Lec4_DigialBiz3 - Digital Economy(III Doing Business in a...

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Unformatted text preview: Digital Economy (III): Doing Business in a Flat World ISOM 101, Spring 2011 Lecture 4 HKUST Business School Overview What forces have caused the world to become “FLAT”? What are some implications of a flat world (and why should we care)? Raymond G. Sin © 2 HKUST Business School The 10 “Flatteners” 11/9/89 8/9/95 Workflow Software Uploading Outsourcing Offshoring Supply-Chaining Insourcing In-forming The Steroids Raymond G. Sin © 3 HKUST Business School The First 3 … 11/9/89 8/9/95 Workflow Software Uploading Outsourcing Offshoring Supply-Chaining Insourcing In-forming The Steroids Platform for Collaboration Raymond G. Sin © 4 HKUST Business School Flattener #1: 11/9/89 Berlin Wall ; Windows (Windows-enabled) PC became widely available Allowed people to create their own contents in digital forms (e.g. words, data, pictures, videos) What is the significance of this? These contents could easily be shared with others Raymond G. Sin © 5 HKUST Business School Flattener #2: 8/9/95 Netscape went public Internet became widely available What is the significance of this? Browser enabled anyone in the world to access contents stored in any server that was connected to the Internet Dot.com boom and bubble Overspending (at that time) on fiber optic cable Raymond G. Sin © 6 HKUST Business School Flattener #3: Workflow Software Interoperable software became widely available Led to substantial efficiency (productivity) gain People from anywhere can work on the same content More people can collaborate on the more contents more cheaply than ever before The “industrial revolution” of the 90s E.g. UPS Before 1995, it cost UPS $2.10 to handle each call from their call center (multiplied by 600,000 calls during peak days before Christmas) They then improved their own tracking systems with wireless technologies, and took advantage of Netscape – customers could then track packages themselves over the Internet, at a cost of 5-10¢ per query Raymond G. Sin © 7 HKUST Business School The Next 3 … 11/9/89 8/9/95 Workflow Software Platform for Collaboration Uploading Outsourcing Offshoring Supply-Chaining Insourcing In-forming The Steroids New Forms of Collaboration Raymond G. Sin © 8 HKUST Business School Flattener #4: Uploading As oppose to “downloading”: No longer a “one-way”, top-down distribution from centralized entity (authority, database, etc.) Individuals from anywhere can upload their own contents anytime Leads to OSS movement as well as other “voluntary contributions” online E.g. Linus, Wikipedia, blogging Raymond G. Sin © 9 HKUST Business School The Power of Blogs: Balance of Power? Videos: iPhone AOL Comcast Raymond G. Sin © 10 HKUST Business School Harmless Fun? It seems fair that an unsatisfied customer at least get to express what they feel (freedom of speech); but what new responsibilities could this freedom bring given the power-shift enabled by information technology? Raymond G. Sin © 11 Raymond G. Sin © 12 HKUST Business School HKUST Business School From Another Point of View Video: Comcast – video reply from another user Obviously, there are always two sides of the same story… Would “careless fun” turn into “The Boy Who Cried Wolf”? Raymond G. Sin © 13 HKUST Business School Flattener #5: Outsourcing The Internet led to the emergence of “virtual organizations” Networked Organizations Use networks to link people, assets, and ideas to create and distribute products and services without being limited by traditional organizational boundaries or physical location Connect with suppliers and customers, and sometimes even competitors E.g. Call centers, soft/hardware production and assembly, airline reservations, McDonald’s Bell Labs’ research facility at Tsingdao Taking advantage of the time difference and idling machine time ($0 transmission and computing costs) Raymond G. Sin © 14 HKUST Business School Flattener #6: Offshoring (1) Outsourcing: allow an outside company to perform certain specific (but limited) functions that your company was doing in-house, then reintegrate their work back to your operation Offshoring: moves the entire production from one location to an outside country Performing the same production at much lower costs (cheaper labor, lower taxes, subsidized energy, lower health-care costs) Raymond G. Sin © 15 HKUST Business School Outsourcing vs. Offshoring Outsourcing Company A Company B BP Offshoring Country X Company A Country Y Company A BP Raymond G. Sin © 16 HKUST Business School Flattener #6: Offshoring (2) Suppose Nike offshore their entire sneakerproduction facility to China Does it mean… More jobs for Chinese? (= less jobs for others?) Much higher economic growth in China due consumer spending? (= less spending and less growth for others?) Raymond G. Sin © 17 HKUST Business School Flattener #6: Offshoring (3) It is NOT a zero-sum game after all!! Cheap imports from China have saved U.S. consumers $600 BILLION (and U.S. manufacturers in untold billions) These savings have helped the Fed to hold down interest rates longer More home buying and refinancing More capital for businesses to invest in new innovations, which in turn creates more jobs and lead to more growth Both parties benefit, some more, some less The invisible wall between “developed” and “developing” countries starts to collapse Raymond G. Sin © 18 HKUST Business School The Last 4 … 11/9/89 8/9/95 Workflow Software Platform for Collaboration Uploading Outsourcing Offshoring New Forms of Collaboration Supply-Chaining Insourcing In-forming The Steroids Supply-Chaining Raymond G. Sin © 19 HKUST Business School Flattener #7: Supply-Chaining (1) What is a supply-chain? Five stages: planning, sourcing, production, product delivery, returns IT (SCM systems) can assist in each of these stages Supply-chaining: a method to collaborate horizontally (among suppliers, retailers, and customers) to create value Both enabled by the flattening of the world and a big factor that flattens the world Growth and proliferation of supply chains -> need to adopt common standards among companies (so every SC can interface with each other) -> eliminating points of friction at borders -> increased efficiencies gain (plus others who follow the same practices) -> encouraging global collaboration Raymond G. Sin © 20 HKUST Business School Flattener #7: Supply-Chaining (2) Why SC have become so important? When the world is “flat”, your company can (and must) take advantage of the best producers at the lowest price anywhere in the world If you don’t, your competitors will Global SC become essential, both for manufacturers and retailers Challenge: it becomes much harder to make these SC work (need for constant innovation and adjustment) Two particular challenges Raymond G. Sin © 21 HKUST Business School Flattener #7: Supply-Chaining (3) Global optimization: Coordination of (global) supply with (local and/or global) demand: it doesn’t matter if you can get one part cheaper in one place; what matters is the total delivery cost of all your parts on time is low (and lower than those of your competitors) Inventory control (at a much more difficult level) – innovation is happening much faster today (esp. fashion and electronics); products go in and out of fashion much faster -> much harder to forecast demand Wal-Mart: 8th largest trading partner of China, and the biggest retail chain in the world Yet it “does not make a single thing” The moment a customer pick up something from the shelf onto the checkout counter, the same product is being produced somewhere else in the world Recently introduced RFID to cope with the new SCM challenges Raymond G. Sin © 22 HKUST Business School Flattener #8: Insourcing (1) Insourcing: a new form of collaboration and creates value “horizontally” Again, enabled by the “flat world” and flattening it even more Very few companies can afford to develop, maintain, and support a complex global supply chain at the scale and scope that WalMart has developed Once the world went flat, small companies could suddenly “see” around the world Lots of places to sell their goods, manufacture their products, and buy raw materials more efficiently Many don’t know how to pull all this off or can’t afford to manage a complex GSC; some simply doesn’t want to manage this kind of complexity if this is not part of their core competency (e.g. Nike) Raymond G. Sin © 23 HKUST Business School Flattener #8: Insourcing (2) Why UPS (United Parcel Service)? UPS creates an enabling platform for those who want to take their business global or to vastly improve the efficiency of their GSCs If you go online and order a pair of sneakers from Nike.com If your Toshiba laptop breaks in the U.S. If The order is routed to UPS, and a UPS employee picks, inspects, packs from a Kentucky warehouse and delivers them to your door Your laptop is being fixed by a certified technician from UPS your HP printer breaks in Europe The field service repairperson who comes to your door to fix it works for UPS (it manages the replacement parts and repairs divisions for HP in those markets) UPS now works with U.S. Custom too Raymond G. Sin © 24 HKUST Business School Insourcing vs. Outsourcing Outsourcing Company A Company B BP Insourcing Company A Company B BP Raymond G. Sin © 25 HKUST Business School Flattener #9: In-forming In-forming: the individual’s equivalence of uploading, outsourcing, insourcing, supply-chaining, and offshoring Ability to build and deploy your own personal supply chain (of info, knowledge, entertainment, etc.) Self-collaboration – become your own self-directed/ empowered researcher, editor, etc. without spending the time and troubles of going to the library or news stands Seeking like-minded people and communities (e.g.?) Key enabler: Search Engines (e.g. Google, Yahoo!, MSN Web Search; Google processes >1 BILLION searches per day) Raymond G. Sin © 26 HKUST Business School Flattener #10: The “Steroids” New and constantly improved communication technologies (e.g. VoIP, P2P, Wi-Max, etc.) They “turbo-charge” the other nine Flatteners, as well as businesses E.g. Airplane struck by lightening – real-time, automatic analysis from remote computers and engineers can make decision before the flight is landed Anyone can work from anywhere at anytime using any device Machines can now talk to computers, people can talk to people, computers can talk to computers, and people talk to computers further, faster, cheaper, and much easier than before Raymond G. Sin © 27 HKUST Business School An Example This is what happens when we combine uploading with informing, with a “steroid” spin… Raymond G. Sin © 28 Tech Zombies: r u 1 of them? HKUST Business School So What EXACTLY is a “Flat World” After All? Simply put, it’s a world in which specialization is taken to a much higher level Specialization: redistribution of work so that each person does what he/she does best (at the lowest relative opportunity cost) Outsourcing, offshoring, virtual organizations Everyone can contribute, anytime, from anywhere in the world More specialized labors from all over the world The role of IT: enabling us to do this much better, much faster, much more manageable, and much cheaper Raymond G. Sin © 30 HKUST Business School Key Takeaways Economies grow bigger and more “global”… and much more complex Spinning off more inventions faster Enabled (and sustained) by IT The most important, greatest sustaining skill is… the “ability to learn how to learn” Because what you can learn from textbook this year may become out-dated the next Ideas become the most valuable asset any person can possess (while ideas can be “copied”, they cannot be “taught” – so you’ll have to develop skills to come up with your own) And that’s why the “group project”, you see? Raymond G. Sin © 31 HKUST Business School Concluding Remarks on our Flattening World Video: Call Center Movie A (dramatic and funny, but yet) realistic representation of how the real world works now Raymond G. Sin © 32 HKUST Business School Glossary Super Fight As soon as possible ASAP OK Okey-Dokey No problem No Ploblemo Good day Bon Jour Very well Oui Bien Committing suicide Taking a bath with a toaster Please S’il Vous Plais Stop buying to protest Boycott Soft voice Inside voice Movie industry in India Bollywood 33 ...
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