhad run out of steam, and that new measures of business valuewould be needed to fuel vision in the economy in the yearsto come.

The Business Value Continuum

Effectiveness

People-driven

Process-driven

Where do you define value for your organization today?

Efficiency

Figure 1.4 How does business value emerge from operational processes?

Operational denitions of each value component vary from rmto rm depending on the company culture, the organization andindividual beliefs. Since value is embedded in client relationships


rather than products or services, it is by nature dynamic and subjectto different interpretations over time. Specic value propositions arereected differently on a continuum of organizational activities, fromwholly automated tasks to intensively human-based processes. Asa result, the foundations of business value are different for eachorganization, and reect contrasting cultures and perspectives.

Different organizations in different industries at different stages intheir development will be uniquely positioned on a business valuecontinuum based on the nature of organizational processes, theproposed products or services, and how clients measure their valuepropositions. Attempts to build a stronger foundation for businessvalue must begin by forging a common vision, and shared meaning,of how business value is dened within the organization. Informationtechnologys ability to measure and to impact value does not dependuniquely on technology itself but on the coherence of what we aretrying to improve.

Has Information Technology Played a Rolein Building Business Value?

Several observers have questioned, over the years, whether informa-tion technology has played a direct role in creating business value.Strassmann, one of the most visible observers of the productivityparadox, argued steadily that, over the previous 10 years, there hasbeen no relationship between the costs of information technology andprotability (Strassmann, 1999). Joyce and Nohria (2003) concluded,having studied the performance of 160 companies over ve years, thatinvestments in information technology have little, if any, impact oncorporate performance. They argue, using the criterion of total return


to shareholders as a measure of performance, that management prac-tices (including strategy, execution, culture, organization and, to alesser extent, talent, leadership, innovation and M&A) are muchstronger indicators of why certain companies outperform others.

Do IT investments in themselves produce a competitive edge? Inthe year 2000, nearly half of US corporate capital spending was usedfor information technology. Carr, in the recent, controversial Har-vard Business Review contribution argues forcefully that IT doesntmatter (Carr, 2003).3 His argument suggests that information tech-nology, like the railway and the electric generator before them, havebecome nothing more than commodity inputs. Carr categorizes ITtoday as an infrastructural technology that is easily acquired andcopied, and proposes that ITs inuence will henceforth be macro-economic and not a means of competitive differentiation. Moreover,he believes that the IT market is saturated, since existing IT capa-bilities are largely sufcient for corporate needs. He concludes thatthe risks associated with implementing new information technologiesexceed potential advantages, and that management should focus onsecuring their current investments and controlling costs.

As many have been quick to point out, IT alone does not createbusiness value, but using information technology to support businessstrategy does.4 Competitive advantage is not the result of computersbut of skilled and innovative people who use information technol-ogy to implement efcient and effective business practices. Mostconsulting companies today suggest that information strategy canhelp improve business strategy along one of three dimensions: inimproving the organizational knowledge of client needs and objec-tives (customer relationship management), in optimizing the deliveryof products or services (supply chain management), or in increasingthe visibility of the costs and benets of organizational activities


(enterprise resource planning). The logic behind each rms busi-ness model helps determine which course of action will provide thegreatest benets for the organization.

The role of information technology today has greatly evolved fromthe simple calculating machine of the 1940s. Information technologycan help management and employees better structure the demand forand the supply of, or better appreciate, the metrics with which valueis measured. The role of many IT vendors has also evolved signi-cantly, from simply shipping commodities to providing informationservices to business to decrease the risks of failure while increasinginnovative uses of technology in the search for business value. Theresulting value propositions can in turn be evaluated on several fronts:performance (will the vendors proposal increase nancial returns?),organizational design (does the operation improve the underlyingtechnological infrastructure?), and/or the delivery of services (will theproposal improve company operations?).

Box 1.2: Dinner stories

As often happens when dining with clients after a businesspresentation, the conversation turned to particular points thatDavid had raised earlier in the day. As a Senior Director for Mar-ket Development in a multinational corporation, he felt quiteat ease exploring points of agreement and various differencesof opinion, and punctuated the conversation with a number ofanecdotes and stories. He felt somewhat more challenged whenthe client requested a hard copy of the presentation to work onin his hotel room later in the evening. It was not that he did notappreciate the attention, but neither he nor his client had a PCor printer at hand to reproduce the presentation . . .


The conversation dimmed as David searched for an answer. Hethought back to his work with the British schools on developingskills in information and communications technologies. Hereviewed his own companys work on convergence: bringing thedivergent digital technologies together into an integrated workenvironment. An instant before ordering dessert he proposedthat the answer was only two phone calls away. He used hismobile phone to ask the clients hotel for its fax number. Hethen used the collaboration software on his phone to access acopy of the presentation on one of the companys servers, and toprint it to the hotel fax machine along with a cover note. Davidhad another story to tell, even before the coffee was cold!

Can We Propose a Roadmap for BusinessValue?

Improving business value can be undertaken through developingskills and competencies, improving organizational processes, and/orenhancing the technological infrastructure that supports a rmsproduct and/or service offer. Mistakenly, many rms attempt towork in all directions at once, more out of concerns that every-ones doing it than as a result of their organizational strategy. Evenworse, it is common to nd contradictory initiatives between depart-ments and between subsidiaries competing for a companys limitednancial and human resources. Charting the proper roadmap forbusiness improvement depends upon managements deeply rootedbeliefs about where the value in their organization resides. Threefundamental questions correspond to three distinct dimensions ofthe Business Value Matrix:


Is the competitive advantage of your enterprise built upon a beliefin superior talent, superior organization or superior technology?

Will you best increase your competitive position in investing onan individual level (with certain managers, employees, businesscontacts), on a team level (by improving your sales or project team,or on a market level (in focusing on the relationships between yourrm and its market)?

Towhat degree do youmeasure success in improving the efciencyof business transactions (time and cost), and to what degree doessuccess depend upon the effectiveness (quality, longevity, delity)of the interactions between your rm and its clients?

In crafting strategy based on managements deeply rooted beliefsabout the sources of a companys value proposition, you inherentlyincrease the chances of success.

Where does value come from?

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Figure 1.5 Where does value come from?


Where Does Value Come From?

Certain rms build their competitive position upon the strengthsof their human resources: the quality of their managers, employeesand/or business partners. These rms openly recruit and reward man-agers and employees who rise above the pack, and openly encouragecreativity, innovation and initiative. Management will buy into pro-posals for process improvement or integrating new technology onlyto the extent that they improve their workforces skills and compe-tencies. In such a mindset, the roadmap to business value shouldfocus primarily on how organizational and technological initiativesimprove their human resources.

Other rms base their value proposition not so much on the quality oftheir human resources as on perceptions of an optimal organizationof their human and physical capital. They believe that success residesin an organization of their processes and procedures that is betterthan that of their competition. The roadmap for improving businessvalue is fundamentally different here from that of those rms seekingto integrate the best and the brightest; they should focus on howtheir managers and employees can use information technology toimprove the organizations efciency and/or effectiveness. The goalhere is to improve the underlying business processes rather than theskills or competencies of their employees.

Box 1.3: We put our label on it!

Pedro, as the European Director for Strategic Investments of oneof the worlds major computer companies, had been invited tobe the keynote speaker in a French MBAs workshop on theInformation Economy. He began his talk with a description of


the long journey of his company from its incorporation as acomputing, tabulating and recording company in 1911 to theInternet today. He paid considerable attention to an analysisof corporate strategy that had shifted from a focus on productsto an emphasis on services and value. Before taking questions,he proudly showed the students what he considered to be hiscompanys most innovative product.

It appeared to be similar to most other PDAs on the market:same size, same design, same programs and even the same com-ponents. The students rst question was how could he be soproud of a product that was certainly invented by a competi-tor, and that was neither revolutionary nor unique? He readilyconcurred, suggesting that the whole product was subcontractedfrom the initial requirement studies to after-sales service. Pedroconcluded that the only thing his company produced for theproduct was the label, which was why the product had been soldsuccessfully for 50% more than its competition.

Finally, some rms base their value proposition essentially on thequality of the tools that they put at the disposition of the organi-zation. The underlying vision here suggests that value will comefrom putting the right tools in the right hands at the right time.Focusing organizational efforts on obtaining and deploying superiortechnology is seen as a source of competitive advantage. Althoughorganizational strategies usually involve some combination of skilldevelopment, organization and technology, the effectiveness of thestrategy will depend upon how companies view the source of theircompetitive advantage and where they believe their efforts will bemost productive.


Skills

Services Interactions Infrastructure

Training

Teamcompetencies

Knowledgemanagement

Personalproductivity

Portals,intranets

Individuals

Teams

Markets

Humanresources Organization Tools

Effic

iency

Effec

tiven

ess

Figure 1.6 Strategies of business value

Where Do You Look for Value?

On a second dimension, the company can focus its efforts to buildbusiness value on individual managers, teams or departments, or themarket as a whole. If the companys management believes that itsvalue proposition is based on the quality of its individuals, businessstrategies should be deployed specically to develop the individualseffectiveness in the organization. If the value proposition is based onpeople, this strategy suggests that efforts should focus on developingindividual skills and competencies. On the other hand, if the goalis to optimize organizational processes, efforts at the individual levelshould be directed to perfecting training and education. Finally, ifthe company believes that its value proposition is technology-led,


it could target its efforts at developing and maintaining personalproductivity tools.

The view is quite different for rms that believe that the emphasisof building business value should be on developing the quality ofits teams and departments. At this level, the company that wishesto favour human or social capital should focus on strategies thatdevelop team skills and competencies.5 This belief is founded on thepremise it is not individuals skills that add value to the organization,but their capacity to work as a team in addressing organizationalchallenges. Firms that privilege process over human capital will designknowledge management approaches that focus on organizationalrather than individual learning. Firms that favour a technology-drivenapproach will develop portal strategies that provide the infrastructureto facilitate knowledge management and skill transfer throughout theorganization.

It could be suggested that organizational strategy would best be servedby rms focusing business strategies neither on their employees noron their departments, but on the market itself. The belief here isthat the market determines the value of a companys service offer,and therefore business strategies should attempt to develop knowl-edge of current and potential clients (prospects, business partners,government and regulatory agencies) likely to work with the companyand the skills to deal with them. For rms focusing on people, thisstrategy would translate into efforts to improve the components ofthe companys service offer. If the company prefers an organizationalapproach, efforts would be directed at strengthening the processesthat affect the quality of the interactions between the company andits external clients. Finally, rms that focus primarily on technology


will begin by designing an information infrastructure that improvesthe companys impact in its markets.

How Do You Measure Business Value?

The third dimension of the Business Value Matrix concerns howeach organization measures business value. As suggested previously,efciency refers to transactional improvements in tasks, activitiesand processes. Improvements in efciency are most often evaluated interms of savings of time and/or cost. Conversely, effectiveness is aboutthe degree to which human experience, innovation and knowledgeconstitute the foundations of business value. Effectiveness is moreeasily measured by a rms external clients than by its technology,and is usually expressed as perceptions of quality, reliability andservice.

Efciency and effectiveness are not mutually exclusive, but consti-tute points on a continuum that includes protability, innovationand passion. Both are necessary in building business value; theBusiness Value Matrix may be presented face up (or face down)depending on how each client views value. Nonetheless, the blendof value metrics should be adjusted to organizational beliefs con-cerning the source of business value and the level of intervention.Metrics can be constructed to measure the contribution of humanresources, organization or technology to each organizations valuepropositions. Similarly, metrics can be captured at the individual,team or market levels consistently with where management feelsvalue arises. The importance of specifying appropriate metrics is crit-ical here, for they will inuence how management evaluates market


opportunities, measures business initiative, and communicates busi-ness value.

What Have We Learned?

Several conclusions can be drawn from this discussion. First wesuggest that there is no one best way of using information technol-ogy to add value to business. Organizational strategies for businessshould be based upon the companys convictions about the sourceof its value proposition, as well as on what level it wishes to focusits efforts. Although there is clearly an interrelationship among arms skills, organization and technology, organizational strategyshould be tailored to coincide with the particularities of each organi-zations culture and belief structure. Developing business strategiesinconsistent with organizational culture, for example insisting onbusiness process improvement in a company whose reputation hastraditionally depended on the reputation of its managers, is unlikelyto provide value.

In a similar vein, we suggest that improving business practice isnot a packageable solution but the core of business strategy. Orga-nizational investments in information technologies will impact on,and be inuenced by, investments in the key processes of the com-pany. Just as importantly, the rms IT infrastructure provides agreat deal of information on the challenges of developing specicvalue propositions to improve business practice. The gaps or incon-sistencies in information, the bottlenecks in delivering informationto your clients, also indicate where and what employees, managers


and business partners need to learn. Business strategies will benetgreatly from leveraging a companys current capabilities and futuretechnology investments.

Notes

1. After obtaining the patent rights to a ball-pen created by Hungarianinventor, Ladislao Biro, Marcel Bich introduced his own ball-point pen inDecember 1950. As the worlds number one manufacturer of ball-pointpens, Bic today manufactures and sells 22 million stationery productsevery day around the world. See www.bicworld.com.

2. The notion of metrics will be explored in more detail in Chapter 3, IsWhat You Measure What You Get?

3. Nicolas Carr develops his arguments, and presents a somewhat morebalanced approach to the current debate in his book, Does IT Matter?(Carr, 2004).

4. See Does IT matter: An HBR debate, Harvard Business Review, June2003.

5. Human capital refers to employees practical knowledge, acquired skillsand learned abilities that contribute to their productivity. Social capitaloffers a complementary notion in including the specic benets that owfrom the trust, reciprocity, information and cooperation associated withsocial networks. See Chapter 6, The Joined-up Economy.

References

Carr, Nicolas G. (2003) IT doesnt matter (HBROnPoint Enhanced Edition),1 May 2003.

Carr, Nicolas G. (2004) Does IT Matter?, Boston, MA: Harvard BusinessSchool Press.

Deming, W. E. (1982) Out of the Crisis, Cambridge, MA: MIT Press.


Donovan, John, Richard Tully and Brent Wortman (1998) The ValueEnterprise: Strategies for Building a Value-Based Organization, Toronto:McGraw-Hill Ryerson.

Drucker, Peter F. (1974) Management, London: Harper Row.Joyce, William, and Nitin Nohria (2003) What Really Works: The 4 + 2

Formula for Sustained Business Success, London: HarperCollins.Low, Jonathan, and Pam Cohen Kalafut (2002) Invisible Advantage: How

Intangibles Are Driving Business Performance, Cambridge, MA: PerseusPublishing.

Schumpeter, Joseph A. (1934) The Theory of Economic Development, Cam-bridge, MA: Harvard University Press.

Scott Sink, D., and William T. Morris, with Cindy S. Johnstone (1995) ByWhat Method, Atlanta, GA: American Institute of Industrial Engineers.

Strassmann, Paul A. (1999) Information Productivity Assessing the Infor-mation Management Costs of US Industrial Corporations, New Canaan,CT: The Information Economics Press.

Wilson, D. T., and S. Jantrania (1994) Understanding the value of a rela-tionship, AsiaAustralia Marketing Journal, Vol. 1, 5556.

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2The House of Mirrors

I n the early 1990s, Alexandre, the owner of a textile manufac-turing plant in the rural Arde`che region of south-eastern Franceinvited me to visit his rm. The visit began with lunch in thelavishly appointed family dining-room set above the factory itself. Inthe presence of his parents and children, the owner described in detailthe one hundred years of history and culture of the company, thechallenges of the European common market, and his hopes for IT. Aswe enjoyed the several courses of the meal, he illustrated his storyby pointing through the rooms bay windows to the frenetic paceof the weaving machines, workow and workgroups on the factoryoor below. After lunch, we rst toured the production facilities andthen visited the computer room. The owner was as proud of his ITinvestments as he was of his organization: three dedicated worksta-tions one for accounting, one for administration, and a third forlogistics. . .

Information and communications technologies what is the properrelationship between I, C and T? Let us assume that I symbol-izes individuals: people, teams and markets, and that T representstechnologies, hardware, software and applications. C would thenrefer to the conversation or degree of coherence between the humanand technological visions of the world around us. As a whole, ICTprovides a more or less convincing reection of our personalities and


our relationships with colleagues, managers and customers. If humanvision and technological vision are aligned, ICT provides a lever foradding value to our jobs, our careers and our markets. If the two viewsare in conict, ICT provides a source of anxiety, anger and persistentfrustration.

Box 2.1: Information and communications technologies

Why are many employees openly hostile to information andcommunications technologies? The English sociologist, GeorgeHerbert Mead, dened the notions of I and me in relationto social experience: the I represents our objectives, passionsand vision, the me is our understanding of how society seesus as individuals (Mead, 1913). In a similar fashion, we suggestthat T or technology is a mirror of the behaviour that man-agement would like to reinforce. As an acronym, I symbolizesindividuals: people, teams and markets; T represents technolo-gies, hardware, software and applications; and C refers to theconversation or degree of coherence between the human andtechnological visions of the world around us.

Does ICT today reect the way you work, and the vision you haveof your workplace? Since the conception of the rst rudimentarycomputer in the 1930s, the deployment of successive generationsof information technology has been justied as attempts to increasecorporate productivity.1 Although the link between the two has beenhotly contested over the years, it is hard to deny that IT has inu-enced the way we think about producing more with less. Informationtechnology, both as a lever for business value and a metaphor forhow we structure business communities, has slowly been integrated

T H E H O U S E O F M I R R O R S / 3 1

into the heart of modern enterprise and into the core of managementtheory.

To better understand the interrelationship between technology andorganization today, let us review their evolution over the last thirtyyears or so:

How has information technology evolved over the last severaldecades?

What are the characteristics of the successive generations of infor-mation technologies?

How has technology inuenced management practice? Have successive generations of technology required similar IT

skills or signicantly different approaches to levering IT for busi-ness value?

Why has IT been so slowly adopted by the majority of the work-force several decades after its introduction in business?

The PC and Personal Productivity

Since the conception of the rst electronic calculating machinesover half a century ago, the deployment of information technologyhas been justied by visions of increasing corporate productivity.Although the link between the two has been contested, it is hard todeny that IT has inuenced the way we think about productivity.The evolution of information technology has impacted both thetheory and the practice of management. To better understand thisinterrelationship between technology and organization today, let usquickly review some important business and technology milestonesthat have marked recent history.


Networked EconomyThe Internet

ReengineeringClient/Server Systems

The Value ChainRelational Databases

Personal ProductivityPersonal Computing

1970 1980 1990 2000

Figure 2.1 The recent evolution of information technology

Up until the 1970s, enterprise information systems were essentiallybuilt around central mainframes that contained the companys dataand programs. End-users worked with dumb terminals whose onlyfunctions were to capture and display the information stored on themainframe. Centralized computer departments managed the system,controlling how, when and what information was available to eachemployee in the rm. Productivity, at least in relation to IT, wascalculated for each rm by comparing results achieved with andwithout the use of comparable technology.

The introduction of the personal computer into business in the late1970s was seen as a major technological innovation.2 The innovationwas not so much in its computing power as in its challenge to theexisting paradigm of information management. Personal computerswere able to store programs and data locally and independently ofthe mainframe system. End-users had the possibility of organizing theinformation and installing the programs that they felt were the most


useful in supporting their working environment. Many centralizedcomputer services were ill-at-ease, if not openly hostile to theirloss of visibility and loss of control of personal and departmentalcomputing.

Printer

Personal Computer'PC'

Figure 2.2 Personal computing

The era of personal productivity had dawned. Rather than being tiedinto the logic and the limits of the mainframe, PC users slowlybut surely had all of the information tools necessary to work ontheir desktop. Without the chains of hierarchical control, employ-ees and managers were freed to become personally productive. Thenotion of IT productivity changed as well: it was no longer seenas a strict synonym for quicker and faster, but could be equallyassociated with creativity and innovation. This technological evo-lution constituted a revolution in the practice of management: itdened productivity on a personal rather than an enterprise level; itshifted the emphasis from quantitative to qualitative aspects of doingbusiness.

How have concepts of personal productivity shaped how we viewwork? To begin with, managers increasingly looked to computerdepartments, less for assistance in maintaining legacy systems thanfor help in exploiting the functionality of software packages. The end-users vision of information technology shifted from communicating


with highly centralized computer facilities tomastering desktop appli-cations. Data was increasingly stored on the users computers onoppy disks, hard drives and peripheral devices. Data was organizedby application: text was associated with word-processing programs,data with spreadsheets, and graphics with presentation packages.

To what extent has the implementation of personal productivitysoftware been a source of pain for employees, managers and cus-tomers (i.e. client pain)? Personal productivity software focuses theusers attention on software (word-processing, spreadsheet calcula-tions and presentation graphics) rather than on the particularitiesof their business. Discussions with the computer department havefocused more on functionality than on providing business value tointernal or external clients. Storing data locally has often fosteredboth information overow and data silos. Finally, the stored data evermore closely resembles the applications with which it was capturedthan the resources and transactions it was supposed to represent.

Relational Databases and the Value Chain

Information storage, indexing and retrieval have always been majorchallenges to enterprise. By the 1970s, it had become increasinglycost-effective for private companies to use the growing storage capabil-ity of computers to perform these tasks. Two main data models weredeveloped to facilitate this task: IMS, which was based on hierarchicalrelationships, and CODASYL, which proposed network structures.3

These models greatly simplied the organization of information con-cerning specic entities such as sales, marketing or logistics. Theirmajor limitation was in comparing heterogeneous objects: it wasimpossible to compare sales receipts, marketing campaigns or stock


without writing a complex program of pointer operations that wouldlink the information together. Comparing these entities was as dif-cult in practice as in theory.

In 1979 a company called Relational Software, Inc. released Ora-cle, the rst commercially available implementation of a relationaldatabase.4 A relational database is a collection of data records in for-mally described tables from which data can be reassembled in manydifferent forms without having to change the datas structure. As aconsequence, data from sales, marketing and stock can be analysedtogether through simple requests or queries. From a technical pointof view, it became possible for the rst time to study sales, marketingand stock together to draw conclusions about their relative value tothe rm.

Figure 2.3 Relational database systems

Until some twenty years ago there was little theoretical justication tocompare functions of the rm: productivity and value were attributesof the hierarchical organization as a whole. Comparing marketing andsales made no more sense than comparing apples with oranges until


the notion of the value chain was introduced in management theory.In a hallmark publication in the early 1980s, Porter (1985) argued thatthe value chain implied that the contributions of specic functions ofthe rm could, and should, be analysed as they related to the primaryand secondary activities of the rm.5 The value chain is based on theprocess view of organizations as systems with inputs, transformationprocesses and outputs involving the acquisition and consumptionof human and physical resources. How value chain activities arecarried out determines costs and affects prots. Once again, anevolution in information systems coincided with a revolution inmanagement theory.

Procurementand Inbound

LogisticsOperations ServiceOutboundLogistics

Sales andMarketing

Technology

Primary Activities and Cost

Human Resources Management

General Administration

Figure 2.4 The value chain

How did concepts of relational databases shape how we viewed theorganization of our business? To begin with, managers increasinglylooked to computer departments for help in dening how to structure


the data using models, tables and dictionaries. The end-users visionof information technology shifted from creating isolated documentsto producing forms and reports that could be used to share data acrossdepartments. Data for core applications was increasingly stored onservers that were accessible across local networks rather than onisolated PCs. Multiple applications could run independently, eachwith its own data structures, logic and interface.

To what extent has the implementation of relational database soft-ware been a source of pain for employees, managers and customers?Structured relational databases focused the users attention more onquantitative aspects of their business than on the softer data of inno-vation, effectiveness and creativity. Discussions with the computerdepartment focusedmore on normalizing data than on providing busi-ness value to external clients. The challenge of information overowwas actually intensied as the simplicity and power of these appli-cations grew users could save, and potentially analyse, seeminglylimitless amounts of data.

Client/Server Systems and Reengineering

How should information be structured within a company? Beforethe introduction of the PC, this constituted a moot question: infor-mation systems were by denition hierarchical, consisting of dumbterminals connected to mainframe computers. The software writtenfor mainframes was coded on a single level or tier; that is, the userinterface, business logic (applications) and data were all containedin a single application. The adoption of the PC brought about thepossibility of storing data and processing parts of applications on theusers desktop. The hierarchical nature of the information systemwas challenged by more horizontally distributed architectures.


By the 1990s a typical personal computer network required manyspecialized hardware devices and software packages to function. Inaddition, the languages and capabilities of databases were evolvingand required more complex software, and more and more powerfulcomputers to run them. Client/server architectures were introducedas a means to combine the capabilities of the newer PC applicationswith the benets of centralized data. Client/server systems refer toarchitectures between two computer programs in which one program,the client, makes a service request to another program, the server,which fulls the request. In a network composed of mainframes,applications servers and PCs, the client/server model provides a morecoherent approach in interconnecting programs that are distributedefciently across different departments within a rm.

Email Server Web Server Database Server

Client Client

Figure 2.5 Client/server systems

How should activities be structured within a company? In 1990,Davenport and Short argued that improving business productivityrequired taking a broader view of how IT and business organiza-tion are interrelated. If hierarchical relationships no longer madesense in structuring information systems, could they not equally


be questioned in the design of the organization itself? They arguedthe role of information technology was less in storing and retrievinginformation and more in fundamentally reshaping the way businessis done (Davenport and Short, 1990). Michael Hammer and JamesChampy took the argument a step further in introducing the con-cept of reengineering: fundamentally rethinking and then radicallyredesigning business processes to achieve dramatic improvements incorporate performance.

Yet again, the evolution of information systems correlated with arevolution in management theory. As Hammer would write someyears later,

By bringing processes to the fore, reengineering turned organiza-tions ninety degrees on their sides and caused managers to takea lateral, rather than a vertical, view of them. This shift has obvi-ated the certainties and prescriptions of management textbooks.Virtually everything that has been learned in the twentieth cen-tury about enterprises applies only to task-centered enterprises,the hitherto dominant form of organizational life. For a world ofprocess-centered organizations everything must be rethought: thekinds of work that people do, the jobs they hold, the skills they need,the ways in which their performance is measured and rewarded. . . .6 (Hammer, 1996)

How have the concepts of reengineering and client/server systemsshaped how we view our business? To begin with, managers increas-ingly looked to computer departments to design the infrastructureon which business will be shaped. Information technology, based onclient/server systems, is often leveraged to instill and foster companyculture. The end-users vision of information technology has shiftedfrom creating isolated documents to producing forms and reportsthat are used across business units. Data for core applications is


increasingly process-centric: horizontal models of best practice thatcover core processes across departments, divisions and subsidiaries.Information technology has become an agent of transformation.

To what extent have process-centric applications become a sourceof client pain? Employees complain both of the excessive rigidityof this software, and the unwillingness of their software suppliers toadapt this technology to the particularities of their work environment.Managers worry that the adoption of such software will come at theexpense of corporate culture and corporate identity. Some questionthe notion of best practice: Is there is one best way to organizerms regardless of size, industry and corporate vision? Finally, thesubstantial costs and time to get these systems up and running leavemany worried about the real return on investment of such technology.

Box 2.2: Lean and leaner: the future of sensor technology

While radio frequency identication (RFID) technology has beenaround for years, it is increasingly gaining visibility as man-ufacturers and retail giants such as Wal-Mart, KiMs, Sernamand Metro Group are incorporating prototypes in their searchfor business value. All industries that work with tangible goodsare potentially interested in this technology which providesnear-real-time tracking without human interaction. As a result,a corporation can both optimize its supply chain and enrichits corporate assets with little labour cost. Improvements inthe technology will make RFID economically practicable forlarge-scale deployments in the near future.

There is no doubt that sensor technologies that translate phys-ical characteristics such as direction, temperature or pressure


into computer signals have impressive potential for creatingcompetitive advantage. Corporations will nd that incorporat-ing these technologies into their information infrastructure willallow them to create applications that monitor the real worldrather than computer models, that respond to real-time dataand not to forecasts and that capture information ows during aproducts entire lifecycle. Business partners will be able to trackassets more accurately, monitor key performance indicators andautomate business processes, giving them greater insight intotheir operations and allowing them to make better decisionsbased on real-time information. Creating business value willnonetheless require more than just purchasing the technology;businesses will need to take better decisions tomeet their clientsneeds and objectives.

The Internet and the Joined-up Economy

How can information be communicated most effectively betweenorganizations? In traditional information architectures, data wasstored with the application on specic mainframes or servers. Spe-cic programs were written to provide interfaces between data, logicsand applications on the different servers within or between com-panies. These interfaces have been run in batches during non-peakhours to permit communication between sales, marketing, sto

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