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Infrastructure
Virtually all businesses aspire to getting 100 percent of their customers' business, or at least to getting as much of that business as they can profitably handle. Yet the number of full-service providers remains small. Part of the reason for this is infrastructure, and perhaps politics. Take, for example, the Prudential Insurance Company of America (www.prudential.com), the parent company of Prudential Securities. Prudential offers virtually every financial product an individual could need: investment products; insurance, including life, health, auto, and liability; checking accounts and credit cards; and home mortgages, among other things. However, not only does Prudential Insurance not sell third-party products, but it also does not even sell all of its own insurance products in a strongly coordinated way. The situation of Prudential Insurance is not unusual. In many organizations, layers of systems, each built independently to support a specific product line, make it difficult to consolidate information on a customer basis. Therefore, a unified view of the customer, which is so essential to becoming a successful full-service provider, does not exist, and it cannot readily be created.
The missing piece of infrastructure is often a database containing information about the customer and the products that the customer owns. Without owning these data, a provider does not own the customer relationship, and therefore some of the customer's transactions are likely to take place directly with other providers. All of the important interactions with customers occurring across any channel or business unit must be recorded in the firm-wide customer database. A team of analysts then uses the database and other market research data to identify product and service offerings that may be provided directly as self-branded products, along with cobranded products and those sourced from a third party. Implementing a full-service provider model requires an integrated IT infrastructure and architecture linking multiple business units, customers, and third parties with common data definitions and integrated applications.
Our field research identified databases and data warehouses as some of the most important infrastructure services associated with the full-service provider atomic business model. Other important infrastructure services included the following:
- The ability to evaluate proposals for new information systems initiatives to coordinate IT investment across a multi-business unit firm with the goal of a single point of contact for the customer.
- Centralized management of IT infrastructure capacity to integrate across multiple business units within the firm and third-party providers; the full-service provider model is not readily workable if each business unit optimizes its own IT needs.
- Installation and maintenance of workstations and local area networks to operate the online business linking all the business units and third-party providers.
- Electronic support for groups to coordinate the cross-functional teams required to implement this model.
- The identification and testing of new technologies to find cost-effective ways to deliver this complex business model to the customer across multiple channels.
Developing the appropriate infrastructure for a full-service provider also requires a difficult cultural shift, one that emphasizes and rewards firmwide needs and goals rather than those of the individual business units, and one that requires strong leadership and a different IT governance structure.
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Clicks to Bricks: The Bottom Line
What are the key take-aways for executives charting a course in the new world of business? Authors Peter Weill and Michael R. Vitale lay out these basic tenets:
1. E-business will change the ways that all surviving companies do business, and most traditional businesses will evolve from their current business models to a combination of place and space via a portfolio of e-business initiatives.
2. The transition from place to space is difficult for traditional businesses, because they often do not have the appropriate leadership, organizational form, skills, IT infrastructure, customer intimacy and data, reward system, or culture necessary for success with e-business.
3. Many senior managers of traditional firms recognize the importance of e-business, but they are struggling to find effective ways to think about and evaluate potential e-business initiatives.
4. Business model schematics will assist existing firms to define and assess their e-business models. Firms can describe their e-business model using a schematic that identifies relationships between the participants and the flow of dollars, product, and information.
5. A finite set of atomic e-business models forms the building blocks of all e-business initiatives.
6. An e-business initiative can be specified by its combination of atomic e-business models, channels to the customer, targeted customer segments, and IT infrastructure capability necessary to implement the initiative.
7. For each atomic e-business model, the strategic objectives, the sources of revenue, the critical success factors, and the required core competencies necessary for implementation can be specified.
8. Some combinations of atomic e-business models are compatible, while others are incompatible and lead to problems such as channel conflict. These incompatibilities can be identified using our business model schematics and the associated decision rules.
9. Business models come to life when illustrated with examples. Each chapter contains a number of examples and a detailed case study, the associated business model schematics, and an analysis of the model's viability.
10. Business models must be tested in the marketspace via strategic experiments, and they will evolve organically over time, requiring organizations to be far more agile than before.
11. IT infrastructure and the information it contains, particularly customer information, will be a critical success factor for all e-business initiatives, thus raising the stakes for the management of the firm's IT investments and assets.
12. Firms will need to examine their core competencies, available physical and intangible assets, and likely business models to identify critical building blocks for their future e-business initiatives. Investing in the critical building blocks today can pay off many times over. These building blocks include such things as firmwide customer data, alliance partners, content, skills, and so on.
Excerpted with permission from Place to Space: Migrating to eBusiness Models, HBS Press, 2001.