IT and New Business Models (Options Thinking) Flashcards
What is the problem of Inertia?
“a tendency to do nothing or to remain unchanged”.
Important when thinking of difficulty of change.
Change is difficult because of inertia:
- Culture: Incentivs and constraints
- Processes: Routines of learned and optimized behavior
- Technology; Assets embedded in organization.
Business logic (worldview/paradigm)
- Current success is a result of past success
- Current business is a result of past decisions on culture, process, technology and strategy.
What is path dependency?
Past decisions increase inertia and lead to lock-in. Decisions limit the future options, and locks
How can a firm overcome path dependence?
Options - Process vs resource options. Firms needs to keep options open and reducing path dependencies. How? - By thinking about options: - identifying options - managing options over time - incorporating in strategy
What is Options Thinking
Derived from Corporate Finance. From financial option (buy, sell, hold) to digital option (do, don’t wait). - Small scale projects - With future potential (unknown) - Firm secures the chance to act (later)
How can we invest in technology so we can flexibly decide whether something is valuable for us in the future without being locked in by our decisions?
Goal is to decrease technical debt and increase the value of the options.
What is a digital option and which types of options are there?
“A digital option is a set of IT-enabled capabilities in the form of digitized enterprise processes, or knowledge.”
- Process: Activity within, between, across firms (Automation, informing, integrating activities by means of optimizing the flow of information.
- Resource: Data, information, skills (comprehensive knowledge/information/data, accessible, active (enabling transfer).
Which option actions can a firm take?
- Stage: evaluate investment successively (stepwise)
- Abandon: flexible divestment w/o penalty
- Defer: delay further investment
- Seed: build growth opportunities on minimal initial effort
- Scale: increase investment in existing option
- Switch: re-use assets created by an investment
What is design capital?
Option Value
Option Debt
Cumulative technology stock owned by firm Determines availability of technology options Identification, evaluation and acquisition of options Options contribute to design capital. (iterative).
- Options provide short and long term view.
- Enable and constrain firm actions.
- Require constant identification and response.
How can a firm manage digital options?
Goal: Investing in future flexibility by cultivating options vs debt
Tool: Design Capital Map: snapshot view (one point in time)
Technical Debt vs Option Value (Matrix):
1. Option Constrained: Low debt, but few options to fuel innovation or development of complementary assets.
2. High Quality: Low Debt and many options; Strongly positioned for innovation and platform leadership.
3. Low Quality: High debt and few options; weak position saps resources with little strategic benefit.
4. Debt Constrained: Many options, but high debt impairs the firms ability to exploit them effectively.
Paths:
How is the profit mechanisms related to digital options?
- Competitive Advantage: Gain competence in emerging technologies.
- Information Asymmetry: Acquire new knowledge through options.
- Commitment Timing: Seed developments enable rapid responses to changing market conditions.
- Rivalry Restraint: Manipulate industry structure (lock-in/out competitors, reduce factor mobility)
True or False?
” ‘Design / Technical Capital’ describes the cumulative IT stock (assets, patents, skills, etc.) owned by a firm”
True
True or False?
“Digital Options can be seen as ‘small scale test projects that bind firms to future commitment’. “
False
True or False?
“Digital Options can be understood in terms of the actions they enable (6 actions) and the purpose they serve (process vs resource)”
True
Which of the following is an action that options can enable?
Accelerate
Split
Scale
None of the above
Scale
