Technology in Business - LECTURE ONE Scientific, Technological Revolutions the Driving Force of Human Civilization Development Related Chapters in the Text: Chpt. I; Chpt. 5; Chpt. 7 Ruben Xing, PhD The only driving force for the development of modern human civilization is the revolution in science and technology. Human's most fundamental misperception of nature and the universe was profoundly altered by the First Scientific Theory Revolution. The primitive productivity and production methods were completely transformed by the First Industrial Revolution. Thus，a correct definition and a clear understanding of the scope and history of modern science and technology revolutions are the prerequisites for all our disciplines -Harvard Business Review, 2018 The Historic Track of Science and Technology Revolutions/Innovations a) Breakthrough Revolution (B.R): – FIVE Scientific and Technological Revolutions are considered most significant and influential breakthrough movement from the human civilization history. It brought up unprecedented Production Force and Modern Civilizations b) Disruptive – – (or Category) Revolutions (D.R): D.R is an innovation that creates new developmental categories, domains, and markets. They eventually go on to disrupt an existing market and value network displacing an earlier technology. The current 3rd Industrial Revolution triggered by the last B.R and created several significant IT domains c) Sustaining (or Incremental) Revolutions (S.R): – S.R produces numerous new products under each developing categories that created by the current D.R Among the 3 Categories, B.R is the Core Driving Force for the Movement of the Civilization History， These Revolutions’ Driving Keys are: Imagination, Curiosity, and Creativity Five Scientific and Technological Breakthrough Revolutions • In the 17th century, the achievements made by scientists in the fields of astronomy, physics bringing the world's modern scientific research by the First Breakthrough Scientific Theory Revolution • In the late 18th century, the inventions of the steam engine, textile machines completely altered the primitive productivity and methods as the world’s First Industrial/Technological Revolution • In the late 19th century, Power Technology and the inventions as the main indicator of the Second Industrial/Technological Revolution • In the mid-20th century, the invention of the Theory of Relativity, and Quantum Theory which is actually the LAST scientific revolution and is indicated as The Current Ice Age of Sciences . This invention marked the Second Breakthrough Scientific Theory Revolution • In the 20th century, the invention of the first Electronic Computer and the emergence of the Information Internet triggered the Information Technology Revolution which is still ongoing today. It is known as the Third Industrial/Technological Revolution The Third Industrial Technology Revolution Facing Four Domains The Era of the World Today Among the Four Domains, IT is the Core Driving Force What the World Will Look Like in the Near Future The Current Disruptive Revolutions: Information Technology Domains  The Driving Force of Information Technology Challenge of Computing Power Facing Moore’s Law; Fundamental Knowledge of Computing digitization Fundamental Concept of Digitized Information Technology  IT Moving Trends, Emerging Technologies  IT Trajectories, Milestones and Platform Mobility, Transformations, Collaborations, Artificial Intelligence & Virtualizations; Internet, the Key Development Field and Aimed Areas  Top Strategic Priority and Big-Data (L.4/5) Information Security and Recoverability; Primary Resource of Big-data (L.4/5) Greatest Strategic Prediction - Moore’s Law “Computing power doubles in every 18 months” The move still continues Facts of How Moore’s Law Continues Year Processor name Transistor Count Min. feature size 1993 1997 1999 (Feb) 1999 (Oct) Pentium Pentium II Pentium III Pentium III 3.1 million 7.5 million 9.5 million 28 million 800 nanometer 350 nanometer 250 nanometer 180 nanometer 2004 2005 2007 2009 2011 2013 2017 2020 Pentium4 Itanium II P1266 P1268 P1270 P1272 42 million 950 million 1.7 billion 1.9 billion 3~4 billion 90 nanometer 65 nanometer 45 nanometer 32 nanometer 22 nanometer 16 nanometer 14 nanometer 10 nanometer 7nm by IBM ! 2018 (Predicted) 1 nm equals to 1 / 1,000,000,000th of a meter. 5 billion Grand Leaps of Super Computer Development 70’s – 10~100Mega, 80’s – 10~100Giga , 90’s – 10 ~ 100Tera Current –10~100Peta with 80,000+ CPUs – Lead by US, Japan and China; IT Turning Point Challenge Facing Internet Development Disruptive Computing Tech of Multicore-Processors 4.0 Pentium IV 3.5 2.5 24 16 12 8086 8 0.5 0.0 1970 Oct-Core Gainstown 20 486 1.5 16-80Core ? 28 Pentium 2.0 36 32 Pentium III 3.0 1.0 Multi-Core Dual Core Xeon Quad-Core Kentsfield 4 1980 1990 2000 2010 0 2005 2006 2008 2010 The Moore's Law Continues Along With the Rapid Internet Development - Metcalfe's Law “Internet Applications are Proportional to the Square of the Number of People They Use” The Original Source of Information Digitization Conversion of Electronic Signals and Human Data 1 Bit=1 e-signal, 8 bits = 1 Byte = 1 character on keyboard How many bytes does “Hi There !” need? Bit Place 8 7 6 5 4 3 2 1 Binary Value 1 1 1 1 1 1 1 1 0 Decimal Value (2n, n=0~7) 128 64 32 16 8 4 2 1 0 CPU - the Core Driving Force of Information Technology CPU is processed with Control Unit and Arithmetic Logic Unit Computing Core Hardware - Storage • Primary storages: RAM – ROM – CACHE : ROM’s function Computing Golden Rules: the Processing Rules: RAM’s function Current Portions Reside In Primary Storage are Swapped out for Use • Secondary Storage: Floppy -> Tape -> CD –> HD -> USB • Remote Storage, and Cloud Storage Challenges • Virtual Memory and Virtual Storage How RAM, CACHE, HD, VM Work RAM – primary storage 1 2 3 4 5 6 7 9 Hard Disk – 2nd storage Swap pages of memory between primary and 2nd storage 8 Virtual storage – reserved area for swapping Power of Computing Software APPLICATION SOFTWARE HARDWARE SYSTEM SOFTWARE Application software is a set of computer instructions, written in a programming language that direct computer hardware to perform specific processing activities. e.g. Office pack Systems software acts primarily as an intermediary between computer hardware and application programs, and knowledgeable users may also directly manipulate it. e.g. OS and CMOS Major Operating Systems Market Programming Languages Machine language First generation; binary coding Assembly language Second generation; close to machine language; system software High Level Programming Language Third generation; close to natural English with specific coding rules. e.g.: VB, C++, Cobol… Very High-level Programming Language Fourth-Generation; e.g.: Query language, PC software tools, Application packages, Graphic language Contemporary Programming Language Object-orientated & Markup Language; e.g. JAVA, and HTML, XML orientated to Internet development Business Integration Language Data Definition Language (DDL); HTML5 / FLASH: http://www.youtube.com/watch?v=tTyfSYhibNw Contemporary Database : ERP with SAP and Oracle packages Profound IT Developing Trends 1) Mobilized of Computing Technology 2) Transformed Traditional Businesses/Industries 3) Collaborated Technologies 4) Virtualized Artificial Intelligence and 5) Globalized Environmental and Ecological Crisis Mobilized Computing Technology Social Infrastructures are Altered Profoundly Transformed Traditional Businesses and Industries Collaborated Technologies with Google’s Longhorn Strategies • G-Search, GPS • G-OS - Chrome + Android, Doc • G-AI - Project Soli controls by facial expression, handsgesture • G- Jones, Balloons, Google autonomous cars • Google’s Quantum Computing 3-Is Driven Virtualizations Imagination, Interaction, Immersion VR, AR and MR 20 Driving Force of the 4th Industrial Revolutions Stage of Artificial Intelligence AI: Robots, Data AI: FA, VA, ML, DL, RL 8 Top Technology Trends for 2020 + (Source: WSJ, 2019) • Artificial Intelligence (AI) • Machine Learning • Robotic Process Automation • Blockchain • Edge Computing • Virtual Reality and AR, MR • Cyber Security • Internet of Things and - Elon Mask’s Shocking Predictions for 2021 The Intensified DR – Apple Car Globalized Crisis on Environmental and Ecological Issues  The huge potential crisis of human ecology (Colony Collapse Disorder – CCD) The extinction of bee colonies. The amazing prediction by Albert Einstein "If the bee disappeared off the surface of the globe, then man would only have four years of life left."  Today's rapid development of information technology has improved or reduced the quality of human life? - Hidden dangers caused by high technology such as quality of life, health, psychological deformity, deterioration of intelligence and thinking, Internet dependence-bowing culture, etc. (the impact of human thinking innovation caused by fragmented information) have become increasingly obvious Technology in Business - LECTURE TWO - Structures, Functions, and Categories of Modern Information System - ERP Related Chapters in the Text: Chpt. 1; Chpt. 4; Chpt. 9; Chpt. 11 Ruben Xing, PhD Key Concepts PART-I • Understand why and how technology helps and changes businesses  Cases of business success with Information technologies • Structures of Business Information Systems:  3 Generic processes of information systems  Roadmap of digitized Information Systems  3 Dimensions: Technologies – Businesses - Organizations  5 Business Layers: ESS-MIS/DSS-KWS-TPS • Functions and correlations of key information system layers:  5 Generic business functions corresponding to each layers  AI challenge facing BA/BI PART-II • Major Type of Information Systems for Businesses –ERP  New functions based ERP applications Competing in the Information Age Imagine the Technology Power For the Success of Typical Businesses • Wal-Mart – Not a technology company; primary business focus is retail of consumer goods; and the recent trends to the e-commerce • Amazon – Not a technology company; primary business focus is selling books and the recent high tech movement with the trends to the smart society • Netflix/Alibaba – Not a technology company; primary business focus is renting videos Three Generic Information Systems Processes  The Modern Information Systems Process Means – With a sustainable, reliable data processing through Input – Process – Output gathering feedback on each part to improve the information quality and efficiency sustainably Digitization of Information Systems How Data Gets Collected, Processed and Produced Today – Datum (Primary Input, Fetch): • • Single, individual, irrelevant Characters, Numbers; Electronically – a Bit (1/0 - On/Off), Human site - a Byte – Data (Primary Input – Collect, Basic Process): Collections of Related Datum, Streams of Datum with Raw Facts Generated – Information ( Generic Process, and Primary Output): Collections of Correlated Data/Facts Meaningful & Useful to Human Beings In Processes Such as Notice, Making Decisions; - Knowledge (Conventional Analysis, Output with Feedback): With Feedbacks, Collections of Correlated, Modified Information that May Help, Resolved Problems, Produce, Predict More Practical, Effective, Productive Decisions Answers, Solutions and Outcomes - Intelligence ( Contemporary Process-Analysis, Output: Creativity) : Use ERP, Internet Tools, Big-data Resources to Collect Correlated Fine-Screened, More Accurate, More Qualified, Efficient High Level Knowledge - Ingenuity (Unconventional Process, Output: Unique Creativity): Major challenge facing big-data, revolutionary algorithm, .. Data Correlations and Information Data - Raw facts collected by inputted datum that describe the characteristics of an event or object; Correlated Data – Organized data making meaningful correlated data –yiell low level information Information and Information Correlation Information - Data converted into a meaningful and useful context Correlated and Analyzable Information produce Knowledge and higher level of Intelligent methods, guidance and theories Three Interdependence Dimensions of Business Information Systems Today BUSINESS Strategy Hardware Rules/Policies Software Procedures Database Structure Telecom/Internet ORGANIZATION INFORMARION TECHNOLOGY Five Generic Organizational Information Systems Structure 9 Decision Making Process Between ESS - DSS/MIS -TPS  Strategic decision making – Managers develop overall strategies, goals, and objectives – ESS/DSS Level   Managerial decision making – Employees evaluate company operations to identify, adapt to, and leverage change – DSS/MIS Level   Unstructured decisions – Occurs in situations in which no procedures or rules exist to guide decision makers toward the correct choice Semi-structured decisions – Occur in situations in which a few established processes help to evaluate potential solutions, but not enough to lead to a definite recommended decision Operational decision making - Employees develop, control, and maintain core business activities required to run the day-to-day operations – MIS/TPS Level  Structured decisions - Situations where established processes offer potential solutions Management Information Systems: MIS Department Roles and Responsibilities  Chief information officer (CIO) – Its knowledge base is built on the company’s internal business and is focused on improving internal company productivity and ensures the strategic alignment of IT with business goals and objectives  Chief Digital officer (CDO) - Focuses on the external market and is concerned with the productivity of the customer.  Chief knowledge officer (CKO) - Responsible for collecting, maintaining, and distributing the organization’s knowledge  Chief privacy officer (CPO) – Responsible for ensuring the ethical and legal use of information  Chief security officer (CSO) – Responsible for ensuring the security of IT systems  Chief technology officer (CTO) – Responsible for ensuring the throughput, speed, accuracy, availability, and reliability of IT Operational Support Systems (TPS): Five Generic Business Functions How to Deal With a Business Report What Each Layers Should Do? Functional Ranges For Business Layers Artificial Intelligence (AI) Challenge Facing Business Analytics/Intelligence Management Common Categories of AI:   MAJOR AI CHALLENGES FACING MACHINE LEARNING Supervised Learning, Unsupervised Learning, Reinforcement Learning Information Systems Necessary for all Enterprises Enterprise Resource Planning - ERP    ERP provides an integrated information system for organizations with key business processes models and automates most business processes Primary developers: SAP/Oracle Major Applications: Supply Chain Management (VMI)  Inventory Management (RFIP)  Customer Relationship Management (Analytical/PA)  Human Resources Management (FA/VA/PA)  Accounting & Finance Management (AI/Blockchain)  Enterprise Database Management (AB/Data Lake)  Platform of ERP applications Modern Information Technologies Brought a Fundamental Shift in the Traditional Supply Chain Model • Transformed Perception of Vendors • Vendors Managed Inventory (VMI) • Transformed Business Model from Pushing to Pulling Modern Inventory Management System Realtime Inventory Management Supported by RFID BI Mode Reflects the Contemporary Data Management Competition Challenge Facing Traditional Human Resource Management - PA Driven HR Systems） Challenge Facing Operational and Analytical CRM Big-data analytics and Business Intelligence help organizations track down their customers through “RFM” concerns: •How Recently a customer purchased items •How Frequently a customer purchased items •The Monetary value of each customer purchase Primary Platform of ERP Functions Through Internet, Intranet Technology in Business - LECTURE THREE - Business Strategy Development AND Project Planning and Assessment Related Chapters in the Text: Chpt. 2; Chpt. 3; Chpt. 12 Ruben Xing, PhD Key Concepts PART-I • Porter’s Theories • Generic Business Strategies • Five Force Model • Value Chain PART-II • Project Developing • Process of Business Assessment • SMART, SDLC, Prototype, RFP • • • • ROI As-Is, To-be Project Reengineering SWOT Guidance PLANNING COMPETITIVE ADVANTAGES  Business Strategy –  A leadership plan that achieves a specific set of goals or objectives such as:  Developing new products or services  Entering new markets  Increasing customer loyalty  Attracting new customers  Increasing sales Competitive Intelligence – The process of gathering information about the competitive environment to improve the company’s ability to succeed  Porter’s Theory • • • Porter’s Three Generic Strategies Porter’s Five Forces Model Porter’s Value Chain Analysis The Three Generic Strategies Choosing a Business Focus Typical Strategy Examples: Amazon, Wal-Mart， Hyundai- Compete in lower prices  Apple, Starbucks, BMW – Higher price, Variety of functions  P&G, Dell - Features, customizability  The Five Forces Model – Evaluating Industry Attractiveness Porter's Five Forces Framework is a method for analyzing competition of a business. It draws from industrial organization economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness of an industry in terms of its profitability Porter’s Five Forces Model 1- Rivalry Driven among existing competitors 2) Buyer power – The ability of buyers to affect the price of an item in particular go through online shopping 3) Supplier power – The suppliers’ability to influence the prices Supply chain – Consists of all parties involved in the procurement, and the replenishment of a product or raw materials  Switching cost – Manipulating costs that make customers reluctant to switch to another product  Loyalty program – Rewards customers based on the amount of business they do with a particular organization – (Costco-Amex) 4) Threat of substitute products or services – High when there are many  alternatives to a product or service and low with few alternatives – (Fuji) 5) Product differentiation – Occurs when a company develops unique differences in its products or services to influence demand – (Apple) VALUE CHAIN ANALYSIS Porter defined Primary and Support business activities based on Five-Generic-Business- Activities (Functions) VALUE CHAIN ANALYSIS – EXECUTING BUSINESS STRATEGIES Five Primary Force Model & Support Activities VALUE CHAIN ANALYSIS Tech environment enabled each part of the value chain are profitable. Analyzing each business functions, activities, narrow down or increase the value portion, and decide what strategies to follow so to increase the added value Strategic Business Project Planning Traditional SDLC (1) Systems Investigation (2) Systems Analysis (3) Systems Design (4) Programming (5) Testing SDLC - An eight-stage of System Development Life Cycle – The generic process for developing information systems strategy from planning, analysis through implementation and maintenance (6) Implementation (7) Operation (8) Maintenance Go Back to a previous Stage or Stop Alternatives and Shortcut Building SDLC Prototype Procedures 1. IDENTIFY USER’S REQUIREMENTS 2. DEVELOP PROTOTYPE 3. USE PROTOTYPE 4. REVISE & TEST PROTOTYPE Best For Enhance Design Of End-user Interface: How end-user interacts with system Strategic Business Project Planning SMART Guideline SMART criteria are useful reminders on how to ensure that the project has created understandable and measurable objectives Request For Proposal (RFP) - Generic Format for Project Planning and Presenting Key Contents Should be Addressed • How the Current System Works addressing S/O • Addressing W/T, (PIECES-Problems - Prb.Inf.Ecm.Cnt.Effc.Srv.) • Available and Expected Funding • Development Costs, Budgeting and • Ongoing Maintenance Spending • Expected Outcomes for News Systems and Benefits • Project Team Formation, Staffing, Hiring Plans • Time Line and Project Scheduling • Stuffing, Procurement Budgeting • Realistic Constraints Business Assessment Models: To-Be vs. As-Is Models Business Assessment Models: Numerical Evaluations for Business Value  Capital Budgeting Models – the process of analyzing and selecting various proposals for capital expenditures and evaluating business value  PAYBACK METHOD: How long will it take to pay back the investment?  RETURN ON INVESTMENT (ROI): Does return during useful life of an item exceed the cost to borrow money? ROI=Net-benefit/Initial Investment (Net-benefit=Total-benefit - Necessary costs)  COST-BENEFIT RATIO: Does B/C > 1?  PROFITABILITY INDEX: What is the ratio of present value of cash inflow to initial investment (IV+P)/IV ?  NET PRESENT VALUE (NPV): NPV = (Cash flows)/( 1+Rate)Initial inv. Accounting for what is the investment worth?  INTERNAL RATE OF RETURN (IRR): Accounting for the time value of money： IRR=R1+（NPV1 x（R1-R2)) /（NPV1-NPV2) Business Assessment Models: Non-numerical Evaluation Models Assessment with Tangible & Intangible Costs/Profits SWOT Guidance Motives of Strategy Change with S/T vs. W/O or S/O vs. W/T Paired Analysis: Business Assessment Models: Reengineering – The Worse Case of Business Strategic and Project Management How Managers’ Everyday Decisions Create or Destroy Your Company’s Strategy by Joseph L. Bower and Clark G. Gilbert The Idea in Brief Top leaders’ formal strategies determine how business gets done in your firm—right? Wrong, say authors Joseph Bower and Clark Gilbert: It’s other managers’ decisions about where to commit resources that really drive strategy. Sometimes these choices support corporate plans. Other times, they don’t. Who’s Driving Key Decisions General Managers translate broad corporate objectives into specifics that operating managers execute. They also define plans, programs, and activities they believe are essential for their division’s performance. Then they decide which proposals to send upward for corporate review. We are using the GM-Opel Case to show the way they translate strategy—and the proposals they choose to present—may or may not align behind the enterprise-level strategy. Operational managers make choices that either support the company’s high-level plans or contradict them—as our Case of Toyota Echo reveals. Senior executives overlook these managers’ impact at their peril. Bower and Gilbert identify four key players in resource-allocation choices: Customers can powerfully affect strategy. Example: Newspaper company Knight Ridder redirected its corporate strategy to focus on the Internet. But existing advertising customers in the newspaper business shaped how actual strategy was carried out. These advertisers weren’t interested in online ads, so sales reps kept selling them traditional print ads. Result? Knight Ridder had difficulty tapping into the new revenue stream. Capital markets can dramatically reshape corporate strategy. For instance, earnings pressure causes a company to exit a new market too soon. Or a dip in stock price compels a firm to sacrifice long-term strategy for short-term fixes that improve immediate performance. Actively Manage Resource Allocation Understand the people whose names are on the proposals you read. When you read a proposal to commit scarce resources, calibrate what you’re reading against the track record of the proposal’s sponsor. If he or she has a near-perfect record of proposals implemented, there’s probably little downside to approving the request. Make sure managers address the strategic issues. In evaluating requests for resources, spend more time discussing the question “Should we support this business idea?” with managers than examining the question “Is this proposal the best way to implement the idea?” Also，it is important to connect the dots for managers. Frame questions about resource allocation in ways that reflect the corporate perspective. Meet with division managers together and ask, “What’s best for the company?” This is especially important when large sums are involved, conditions are highly uncertain, and multiple divisions are involved in the strategy question under consideration. 1-How Strategy Gets Made, and Why A somewhat longer case story will help illuminate the connection between resource allocation and corporate strategy. It involves Lou Hughes, who took over as chairman of the executive board of Opel, General Motors’ large European subsidiary, in April 1989. Just seven months later, in November 1989, the Berlin Wall came down, and shortly thereafter, Volkswagen, Germany’s number one automobile producer to Opel’s number two, announced a deal with East Germany’s state automotive directorate to lock up all of that country’s car manufacturing capacity and to introduce an East German car in 1994. A corporate view of strategy making in response to the tectonic crash of the Berlin Wall would have Hughes’s staff gather information to be relayed to corporate staff, who would then develop a plan that fit GM’s overseas strategy. (At the time, this strategy was to make cars in large, modern, focused factories in low-wage countries such as Spain). The plan would be debated and then possibly approved by the board of directors. The process might take a year—especially since very little concrete data was available on the East German market, and East Germany was still a sovereign country with its own laws and currency guarded by 400,000 Soviet soldiers. Instead, Hughes did as an energetic, entrepreneurial manager running a large subsidiary in a foreign country would do: He worked vigorously to secure a place for Opel in the East German market, in ways that did not fit with corporate strategy and would not have been approved by corporate planners. Rather than waiting to gather data, he created new facts. Acting on an introduction from an Opel union member to the management team of one of the directorate’s factories, Hughes negotiated the right to build new capacity in East Germany. He allowed the local factory leader to publicize the deal, induced then-chancellor Helmut Kohl to subsidize the new plant, and drew on talents from other operating divisions of GM to ensure that the facility would be state of the art. GM Europe and corporate headquarters were kept informed, but local decisions drove a steady series of commitments. Despite the apparent contradiction between Opel’s plans and corporate strategy, Hughes proposed the commitment of resources, and his proposal was approved first by the European Strategy Board and then by the corporation. Top management (over corporate staff’s objections) endorsed Lou Hughes’s bottom-up action—and his vision for the future—because he was the local manager, because he had a good track record, and because he was thought to have good judgment. It was more an endorsement of Hughes than of his plan per se. Does the Opel case demonstrate how resource commitments shape strategy, or is it just an example of an organization out of control? Traditionally minded strategy planners may assume the latter. In fact, the Opel story highlights what we have found to be near universal aspects of the way strategic commitments get made. These fall into two categories： 2-Organizational structure The fact that, at any company, responsibility is divided up among various individuals and units has vital consequences for how strategy gets made. Knowledge is dispersed. For any given strategic question (such as how Opel should enter the East German market), relevant expertise resides in scattered, sometimes unexpected parts of a corporation. When the wall tumbled, managers in the West understood almost nothing about the East German market. The first GM managers to develop any useful knowledge, not surprisingly, were the ones on the spot: Opel’s marketing staff. Meanwhile, the GM employees with deep knowledge about lean manufacturing techniques, which would be needed for the new venture, were in California and Canada. Those with the deepest knowledge of overseas strategy and profitability overall were in Detroit, Michigan—but European strategy was developed in Zurich, Switzerland. Power is dispersed. Lou Hughes’s formal authority was limited. He could fund studies and negotiate with East German counterparts, but he could not command his manufacturing director to work with California, nor insist that California work with Opel. The right to approve a plant in a new country lay with the board of GM. For permission to present to the board, Hughes would need to go through GM Europe; in addition, financial and other corporate staff could (and would) provide evaluations of their own. Nonetheless, Hughes’s negotiations with the local factory manager and Helmut Kohl could virtually commit GM. Roles determine perspectives- Miles’s Law—the notion that where you stand is a function of where you sit—is central to how strategy gets made in practice. All the managers who would need to cooperate to make an East German initiative possible had different sets of responsibilities for resources and outcomes (like specific levels of sales by model and in total) that shaped their perspectives about what success in a new, eastern European market would look like and what it would be possible to achieve. They all considered a different set of facts, usually those most pertinent to success in their individual operating roles. Hughes’s triumph was to convince a group of managers with limited authority that they could deliver on a radical idea. 3-Decision-making processes. Just as important, the way decisions are made throughout an organization has vital consequences for strategy. Processes span multiple levels; activities proceed on parallel, independent tracks. The notion of a top-down strategic process depends upon central control of all steps in that process. That level of control almost never exists in a large organization—quite the reverse: At the same time that corporate staff is beginning to plan for and roll out initiatives, operating managers invariably are already acting in ways that either undercut or enhance them. Hughes was developing a strong relationship with Helmut Kohl and obtaining funding for a new East German plant even as GM’s corporate staff was looking over sales forecasts and planning GM’s next moves in Europe: focused factories in countries that probably would not include East Germany. At the same time that corporate staff is beginning to roll out initiatives, operating managers invariably are already acting in ways that either undercut or enhance them. 4-Who’s in Control? A leader can announce a strategy to become global, change core technologies, or open new markets, but that strategy will only be realized if it’s in line with the pattern of resource allocation decisions made at every level of the organization. Once a strategy is decided, the operation managers will play a key role. They should have privilege to adjust any procedures, policies to facilitate the strategy going through all the business levels. If the decision is not initiated by top leaders, then, essentially, the decision maker must be authorized before start implementations legitimately. The valid authorization can only be done through the sufficient communications – then, the role-switch would be a vital step here. 5-General managers. Strategic decisions are critically affected not just by senior corporate managers, but also by midlevel general managers, their teams, and the operating managers who report to them. These intermediate-level general managers run the fundamental processes that make multi-business, multinational companies feasible. They are general managers who report to other general managers. Their jobs involve translating broad corporate objectives such as earnings and growth into specifics that operating managers can understand and execute on. They provide corporate management with an integrated picture of what their businesses can accomplish today and might achieve in the future by determining the package of plans, programs, and activities that should drive the strategy for that business. One of the most obvious ways that these managers in the middle affect strategy is through their decisions about which proposals to send upward for corporate review. One top executive we interviewed communicated his surprised realization of this role: “One fascinating moment came as I met with a key midlevel manager. I had mapped out on a piece of paper the resource allocation process and its effect on the intended and emergent strategies. As we talked, this manager proudly told me that he was the one who set the strategy, not the CEO or board of directors. According to him, he owned the resource allocation process because his boss, who was president of the largest business unit, would not approve anything without his recommendation.” 6-Operational managers – a case of Toyota. Most strategy analysts ignore the role operating managers have on strategy outcomes, assuming that these managers are too tied to the operational requirements of the business to think strategically. Senior executives overlook the very real impact of operating managers at their peril. Let’s study another typical case - in 2000, Toyota launched the Echo, a no-frills vehicle designed partly to protect Toyota from low-cost competition. But deep inside that organization sat salespeople in local retail operations. Because margins (and, more important, sales commissions) were higher on other Toyota vehicles, customers were repeatedly steered toward higher-priced models. Even though the corporate office placed a high priority on the new product, the day-to-day operating decisions of the organization directed the realized strategy of the firm elsewhere. How to avoid such scenarios? Understand who’s driving resource-allocation decisions. For example, is a division manager only sending you proposals for projects that will expand his turf? Is an R&D manager giving a large customer too much say over product development decisions? Then step in as needed: Prompt unit managers to ask, “What’s best for the company?” (not their divisions). Form cross-divisional teams to discuss strategic options. By managing your company’s resource-allocation process, you align bottom-up actions with top-down objectives. And you drive your company in the right direction. From the Toyota-Echo example, one might conclude that operating managers (salespeople, in this case) constrain innovation because they are not aligned with the strategy of the firm. However, operating managers can redirect and improve strategy in very innovative ways. Manage It Anyway! The implication of these six recommendations is really a meta-recommendation. Once you realize that resource allocation decisions make your strategy, then you know you can’t rely on a system to manage the resource allocation process. No planning or capital-budgeting procedure can substitute for the best leaders in the company making considered judgments about how to allocate resources. No system of incentives will align divisional objectives so that new opportunities will be studied with the corporate interest in mind. Because of its impact on strategy, the corporate senior management has to engage itself—selectively, to be sure—in the debates that mark inflection points in the process. Note：Studying these two specific cases should pay attention to the respective historical environment and period in which the cases occurred. “Case study should not use the setbacks in the later stage to negate the previous successful experience. Or vice versa, use later successes to ignore the lessons of earlier failures.” – Harvard School of Business
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