DrivingITValue Kettinger

Driving Value from IT:
Investigating Senior
Executives’ Perspectives
William J. Kettinger
Donald A. Marchand
Driving Value from I/T:
Investigating Senior Executives’ Perspectives
Final Report to the SIM Advanced Practices Council

May 2005
William J. Kettinger
Moore School of Business
University of South Carolina
Donald A. Marchand
IMD-International
Lausanne, Switzerland
The authors first want to recognize Lynda Kettinger for her important ideas and tireless editing. The authors also
want to acknowledge the case work and research assistance of Rebecca Chung, Robert Giemeza, Lorraine Lee,
Katarina Paddack and Maria Wilhelmsson. Above all the authors want to thank Bob Zmud and Madeline Weiss for
their encouragement, insight, and major contribution to the work.
Table of Contents
Executive Summary…………………………………………………………………………….……2
1. Introduction and Background: The Knowledge Management Perspective of Value……………12
2. The Knowledge-Based Value Framework: A Common Language of Value……………………. 16

Value Creation Path………………………………………………………………………... 16
Value Assessment Path…………………………………………………………………….. 18
3. Expanding the Framework: Value Zones and Value Orientations …………………………….. 21

Opportunity Zone and Entrepreneurial Orientation………………………………………... 22
Case #1: Skandia and the Opportunity Zone……………………………………... 23
Control Zone and Control Orientation……………………………………………………... 24
Skandia and the Control Zone…………………………………………………….. 26
Knowledge Creation Zone and People Orientation………………………………………... 27
Skandia and the Knowledge Creation Zone………………………………………. 27
Knowledge Conversion Zone and Information Orientation……………………………….. 28
Information Orientation Maturity………………………………………………….32
Skandia and the Knowledge Conversion Zone……………………………... ……. 34
Putting it All Together – The Knowledge-Based Value Framework………………… …... 36
4. Working the Zones to Value…………………………………………………………………….. 38

Part I. 3 Case Studies
Case #2: Dell - Success Through Opportunity and Control…………………….. 39
Case #3: CEMEX - Working an Informated Control Zone to I/T Value………...43
Case #4: Citigroup’s CEEMEA Sales and Trading Unit:
The Interventionist Approach……………………………………………………... 46
Part II. The Industry Perspective…………………………………………………………. 52
5. The CIO as a Value Leader……………………………………………………………………… 57
6. Summary of Major Findings…………………………………………………………………….. 61
7. Recommendations To Create Value…………………………………………………………….. 63
8. Conclusion……………………………………………………………………………………… 65
Language of Value: Lexicon ………………………………………………………………………. 66
References…………………………………………………………………………………………... 70
Appendices
1. Skandia Case
2. Dell Case
3. CEMEX Case
4. Citigroup CEEMEA Sales and Trading Unit Case
Executive Summary
Too often CIOs and CEOs get ‘stuck’ in I/T Value is……
conversations about IT value, with both talking past The extent to which senior executives
each other. The CIO may view I/T (information/ believe that a company’s information
information technology) value in terms of capabilities are useful in enhancing
business processes and improving
delivering the latest technology, such as a customer business capabilities.
relationship management system. A CEO may talk
about I/T value in terms of having timely information about customers in order to make strategic
decisions. There is often a gap between what a CEO wants (e.g. better business information to
execute strategies) and how a CIO attempts to deliver on this expectation (e.g. systems,
infrastructure, and architecture).
Academics have tried to get at this problem by measuring I/T value. Unfortunately past research
has not been successful at resolving this “I/T value
Business Value is…….
The ability to deliver business expectation gap”. To avoid this gap, a CIO’s
capabilities that best address current conversation needs to move beyond I/T value to the
and future competitive needs. broader business value seen by senior executives.
Our SIM-APC project was designed to better understand how senior executives view I/T
value in the context of business value. Three primary research questions were examined:
1. How do senior executives perceive business value?

2. How do senior executives perceive I/T value?
3. What is the relationship between business value and I/T value?
Our project provides a business value framework to

Project Overview understand how overall business value is created and
assessed within a company, and the role that I/T value
Overall Study Focus -
How can CIOs practically position I/T
plays. This framework is built on our previous research
value in the context of business demonstrating a strong relationship between a company’s
value? senior executives’ information orientation and business
performance. This project’s overall study finding is that
Overall Study Finding - I/T value must be considered as part of a company’s
I/T value must be considered as part
of a company’s overall business
overall business value framework, and not be assessed in
value framework. isolation. From this perspective, both the CIO and CEO
Driving Value from IT Kettinger and Marchand
Take Away Question for CIOs-
How Information-Oriented are you
and your Senior Executives?
can establish a common language of value and more effective communication can be
accomplished. The project’s specific recommendations will guide CIOs to assess their CEO’s
information orientation and to create I/T value within their company.
Study Approach: A Knowledge-Based Value Framework
Four companies known as exemplars in I/T were examined to define what value is and
how value is created and assessed. Senior executives (e.g., CEOs, CFOs, and Directors) and
CIOs at Skandia, Dell, CEMEX and Citigroup CEEMEA provided insights on their perceptions
of value. This led to our development of a Knowledge-Based Value Framework.
Our approach is based on the fact that value is derived from knowledge and that
knowledge resides in people. In order for the tacit (implicit) knowledge residing in individuals
to be usable by an organization, it must be extracted and then converted into an explicit form,
namely, business processes. This conversion is facilitated by information capabilities:
competence in IT Practices (ITP), Information Management Practices (IMP), and Information
Behaviors and Values (IBV). These capabilities determine an organization’s ability to convert
tacit knowledge residing in people into meaningful information. Information is used in business
processes that range from highly coupled and standardized production systems to unstructured
knowledge creating processes. Regardless of their structuredness, well-informated business
processes enable unique business capabilities leading to superior business performance.
Therefore, value creation is a left-to-right process (Figure 1).
Figure 1. Overall Value Creation and Assessment Paths
Senior
Overall Executive
Value Assessment
Superior
Human Information Business Business Business
Performance
Capital Capabilities Processes Capabilities
and Perceived
Value
IT Value Creation Legend

Value Creation
Path
Tacit Explicit
Value Assessment
Knowledge Knowledge Path
Value assessment operates in just the opposite direction (right-to-left). Sitting at the top
of the organization, a CEO is typically filtered from individuals’ knowledge contributions.

Instead, he or she first sees a portfolio of business capabilities supported by business processes,
then information capabilities, and finally, human capital (Figure 1).
Rather than being translucent, I/T value is embedded in an overall value assessment
pathway. I/T contributes to business value but its potential to create value is embedded in this
linear pathway. From the CEO’s perspective information capabilities are several steps away
from a direct effect on business performance. For example, a CEO may ultimately ‘value’ the
business capability (i.e., a unique strategic capability resulting from the structuring of a set of
business processes) of his/her company to dynamically price a product based on customer
profiles. To accomplish this, the company invests in a web-based ordering fulfillment process (a
business process) allowing for online behavior tracking supported by data mining to accurately
assign customer segments and hone price recommendations (an information capability).
These basic paths of value creation and value assessment are at the heart of the Knowledge-
Based Value Framework (Figure 2). We enhance this framework (and increase its explanatory
power) by setting this framework into the context of ‘zones’. Zones represent a conceptual
division of a firm’s value-creating resources through which senior managers work to develop
strategies, effect change and derive value. Our framework includes 4 Value Zones:
1. Opportunity Zone
2. Control Zone
3. Knowledge Conversion Zone
4. Knowledge Creation Zone
These zones are fundamental in explaining the different ways that companies create value –
by focusing on new opportunities (Opportunity Zone), on exploiting existing processes (Control
Zone), on the conversion of people’s knowledge to company use (Knowledge Conversion Zone),
and on acquiring and developing their people’s knowledge (Knowledge Creation Zone). Each of
these zones has unique characteristics in value creation and assessment.
Figure 2. Knowledge Based Value Framework

Value Paths and Zones
Knowledge Control Zone Senior
Conversion Zone Executive
Direction of Value Assessment and Actions
Control
Information
Orientation
Orientation
Human Superior
Information Business
Capital: Business Business
Capabilities
People’s Processes Capabilities Performance
Knowledge and
Perceived
Value
Opportunity
Zone Legend:
People Assessment
Entrepreneurial
Orientation and Actions
Orientation
Value Creation
Knowledge Path
Creation Direction of Value Creation

Zone
Driving senior executive strategic actions are 4 managerial orientations: Entrepreneurial

Orientation, Control Orientation, Information Orientation, and People Orientation.
Orientations represent managerial awareness, focus and competence to leverage a company’s
resources within and between the value zones. Like zones of a basketball court, value zones are
the various ‘playing fields’ of senior executives (e.g., outside the 3 point zone or, inside the
‘paint’). Orientations are the unique managerial perspectives and approaches to structure the
game by playing the zone properly (e.g., controlling the boards, hard press, outside shooting).
Improving facets of a specific orientation (orientation maturity) is the way value in the
corresponding zone is assessed and new value created. In this way, firms and senior executives
differ in the maturity of their managerial orientations, resulting in differing strategic responses
and different formations of resources that prove to be more or less successful in creating value.
Like in sport, companies must ultimately show competence in all four zones to win.
While firms need to work all zones and improve the maturity of their managerial orientations
over time, firms tend to follow different evolutionary paths to improve their Managerial
Orientations. Depending on industry conditions, past capital investments and senior executive
characteristics, firms establish an initial ‘alpha zone’. The alpha zone is the ‘launching pad’ or
value zone in which the company has excelled in the past and is used to drive subsequent value
in the company. For a company to be successful and have perceived value, it must start its value
journey in at least one of the four value zones (its alpha zone). However, for value to be
sustained and new value created over the long term all of the zones must be emphasized.
5

Table 1. Four Value Zones in Action: Case Snapshots
Case 1: Skandia – Working the Knowledge Creation Zone
“Many managers only talk about IT, without thinking of the concept more holistically. They are
looking for a technical solution. But it is not a technical solution, it is a philosophical solution, a
way of business thinking. IT is…. not thinking, setting the rules, responding to customer needs. It is
the people who create value in the company.”
Kent Nilsson, CIO SkandiaBanken
The Skandia case study introduces the “Knowledge-Based Value Creation and Assessment Framework” from the
perspective of the CEO. The case takes the reader through the evolution of I/T value at Skandia, showing that
senior executives view information and technology as valuable only when they are embedded in valuable business
capabilities. The concept of Information Orientation (IO) is introduced describing how improvements to
information capabilities (IO Maturity) can have long lasting competitive benefits. The case also focuses in detail
on the experiences of one business unit of Skandia, called SkandiaBanken, and the role of the CIO (Kent Nilsson)
as co-director and the firm’s principal “structural capitalist”. The Skandia case provides an understanding of the
underlying concepts of value and the Knowledge-Based Value Framework. (Appendix 1)
Case 2: Dell – Working the Informated Opportunity Zone
“The more data we extract about the different businesses within our company, the better we are able
to see the strengths and the opportunities for improvement. To say that we have become a data-
driven company is almost an understatement. Data is the engine that keeps us on track.”
Michael Dell, CEO DELL, Inc.
This case further refines our “Knowledge-Based Value Creation and Assessment Framework” and delivers a
powerful new way of thinking about overall business value assessment and I/T value assessment. The case
provides a grasp of the fundamental terminology needed for a common language of value, e.g. business
capabilities, business options, structural capital, orientations, etc. The relationships of the framework ‘zones’ and
managerial implications are portrayed. The case starts out considering value in the “Opportunity Zone”, Michael
Dell’s natural ‘alpha zone’ of value. However, he soon learns that he must also “Work the Control Zone” using an
‘Information Oriented’ approach for successful competitive strategies. As in Skandia, the Dell case reveals the key
role that strong Information Orientation of the senior executive plays in recognizing and enabling I/T value.
(Appendix 2)
Case 3: CEMEX - Working the ‘Informated’ Control Zone
“We want to keep innovating…but we want to have that under control. Information is your ally: You use it
to detect quick and get better faster, or determine who is better and then you go and find out why. As we
grow, we clearly need more information. I must admit that I want the information for myself”.
Lorenzo H. Zambrano, Chairman of the Board and CEO, CEMEX
This is a case of a Mexican company that is now threatening to be the largest cement company in the world.
Surprisingly, I/T is center stage in their march to world dominance. CEMEX succeeds under the controlling and
informated eye of CEO Lorenzo Zambrano, whose Alpha Zone is unquestionably the Control Zone. Most
interesting is how they develop an information culture that drives their business, now known as the “CEMEX
Way”. Also, noteworthy is how business process standardization in this company is synonymous with knowledge
Driving Value from IT Kettinger and Marchand 8
zones. Bottom-line: The surest path to I/T value is for CIOs to lead in the Knowledge
Conversion Zone and diligently seek to ‘informate’ the firm’s Senior Executives so that they
can better operate in all the Zones. When this occurs the company is creating optimum value and
I/T is recognized as critical to the firm’s success.
Case Studies: Four Value-Achieving Companies
This project entailed in-depth case studies of 4 exemplar companies (Skandia, Dell, CEMEX,
and Citigroup’s Sales and Trading Unit in Central and Eastern Europe, Middle East, and Africa -
CEEMEA) as they traverse their unique value creation and assessment paths. See Table 1 for a
snapshot of each case study (see the appendices for the detailed cases). Each company started
from different ‘alpha zones’ and emphasized different managerial orientations in their search for
value. Skandia, Dell, and CEMEX all took an evolutionary approach, where they each improved
different zones at different times in their achievement of business value and I/T value.
Citigroup’s CEEMEA took a different approach – instead of a time-based, evolutionary approach
improving the different zones, an information oriented CEO at CEEMEA took an interventionist
approach and quickly initiated a program targeted at improving information capabilities in the
Knowledge Creation Zone. By specifically targeting information capabilities, CEEMEA was
able to impact the other three zones and achieve dramatic bottom-line results in a short, two-
year timeframe.
A
(Appendix 2)
(Appendix 2)
Finding #5: Developing maturity in information capabilities is needed to create the right mix of
information behaviors and values so individuals will contribute their knowledge for effective and
efficient company use.
Finding #5: “Informating” senior executives for value means providing them the information to
better “look out the window” for opportunities while “looking through the mirror” at their
company’s controllable and reconfigurable business capabilities.
Finding #6: Companies with an informated Control Orientation create the right mix of
standardized processes and flexible knowledge, resulting in efficient processes and the agility to
act on opportunities.
Finding #8: The CIO must give business meaning to the “I” in his or her title by communicating
and acting on the link between information orientation maturity and the creation and assessment
of value.
Finding #9: A broad-based, shared view of Information Orientation is a critical managerial

capability for the senior management team (i.e., culture focused on improvements in people’s
Information Behavior and Values, Information Management Practices, and Information
Technology Practices). The CIO can co-lead with the CEO in the effort to create value via
information orientation on a company-wide basis.
Finding #10: The surest path to I/T value is for CIOs to target all aspects of Information
Orientation in the Knowledge Conversion Zone and to informate the firm’s other 3 Value Zones
by applying information capabilities to the appropriate areas for value generation.
Overall Project Recommendations
The Knowledge-Based Value Framework can be used by both CEOs and CIOs as a map
or blueprint to chart their whole company’s path to value. I/T value is positioned within this
overall business value framework. The Framework supports a common language of value - key
terminology and ideas in understanding value. (See the Value Language Guide at the end of this
report). Using this ‘value framework language’ will garner greater consensus between CEOs and
CIOs in assessing the I/T role in creating overall business value. When both are talking the same
language, the ‘I/T value expectation gap’ is avoided and CEOs and CIOs can successfully
partner in the achievement and delivery of business capabilities.
Key Recommendations: Driving Value From I/T Project
Step 1: Understand Overall Business Value

¾ Understand How Value Works: A Framework
¾ Establish a Language of Value
Step 2: Understand Specific Zone Paths and Actions

Driving Value from IT
¾ Determine Kettinger and
your company’s Marchand
‘Alpha Zone’ 10
¾ Identify other potential Zone pathways
Step 3:for
A Report Identify Rolefor
the Society of Information
CIO and I/TManagement’s ©Advanced Practices Council
¾ Assume roles and responsibilities for assessing and creating value
¾ Measure the company’s current information capabilities
¾ Focus I/T on each point in the value creation path and value zones
Identification of your company’s alpha zone is the starting point of your company’s
value path – the path which has the greatest payoff. If, for example, your company’s alpha zone
is the Control Zone, overall value may be initially created or improved by emphasizing I/T on
operational support, business process support, or managerial support – all areas directly related
to rationalization and control of the business. As the alpha zone becomes fully informated,
additional value can be created by focusing on the other value zones.
CEO’s and CIOs can also create value by focusing initiatives on the key points of the
basic value creation and assessment path that intersects all the zones. These initiatives directly
impact human capital, information capabilities, business processes, and business capabilities (see
Table 2 below). For example, a company can target improvements in human capital by
sponsoring innovation programs or training programs. A company can target improvements in
business processes by standardizing those processes where feasible using process mapping and
determining best practices. By targeting specific points along the value creation and assessment
path, value can be achieved that impacts all 4 value zones.
Table 2. Opportunity Areas Companies Can Initiate to Create Value
Value Path Component (& Project Case Study Example) Roles/Responsibilities
Business Capabilities - Senior Executive (Cxx)

Develop and enhance Entrepreneurial Orientation with driven
information (Dell)
Develop and enhance Control Orientation with information - CIO collaboration and
(CEMEX) support
Business Processes
Standardize business processes to leverage intra- and
interorganizational efficiencies (CEMEX) - Senior Executive (Cxx)
Facilitate knowledge re-use when processes cannot be and CIO partnerships
standardized (Skandia, CEEMEA)
Determine how I/T can offer greater business
standardization and flexibility (Dell)
Information Capabilities
Measure Information Orientation (IO) in your company - CIO driven
(CEEMEA)
Start an IO improvement initiative (CEEMEA) - Senior Executive (Cxx)
Develop a program to push IO Maturity (CEEMEA) collaboration and support
Human Capital - Senior Executive driven

Sponsor innovation programs (Skandia, CEEMEA) - Human Resources
Improve the recruitment process (Skandia, Dell, CEEMEA) leadership
Improve skill and experience training (CEEMEA, Skandia, - CIO support
Dell)
Create human capital consultants (Skandia, CEMEX)
11
CIO leadership and I/T are essential to charting a unique, information-driven path to business
value for the firm. I/T value can be created by focusing on the Knowledge Conversion Zone and
focusing I/T in areas that directly impact the other three zones. When every link in the value path
and every zone is properly informated, the value of I/T is clearly reflected by excellence in
people and process. And, I/T’s impact to company value is most clearly evident when I/T
impacts, influences, or even transforms the fundamental business capabilities of the firm.

1. Introduction and Background:
The Knowledge Management Perspective of Value
Business value and information/information technology (I/T) value can be confusing

concepts. They are frequently studied and debated in the management and IT literature (e.g.
Brynjolfsson and Hitt 1996; Mukhopadhyay et al. 1995; Barua et al. 1995). Yet even with all of
this research dedicated to understanding business value and I/T value, the concepts remain
elusive. It seems that value, like beauty, is in the eye of the beholder.
The analogy between value and beauty perhaps holds a key to better understanding value by
its emphasis on perspective. Different people assign value from different perspectives or from
different competitive positions. A CIO may view his or her value contribution by delivering on-
time and on-budget systems. A CEO, however, may talk about business value in terms of having
timely information to make decisions. The end result can be a gap (or perhaps even a chasm)
between the perceptions of value by the CIO and the CEO (Figure 1).
Figure 1. Study Research Problem: The Information/Technology

(I/T) Value Expectation Gap
Scenario: I/T Business Value?

The I/T Value
Expectation
Infrastructure
CIO
CEO
Architecture
Gap
Better
business Data Access
information Systems
eBusiness
• Wants good business results.

• Wants high business performance
• Attempts to achieve this through IT
from good information use for decision often leaving people’s information
making (value- outcome) management and behaviors for the
• Talks about people being able to business units to address
use good information to do business • Talks and invests in IT and manages
the IT function
Result? Confusion in language and mindsets
This project addresses this communication gap by answering 3 primary questions:

1) How do senior executives perceive business value? 2) How do senior executives perceive I/T
value? 3) What is the relationship between business value and I/T value?
To answer these questions, four exemplar companies were examined to define what value
is and how value is created and assessed. Senior executives (CEOs, etc.,) and CIOs at Skandia,
Dell, CEMEX and Citigroup’s CEEMEA Sales and Trading Unit provided insights on their
perceptions of value.
The case studies allow us to answer additional important questions explained in this report:
¾ Do senior executives assess I/T value primarily through business capabilities and
structural capital? If so, what are the implications?
¾ How have successful companies improved their information capabilities and achieved
value?
¾ What roles in improving information capabilities and driving I/T value were played by
different functions and senior managers?
¾ What specific role did the I/T function and CIO play?
The Knowledge Management Perspective of Value: Theory and Concepts
Past studies have measured business value using indicators of financial performance,
market share growth, level of product and service innovations, and the ability to achieve a
superior company reputation.1 Although these studies have attempted to measure value, they do
not provide insight into the two more fundamental questions:
1) How is value created?
2) How is value assessed (not just measured)?
We can examine value creation and value assessment using a Knowledge Management
perspective. Knowledge has been widely recognized as a primary strategic resource in
organizations.2 According to the Knowledge Management perspective, knowledge creation
begins with people and the knowledge residing within those people. The concept of knowledge
as a resource suggests that knowledge can be transferred, recombined, or used to create value. 3
Our knowledge-based perspective of value draws upon research in the resource-based

and knowledge-based view of the firm, dynamic capabilities, and options theory to create a
unifying framework for value creation and assessment. Core to the knowledge-based view is the
concept that knowledge originates in people (human capital), with organizations as merely
instruments to collectively capture, transfer, and focus knowledge towards the business goals.4
The organization’s role is to facilitate the transformation of human capital into superior
performance and value.5
Specifically, our framework conceptualizes converting human capital (embedded

knowledge in people) to business processes (the explicit manifestation of human capital in
business processes and/or stakeholder relationships) to deliver controlled and flexible business
1
Marchand, Kettinger, and Rollins, Information Orientation: The Link to Business Performance, 2001.
2
For example, Drucker 1988, Alavi and Leidner 2001, Grant 1995, 1996b
3
(Nonaka 1994; Grant 1996b).
4
Grant 1996a, 1996b; Tsoukas 1996
5
Grant 1996a, 1996b, Tsoukas 1996
capabilities that enable a firm to achieve a competitive advantage. Therefore, business value is
derived from the knowledge of a firm’s people and the extent to which that knowledge can be
converted to valuable products and processes.
Our approach has been recognized by companies such as Skandia, the Swedish insurance
firm. Companies like Skandia are using this knowledge-based value approach to close the I/T
value expectation gap between CEOs and CIOs. Kent Nillson, the CIO of SkandiaBanken (a
unit of Skandia), has the following perspective:
Many managers only talk about IT, without thinking of the concept more
holistically. They are looking for a technical solution. But it is not a technical
solution; it is a philosophical solution, a way of business thinking. IT is not
“alive”--it is not thinking, setting the rules, responding to customer needs. It is
the people who create value in the company.
Kent Nillson,
CIO SkandiBanken
Nillson’s CIO perspective is perfectly aligned with his CEO’s perspective:

IT value is not seen as technology alone nor as a functional contribution, IT value
must be embedded in the business capabilities being developed and manifested in
real life business processes and customer interactions.
Lars Eric Petersson,
CEO (former) Skandia Group
There is no chasm or gap between I/T and business value at Skandia. The leadership at
Skandia has a clear understanding of the role of I/T in Skandia’s value creation path.
3 Steps to Driving Value from I/T
Step 1. To start our I/T Value journey, we must first understand how overall business
Understand value works. The value framework combines ideas of value developed from
Overall the Skandia case study, and the knowledge management stream of literature
Business with concepts from the resource-based view of the firm to create a
Value knowledge-based view of value.
Embedded within the framework is a language of value – key terminology and ideas in
understanding value. It is important that both the CEO and the CIO understand business value
using the same framework if they are to successfully partner in the achievement and delivery of
business value.

Step 2. Using the framework, the second step is to identify specific maturity paths
Understand within 4 distinct value zones that can lead to value. Value zones are
Specific competency areas in which senior executives work to develop strategy and
Zone Paths effect change that can lead to business value. Industries are different and
& Actions therefore will have different maturity pathways leading to value. Even within
the same industry, different companies can have different zone maturity paths.
Three companies (Dell, CEMEX, and Citigroup) in different industries are examined as they
successfully “work” their value zones. We also identify different industries and company
characteristics and the likely pathways within the value framework for achieving business value.
Step 3. The final step is to identify the role of the I/T function and the CIO in the
Identify value framework.
Role of CIO
and I/T
The report is organized as follows. First, we review existing relevant research on value
and IT business value from a knowledge management perspective. We then develop a skeletal
framework for value creation and assessment. In the next section, we expand the framework by
integrating concepts from a case study of Skandia Corporation. Then, we apply the framework
to the understanding of value creation and assessment using case information from three other
companies. Finally, we identify the roles and responsibilities for assessing and creating value
and conclude by summarizing the management findings.

2. The Knowledge-Based Value Framework:
A Common Language of Value
Driving Value from I/T

Step 1. Understand Overall Business Value
Our new value framework positions I/T value within a company’s overall value
framework. The framework takes a knowledge-based approach, where knowledge itself is
considered a significant company resource. Fundamental to the knowledge-based perspective is
the core idea that knowledge originates from people and is the ultimate source of value.
The complete value framework is fairly complex, since it addresses both value creation
and value assessment from the perspective of the senior executive. The language and vocabulary
may be a little tedious, but the end result is worth it – a clear understanding of I/T’s impact and
influence on business value. The Value Language Guide in the back of this report defines the
key terms and ideas used throughout this report.
Value Creation Path
The Knowledge-Based Value Framework traces the complete path of value creation from
people to information capabilities to business processes to business capabilities to firm value
(Figure 2).
Figure 2. Overall Value Creation Path
Senior
Executive
Superior
Human Information Business Business Business
Performance
and Perceived
Value
IT Value Creation
Tacit Explicit
Knowledge Knowledge

From the perspective of senior management, value creation is a left-to-right flow. There
are four components essential to the value creation path – human capital, information
capabilities, business processes, and business capabilities. From the perspective of the CEO, I/T
value is embedded in the overall value creation path.
Human Capital
The knowledge-based perspective recognizes that people (or human capital) are a
company’s most important asset. Company value begins with individuals, and the knowledge,
skills, and experiences residing within those people are known as tacit or implicit knowledge. In
order for this implicit knowledge to be usable by a company, it must be converted to an explicit
form of knowledge usable by the organization. The explicit form of knowledge is represented
by business processes. Human capital is converted to Business Processes through Information
Capabilities.
An organization’s information capability plays a key role in the transformation of implicit
knowledge (human capital) to explicit knowledge (business processes). Successful organizations
accomplish this conversion by developing competence in information technology practices
(ITP), information management practices (IMP), and people’s information behaviors and
values (IBV). I/T value can thus be defined as the extent to which senior executives believe
that a company’s information capabilities are useful in enhancing business processes and
improving business capabilities, which ultimately contributes to business performance.
Business Processes
Business processes have been defined as “logically related tasks performed to achieve a
defined business outcome.”6 Business processes can be viewed as organizational routines or
collection of activities that take one or more kinds of input (people, material, technology,
information) and create an output (product, service, information) that is of value to the customer.
Business processes represent what the firm knows about the abilities of its people and the
combinations of those abilities to address business concerns. Business processes in our model
equate to structural capital, which is represented in existing managerial and business processes
(including stakeholder informational exchanges) that enable firms to efficiently use intangible
resources (human capital) in concert with tangible resources to create value.
One example of business processes would be Wal-Mart’s supply chain processes, where
the reading of barcodes of purchased products at the checkout register is directly transmitted to
suppliers who are in turn responsible for inventory management and product provisioning to
6
Davenport and Short, 1990
Wal-Mart stores. The supply chain processes were developed from individual transactions and
institutionalized into formal, repeatable, business processes. Other examples of business
processes include:
• Dell’s build-to-order sales process, where customers design their orders.
• Ford’s managerial processes to control outsourcing of its auto parts manufacturing
with its supplier.
• Merck’s managerial processes to control an extensive network of hundreds of
R&D and marketing alliances and joint ventures.
Business Capabilities
Up to this point, we have followed the value creation path from people to information
capabilities to business processes. However, the business processes by themselves are not
valuable -- all companies have business processes. It is when these business processes are
strategically understood7 that they become more than just processes – they become business
capabilities. By strategically understood, the firm knows or understands exactly how the
business process can be used or exploited as a competitive advantage. Therefore, we define
Business Capabilities as the unique strategic capabilities resulting from the structuring of a set
of business processes. Business capabilities distinguish a company to its customers, offer unique
value, and directly contribute to business performance.
Not every firm can convert business processes into profitable and successful business
capabilities. For example, Carnegie Mellon’s Software Engineering Institute has developed a
well-known software development model, the Capability Maturity Model (CMM). However,
even though the CMM is well-publicized, not every software development organization has the
capability of producing quality software and exploiting that capability into business performance
/ value. Other examples of business capabilities include:
• Wal-Mart’s ability to leverage its supply-chain process to lower its cost and decrease the
time of product replenishment.
• Dell’s ability to sell direct and build-to-order while maintaining low unit cost.
• Skandiabanken’s capability to cross-sell and up-sell to maintain higher than normal bank
account interest rates, or the potential of Skandia to disintermediate insurance agents to
directly sell insurance polices.
• CEMEX’s ability to coordinate cement production and distribution processes in less
developed countries with limited infrastructure.
• CEEMEA’s ability to continue to trade efficiently in turbulent regions, or develop new
financial instruments in real-time under conditions of hyper-competition.
7
Stalk, Evans, and Shulman (1992)
Figure 3. Overall Value Creation and Assessment Path
Senior
Overall Executive
Value Assessm ent
Superior
Hum an Inform ation Business Business Business
Perform ance
and Perceived
Value
IT Value Creation Legend

Value Creation
Path
Tacit Explicit
Value Assessm ent
Know ledge Know ledge Path
The Value Assessment Path
We have shown that from the perspective of senior management, value creation is a left-
to-right flow along the value path (Figure 2). But now the question is, “How is value assessed?”
How does senior management evaluate firm value? Value assessment follows the same value
path but in the opposite direction from right-to-left (Figure 3).
A fundamental basis of firm value is its organizational ability to exploit its current assets
and explore future opportunities to compete in the firm’s market. From the senior management
perspective, the individual abilities of employees are not very visible, since they are at the far left
of the value path, away from the direct view of senior management. It is the portfolio of
business capabilities that the senior management evaluates to determine the firm’s competitive
strategy.
In evaluating the capabilities, the senior executive can either choose to focus internally on
current capabilities (known as “looking in the mirror”) or focus externally on acquiring the
resources or processes to address anticipated competitive needs (“looking out the window.”) A
business options approach combines the two perspectives so that the senior executive is
continuously evaluating the firm on both its current capabilities and its abilities to deliver future
business capabilities.8 Therefore, from a business options approach, business capabilities can be
viewed as the strategic outcome of either previously executed business options in terms of the
firm’s existing resource deployment or on the potential outcome of reconfiguring or acquiring
the resources and processes to address the anticipated competitive need.
8
Kogut and Kulatilaka (2001)
So what exactly does a CEO see as he peers through each layer of a company’s
operation? He first sees the specific business capabilities resulting from the current
configuration of business processes that have been developed to address a company’s unique
business context. Entrenched within the business processes are the resource building blocks,
such as capital, physical assets, stakeholder relationships, etc. represented by explicit knowledge.
Drill down deeper and you find the information capabilities that structure these business
processes around purposeful organizational activity – in essence delivering the right information
to the right location at the right time so that the right activity takes place. Mature information
capabilities act like a change agent converting the hidden or tacit knowledge into the explicit,
formalized, codified knowledge. And at the very beginning of the value path is the people – the
human capital within the organization that is at the very core of company value.
Value Creation and Assessment Summary
Overall business value is the ability of a company to deliver business capabilities that
best address current and future competitive needs. Value creation in companies begins at the
individual employee level. People possess implicit knowledge that is converted to business
processes via information capabilities. I/T projects provide value by improving the information
capabilities of a company. In fact, I/T value is the extent to which senior executives believe that
a company’s information capabilities are useful in enhancing business processes and improving
business capabilities. When informated properly, business processes are positioned strategically
within a company’s objectives, they become part of the portfolio of business capabilities used by
the company to produce overall shareholder value.
Value assessment follows the same value path as value creation, but in an opposite
direction. A CEO does not see individual-level contributions but instead sees a portfolio of
business capabilities supported by human capital, information capabilities, and processes.
¾ Project Finding: Senior managers perceive overall value from the perspective of
marketplace competition and through business capabilities. They view I/T value as embedded
within their capabilities and processes rather than having a direct effect on business
performance.
¾ Project Finding: “Informating” senior executives for value means providing them the
information to better “look out the window” for opportunities while “looking through the
mirror” at their company’s controllable and reconfigurable business capabilities.

3. Expanding the Framework: Value Orientations and Value Zones

Step 2. Understand Specific Zone Paths & Actions
We have explored the basic value path – the path for value creation and value assessment,
which provides the foundation for the broader, more comprehensive Knowledge-Based Value
Framework. In this section, we will place the value path within the context of four value zones
and introduce managerial orientations that operate within each zone.
The Knowledge-Based Value Framework (Figure 4) has four zones –the Opportunity
Zone, Control Zone, Knowledge Conversion Zone, and the Knowledge Creation Zone. A Zone
is a conceptual division of a firm’s value-creating resources through which senior managers
work to develop strategies, effect change and derive value.
Figure 4. Knowledge-Based Value Framework

Value Paths and Zones
Knowledge Control Zone Senior
Conversion Zone Executive
Direction of Value Assessment and Actions
Control
Information
Orientation
Orientation
Human Superior
Information Business
Capital: Business Business
Capabilities
People’s Processes Capabilities Performance
Knowledge and
Perceived
Value
Opportunity
Zone Legend:
People Assessment
Entrepreneurial
Orientation and Actions
Orientation
Value Creation
Knowledge Path
Creation Direction of Value Creation

Zone
Within each value zone, there is a corresponding managerial orientation that directly
impacts or affects the zones: Entrepreneurial Orientation (Opportunity Zone), Control
Orientation (Control Zone), Information Orientation (Knowledge Conversion Zone), and
People Orientation (Knowledge Creation Zone). Orientations are a perspective or way that the

senior executives see the world and their firm’s value. Orientations manifest themselves in
managerial awareness, focus and competence to leverage a company’s resources within and
between the value zones. Orientations are dynamic capabilities9 to work a zone well. By
improving facets of a specific orientation, value in the corresponding zone can be created and
more easily assessed.
The following section examines the unique characteristics of value within each zone and
its corresponding orientation. We follow the description and definition of the zone and
orientation with a direct application example using Skandia Corporation and demonstrate how
Skandia has utilized concepts from each zone in its value creation and assessment journey. See
Appendix 1 for the complete Skandia case study.
Opportunity Zone and Entrepreneurial Orientation
It is within the Opportunity Zone that business capability exploration or the “Looking
Out the Window” strategy occurs. Business capability exploration is the organizational
experimentation with new alternatives, including the pursuit of knowledge about currently
unknown opportunities for competitive action.10 In the Opportunity Zone, future opportunities
(i.e. future business capabilities) are sensed, explored, and responded to.
Key to business capability exploration is the concept of agility, which is the ability to
detect and seize opportunities for innovation.11 Three types of agility impact business capability
exploration – customer, supplier, and partner agility. Customer agility describes the firm’s
ability to leverage the voice of the customer for gaining market intelligence and detecting the
competitive action opportunities.12 Supplier agility is the ability to leverage the assets,
knowledge, and competencies of suppliers, contract manufacturers, and distributors to adjust the
firms’ business processes to achieve speed, accuracy, and cost economy in sourcing
opportunities. Partner agility is the ability to leverage the assets, knowledge, and competencies
of complementary firms to form alliances, partnerships, and joint ventures.13 Partner agility
enables a firm to extend its enterprise network when it needs access to knowledge not currently
residing within the organization.14 All three agilities directly impact a firm’s business capability
for exploring future opportunities.
A senior executive’s perceptiveness of future business capabilities will be influenced by

the extent to which he or she is entrepreneurially-oriented. Entrepreneurial orientation is the
dynamic managerial capability to sense and position market opportunities in terms of agile
responses to customers, partners, and suppliers. This requires the development of strategic
9
Eisenhardt and Martin, 2000.
10
March, 1991.
11
D’Aveni 1994, Goldman et al 1995
12
Kohli and Jaworski 1990
13
Venkatraman and Henderson 1998
14
Dyer and Singh 1998
foresight to sense business options, as well as stakeholder insight into future customers,
suppliers, and partner needs.15 It also requires systemic insight16 into the firm’s ability to
reconfigure existing resources to address a business option and also a competence in risk
assessment to analyze alternative business options.
Entrepreneurial orientation can also be viewed as the extent that an executive explores
market opportunities through alertness and responsiveness, where alertness refers to proactive
attentiveness to the environment and responsiveness refers to the nimbleness of the response to
environmental signals.17 Clearly, certain executives possess an intuitive entrepreneurial
orientation, almost like a sixth sense in identifying market opportunities. However, to the extent
that this entrepreneurial orientation is well-informed (or informated) will add tremendous
precision to strategic decision-making and fundamentally reduce the risk of competitive moves.
Case #1: Skandia and the Opportunity Zone
Skandia Corporation underwent a transformation in the mid 1980s from a traditional

insurance company into a global financial services group. The global trend of government
deregulation began to open the insurance industry to banks and other financial and non-financial
institutions, increasing the amount of competition in Skandia’s core business – insurance. At the
same time, new markets were emerging for insurance companies. Reductions in government-
sponsored pension plans and social security, along with a growing older population, opened up a
new market for financial management products and services.
Skandia started their value expansion journey in 1986 by utilizing their entrepreneurial
orientation to sense the growing opportunities in the financial products market. Skandia realized
that its current portfolio of insurance-based capabilities was no longer performing in the
marketplace. Skandia’s International Life Operations was losing money and people. The unit’s
best in-house fund managers were leaving for higher paying jobs. Instead of maintaining the
status quo of managing funds in-house, Jan Carendi, the head of Skandia International Life
Operations, decided to change strategies and start a partnership/alliance relationship with
independent brokers and banks. Based on the partnership/alliance structure, Skandia would
position itself as the link between the fund management and distribution functions. The fund
management and distribution functions would be handled by its partners; Skandia would add
value by creating financial packages that combined long-term savings products with the
insurance instruments, known as “unit-linked assurance” products. These packages would then
be offered for sale by its partners.
15
Sambamurthy et al 2003
16
Sambamurthy et al 2003
17
Zaheer and Zaheer 1997
We can utilize the language of the Knowledge-Based Value Framework and the concepts
related to Entrepreneurial Orientation and the Opportunity Zone to evaluate value creation at
Skandia. Skandia displayed:
Strategic foresight by realizing a strategy shift was necessary to change from a

traditional insurance-focused firm to that of a value-added financial services firm.
Stakeholder insight in their recognition of the changing customer needs of an
aging population and the subsequent opportunities surrounding the change
(customer agility).
Systemic insight enabled Skandia to reconfigure their resource allocation of
human capital (fund managers) and focus on replacing the fund managers with the
resources required to support the partnership / alliance strategy.
This resource shift resulted in a business model that allowed Skandia to manage a very
large alliance organization with minimal staff by leveraging the alliance resources (partnership
agility). Skandia’s strategy shift proved to be extremely successful. By 1997, sales of its unit-
linked assurance product had grown to 60% of Skandia Group revenues, while its traditional life
assurance product was down to about 5%.
Control Zone and Control Orientation
The capability to explore future opportunities in the Opportunity Zone is a necessary but
not sufficient condition to achieve superior performance and value. Firms must also build and
nurture a dynamic capability of rationalizing, measuring, and evaluating their current business
capabilities. Exemplar firms exploit not only entrepreneurial orientation, but also control
orientation to address unique industry circumstances to deliver business capabilities that are both
responsive and reliable.
Control orientation is the dynamic capability of exerting a breadth and depth of business
processes, information and people to fully exploit past investments. Attributes of Control
Orientation include strengths in Process Thinking, a Panoptic control vision that permits drill
down, a wide Measurement Range across a company’s operations and a monitoring focus that
Thrusts responsibilities down and Trusts they will be carried out properly. Underlying this
orientation is a fundamental desire to rationalize the business by taking control actions to ensure
the most efficient approaches are implemented for delivering the greatest value.

Control-oriented executives demand quality information and are typically well-adept at
developing and using formal, information-based routines and procedures to maintain or alter
patterns of existing organization activities. These executives want to expand their measurement
range using tools for measuring items like cost and quality. Through such tools as diagnostic
control systems, executives can observe performance in a panoptic fashion with the capability to
drill down, compare, and generally monitor divisions, teams, and individuals.18 Performance can
also be compared against key performance indicators, such as Norton and Kaplan’s Balanced
Scorecard19, and process improvements can be continuous. As Robert Simon described it,
“control implies managing the inherent tensions between creative innovation and predictable
goal achievement so that both are transformed into profitable growth.”20
Control-oriented executives also push for knowledge and process standardizations

whenever business conditions permit. Firms are purposeful and seek to reduce information
asymmetry, preferring perfect information (explicit knowledge) so that the firm (and not
individuals) can directly control the activities and decision rights associated with a process.
Hence, firms prefer a more standardized way of describing both the means of a process and the
final process outcome.
To some managers, standardized processes would seem to imply rigidity – a fixed way
of performing a task with little room for individual creativity and innovation. It may seem
paradoxical that at the firm-level, process standardization actually increases firm flexibility.
Within a company, standardization of shared services can create common business processes,
resulting in common data that can be used to rationalize the firm. In other words, with
standardized processes, a firm is able to make “apples-to-apples” comparisons within the
company and achieve a higher degree of visibility into firm operations.
It is within the Control Zone that business capability exploitation or the “Looking in the
Mirror” strategy occurs. This strategy focuses on the exploitation of a firm’s current capabilities
and resources, such as existing brands and products, to address the competitive environment. In
addition to process standardization, there is another aspect of processes that impacts capability
exploitation – the modularity of a process. Within an organization, modularity implies that
“subsystems can be designed independently” with limited consideration and known interactions
with other subsystems.21 Modularized processes are processes that have clearly defined input
and output specifications. Under more dynamic or changing business conditions, modular
processes can be applied to solve different business problems, adapting to the different
requirements of other processes.
For example, at Dell, its “online payment authorization process” or the “online
configuration and pricing process activity” for its PC retail sales might be readily ported to a new
business line selling cameras or TVs. This approach to business process configuration is
18
Sia et al 2002
19
Kaplan and Norton 1996
20
Simons, Robert 1995.
21
Bladwin & Clark, 1997.
analogous to an object-oriented view of process management and reconfiguration, offering
flexibility while controlling coordination costs.
Business capability exploitation within the Control Zone can be a successful strategy for
a firm. However, if a firm focuses solely on exploiting current capabilities, it runs the risk of
becoming increasingly competent in doing things the market no longer needs, accumulating
learning in old techniques and increasing the rigidity of the firm. As mentioned earlier, the
options approach is the more appropriate strategy. It combines the internally-focused “Looking
in the Mirror” strategy with the externally-focused “Looking out the Window” approach to
create a strategy of flexible investments that can respond to future contingent events.
Case #1: Skandia and the Control Zone
In the mid 1980s, Skandia began their strategy shift from a traditional life insurance
company to a financial services firm based on a structure of partnerships and alliances. Jan
Carendi, the head of the renamed Skandia Assurance and Financial Services (AFS) group,
recognized that the new alliance structure required a different way of managing people.
Previously, Skandia management revolved around a traditional hierarchical chain of command,
with formal reporting lines and top-down decision-making. The new partnership/alliance
structure required a management philosophy based on delegated responsibility and individual
initiatives. The monitoring function changed to a self-monitoring and a group-monitoring
process based on performance indicators. To fully utilize the potential of people, Carendi
believed he had to maintain an informal and entrepreneurial culture. He described his
management style as “thrust and trust” in which senior executives outlined broad and
challenging priorities (thrust) and then empowered people to take action to accomplish them
(trust). Supporting this style of management would require open, publicly available performance
measurement systems that focused on both individual and group performance indicators.
This open and publicly available performance measurement system evolved into a control
system known as the Business Navigator, a model similar to the Balanced Scorecard by Norton
and Kaplan. This scorecard categorized performance indicators into five focus areas: financial,
customer, process, renewal and development, and human. Each business unit in Skandia AFS
used the Navigator for enterprise-wide reporting and business-planning. This replaced
traditional budget reporting with a real-time process planning tool based on development of
goals, success factors, and indicators in each of the Navigator’s five focus areas. The system
was completely automated and allowed managers to click on different processes areas and
indicators to obtain real-time status on the unit’s progress to goals. In addition, each unit’s
Navigator was linked to the Navigators of other units, thus providing management with
transparent access to AFS-wide performance measures.
Using the language of value from the Knowledge-Based Value Framework and focusing
on the Control Orientation in the Control Zone, we can see how the management of Skandia
AFS rationalized their business by developing the Navigator tool. The Navigator tool formalized
the routines and procedures or (processes) for each business unit and enabled objective measures
of common metrics like cost and quality. The Navigator tool enabled managers to “trust”
employees to do their jobs since the system constantly monitored performance and promoted
information transparency. By using the Navigator, senior management could observe the
performance of each business unit in a panoptic fashion and had the capability of drilling down,
comparing, and monitoring the divisions and even individuals and comparing their performance
against benchmark values. Performance information was readily available – poor performance
could not be hidden. This performance information enabled management to assess the
efficiency of its current assets in addressing or exploiting current opportunities – measurements
on the effectiveness of the strategy of “Looking in the Mirror.”
Knowledge Creation Zone and People Orientation
The Knowledge Creation Zone focuses on a company’s most fundamental resource – its
people. Exemplar firms recognize and reward the contributions of its people in delivering the
processes and capabilities leading to superior performance and value.
People orientation is a dynamic managerial capability where the firm is particularly

competent in selecting, training, facilitating, and rewarding highly productive knowledge
workers who possess or who can acquire the needed tacit knowledge required for firm
performance. More importantly from a firm’s perspective, the productive worker needs to be
able to transfer that implicit knowledge into a form of explicit knowledge, i.e. processes.
The acquisition of knowledge and the transmission of knowledge are discretionary

behaviors. Employees are more likely to engage in those behaviors if they have the ability,
motivation, and opportunity to do so. Firms that have developed a People Orientation have
established those conditions. They hire the right people, motivate them with the right reward
structure, and provide them opportunities for knowledge acquisition and transmission.
Case #1: Skandia and the Knowledge Creation Zone
In the early 1990s, Jan Carendi became frustrated with the traditional financial
accounting which he believed did not effectively value Skandia’s alliance model of network
relationships. Carendi hired Leif Edvinnson who claims to be the “world’s first” Director of
Intellectual Capital. The goal of this position was to quantify the company’s hidden value in
order to improve the company’s market capitalization.
Edvinnsson began his new job at Skandia AFS by defining intellectual capital as the
difference between a company’s market value and its financial capital. Intellectual capital was
therefore a “hidden” asset, since no accounting, standard reporting, or measurement indicators
existed for intellectual capital. Intellectual capital was defined as the sum of a company’s human
capital (the knowledge, skill and experience of individual employees) and structural capital (the
manifestation of knowledge and skills into a company’s IT systems, processes, and customer

relationships). To draw outside attention to their intellectual capital, Skandia even included a
supplement to their 1993 annual report focused on their intellectual capital.
To further hone its People Orientation, Skandia undertook several initiatives to develop
their human capital. One initiative was known as the “Skandia Future Center.” Envisioned by
Edvinsson as a prototype of future working life, the Future Center was designed to be a place
that optimized opportunities for creative dialogue and knowledge sharing. Another initiative was
a formal Human Capital Development Program in 1998. Knowledge and innovation
contributions were made a key evaluation criterion in individual performance evaluations, with
employees being asked to itemize and defend their contribution to the company’s knowledge
base through areas such as new product ideas, improved business processes, customer services,
or general sales increases. To encourage employees to take responsibility for their own skill
training and development, Skandia developed “competence insurance” where Skandia and
employees allocate a certain amount of their salaries to a competence account which would give
employees the financial means to take an extended leave of absence with pay to pursue studies.
In part because of its human capital initiatives, Fortune singled out Skandia in 2002 as one of the
10 Greatest Companies to Work for in Europe.
Using the language of value from the Knowledge-Based Value Framework and focusing
on the People Orientation of the Knowledge Creation Zone, we can see how the management of
Skandia recognized that value ultimately begins with individual employees. Skandia focused on
first selecting the right employees and then followed it up with the appropriate on-going training
to facilitate the conversion of the implicit knowledge residing in human capital into an explicit
form usable by the company. In addition, Skandia provided opportunities for knowledge
creation and rewarded employees for effectively converting the implicit knowledge residing in
individuals into the explicit knowledge found in Skandia’s business capabilities.
Knowledge Conversion Zone and Information Orientation
In the Knowledge Conversion Zone, the implicit knowledge residing in individuals is

converted to an explicit form (i.e. processes) that is usable by the firm. Critical to the
transformation process are the information capabilities that facilitate this conversion.
Information Orientation (IO) is a dynamic managerial capability indicating the extent to which
senior executives are focused on effectively using and managing information.22 In essence, IO
represents the extent to which senior managers are actively pushing for improvements in the
conversion of human capital into business processes.
Driven by different levels of information orientation, firms differ in their proficicicy

across three fundamental information capabilities: information technology practices (ITP),
information management practices (IMP), and stakeholders’ information behaviors and values
(IBV). See Figure 5. These three information capabilities are explained in the following
section.
Figure 5. IO: Competitive advantage via information does not result from IT
alone
Information Orientation: The extent to which the senior executives believe and act of
the notion that being good at information use is vital to their company’s success.
Behaviors
and
Values
Business
Performance
Information
IT Practices
Management
¾Market share growth
Information Orientation ¾Financial Performance
¾Product and service
innovation
¾Company reputation
Source: Marchand et. al., 2002, “Information Orientation”
1) Information Technology Practices (ITP)

Information Technology Practices (ITP) refers to capabilities by which a company
manages information technology effectively. I/T is defined as the hardware, software,
application programs, telecommunications networks, and the technical expertise that support the
information processing and communications activities at all levels of the company. The end
goal of using I/T effectively is improved business performance.
22
Marchand et al 2000, 2002 -- For a complete discussion of Information Orientation, see the book, Information
Orientation: The Link to Business Performance by Marchand, Kettinger, and Rollins 2002.
ITP is a higher-level concept and can
be separated into four distinct dimensions –
I/T for operational support, IT for business
process support, IT for innovation support,
and IT for management support (Figure 6).
IT for
managerial support
The pyramid shape places
management support at the top to represent
IT for innovation support
fewer but more significant information
requirements for decisions. I/T support for
IT for business process support
management decision-making and innovation
enables the exploration of new ideas and the
targeting of new products and services for IT for operational support
future business growth. Operational support
is at the base of the pyramid, representing a
greater number of decisional transactions, but Figure 6. IT Practices Capability Framework
a lower potential company-wide impact.
It may help to understand the “who” and the “what” of the pyramid. Table 1 below lists
the targeted users of I/T at each level of the pyramid, as well as examples of I/T at that level.
Table 1. I/T Users and Examples of ITP

Who What Examples
Executives / Senior I/T for Managerial Executive Information Systems (EIS); Decision Support
Managers Support Systems (DSS); Data mining; On-line Analytical
Processing (OLAP); Financial Management Systems
Professional Workers I/T for Innovation Groupware (e.g. LotusNotes); Computer-aided Design;
(e.g. R&D, Support Graphical Simulation Tools; Product Modeling Systems;
engineering, product Geographic Information Systems (GIS)
design)
Process Managers I/T for Business Enterprise Resource Planning Systems (e.g. SAP,
Process Support PeopleSoft); Production, distribution, inventory, and sales
management systems; Workflow automation systems
Operational Workers I/T for Operational Payment systems; Order Processing Systems;
and supervisors Support Accounting, payroll, and personnel systems
CIOs are typically concerned with all aspects of ITP and focused on delivering
information technology spanning the entire pyramid. However, most senior managers realize
that being good at IT practices alone is not sufficient to improve performance. A company must
also be skilled in managing information over its life cycle (IMP) and possessing people-based
behavioral competencies in information usage (IBV).
2) Information Management
Practices (IMP)
Information Management Practices
refers to the capabilities related to
managing information effectively to improve business performance (Figure 7). While IT
practices refer to the capabilities of a company to effectively manage IT applications and
infrastructure, information management practices focus on the company’s capabilities to
effectively manage the use of information in support of coordination and control, tactical
problem solving, and strategic decision making.
Figure 7. Life Cycle of Information Management
Information Management Practices is a process or life cycle that involves sensing,

collecting, organizing, processing, and maintaining information to enhance its use for decision
making. As shown in Figure 7, the traditional information life cycle phases (collecting,
organizing, processing, and maintaining) are interrelated within a circular path, while the fifth
phase (sensing) lies outside the traditional cycle and feeds information to the collection phase.
Each of these life cycle phases are described in Table 2 below.
Table 2. Description of Information Management Practices Life-Cycle Phases

Phase What
1. Sensing Continuous detection and identification of environmental events, trends and
business conditions. Through sensing, a company detects changes in business
conditions that results in the demand for new products or that require a shift in
priorities.
2. Collecting Systematic process of gathering relevant information when people have sensed
changes. Includes: profiling information needs of employees to ensure right
information is delivered at right time; filtering information to prevent information
overload; identifying key knowledge sources; training and rewarding employees for
accurately and completely collecting information for which they are responsible.
3. Organizing Indexing, classifying and linking information and databases to provide access within
and across business units and functions; training and rewarding employees for
accurately and completely organizing information for which they are responsible.
4. Processing Transforming collected information into useful knowledge to achieve business
objectives; accessing and analyzing appropriate information sources and databases
before business decisions are made.
5. Maintaining Reusing existing information to avoid collecting the same information again,
updating information databases so that they remain current, and refreshing data to
ensure that people are using the best information available.
3) Information Behavior and Values (IBV)
Although Information Technology practices and Information

Management practices formalize many information-related
responsibilities within a company, neither area is directly
responsible for improving people’s use of information.
Because the IT and information management practices evolved
from low-level, non-strategic functional areas, they possess
neither the power nor the authority to influence major changes
related to people’s behaviors, which was typically the realm of
human resources, managerial accounting, or operations. The
missing link is that the information must be effectively utilized
by the people in the organization in order to achieve business
value (see Figure 8).
Figure 8. Components of Information Behaviors

and Values
Information behaviors and values represent a company’s capabilities to instill and

promote behavior and values in its people that will result in effective information use. Elements
of information behavior and values include integrity, formality, control, transparency, sharing,
and proactiveness as seen in Figure 8. Table 3 below describes each of these elements.
Table 3. Information Behaviors and Values (IBV) Components and Description

Component Description
Integrity Organizational value exhibited through the behaviors of managers and employees. Information
integrity implies information is free of distortion – it accurately reflects reality; information
contributes to the decision-making process and is not just used to justify decisions after the fact;
all pertinent information is available, and information is not used for personal gain. Good
information integrity results in effective sharing of sensitive information.
Formality Established formal processes and information flows to achieve predictable business results, to
assure appropriate controls are in place, and to deliver products and services in a consistent
manner. Formal information can be contrasted with informal information, which is based on
personal relationships and informal contacts.
Control Manner in which information is used to control people and processes. Information controls
typically involve accounting controls (financial measures), service department controls (service
measures), marketing and sales controls (customer satisfaction measures), and manufacturing
controls (operational measures).
Transparency Involves four characteristics: 1) being candid with one’s thoughts – free from bias and accepting
of the views of others; 2) fairness – a person will be honest, impartial, and fair in dealing with
decisions and situations; 3) requires trust between people – a sense that information will not be
used against you, and 4) transparency requires an “openness” to other people’s thoughts and
concerns, even when the news is negative or bad.

Sharing Free exchange of non-sensitive and sensitive information. Sharing occurs between individuals in
teams, across functional boundaries and across organizational boundaries (i.e., with customers,
suppliers and partners). Information can be shared formally through meetings, reports, e-mails,
and memos, or informally through hallway conversations or outside of work.
Proactiveness Use of information to create or enhance products and services or to actively seek out information
about the business environment to create industry foresight or to create the capacity to act and
respond to the information or knowledge.
Information Orientation Maturity
I/T practices, information management practices, and information behavior and values
are all key information capabilities. However, being good in one information capability (e.g.
good at I/T practices, good at information management practices, or good at information
behavior and values) is a necessary, but not sufficient condition to convert human capital into
explicit knowledge and effective business processes. In order to achieve this synergy, a
company must be strong in all three information capabilities.
When these information capabilities are considered together, as a focused and systematic
program of information management improvement they define the strategic management concept
of Information Orientation. A senior executive’s information orientation incorporates ITP, IMP,
and IBV and is manifested in the following ways: in the sponsorship of a solid IT architecture
base for the firm, in facilitating the effective management of information at both the individual
and organizational levels, and in a deep commitment to creating an environment and culture that
facilitates the conversion of implicit knowledge to explicit knowledge.
IO Maturity is the degree to which a company has honed an Information Orientation and
improved its information capabilities to convert its knowledge into flexible and standardized
business processes (Figure 9). Past research by the authors has shown how a company can
improve on each information capability (ITP, IMP, and IBV) in order to deliver the best business
processes. Firms that improve these information capabilities increase information access,
accuracy, and coordination. IO maturity directly supports process standardization, resulting in
increased resource control. Exemplar firms learn to leverage the efficiency benefits that process
standardization brings, with the realities that much of the firm’s intellectual capital will still
remain in less structure forms.

Figure 9. IO Maturity allows a company to build processes to
improve knowledge capital
Senior Executive
Perceived Value
Financial Capital Knowledge Capital
Tacit Explicit The manifestation

The knowledge,
skills and
Knowledge IO Knowledge of Knowledge in
experience of formal systems,
Limited to Maturity Can be used by processes, and
employees individuals entire organization customer
relationships
The process by which tacit

knowledge is extracted from
individuals and
institutionalized
In those cases where the knowledge required in a business process is not or cannot be
codified into a standardized process activity, information capabilities are used instead to
facilitate the knowledge sharing and reuse. For example, artificial intelligence and decision
support systems can support and enhance a person’s tacit understanding of a process situation.
Knowledge repositories may be used to facilitate future knowledge reuse by other people or
processes. And although a complete process activity may not be standardized, it may be possible
to standardize a portion of the process and achieve some of the benefits of standardization. All
of these are examples of information capabilities facilitating business processes.
Information Orientation: A Necessity to Compete
Although information orientation is critical in the Knowledge Conversion Zone, it is a

key orientation in that it can additionally impact the other value orientations. Firms that improve
information capabilities increase information access, accuracy, and coordination, resulting in
increased resource control (capability control actions) and overall business rationalization actions
(facets of the Control Zone). Improving information capabilities also increases knowledge
sharing and process modularization which facilitates resource reconfigurability (capability
building actions) and overall entrepreneurial actions (facets of the Opportunity Zone).

Without IO, senior executives are often flying blindly, unable to decode or navigate their
way through constantly changing and seemingly chaotic market conditions which are
bombarding them with signals and nuggets of information. Some of these signals may create
value and improve business performance, while others could result in actions potentially
destroying shareholder value. Senior executives need to be capable of assessing changes in
value. Without IO, a senior executive’s view of business capabilities and the ability to assess
business options are cloudy and unclear, resulting in risky, less-flexible strategy initiatives.
In contrast, a company with a high information orientation is able to effectively integrate

information with all the parts of the value path. Effective use of information and I/T enables a
firm to hone their existing business processes and clearly identify their business options,
affording them more accurate and timely information to make effective decisions. Furthermore,
this grants them the flexibility to take risks and make smaller mistakes, backing off failing
initiatives more quickly than their competitors and refocusing energies in the appropriate
direction.
Skandia and the Knowledge Conversion Zone
We now return to our Skandia case to see what paths they took to achieve information
orientation maturity in the Knowledge Conversion Zone.
Case #1: Skandia and the Knowledge Conversion Zone
In our discussion of Skandia, we have seen specific business units of Skandia learn to
leverage the knowledge of alliance relationships, measure and control their intellectual capital,
change cultural norms through their “Thrust and Trust” initiatives, and develop knowledge
creation capabilities through innovative programs like Future Center. In the next step of
Skandia’s value journey, they spin out a reconfiguration of resources and establish a start-up
direct banking company (SkandiaBanken) that integrated the learning from the previous phases.
In 1993, Skandia Group decided to spin off and transform a profitable finance company
(car financing and home mortgages) they had acquired into the new bank (SkandiaBanken). As
long as the business was profitable, the new management team of SkandiaBanken would have
carte blanche to manage the business without Skandia Group’s interference.
The key managerial challenge to running the new bank is that it would be totally
branchless – a concept unheard of in Sweden at the time. It would rely solely on telephone
channels and the Internet to implement its direct banking model. Attempts to develop direct,
branchless banking services in Sweden’s large institutional banks had met with mixed success,
often failing due to conflicts with customer ownership and channel competition. Without these
conflicts, Skandia felt that it could develop a successful, low-cost, innovative bank.

As the Skandia case documents, SkandiaBanken proved to be an extremely successful
venture. Its success can be attributed to its focus on information capabilities and their success at
embedding effective IT use into its business capabilities. From 1994 to 2001, the management
at SkandiaBanken set in place a Knowledge Conversion process that allowed the knowledge,
skills, and experiences of employees to be manifested in their business processes. The
consequences of these managerial actions were substantial improvements to their I/T capabilities
in the three areas related to information and knowledge use – ITP, IMP, and IBV.
SkandiaBanken followed a maturity path whereby they made improvements in I/T to

support operations, business processes, innovation, and management. First, an example of
excellence in operational support can be found in their development of a new Dealer Portal
system for car dealerships. This 24/7 portal allowed a dealer to perform credit checks and online
applications for its customers to obtain financing for their purchase. Second, as an example of
excellence in business process support, Skandia seamlessly integrated the Dealer Portal with
externally maintained customer databases and database tools such as the Swedish National Credit
Investigation Center (individual credit ratings), the Swedish National Car market valuation
database, the Swedish Central Car registration database, and the internal SkandiaBanken
customer databases. This eliminated the need for the dealer to go through any middleman.
Third, as an example of excellence in innovation support, the Dealer Portal provided the
capability to support the offering of 2 new services. The first service was an application that
provided detailed analysis of each Dealer’s sales and statistics and also provided sales
suggestions (leads) based on customer information maintained in their customer database. The
second service was an auto auction system where dealers could bid on cars from
SkandiaBanken’s defaulted customers. Finally, as an example of management support, the
Dealer Portal provided SkandiaBanken managers the ability to make good decisions. In the
Dealer Portal, for example, all the information was in place for SkandiaBanken to implement a
4-second credit risk analysis and approval process for a dealer’s customers. The 4-second
analysis was based on pre-defined decision rules which incorporated the customer data in the
databases and incorporated SkandiaBanken’s knowledge and experience in credit and risk
assessment.
In addition to following a maturity path for ITP, SkandiaBanken also followed a maturity
path for its IMP – Information Maturity Practices. SkandiaBanken made improvements in
collecting, organizing, and maintaining information to improve organizing information. For
example, information and web site content was bounded by a set of information rules. The rules
included a “simplicity rule” which dictated that all information provided to customers must be
easy to understand and communicated in the simplest and most straightforward way possible and
a “customer needs” rule which dictated that all information on the website must address or
answer a customer self-service or decision-making need. To ensure that the website did not
grow too large, SkandiaBanken also had a rule that to add new information to the site, something
would have to be removed. The information was also analyzed regularly for appropriateness and
completeness. In addition to internal testing by the customer representatives, SkandiaBanken
employed regular analysis of website use using click-through analysis. Information not used by
customers was immediately deleted.
The third facet of improving IO maturity focuses on Information Behavior and Values
(IBV). SkandiaBanken followed a maturity path for its IBV where they made improvements in
the integrity of the information. SkandiaBanken developed a culture where its employees relied
on formal sources of information that was in the system and not on any informal sources. Also,
SkandiaBanken used quantitative performance measures that tied individual goals to unit and
company goals, thus giving senior managers more “control” over their operations. Reliance on
these transparent control systems promoted information transparency, as most people in the
company “knew what everyone else was doing.” The end result was a high-trust, high
information-sharing culture.
Utilizing the language of value from the Knowledge-Based Value Framework and
focusing on the Information Orientation of the Knowledge Conversion Zone, we can see how the
management of Skandia incorporated the three facets of Information Orientation in their
company. By focusing on Information Technology Practices (ITP), SkandiaBanken developed
IT Architectural capabilities that provided the foundation and infrastructure for their overall
information capabilities. By focusing on Information Management Practices (IMP),
SkandiaBanken developed Information Management capabilities that provided the actual
information utilized by the I/T infrastructure. And finally, by focusing on Information Behavior
and Values (IBV), SkandiaBanken developed an Information Culture that provided the capability
to effectively utilize the information and knowledge residing in their systems.
Putting it all Together – the Knowledge-Based Value Framework Summary
We have now introduced the 4 value zones and their corresponding managerial
orientations impacting the zones. Within the Control Zone and Knowledge Conversion Zone,
rationalizing actions occur, such as measuring and monitoring critical performance indicators
that help ensure current business capabilities are exploited. In the Knowledge Conversion Zone,
these rationalizing actions may include the refinement of the tactical I/T systems, such as ERP
and CRM systems. It is in the Opportunity Zone where future business capabilities are explored
and entrepreneurial actions occur. These entrepreneurial actions directly impact the capability
building actions found in the Knowledge Creation Zone, where the focus is on human capital.
We have also added more detail and depth to the basic value pathways, further defining
information capabilities, business processes, and business capabilities. By placing our value
paths within the context of the value zones, we now have our comprehensive Knowledge-Based
Value Framework (Figure 10). Overall value is perceived by the senior manager in the ‘End
Zone’ of business performance.
Figure 10: Comprehensive Study Model

The Knowledge-based Value Framework
Capability Control Actions Rationalization Actions
Driven By Rationalization Actions Based on Business Options
Knowledge
Conversion Zone Control Orientation:
Control
- Process Think
Information
- Panoptic Vision
- Measurement Range
Zone
Orientation: - Thrust and Trust
- IT Architectural-ism
- Info Managerial-ism
- Info Cultural-ism Business
Capability
Exploitation
Most Structured
Capital: • Cost / Quality
Information Control
Human Capabilities: • Process Activities End Zone
Capital: Standardization • Brand / Product
• IT Practices
• Process Coupling
Leverage Superior
• Info Mgt.
Stakeholder
Practices Performance
Knowledge and
• Info. • Supplier Agility
• Process Modularity Perceived
Behaviors
• Partner Agility
and Values • Knowledge Value!
Facilitation and Reuse •Customer Agility
Less Structured Business
Capital: Capability
People Exploration
Orientation:
Legend:
Knowledge
- Selecting
- Training Entrepreneurial Orientation:
Opportunity
Creation
- Facilitating
- Rewarding
- Strategic Foresight Zone Value Creation
- Systemic Insight Path
Zone - Stakeholder Focus
- Risk Propensity Assessment
and Actions
Capability Building Actions Entrepreneurial Action:

Driven by Entrepreneurial Actions Based on Business Options
Project Finding: Value can be managed through 4 dynamic managerial capabilities within the 4
value zones: Entrepreneurial Orientation, Control Orientation, People Orientation, and
Information Orientation. By improving facets of a specific orientation, value in the
corresponding zone is created and can be better assessed.
Project Finding: Senior executives see I/T value when they have the information visibility to
assess business options (Opportunity Zone), to rationalize the business (Control Zone), to
facilitate knowledge creation by individuals (Knowledge Creation Zone) and to convert
individual knowledge into a form suitable for company use (Knowledge Conversion Zone).
Project Finding: Developing maturity in information capabilities is needed to create the right
mix of information behaviors and values so individuals will contribute their knowledge for
effective and efficient company use.

Project Finding: Companies with an informated Control Orientation create the right mix of
4. Working the Zones to Value

Step 2. Understand Specific Zone Paths & Actions
Now that we have developed the comprehensive Knowledge-Based Value Framework,

we continue to closely examine different zone paths and actions companies have taken to achieve
value. Industries are different and therefore emphasize different zonal pathways leading to value
Depending on industry conditions, past investments in structural capital and senior

executive characteristics, all firms have an ‘alpha zone’. The term ‘alpha zone’ refers to a
company’s first or beginning value zone. It is the initial zone in which a company excels, thus
driving the subsequent maturity of the other key managerial zones. Success in one value zone is
not enough. Although companies have different Alpha Zones that initiate their value pathways,
ultimately companies must continuously improve all 4 of the zones to sustain value.
For example, we identified earlier that Skandia’s alpha zone is the “Opportunity Zone.”
Skandia was able to recognize this early on and exploit market opportunities in the insurance and
financial services market through agile responses to customers, partners, and suppliers. Yet
exploitation and mastery of the Opportunity Zone by itself wasn’t enough to get Skandia where it
is today. Although the Opportunity Zone and its corresponding entrepreneurial orientation is
what led to Skandia’s initial success, Skandia also had to develop their information orientation,
control orientation, and their people orientation in order to achieve their current superior business
performance.
Working the Zones:

Part I. 3 Case Study Perspectives
We now demonstrate through case analysis how 3 different companies (Dell, CEMEX,
and Citigroup CEEMEA) have navigated the four zones to achieve business value and I/T value.
We start by examining the evolution of Dell using the language of the Knowledge-Based Value
Framework. (See Appendix 2 for the entire Dell case).

Case #2 Dell: Success through Opportunity and Control
Learning to Work the Opportunity Zone

Dell’s alpha zone is the Opportunity Zone. In the short span of five years, Michael Dell
created a company with an annual revenue of $300 million (FY1989). He utilized his strategic
foresight of the immature PC market and positioned Dell as a lower-cost, build-to-order
alternative to IBM PCs. In the mid-80s, the PC market was crowded with hardware
manufacturers clamoring to make IBM clones. In addition to IBM, companies like Compaq,
Hewlett-Packard, and AT&T all manufactured PCs compatible with the IBM PC. Did the
market need another PC company? Michael Dell thought so. With his entrepreneurial
orientation, Michael Dell had the strategic foresight to recognize and exploit an opportunity. As
other companies built the same PC configuration for a mass market, Dell was able to
successfully customize the product for specific customers – a capability in understanding and
reacting to customer requirements. By interacting directly with customers (without any
intermediaries), Dell was able to effectively leverage the voice of the customer to gain market
intelligence and detect competitive action opportunities, the very definition of customer agility.23
In his book Direct from Dell, Michael Dell writes, “While other companies had to guess
which products their customer wanted, because they built them in advance of taking the order,
we knew – because our customers told us before we built the product.”24 The exploitation of
these key areas of the Opportunity Zone – the strategic foresight, risk propensity, and customer
agility -- was critical to Dell’s early success.
Successfully working the Opportunity Zone led to Dell’s FY1989 revenue of $300
million. However, entrepreneurial orientation alone did not lead Dell to where it is today ($41.4
Billion in revenue for FY04). Dell capitalized on its alpha zone, but more importantly
reinforced it with information orientation. A well-informed (or informated) entrepreneurial
orientation added tremendous precision to the strategic decision-making capabilities and
fundamentally reduced the risks of competitive moves.
As illustrated in Figure 11, Dell, an information-oriented entrepreneur, is able to assess

business options on the fly and react with the appropriate changes in strategy and/or
reconfigurations of business capabilities to not only exploit the current situation, but also explore
future needs and opportunities. Effective use of information and I/T helps Dell hone its existing
business and business option valuations by affording them more accurate and timely information
to make more effective decisions. Furthermore, this grants them the flexibility to take risks and
23
Sambamurthy et al 2003.
24
Direct From Dell, 1997.
make smaller mistakes, back off strategic initiatives that are failing more quickly than their
competitors and re-focus energies in the appropriate direction.
Figure 11. Entrepreneurial Orientation with Mature IO: Working the

Opportunity Zone
Acute,
Intuitive
Fluid, Assessment
& of Business
Flexible Options
Strategic Reconfiguration Acquisition
Value Creation is Clear
Actions
Exploitation Delivery
LUCID VISION
Dynamic Dell’s
Strategize Market Assess Stakeholder
Insight Strategic Dell
Informated
Foresight Senior
Conditions Systematic Executive
Risk Insight
Value Calculated
Insight Opportunities
Value
Exploration Changes
Assessment Value Assessment is Clear
Clear
Understanding Naturalness to
of True Value, Assessing
Processes, I/T Business
Options:
and Human “S/he is so Good”
Capital
The continuous business options valuation cycle as shown at Dell (assessing and
strategizing, re-assessing and strategizing, again and again) clearly comes more naturally to
certain individuals and organizations than others, which is an indicator of the extent of
entrepreneurial orientation. Entrepreneurial orientation, coupled with a strong Information
Orientation, is the formula for entrepreneurial prowess.
Integrating IO with the Control Zone
It was clear …. we didn’t have the information we needed to run our business. We didn’t fully understand
the relationships between costs, revenues, and profits within the different parts of our business…We were
making decisions based on emotions and opinions.25
Michael Dell
25
Direct From Dell, p. 59.
While working the “Opportunity Zone” with an informated Entrepreneurial Orientation is
clearly Dell’s ‘Alpha Zone’, firms must balance opportunity with rationalized exploitation of
existing investments. At Dell, surging market demand and tremendous growth at the end of the
1980s served to hide some internal problems. During this period, tremendous expansion meant
that the company outgrew its infrastructure. Although Dell was in the information technology
business, its own IT infrastructure (ITP) was primitive in terms of organizing and sharing the
information (IMP) collected and capturing the knowledge gained by each salesperson or
employee.
A second problem was related to the philosophy of soliciting and acting upon customer
feedback. As Dell’s competitors were pushing forward with technological innovation, Dell
followed the crowd and made the mistake of creating technology for technology’s sake. Dell
learned that it had to better understand the needs of different customer segments and tailor its
offerings to meet them. In addition to the salespeople, the company required its engineers to
develop the ability to sense customer needs (IBV).
Teaching bright technical people to think beyond the technology and in terms of what people really want –
and what makes for good business – isn’t always easy. It can take time, but it can best be done by
immersing them in the buying process and involving them in the strategy and logic that go into deciding
what creates value for customers.26
Michael Dell
Dell also directly addressed its lack of information in controlling the company. Like
many companies, Dell had originally organized its business around functions, like product
development, finance, sales and marketing, and manufacturing. But Dell had grown beyond
those self-imposed boundaries to the point where the functions were beginning to take on a life
of their own. Each function no longer had a clear vision of how it contributed to the company
and instead was primarily concerned with promoting their own self interest.
In order to reestablish control of the company, Dell in the beginning of 1994 underwent a
massive company planning and reorganization effort. They formed a rigorous, on-going
planning process that involved every part of their supply chain, customers, and employee base.
A key part of the process was the realization that planning was only possible with enough data,
i.e. in order to control the company, information was required.
The more data we extract about the different businesses within our company, the better we are able to see
the strengths and opportunities for improvement. To say that we have become a data-driven company is
almost an understatement. Data is the engine that keeps us on track.27
Michael Dell
In order to directly connect with their customers, Dell reorganized their business from a
traditional product-focused organization to a customer-focused organization. They did this by
organizing around different customer segments (see Figure 12). With segmentation, Dell was
able to achieve a better understanding of each customer segment and measure the financial
26
27
opportunity of each segment. Dell could see the growth rates, profitability, service level
performance, market share, and the return on invested capital of each unique segment (control
measures) and adjust its activities accordingly (business capability exploitation and exploration).
The finer the segmentation, the better Dell is able to forecast what customers will need and
when. Dell can then coordinate the flow of this strategic information all the way back to their
suppliers, in effect substituting information for inventory.
Figure 12
Balancing Entrepreneurial and Control Orientations with People Orientation
My goal has always been to make sure that everyone at Dell feels they are a part of something great –
something special – perhaps even greater than themselves. 28
Michael Dell
Although Dell experienced early successes developing the maturity of its Opportunity
Zone and Control Zone it was a bit slower in truly recognizing that its success required an even
greater emphasis on its people. It was only after some important personnel departures, a growing
turnover rate, and employee dissatisfaction surveys did Dell make a concerted effort to improve
the maturity of its People Orientation. Today Dell’s selection of its employee is a very deliberate
process to ensure that the person is a good fit with the company’s business philosophy and
objectives. Dell states that the “the ability to find and hire the right people can make or break
28
your business.” Dell has a philosophy of hiring “ahead of the game.” They do not hire to just
fill a specific job. Nor are they hiring solely on a candidate’s talent and current skill set. Instead,
Dell focuses upon a candidate’s potential to grow and develop -- an example of the interaction of
Dell’s Entrepreneurial Orientation with their People Orientation. Dell recognized that by hiring
people with the potential to grow far beyond their current position, they are also building depth
and additional capacity to prepare for the next wave of growth or competitive challenge, i.e. the
reconfiguration of their resources to address a changing business environment.
However, it is not enough to just hire good people. Dell wants to engender a sense of
personal investment in their employees, exhibited by responsibility, accountability, and shared
success. The goal is to create a culture in which every person at Dell at every level, thinks and
acts like an owner. Dell’s culture minimizes politics by focusing on results and aligning the
interests of employees with those of shareholders (e.g., stock purchase plans, stock option grants,
and a 401K plan with contributions matched by company stock). Overall, Dell gives employees
the authority to drive the business in a particular direction and provides them with the tools and
resources (i.e. information) they need to accomplish their goals.
Dell recognizes the interactions between the Opportunity Zone and the Knowledge Creation
Zone. Michael Dell notes:
Connecting with the outside world keeps you aware. Connecting with your people – your most valuable
asset – is the way to keep your business and your people healthy and strong.
Dell’s Value Path: Summary

Dell started out with a strong entrepreneurial orientation in the Opportunity Zone. This
entrepreneurial focus led to their initial success, but Dell has had to develop information
orientation, control orientation, and finally their people orientation in order to achieve their
current superior business performance. It is the integration of information in the four zones that
has enabled Dell to achieve the superior performance and perceived value found in the
Knowledge-Based Value End Zone.
Case #3 CEMEX: Working an Informated Control Zone to I/T value
CEMEX is a leading producer and marketer of cement and ready-mix concrete products,
employing over 25,900 people across four continents in 2004. CEMEX is another company that
has developed strong capabilities in the 4 orientations, resulting in their success as a primary
global player in the cement industry. Information and control were key in CEMEX’s evolution
from a regional company to a global player. From the beginning of his tenure as CEO in 1985,
Lorenzo Zambrano recognized the value of information to his business, first as a necessity in

competing domestically and then as the key advantage and differentiator in competing
internationally. See Appendix 3 for the complete case study.
Applying the Knowledge-Based Value Framework

In its quest for value, CEMEX focused on all four zones – the Control Zone, Opportunity
Zone, Knowledge Conversion Zone, and the Knowledge Creation Zone and the corresponding
orientation for each of those zones. CEMEX’s alpha zone (the initial zone driving the maturity
of the other zones) is an alignment between the Knowledge Conversion Zone and the Control
Zone. This alignment can be called an informated control zone.
Within the Knowledge Conversion Zone, CEMEX has continuously made significant
investments in its IT architecture. All of CEMEX’s facilities (domestic and international) are
joined via satellite technology, allowing intra-data and voice communication between facilities
without reliance on the local infrastructure of some of the developing regions. The system is
integrated with a global positioning system (GPS) to support worldwide delivery dispatching.
Yet all of CEMEX’s investments in IT architecture are not done just because the latest IT is in
vogue. Each IT project is implemented with a clear objective in mind – will the IT help CEMEX
to better control (rationalize) the business?
CEMEX’s alignment of information orientation with control orientation coupled with its
strategy of international acquisitions has propelled CEMEX to its status today as the third largest
global cement producer and the largest in the Americas. CEMEX’s I/T investments are focused
on control, such as promoting efficiencies in the production process (cost controls) or integrating
newly acquired companies into the CEMEX network. CEMEX’s continual investments in
selective I/T projects are ever increasing both the speed and efficiencies of integrating new
acquisitions. In fact, in his 2004 annual meeting with analysts and investors, Zambrano
recognized that CEMEX’s unique capacity to use information technology is one of five key
elements to CEMEX’s growth strategy and their creation of sustainable competitive advantage.29
CEMEX’s alignment of information orientation and control orientation has resulted in a

culture of information transparency. The EIS provides managers with easily accessible and
reliable information on operational performance of its global production facilities. With the EIS
providing information on plant operations, as well as in accounting and sales, all company
managers (including Zambrano) can drill down and analyze operational data from any plant in
the company. This ability to be monitored from anywhere is an example of a panoptic control
model, where just the knowledge of being observable (or visible) can be used as a tool for
rationalization and control.30 With the EIS providing the virtual inspections on all aspects of the
plant, employees have a strong sense of oversight, personal responsibility and are more prone to
self-regulate. A panoptic control model provides excellent visibility to acknowledge the abilities
of top employees while providing little room to hide for marginal workers. And the information
transparency is not just within the company -- it extends beyond company boundaries. Some
29
Remarks by Lorenzo Zambrano, Annual Analyst and Investor Meeting, July 1, 2004.
30
Sia et al, “The DATA BASE for Advances in Information Systems, Winter 2002 (Vol 33 No 1), p. 25.
CEMEX managers have even complained that CEMEX is making too much information
public31.
Control Zone vs. Opportunity Zone

CEMEX’s emphasis on an informated control zone is manifested by their continuous
efforts to increase efficiency and productivity to produce growth from their existing portfolio of
products and services. Or, in terms of our value language, this continuous push for efficiency
and productivity gains from their existing portfolio is an example of business capability
exploitation, a key component of the Control Zone.
Another manifestation of their informated control zone is their intense focus on process. In
fact, two of the above mentioned five key elements to CEMEX’s growth strategy revolve around
processes. Zambrano remarked:
“…Second, CEMEX is committed to a continuous improvement process that produces a

constant increase in productivity and efficiency … Finally, CEMEX has implemented capital
allocation and capital budgeting processes that are designed to assure the most efficient
allocation of our investment dollars.”32
CEMEX has taken the concept of process standardization to a higher level by

implementing a program known as “The CEMEX Way.” The CEMEX Way specifies everything
about plant operation, including the specific make of computers each employee uses. Best
practices in the plants are codified and shared among the other plants, resulting in cost savings
due to efficiency gains. And with every operational detail of every plant identical,
communication between the plants and headquarters is seamless and transparent. The CEMEX
Way is thus a very formal and disciplined approach of documenting and sharing knowledge
developed within the various CEMEX plants in different countries.
With CEMEX’s focus on control, they must strike a balance with the Opportunity Zone
in order to balance standardization with innovation. The CEMEX Way emphasizes the
standardization of processes across the company – whether you are in Mexico, Colombia, Spain,
the United States, or Egypt, there is only one way to do something, the CEMEX Way.
However, this emphasis on standardization can easily stifle individual creativity. Zambrano
explains:
I think we have to let go and begin to actively look for great ideas. Someone told me that
one of the units is hiring locals to develop some small applications that they think they
will need for marketing. We don’t want to kill any initiative. Therefore, we developed a
new process in which we have a group of peers who will let the unit try the idea out,
observe the unit, and then say if the idea is fine or not. Either we will do it your way, or
we will do it a different way. But there is going to be only one way for the company.
31
The CEMEX Way, June 14th, 2001, The Economist.
32
Zambrano, Lorenzo, July 1, 2004, Transcript from the Annual Analyst and Investor Meeting, p. 8.
CEMEX’s growth strategy is two-fold – a simultaneous emphasis on both the Control
Zone and the Opportunity Zone. The first part of their strategy is firmly rooted in the Control
Zone. It is here that CEMEX focuses on robust “organic” growth (the maximization or
exploitation of their current business capabilities). The second part of their growth strategy
emphasizes the Opportunity Zone where CEMEX is growing through selective, deliberate,
international acquisitions (business capability exploration). Zambrano said, “Robust organic
growth is the platform for our potential to grow even more rapidly through acquisitions. If we
continue to generate more than $1 billion per year in free cash, we would have the capacity to
acquire operations that would add at least another 5% to 6% in EBITDA growth per year.”33
Zambrano himself is instrumental to CEMEX’s capitalization of the Opportunity Zone.

He is a dynamic CEO and leader, focusing outward for acquisition opportunities. Zambrano
explains:
As I look around the world today, I am confident that we will find plenty of opportunities,
at prices and conditions that will meet our criteria, to sustain rapid, profitable growth
during the next ten years. We will have opportunities to acquire cement operations in
existing or new markets. We will have opportunities to acquire operations in other parts
of our industry’s value chain that leverage our cement assets, making them even more
profitable.34
CEMEX’s Value Path: Summary
“CEMEX is, and will always be, in the business of creating value.”
Lorenzo Zambrano
We have seen that CEMEX has created value through its emphasis on the zones of the
Knowledge-Based Value Framework. The Control Zone is CEMEX’s alpha zone – the first
zone in which a company excels. CEMEX has amplified the opportunities of the Control Zone
by aligning the information orientation of the Knowledge Conversion Zone with the control
orientation of the Control Zone. This informated Control Zone is key to their domestic growth
in Mexico and provides the foundation for their strategy of additional growth through
international acquisitions – value achieved via the Opportunity Zone.
CEMEX is perhaps weakest in the Knowledge Creation Zone (People Orientation).

This can be attributed to the nature of the cement industry, a mature industry in which
knowledge can be codified in processes and is not dependent on the implicit knowledge of
individuals. In Zambrano’s July 2004 address to analysts, it is interesting to note that although
he praised the leadership and strength of the management team, he makes no direct mention of
the rank and file workers of the company. This is an area that CEMEX can improve upon,
33 which could potentially result in even more cost savings and identification of growth
Zambrano, Lorenzo, July 1, 2004, Transcript from the Annual Analyst and Investor Meeting,, p. 6
34 opportunities.
Zambrano, Lorenzo, July 1, 2004, Transcript from the Annual Analyst and Investor Meeting,, p. 7.
Case #4 Citigroup’s CEEMEA Sales and Trading Unit: The
Interventionist Approach
Working the Knowledge Creation Zone

In the cases of Dell and CEMEX, both companies followed an evolutionary approach in
their application of the Knowledge-Based Value Framework. In Dell’s case, Michael Dell’s
Entrepreneurial Orientation and emphasis in the Opportunity Zone propelled Dell to the forefront
of the PC industry. For CEMEX, it was their informated Control Zone which provided the
impetus for their domestic and international expansion. In both companies, the path to value
within the Knowledge-Based Value Framework occurred over a 10+ year timeframe, with the
unit of analysis at the company-level. Yet the path to value within the framework is neither
required to apply to the entire company, nor required to occur over a long time period.
The case of Citigroup’s CEEMEA35 Sales and Trading division is an example of the
Information Orientation (IO) interventionist approach, where benefits of information-oriented
zones were achieved within a period of 2 years. Citigroup’s CEEMEA Sales and Trading unit is
a division of the Emerging Market organization. The CEEMEA unit is an organization heavily
dependent on the expertise of individual traders. Its products and services are knowledge-
intensive. The unit is dependent on their employees in utilizing their financial expertise in
developing creative financial products tailored to the risk environment. The knowledge lies
within the employees and is situation-dependent and therefore not easily codified. In this
organization, it is the people who are critical to the strategy of the company. Therefore, the
alpha zone for the CEEMEA unit is the Knowledge Creation Zone, with People Orientation as
the primary focus. See Appendix 4 for the complete CEEMEA case study.
IO Intervention Step 1: Diffusion and Individual Ownership
The first step in an IO Intervention is diffusing the IO concept down to the individual
level. The senior management team must ‘evangelize’ the benefits of IO and share their mental
model of IO with the rest of the organization. Although the senior management team acts as the
initial advocate for change via IO, the key goal is for all individuals within the group to take over
IO ownership and leadership. The end goal is for both the senior leadership and individual
contributors to feel responsible for IO within the organization.
In the CEEMEA Sales and Trading case, the unit was not performing at the same level as
its sister trading units (Asia and Latin America), despite the focus on individuals in their
business. To address the deficiencies, the CEEMEA Sales and Trading Unit underwent a rapid
business improvement transformation through an IO intervention program, where the effective
35
CEEMEA: Central and Eastern Europe, Middle East, and Africa; an emerging market region
use of information, people, and I/T was strategically applied. The transformation began in April
2000 when Suneel Bakhshi was appointed head of the CEEMEA unit. It was Bakhshi’s job to
put the CEEMEA region on a path of sustainable growth. He did this by aggressively improving
the IO of the unit.
Bakhshi immediately began the first step of an IO intervention, evangelizing the IO

concept down to the individual level. Bakhshi understood the importance of information and
information-sharing within the unit. He realized that the lack of teamwork and lack of
information-sharing was depressing the productivity and effectiveness of his team. Bakhshi took
the leadership role in successfully diffusing the benefits of IO and sharing his mental model of
IO with his organization.
In an IO intervention, the leadership and drive for the changes must originate from the
top. However, equally important to the intervention’s success, are the rank and file employees,
who must buy-in to the ideas and also become advocates for IO. Each individual in the
organization must personally take individual ownership of the IO concept. Once this happens,
the IO concept is being pushed both top-down and bottom-up.
In the case of the CEEMEA unit, Bakhshi provided the charismatic leadership but he left
the details of implementation to each division. Through his info-culturalism, the IO concept
moved from Bakshi into the entire unit.
IO Intervention Step 2: Mapping Capabilities to Zones
In the second step of the IO intervention, Bakhshi identified the key business capabilities
for his unit: regional operational efficiencies, leveraged product expertise, pooled local market
knowledge, trading expertise, and intense customer focus. In the Knowledge-Based Value
Framework, these key capabilities can be mapped to a corresponding impact zone, spanning all 4
value zones of the framework (see Table 4 below). This step involved accelerating the
development of the capabilities by addressing the specific information requirements of the
capabilities, or in other words, “informating” the capabilities.
Table 4. CEEMEA: Mapping Capabilities to Zones

Business Capabilities Value Zone Zone Details
Regional Operational Efficiencies Control Zone Business Capability Exploitation:
Cost / Quality Controls
Leveraged Product Expertise Knowledge Creation Zone / Business Capability Exploitation:
Control Zone Brand / Product Leverage
Pooled Local Market Knowledge Knowledge Creation Zone / Process standardization versus
Knowledge Conversion Zone Knowledge facilitation and reuse
Trading Expertise Knowledge Creation Zone Knowledge Facilitation
Intense Customer Focus Opportunity Zone Business Capability Exploration:
Customer Agility

IO Intervention Step 3: Increasing IO Maturity through Capabilities Emphasis
Bakshi understood that information is key to their business. CEEMEA’s products and
services are information-based. Their traders need to have smart trading ideas and real-time
information about political changes. The salespeople need sufficient customer information and
the ability to track their sales activities. The third step in a successful IO intervention involves 2
phases: 1) increasing the overall IO Maturity level and 2) the mapping of the business
capabilities to a supporting IO component in order to identify the specific IO objectives.
The IO Maturity Path Framework (Figure 13) defines improvement paths for each
information capability discussed in section 3 – information technology practices (ITP),
information management practices (IMP), and information behavior and values (IBV).
Figure 13. IO Maturity Path Framework

Improved Capabilities
Information Information Information

Technology Management Behaviors and
Practices Practices Values
IO Maturity Path
IT for Management Sensing Proactiveness

Support
Sharing
Processing
IT for Innovation
Support Transparency
Maintaining
IT for Business Control
Process Support
Organizing
Formality
IT for Operational
Support Collecting Integrity
In order to improve the level of IO maturity, the current level must be assessed or
measured. This is done through implementation of an IO Scorecard. An IO Scorecard, similar
to the popular Balanced Scorecard, was developed to measure how the CEEMEA unit sensed,
shared, and used information. The IO scorecard first measures the current level of IO maturity
in the organization and is useful as an initial diagnostic tool.
To implement the IO scorecard, the IO framework was translated into practical terms for
the unit and measured 20 specific aspects of IO in the organization. For example, for a
particular employee, the scorecard measured how frequently and how well he or she developed
quality contact with clients; how much he or she contributed to product innovation; how much he

or she contributed information and ideas to the eTreasury WhiteBoard; how well he or she
shared best practices and mistakes; and how much he or she used and updated eTreasury.
After the initial measurement of the company’s IO level, the use of the scorecard
continues, providing measurement and control of the IO program and creating a sense of
panoptic oversight by senior management. This panoptic oversight is also a tool which helps
individuals take ownership of the IO concept by enabling everyone to see tangible results and
progress from the IO intervention.

IO Intervention Step 4: Mapping Business Capabilities to IO Objectives
Because improving IO can be very broad, the next step is to map business capabilities to
specific IO area targets and prioritize the IO initiatives to pursue (Table 5). From the mapping,
Bakhshi developed an action plan for implementing the IO intervention. The mapping exercise
ensured that the IO initiatives would be directly targeted to the desired business capabilities.
Table 5. CEEMEA: Mapping Capabilities to IO Target Areas

Business Capabilities IO Target Area
Regional Operational Efficiencies ITP: IT for operational support
ITP: IT for Business Process Support
Leveraged Product Expertise ITP: IT for innovation support
IMP: Maintaining, Organizing, and Collecting
information
IBV: Proactiveness, Sharing, Integrity
Pooled Local Market Knowledge ITP: IT for innovation support
IMP: Maintaining, Organizing, and Collecting
information
IBV: Proactiveness, Sharing, Integrity
Trading Expertise ITP: IT for Innovation Support
Intense Customer Focus ITP: IT for Management Support
ITP: IT for Innovation Support
Bakhshi launched several IO initiatives involving the development of I/T applications

targeted at specific business capabilities. Table 6 gives a brief description of the application and
its target capabilities. (See the case for a full discussion of each individual application.)
Table 6. CEEMEA: Mapping I/T Applications to Business Capabilities

I/T application Description Impacted Business Capability
eTreasury Information portal Regional Operational Efficiencies;
Leveraged Product Expertise; Pooled
Local Market Knowledge
CWeb Customer Relationship Management Intense customer focus
eCredit Online credit engine (information on Intense customer focus
credit lines, utilization, and quality
metrics)
eRisk Information portal on risk levels of Pooled Local Market Knowledge
different countries
eDealer Single centralized platform and Regional Operational Efficiencies;
common database for automating and Leveraged Product Expertise; Pooled
integrating the deal-capturing Local Market Knowledge; Trading
processes for multiple products Expertise
IO Intervention Step 5: Implementing the IO Initiatives for Change

Intervening with IO, however, is not just a list of I/T initiatives to be implemented. Even
at this step, Bakhshi continued to work as change agent to ensure that IO became a way of
thinking that was incorporated into the corporate culture. Specifically, Bakhshi traveled
frequently to the various countries in the CEEMEA region to gain support for the new business
model. He initiated a distribution of messages and monthly newsletters to all staff, informing
them of the progress of change and its impact on business performance. During the process, he
held regular discussions with his direct reports to form a common understanding of what
building higher IO maturity in their unit was about and how it should evolve.
IO Intervention: Improving all 4 Value Zones
Although the IO intervention focused primarily on information initiatives in the

Knowledge Conversion Zone, the impact of those initiatives can be felt in the other 3 zones.
Within the Knowledge Conversion Zone, the initiatives focused on developing a solid I/T
architecture and fostering effective information management. The benefits of these initiatives
cascaded into the other zones:
• Control Zone - control orientation was improved with the implementation of the IO
Scorecard, which enabled 24/7 information on performance. The investment in I/T
infrastructure enabled the unit to increase operational efficiencies and improve their risk
management techniques.
• Opportunity Zone - IO initiatives like the CWeb application improved customer focus
and contact, improving the company’s entrepreneurial orientation by allowing the unit to
sense additional business opportunities. Other initiatives like the eTreasury information
portal allowed the leverage of cross-unit expertise in the development of new and
innovative financial products.
• Knowledge Creation Zone - IO initiatives focused on Information Behavior and Values
(IBV) encouraged the recruitment and hiring of infocentric, teamwork-oriented
individuals. The IO initiatives improved access to information, thus providing the
building blocks for the overall business capabilities that can lead to value.
¾ Impact on Business Performance

In the span of two short years, the impacts of the IO intervention could readily be
observed in the CEEMEA unit’s business performance. Profit increased 106% from 2000 to
2002. According to the 2002 Greenwich survey, the percentage of clients who regarded the unit
as their “lead bank” in the foreign exchange market and the derivative market increased
respectively to 61% (from 50% in 2001) and 38% (from 22% in 2001). The team received
exceptional client satisfaction scores across the region. And finally, the unit won a number of
Euromoney awards in 2002, including those for “Best in Emerging Market Currencies” and
“Best at Risk Management.”

CEEMEA Case Summary: IO Intervention Checklist
The CEEMEA trading unit was able to realize rapid business improvements through an
interventionist approach to Information Orientation (IO) following these steps:
1. Diffuse IO concept down to the individual level.
2. Identify the key business capabilities for the unit.
3. Measure the initial IO Maturity level and the progress of the intervention through
the use of an IO Scorecard.
4. Map business capabilities to specific IO objectives.
5. Implement the IO initiatives identified through the mapping exercise.
Working the Zones:
Part II. The Industry Perspective
The Knowledge-Based Value Framework is a comprehensive framework, incorporating

and modeling many different industries and companies. As we have seen from our case studies,
each company can have a unique zonal path to value. A company’s value path and alpha zone
depend on several factors:
• Nature of the industry (commodity versus non-commodity)
• Product-based versus Service-based
• Process intensity versus individual creativity
• Reliance on tacit versus explicit knowledge
Value Zones and Specific Industries

Figure 14 lists several industries within a generalized preferred, or alpha zone,
framework.
Knowledge Conversion Zone Control Zone

• Commodity Products (e.g.
cement)
• Manufacturing
• Airline industry
Financial
Services
Software
Development
Knowledge Health-Care
Creation Opportunity Zone
Telecommunications
Zone
• Service-oriented industry (e.g. • Venture capital-funded firms
Management Consulting)
•Start-ups
• Entertainment industry
• Fashion industry
• Advertising 55
• Law
Figure 14
As Figure 14 depicts, some industries fall decisively within a particular alpha zone. As
we discussed in the CEMEX case, CEMEX’s alpha zone is the Control Zone. CEMEX’s intense
process-focus is natural, given the commodity-nature of its product (cement) and its reliance on
explicit knowledge. Other industries that fall clearly in the Control Zone are manufacturing and
the airline industry. A key characteristic of both these industries (and of the Control Zone) is a
heavy reliance on process and standards and less reliance on individual stars.
The Knowledge Creation Zone can be considered almost the opposite of the Control
Zone. Where the emphasis of the Control Zone is on process standardization, the emphasis of
the Knowledge Creation Zone is knowledge facilitation. In the Knowledge Creation Zone, the
industries are marked by their lack of process standardization. Instead, the emphasis is on the
individual, such as individual creativity and individual knowledge. These characteristics cannot
be expressed easily (or even at all) as explicit knowledge. In this zone, we do have “stars”, such
as “star” writers and actors in the entertainment industry or “star” designers in the fashion
industry. Typically, industries in this zone will be service-based, such as consulting and law.
The Opportunity Zone is unique in that firms within this zone can represent both products
and / or services and can represent both tacit and explicit knowledge. The unique characteristic
of firms in this zone is the accelerated nature of the industry and the speed which they must
respond to the competitive environment. Most new firms start out in the Opportunity Zone and
gradually mature into the Control Zone or the Knowledge Creation Zone. The internet industry
is an example of the accelerated nature within this zone. Many firms in the internet industry
were funded by venture capital. These firms experienced an accelerated development path
before many sputtered out. Those that did survive had to evolve (or mature) into the Control
Zone or the Knowledge Creation Zone. Amazon is an example of a company that has matured
into the Control Zone.
As we have seen earlier, Dell is another example of a company that started out in the
Opportunity Zone, focusing intensely on opportunities within the PC industry. As the company
matured, it developed its focus on processes and control, moving from a purely opportunistic-
driven firm to a more process or control-based firm within the Control Zone.
Blended Zones
As Figure 14 illustrates, not all industries fall clearly within a specific zone. This is
particularly true as a company’s orientation matures across all zones. In fact, many industries
overlap and can span two or even three of the zones. As we have seen earlier, Citigroup’s
CEEMEA Sales and Trading unit is an example of a firm in the financial industries. There are
aspects of the financial industries that are both process-driven, as well as individual-oriented.
The nature of the financial industry lends itself to very tight controls. However, the unit is also
very dependent on individual traders developing new and innovative financial services and
products in a timely manner. Hence, the CEEMEA unit could actually be considered to span 3
zones – Control Zone, Opportunity Zone, and Knowledge Creation zone. And when the unit’s
efforts at informating all the zones are considered, the result is a company focused on all 4 Value
Zones.
The software industry is another example of an industry that spans all of the zones.
Software is unique in that the development of software can be considered both an art (requiring
people orientation) and a science (control orientation). The software industry has both “star”
developers, as well as detailed processes for software development (e.g. the Capability Maturity
Model). And many software firms start out as opportunistic-based, funded initially by venture-
capital firms and addressing a specific niche in the market (e.g. Google and their searching
technology). Depending on their individual firm characteristics, software firms can clearly have
different alpha zones.
Information Orientation: The Zone Enabler
The Knowledge Conversion Zone is unique in that by itself, it is not usually considered
an Alpha Zone. Instead, the information orientation associated with the zone is an enabling
factor that magnifies or intensifies the characteristics of the other zones. For example, in the
Opportunity Zone, customer agility is enhanced if the firm has Customer Relationship
Management (CRM) software in place to manage its customer information. In the Control Zone,
additional operational efficiencies are achieved by using Enterprise Resource Planning (ERP)
software. And in the Knowledge Creation Zone, we have already mentioned situations where I/T
is used to facilitate knowledge creation, such as in the health-care industry or the legal profession
and I/T based knowledge repositories can support Knowledge Facilitation and Reuse.
To review the CEMEX, DELL, and Citigroup examples, CEMEX’s path to value has
been through the information-oriented Control Zone. Dell’s path to value has primarily been
through an information-oriented Opportunity Zone mixed with an information-oriented Control
Zone. Finally, the path of Citigroup’s CEEMEA unit has been through an information-oriented
Knowledge Creation Zone.
Information Orientation: Balancing Process Standardization and Knowledge Facilitation
A company’s path to value also must consider whether its business processes are highly
standardized or not. As we described in section 3, information capabilities play a key role in
both highly structured and less structured business processes.
When processes can be highly standardized, the firm clearly controls the decision rights,
events are recorded and evaluated in real time, and exception management can be

instantaneous.36 Performance can be compared against key performance indicators, and process
improvement can be continuous. In certain industries, firms are able to standardize and tightly
couple their core business processes to deliver reliable and responsive performance. Firms can
standardize around best practice that is quickly codified and enacted. And, firms can use good
I/T Practices (ITP) to instill efficiency and reduce coordination costs.
On the opposite end of the continuum lies knowledge facilitation. In industries where a
significant portion of the knowledge required in a business process is not or can not be codified,
the standardization of process activity is replaced by an allocation of decision rights
(empowerment) to the individual employee. This means that a task is not process-driven, but is
instead at the discretion of the employee. In these cases where process activities cannot be
standardized, it is critical that the I/T practices focus on knowledge facilitation rather than
standardization. It becomes even more incumbent on management to improve people’s
Information Behaviors and Values (IBV) and their Information Management Behaviors
(IMP) to ensure that they are both capable and motivated to use and share their knowledge.
A delicate balance can exist between process standardization and knowledge facilitation.
The different companies we examined (Dell, CEMEX, and Citigroup CEEMEA) all fall on
different points along the standardization / facilitation continuum. Clearly, CEMEX is the
company with the highest degree of process standardization; the company is so process-focused
that it even gave a name to its process program – the “CEMEX Way.” This process intensity is
not surprising, given the nature of its primary product – cement. The commodity nature of
cement clearly lends itself to standardization.
The next company on our continuum of standardization / facilitation is Dell. The

manufacturing of PCs can also be very process-driven, since many now consider the PC a
commodity. Yet in the computer industry (versus the cement industry) there is more room for
individual innovation. For example, although PCs may be considered a commodity, the higher-
end server systems developed by Dell still require significant engineering expertise. Thus, Dell
has to carefully balance process standardization with knowledge facilitation in its quest for
shareholder value.
Citigroup’s CEEMEA Sales and Trading Unit represents the company in our analysis that
relies the most on knowledge facilitation. As mentioned earlier, the CEEMEA unit is an
organization heavily dependent on the expertise of individual traders, with very knowledge-
intensive and situation-dependent products and services. The unit is dependent on their
employees in utilizing their financial expertise in developing creative financial products tailored
to the risk environment. Although some of the processes in the CEEMEA unit could be
standardized, such as the deal capturing and reporting processes and the data stored in central
databases, the unit can be more profitable by empowering its employees to sense customer needs
and use their own judgment to offer customized products to match those needs. To facilitate
sharing and reuse of knowledge, frequent meetings and phone conferences are held within the
36
Zuboff, 1988.
teams. However, once a deal is made, the information is then captured and followed-up in a
standardized fashion. This is a good example of balancing standardization with flexibility within
the Knowledge-Based Value Framework.

Working the Zones: Summary
All companies will have a different profile and path within the Knowledge-Based Value
Framework, depending on the industry they are in and the focus of their top management. All
firms tend to have an alpha zone, the initial zone in which a company excels, thus driving the
subsequent maturity of the other key managerial zones.
The specific profile and path will likely change over time, as the industry evolves, or as a
new CEO comes in. A calibration of the managerial orientations can occur via Information
Orientation to accelerate the value paths, as is done in an IO intervention program.
Project Finding: Companies have different ‘alpha zones’, a preferred value zone, that initiate
their value paths, but ultimately companies must improve all 4 Value Zones to sustain value.

5. The CIO as a Value Leader

Step 3. Identify Role of CIO and I/T Function
“I personally don’t like to talk about technical issues. I am more of a philosopher. I spent three
years studying different philosophies of human behavior and have worked very hard to
incorporate these philosophies into the Cemex culture…It has taken 8 years to change the culture
at Cemex. When you are dealing with changes to beliefs, values, practices you are in essence
trying to create a different human being. My role is to constantly challenge people in the
businesses, to change their mindset, to help them think about things differently.”
-- Gelacio Iniguez, former CIO, Cemex
We have now fully developed the language of value found in the Knowledge-Based
Value Framework. From the perspective of the senior executive, we have defined both how
value is created and how value is assessed. We have also identified the specific paths within the
framework of four successful companies in achieving value. In this section, we will now review
the role of the CIO and the I/T function in the framework.
CIO: More than Information Technology
Utilizing the language of IO, CIOs have tended to focus primarily on Information
Technology Practices (ITP), where they have traditionally held responsibility. However,
delivering “good” I/T practices in support of business strategies is not enough to create I/T value
and a competitive advantage. Good I/T practices are a necessary, but not a sufficient condition
to create I/T value. See Figure 15.
F ig u re 1 5
In fo r m a tio n B e h a v io r s
IT P r a c tic e s and
M anagem ent
V a lu e s
L e a d e r s h ip V a c u u m
T r a d itio n a l C IO L e a d e r s h ip
E x e m p l a r C o m p a n i e s d o n o t l e t t h e s e b a l ls d r o p .

In addition to ITP, a company must focus on good information management (IMP) and
good information behavior and values (IBV). Exemplar companies like Dell, Skandia, and
Cemex recognize that their companies must also be skilled in managing information over its life
cycle (IMP) and possess people-based behavioral competencies in information usage (IBV). In
companies where the CIOs focus primarily on I/T practices, it is often the case that no one else is
focusing on Information Management Practices and Information Behavior and Values, resulting
in a leadership vacuum. Without this leadership in all 3 areas, the value of information becomes
cloudy in the overall value framework.
Responsibilities of the Future CIO: Working the Knowledge Conversion Zone
CIOs greatest impact in achieving information orientation maturity for their organization
will largely occur in the Knowledge Conversion Zone. As mentioned above, the traditional
focus of CIOs has been on I/T practices and organizational information practices, areas above the
line in Figure 16 below. In the future, CIOs need to expand their roles and incorporate IT
Practices, Information Management Practices, and Information Behaviors and Values to build or
enhance business processes at both the organizational and individual level. Effectively
implementing these roles will directly relate to their senior executives perceived value of I/T.
Responsibilities of the Future CIO

Facilitate
Build Explicit
Information Knowledge
Architecture Processing
Organizational
Focus
CIO Leadership Challenge
Highest Relative Impact

Info Mgt. IT
Practices Practices
Org (formal)
Info Info Mgt.

Practices
Individual
Behaviors
Focus
Individual
and (informal)
Values
Facilitate
Build Information Orientation: Tacit and
Information Extent the Company is concerned with Explicit
Culture being good across all three dimensions and Knowledge
at the organizational and individual level Creation and
Communication
Figure 16

If a company can compete successfully with highly structured or standardized business
processes, key roles of the CIO will be to:
1) Lead a process engineering to standardize knowledge, e.g. through process mapping.
2) Build an information architecture that supports process coordination and tighter
coupling where possible.
3) Develop information based control systems, e.g. diagnostic, exception, outcome and
panoptic control systems.
If a company must compete with less structured and highly agile processes, the CIO’s
role will be to facilitate both tacit and explicit knowledge creation and communication, such as:
1) Build an information culture that supports knowledge creation and sharing.
2) Standardize when possible and facilitate modular and more loosely coupled
processes.
3) Provide group, network and interactive control systems.
The Knowledge-Based Value Framework can also be viewed from an information ‘bull’s
eye’ (i.e., CIO Role) perspective. The same concepts are captured in Figure 17 as in our original
Knowledge-Based Value Framework, except that this view has information at the center of the
framework. In this model Information Orientation is at the core and directly fans out to
influence the other areas. I/T value may be an elusive target, but the surest path to value that a
CIO can take is to directly aim for the IO Maturity Bulls Eye!
CIOs Should Aim at the IO Maturity Bulls-Eye
1) Are you 2) Are you a

proactively Business Capabilities leader
improving Leading in structuring
Leading
IO Maturity? to Fast
to M &A Leading
Leading M&A
Agility to Partnering
your business
Brand Integration
Agility processes?
Leveraging
Leading
Leading to Business to Customer
Cost Efficiency
Agility
Processes
Entrepreneurial
io ies
P
M roc
a t it
n
Orientation
iz i v
od e
ul ss
rd ct
Orientation
da s A
ar
Control
it
an es
Information y
St roc
Orientation:
P
Focus on
Improving IO
Maturity d
Pr e an
Co ce o dg n
Leading
up ss le tio Leading
to li n ow lita
Kn c i s e
to Market
3) Do you Product Quality g 4) Do you
Fa eu
Agility
& Service
informationally Reliability Leading R
Leading
informationally
to
support to Product support an
Meaningful Leading
Development
Bench- Leading
a control to
marking Effective to Supplier
Agility entrepreneurial
orientation? Outsourcing Sourcing orientation?
Agility
Figure 17
In this Bulls-Eye figure, a focus on improving IO Maturity (ITP, IMP, and IBV) will lead
to improved business processes via process activities standardization, process modularity,
process coupling, and/or knowledge facilitation and reuse. As these items are improved, a
company’s business capabilities will improve, either through control orientation or
entrepreneurial orientation.
In order to hit the Bulls-Eye of I/T value, a CIO can ask himself or herself the following
questions:
1. Are you proactively improving IO Maturity?
2. Are you a leader in structuring your business processes?
3. Do you informationally support a control orientation?
4. Do you informationally support an entrepreneurial orientation?
I/T value will be positively perceived when I/T and the Information System Functions area
specifically address those 4 questions.
Project Finding: The CIO must give business meaning to the “I” in his or her title by
communicating and acting on the link between information orientation maturity and the creation
and assessment of value.
Project Finding: A broad-based, shared view of Information Orientation is a critical

managerial capability for the senior management team (i.e., culture focused on improvements in
people’s Information Behavior and Values, Information Management Practices, and Information
Technology Practices). The CIO can co-lead with the CEO in the effort to create value via
Project Finding: The surest path to I/T value is for CIOs to target all aspects of Information

6. Summary of Major Findings
We have applied the knowledge-based framework to understanding value and I/T value
to 4 companies. We now have a clearer understanding of exactly how value is both created and
assessed from the senior executive perspective. The key for I/T value is informating all of the
Zones – the Control Zone, Opportunity Zone, Knowledge Creation Zone, and Knowledge
Conversion Zone, as well as in informating every link in the Value Creation and Value
Assessment Path. Our case study analysis of the 4 companies resulted in 10 major findings
related to business value and I/T value.
Finding #1: Senior managers perceive overall value from the perspective of marketplace
competition and through business capabilities. They view I/T value as embedded within their
business capabilities and processes rather than having a direct effect on performance.
Finding #2: Senior executives see I/T value when they have the information visibility to assess
business options (Opportunity Zone), to rationalize the business (Control Zone), to facilitate
knowledge creation by individuals (Knowledge Creation Zone) and to convert individual
knowledge into a form suitable for company use (Knowledge Conversion Zone).
Finding #3: Value can be managed through 4 dynamic managerial capabilities within the 4 value
zones: Entrepreneurial Orientation, Control Orientation, People Orientation, and Information
Orientation. By improving facets of a specific orientation, value in the corresponding zone is
created and can be better assessed.
Finding #4: Companies have different ‘alpha zones’, a preferred value zone, that initiate their
value paths, but ultimately companies must improve all 4 Value Zones to sustain value.
Finding #5: Developing maturity in information capabilities is needed to create the right mix of
information behaviors and values so individuals will contribute their knowledge for effective and
efficient company use.
Finding #5: “Informating” senior executives for value means providing them the information to
better “look out the window” for opportunities while “looking through the mirror” at their
company’s controllable and reconfigurable business capabilities.
Finding #6: Companies with an informated Control Orientation create the right mix of
Finding #8: The CIO must give business meaning to the “I” in his or her title by communicating
and acting on the link between information orientation maturity and the creation and assessment
of value.
Finding #9: A broad-based, shared view of Information Orientation (i.e., culture focused on
improvements in people’s Information Behavior and Values, Information Management Practices,
and Information Technology Practices) is a critical managerial capability for the senior
management team. The CIO can co-lead with the CEO in the effort to create value via
Finding #10: The surest path to I/T value is for CIOs to target all aspects of Information

7. Recommendations to Create Value
The Knowledge-Based Value Framework can be utilized as a map or blueprint to chart

your organization’s path to overall business value and I/T value. The framework suggests 5
steps that CEOs and CIOs can follow to improve business value and I/T value:
Step 1. Measure your company’s current information capabilities (Information

Orientation Maturity). By measuring your Information Capabilities (ITP, IMP, IBV), the
weakest areas will become clear and will be an obvious place to start in implementing IO
initiatives and improving I/T value.
Step 2. Determine your company’s alpha zone. Identification of the alpha zone will
determine the starting point of your company’s value path – the path which has the greatest
payoff potential.
Step 3. Determine how specific information capabilities can improve your company’s
alpha zone. As Figure 18 illustrates, I/T and Information Systems Function roles vary by each
value zone. For example, if the company’s alpha zone is the Control Zone, both business value
and I/T value can be created or improved by emphasizing I/T projects on operational support,
business process support, or managerial support – all areas directly related to rationalization and
control of the business.
Figure 18. I/T Roles By Value Zone

Knowledge Conversion Zone Control Zone
• Information Technology • Operational Support
Practices
• Business Process Support
• Information Management
Practices • Managerial Support
• Information Behavior and

Values
Knowledge Creation Zone Opportunity Zone
• Innovation Support
• Knowledge Facilitation
• Agility Support

Step 4. Go beyond the alpha zone and identify other potential zone pathways to value
creation. As the alpha zone becomes fully informated, additional value can be created by
focusing on the other zones. The specific zones to focus on become part of your organization’s
value journey guided by the framework.
Step 5. Focus opportunities on key points of the value path.
In addition to focusing on the value zones and managerial orientations, your company can
create value by focusing initiatives on the key points of the basic value creation and assessment
path that intersects all the zones (See Table 7). These initiatives directly impact human capital,
information capabilities, business processes, and business capabilities. CIOs should lead or
partner with senior executives in implementing these initiatives. For example, as in our
CEEMEA case example, a company can target improvements in human capital by sponsoring
innovation programs or training programs. CEOs and CIOs can partner to target improvements
in business processes by standardizing those processes where feasible, as in CEMEX and Dell.
By targeting specific points along the value creation and assessment path, value can be achieved
that impacts all 4 zones.
Table 7. Opportunity Areas Companies Can Initiate to Create Value
Value Path Component (& Project Case Study Example) Roles/Responsibilities
Business Capabilities
Develop and enhance entrepreneurial orientation with Senior Executive (CEO)
information (Dell) driven
Develop and enhance control orientation with information
(CEMEX) CIO collaboration and
support
Business Processes
Standardize business processes to leverage intra- and inter-
organization efficiency (CEMEX) CEO and
Facilitate knowledge re-use when processes can’t be CIO partnership
standardized (Skandia, CEEMEA)
Determine how I/T can offer greater business standardization
and flexibility (Dell)
Measure Information Orientation (IO) in your company CIO driven
(CEEMEA)
Start an IO improvement initiative (CEEMEA) CEO collaboration and
Develop a program to push IO Maturity through IO support
improvement paths (CEEMEA)
Human Capital
Sponsor innovation programs (Skandia, CEEMEA) CEO driven
Improve the recruitment process (Skandia, Dell, CEEMEA)

Improve skill and experience training (CEEMEA, Skandia, Human Resources
Dell) leadership
Create human capital consultants (Skandia, CEMEX)
CIO support
8. Conclusion
The Knowledge-Based Value Framework presents a method of improving overall

business value and performance by emphasizing the value creation and assessment pathways and
four value zones. Specifically, I/T value can be created by focusing on the Knowledge
Conversion Zone and focusing I/T initiatives that directly impact the other three zones. The
surest path to I/T value is for CIOs to informate the senior executives so they can better operate
in the Opportunity, Control, and Knowledge Creation Zones.
When every link in the value path and every zone is properly informated, the value of I/T
is clearly reflected by excellence in people and process. And I/T’s impact to company value is
most clearly evident when I/T has impacted, influenced, or even transformed the fundamental
business capabilities of the firm. With this Knowledge-Based Value Framework, a CIO can
chart a unique, information-driven path to business value for the firm.

The Language of Value: Lexicon
This report has introduced several terms and concepts related to the Knowledge-Based
Value Framework. The terms are listed in alphabetical order and defined in the following
Language of Value Lexicon.
Term Definition
Agility Ability to detect opportunities for innovation and seize those competitive market
opportunities by assembling the requisite assets, knowledge, and relationship with
speed and surprise.
Alpha Zone A company’s first or beginning value zone. The initial zone in which a company
excels, driving the subsequent maturity of the other key managerial zones.
Business The unique strategic capabilities resulting from the structuring of a set of business
Capabilities processes; an organization's assembly, integration and deployment resources
delivering a unique competitive capability.
Business A senior executive's continuous valuation of the firm in terms of alternative
Options competitive scenarios based on his/her assessment of its capability to exploit
current investments in structural capital and/or to explore the reconfiguration or
acquisition of structural capital in new business options.
Business Logical sequence of organizational activities (routines and procedures) that take
Processes input (people, material, technology, information) and create an output that is of
value (product, service, information). In essence, business processes represent the
firm’s existing formation of its structural capital.
Business "Less" structured processes; occurs when a significant portion of the knowledge
Processes required in a business process is not or can not be codified into a standardized
Flexibility process activity; IT practices should focus on facilitation.
Business "More" structured or standardized processes; I/T focus can provide ‘best practices’
Process to facilitate standardization.
Standardization
Business The ability of a firm to deliver business capabilities that best address current and
Value future competitive needs.
Control Dynamic managerial capability to exert a breadth and depth of control over business
Orientation processes, information and people to fully exploit past investments. Attributes of
Control Orientation include strengths in Process Thinking, a Panoptic control vision
that permits drill down, a wide Measurement Range across a company’s operations
and a monitoring focus that Thrusts responsibilities down and Trusts they will be
carried out properly.
Control Zone Zone where current business capabilities are exploited through formal, controlled
and well infomated, business processes.
Customer Ability to leverage the “voice of the customer” to gain market intelligence and detect
Agility competitive action opportunities.
Dynamic Ability to shape and enforce a managerial orientation to effectively evaluate,
Managerial rationalize and improve a firm’s current capabilities within a specific Zone.
Capabilities
End Zone Final end-point in the value pathway indicating a firm’s business performance; the
zone in which the senior executive perceives whether s/he has achieved superior
business performance through the firm’s value path.
Entrepreneurial Dynamic managerial capability to sense and position market opportunities in terms
Orientation of agile responses to customers, partners, and suppliers. Attributes of
Entrepreneurial Orientation include strength in Strategic Foresight concerning
business options, Systemic Insight concerning current structural capital
configuration, a Stakeholder Focus, and a propensity for Risk Management.
Human Capital Implicit or tacit knowledge, skills, and experience of employees and stakeholders;
human capital is converted to business processes through information capabilities.
Information The meaning of data based on the explicit and/or implicit knowledge available at the
time of a decision or process activity; useful organizational information is knowledge
that is made explicit through organizational information capabilities and applied to a
unique business process activity or problem.
Informate Extent to which ITP, IMP and IBV have been strategically directed to produce
meaningful information that is used in the various Zones. Extent to which senior
executives are well-informed (or informated) allowing them tremendous precision
for strategic decision-making and fundamentally reducing the risk of competitive
moves.
Information Capability of a company to instill and promote behavior and values in its people that
Behaviors And will result in effective information use. Elements of information behavior and values
Values (IBV) include integrity, formality, control, transparency, sharing, and proactiveness.
Information Information capabilities consist of an organization’s competence in information
Capabilities technology practices (ITP), information management practices (IMP), and
people’s information behaviors and values (IBV). These information capabilities
play a key role in the conversion of people’s implicit knowledge (human capital) to
explicit knowledge used in business processes.
Information Capability to manage information effectively in support of coordination and control,
Management tactical problem solving, and strategic decision making. Information Management is
Practices (IMP) a cyclical process that involves sensing, collecting, organizing, processing, and
maintaining information to enhance its use for decision making.
Information A managerial culture that emphasizes constant improvement in IT practices (ITP),
Orientation (IO) information management practices (IMP) and people’s information behaviors and
values (IBV). The dynamic managerial capability to create effective use of
information in a company.
Information The degree to which a company has honed an Information Orientation and
Orientation improved its information capabilities to effect conversion of its knowledge into
Maturity flexible and standardized business processes.
Information Capability to manage information technology applications and infrastructure
Technology effectively to support operations, business processes, innovation and managerial
Practices (ITP) decision-making.
I/T Value The extent to which senior executives believe that a company’s information
capabilities are useful in enhancing business processes and improving business
capabilities.
Knowledge “Justified truth beliefs” (Plato). Understanding about a pattern of relationships
producing an expected outcome – this understanding can be held by people and not
shared or codified (implicit), or made explicit and further tested and refined in
application (best practices) in repeatable (standardized) processes.

Knowledge Zone where the knowledge of people is effectively converted into meaningful
Conversion information that can be utilized by the firm's business processes; Information
Zone Orientation is critical in this zone as it pushes for the constant improvement of
information technology practices (ITP), information management practices (IMP),
and people’s information behaviors and values (IBV). Zone that is the primary
responsibility of the CIO.
Knowledge Zone where new knowledge is created by people; People Orientation is important in
Creation this zone.
Zone
Knowledge- Concept that knowledge originates with people and organizations exist as
Based View of instruments to collectively capture, transfer, and focus knowledge towards business
the Firm goals. Ultimately a company’s value is determined by its ability to capture, codify,
retain, reconfigure and reuse unique competitive information derived from its
knowledge base.
Knowledge Concept that when knowledge is not easily codified into explicit standard business
Facilitation and processes it must be represented in modular or object format and stored in a
Reuse repository so that it can possibly be used and reused by knowledge creating
individuals.
Looking in the Focus on exploiting current business capabilities (resource-based view; inward
Mirror looking).
Looking out the Focus on exploring the acquisition and/or reconfiguration of capabilities in new
Window business options (industry-view; outward looking).
Measurement The organizational and interorganizational range and depth of measurement that is
Range available to senior management to exploit an information based control. Integration
thoroughness and ease of use of monitoring data available to senior management.
Modularization Process activities that have clearly defined input and output specifications and can
possibly be separated from their core process and reused in different core
processes; modularity implies that subsystems can be designed independently with
limited consideration and known interactions with other subsystems.
Opportunity Zone where opportunistic business options are identified by examining the
Zone competitive environment (looking out the window) relative to business capabilities,
business processes, information assets and people (looking through the mirror);
Zone where a determination of the viability of an agile response is made.
Organizational Regular, predictable patterns of activity making up of a sequence of coordinated
Routines actions by individuals. A capability is, in essence, a routine, or a number of
interacting routines.
Orientations Orientations represent managerial awareness, focus and competence to leverage a
company’s resources within and between the value zones (i.e., Entrepreneurial
Orientation, Control Orientation, Information Orientation, and People Orientation); a
dynamic managerial capability to work a zone well.
Panoptic Vision The ability to sit on top and monitor performance through powerful informational
controls (e.g., drill down, summarization, slicing and dicing). And as employees
learn this managerial control capability exists, become more responsive and self-
regulating in their behavior.
Partnering Firm’s ability to leverage the assets, knowledge, and competencies of
Agility complementary firms by forming alliances, partnerships, and joint ventures.
(Related to co-evolving).
People Dynamic managerial capability whereby a firm is particularly competent in the
Orientation selection, training, facilitating, and rewarding of highly productive knowledge
workers who possess or can acquire the needed tacit and explicit knowledge and
have a propensity to move that knowledge to an explicit form.

Process Think An intrusive management sense to frame the business in a systematic, process way
(as opposed to thinking functionally) and always pushing for efficiency and
effectiveness of business processes. A natural desire to continuously rationalize the
business through process improvement and redesign.
Real Option Investment in physical and human assets that provides the opportunity to respond
to future contingent events. Method to identify and value capabilities and exploratory
activities
Resources Resources are the input into the production process; basic unit of analysis.
Individual firm resources include capital equipment, skills, patents, brand names,
etc.
Stakeholders Employees, stockholders, customers, partners, and suppliers.
Standardized Processes that can be explicitly described and able to produce consistent and
Processes predictable outcomes.
Strategic The ability to anticipate discontinuities in the business environment, marketplace, or
Foresight I/T space.
Structural The explicit manifestation of human capital (intangible resources/ implicit
Capital knowledge) into business processes and/or stakeholder relationships that directly
contribute to unique business capabilities that add value.
Supplier Agility Firm's ability to leverage the assets, knowledge, and competencies of suppliers.
Systemic Insight Ability to visualize connections between existing or acquired structural capital.
Thrust and Trust Control Orientation strategy whereby a senior executive outlines broad and
challenging priorities (thrust) and then empowers people to take action to
accomplish them (trust). Supporting this style of management requires an open,
publicly available performance measurement system that focuses on both individual
and group performance indicators.
Value Business capabilities --> Structural capital (business processes) --> Information
Assessment capabilities --> Human capital (people’s knowledge)
Path
Value Creation Human capital (people’s knowledge) -->Information capabilities --> Structural
Path capabilities (business processes) --> Business capabilities.
Zones A conceptual division of a firm’s value-creating resources through which senior
managers work to develop strategies, effect change and derive value.
Zone Pathways Different zonal maturity paths starting with a firm’s Alpha Zone that ultimately lead to
business success.

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Appendix 1
The Case of Skandia:

A Knowledge Based View of I/T Value
Learning to Work the Knowledge Conversion Zone
Prepared by:
Authors with the Assistance of Lynda Kettinger and Katarina Paddack
Prepared for the Advanced Practices Council of the Society for Information Management for the January
2003 meeting as the first deliverable of the “How to Drive Value with I/T: Investigating Senior Executives
Perspectives” Project. It should be noted that we interviewed executives for this case study in 2002 with
some follow-up in early 2003. The case accounts are limited in the sense that we asked executives their
perceptions of events that took place in the past. In some, instances we had to rely on second hand
accounts to fill in informational gaps. To help improve the accuracy concerning events that took place before
1995 we benefited from reference to some earlier IMD case work including: GM 624 (Marchand, D. A. and
Roos, J., 1996) “Skandia Assurance and Financial Services: Measuring and Visualizing Intellectual Capital,”
and GM-3-1035 (Marchand, D. A. and Paddack, K. 2001) “Skandiabanken: Developing Information
Capabilities for Effective Customer Facing Strategies." Wherever possible multiple accounts of the same
event were solicited to increase validity.
1
The Case of Skandia: A Knowledge Based View of I/T Value
I/T value is not seen as technology alone nor as a functional contribution, I/T value must be
embedded in the business capabilities being developed and manifested in real life business
processes and customer interactions.
Lars Eric Petersson, CEO Skandia Group
SkandiaBanken’s working culture encourages employees to contribute their experience and

knowledge to constantly improve the company’s structural capital through its process, systems and
customer relationships.
Goran Lenkel, CEO SkandiaBanken
Many managers only talk about IT, without thinking of the concept more holistically. They are
looking for a technical solution. But it is not a technical solution; it is a philosophical solution, a way
of business thinking. IT is not “alive”--it is not thinking, setting the rules, responding to customer
needs. It is the people who create value in the company…What I did at SkandiaBanken was to
create a way of thinking about IT from the customer viewpoint that would allow people to view the
role of IT not as separate from the business but as critical to customer satisfaction. I created a
model that shows how customers evaluate SkandiaBanken from the IT, from the process, from the
product, and the service perspectives.
Introduction
This case describes how Information /Technology (I/T) value was achieved at
Skandia Corporation, a company famous for knowledge management. The case
provides an understanding of the transitional paths taken by senior managers at
Skandia and its subsidiary companies, Skandia AFS and SkandiaBanken, in
assessing the value of their information/knowledge assets, improving and
diffusing I/T capabilities, and restructuring business/organizational arrangements
to leverage its newly developed business capabilities. In particular, we will focus
on the roles played by several senior managers and provide insights as to how
other companies can begin to think and talk about I/T Value.
The case opens by briefly highlighting Skandia’s history and competitive
environment. Five phases describe how I/T value evolved over the past decade
and a half. Our case discussion begins in 1986 (Phase 1) as Skandia Assurance
and Financial Services (AFS) seeks to leverage knowledge in alliance-based
networks, and then identify value beyond traditional financial performance in its
hidden intellectual capital. In doing so, Skandia developed a performance
measurement scheme to begin to measure the contribution of intellectual capital
(Phase 2: 1991-1996). We next describe the “Human Capital Initiative” (Phase 3:
1997 – 2001) during which Skandia sought to develop and assess their human
capital, which they recognized as the knowledge and skills possessed by its
people, to increase innovation and establish greater individual responsibility and
accountability. We will explore a major business experiment that took place
between 1994-2001 (Phase 4) to establish a direct bank, SkandiaBanken, where
the company exercised a business option to translate what was learned in
intellectual capital development to more pervasive and institutionalized “structural
2
capital”, which they defined as the manifestation of people’s knowledge and skills
in terms of processes and customer relationships. We focus on three I/T
improvement paths that SkandiaBanken followed to increase the value of its
structural capital. We refer to the I/T improvement paths as Information
Orientation (IO) Maturity. Finally, we discuss how the structural capital (including
I/T) developed at SkandiaBanken was recognized as valuable by corporate
senior management for its potential to be reconfigured and diffused into the
larger company, ultimately resulting in the reintegration of SkandiaBanken into
Skandia Corporate (Phase 5: 2001-2002).
Skandia Case Timeline 1986-2002+
4) Structural Capital Experiment 5) Merger:

at SkandiaBanken Skandia Group
3) Human Capital Initiative

at Skandia Group
2) Intellectual Capital Intellectual Capital Initiative

Initiative at AFS at Skandia Group
1) Networked Based Alliances at Networked Based Alliances

Assurance and Financial Services (AFS) at Skandia Group
86 91 92 93 94 95 96 97 98 99 00 01 02 03+
Year
Note: Subsidiary based initiative.

Initiative diffused to enterprise.
The case concludes by acknowledging the importance of three capitals essential

to achieving I/T value at Skandia: Intellectual Capital (method to measure asset
value beyond financial measures), Human Capital (people’s knowledge and skill
acquisition in an innovative climate of self responsibility and accountability), and
Structural Capital (mechanism to instill human capital into processes, systems
and customer relationships through improved IO). Other contributions in this case
include: I/T improvement paths, roles and prescriptive actions that emerged at
SkandiaBanken that provide a starting point for future investigation concerning IO
maturity paths generalizability; and, the beginning of a framework to help us
understand how senior executives assess I/T value in a dynamic way.
3
Skandia History and Business Background
Skandia was founded in 1855 in Sweden as a life insurer. It was Sweden's first
capital stock insurance company and one of only seven firms originally listed on
the Swedish Exchange. Soon after its inception, it began expanding
internationally, opening offices in the Netherlands, Denmark, Norway, Russia and
Germany. In 1900, Skandia became the first company outside the U.K. to enter
the US market. Skandia’s next major growth initiative occurred in the early
1960's when it expanded its international reinsurance business.
By the late 1980's changes in the insurance industry worldwide forced some
people in Skandia to question the company's traditional insurance-focused
business strategy. A worldwide trend of government deregulation began to open
the insurance industry to banks and other financial and non-financial institutions.
New "bancassurance" companies threatened the traditional insurance industry
with increased competition. At the same time, reductions in government
sponsored pension and social security schemes coupled with new tax incentives
for insurance-backed long-term savings opened up a new market for the
insurance companies. A worldwide demographic growth trend of an aging
population also provided opportunities for new financial management products
and services.
To address these competitive trends Skandia Group undertook a multiyear

transformation that had at its core the development of its knowledge and people.
In the process the Skandia Group redefined itself from an insurance company
into a global financial services group. Skandia’s business strategy would lie in
developing core competencies in four key areas of the bancassurance industry
value chain: fund selection, product packaging, marketing, and distribution (see
Exhibit 1). In the late 1980s it pioneered the development of unit-linked
assurance that was sold in alliance networks. In 1994 it created a banking
operation (SkandiaBanken) to directly offer customers savings and loan
products, and scaled down its Property & Casualty business. Next, it sold off its
international reinsurance operations in 1998 and its asset management group in
2002 to lower its risk portfolio.
By 2002, the Skandia Group was a global savings company with sales of
approximately US$15 billion (SEK 137 billion) and assets under management of
approximately US$87 billion (SEK 780 billion). Skandia operated in 25 countries,
each country operating as an independent business unit. Skandia Group focused
its business in five product areas:
• Unit-linked assurance: Skandia was the world’s largest company dealing in unit-linked
assurance, accounting for over 69% of the company’s sales portfolio. Unit-linked
assurance is a variable life assurance product that allows the policyholder to invest the
savings portion of the premium in a variety of investment vehicles (combinations of stock,
bond, and money market investments with different risk-return profiles).
4
• Mutual Funds: Originally, Skandia sold mutual funds wrapped in a unit-linked package. In
recent years, they have expanded into the distribution of mutual funds without an
insurance element. Skandia also offers mutual funds/unit trusts with specific
environmental, ethical and/or social criteria.
• Life Assurance: In traditional life assurance, the insurance company undertakes the
management of its customers’ savings. The product also gives customers a guaranteed
yield. This is in contrast to unit-linked assurance where the return to policyholders is based
on the investment performance of the funds managed by the life company.
• Banking: The overall responsibility in the Nordic market for banking, wealth management
and sales fell under the unit SkandiaBanken. SkandiaBanken is a full-service retail bank
and its customers have access not only to qualified financial advisory services but also to
a selection of the market’s foremost funds and insurance products as well as financing and
other savings products. SkandiaBanken offers a wide selection of funds from independent
fund managers and is the only private bank in the Nordic region that fully allows its
customers to choose from competing products. Organizationally, SkandiaBanken’s
operations are broken down into an advisory bank (with physical branches) and an
Internet bank. Customers can visit the bank over the Internet, by phone, by WAP-
enhanced cell phone, by digital TV, or in person.
• Health Care Insurance: Skandia has developed a compliment to public health care in the
Nordic market. Skandia has created a network of private hospitals that offers customers
preferential health care.
Why Did We Study Skandia?
Skandia Group was selected as our initial case study because it possesses
several unique attributes:
1) Skandia has been recognized as a leader in knowledge management and

in the valuation of intellectual capital (See Exhibit 2). This recognition often
cites the important role that I/T has played in their success.
2) Skandia is a complex multi-business unit global enterprise. We had
access to view senior executives’ perspectives on I/T value from both the
corporate and operating company (SBU) levels over time.
3) One of the operating companies, SkandiaBanken, was found to be high on
Information Orientation (IO) in a previous study conducted by the
researchers, and therefore provides a good venue to study how a
company improves perceived I/T value (See Exhibit 3: IO Dashboard).
Phase 1 (1986 – 2001): An Entrepreneurial Orientation to Build the

Capability to Leverage Knowledge in Network-based Alliances
In 1986, Jan Carendi, was appointed head of Skandia International Life

Operations, which had been losing money. Carendi, a career employee who
joined Skandia as an executive trainee in 1970, had the reputation as an
effective manager and natural problem solver.
As an initial move to curb the continuous outflow of his unit’s best in-house fund
managers leaving for higher paying jobs, Carendi decided to externalize both
5
fund manager and sales functions. Instead of in-house fund managers and sales
he began to enter into cooperative alliances with local retailers made up of
independent brokers and banks that were very well known in their domestic
markets. A similar approach was used to lock in mutual-fund investment
managers who had superior track records. Based on this alliance-based
structure, Carendi would build a new worldwide insurance and financial service
business that would focus on packaging unit-link assurance. Instead of
managing the entire value chain, Skandia would position itself as the “link”
between the distribution and investment business functions. Skandia would add
value by packaging long-term savings products with insurance instruments for
brokers, and by bringing wholesale distribution to brand name money managers.
Fund managers, banks and brokers would subsequently assume the investment
risks. Instead of defining themselves as an "insurance company," this new
financial services company would leverage upstream and downstream value
chain relationships, and the embedded knowledge of their alliance partners, as
"specialists in collaboration" to minimize risk and cost (see Figure 1).
Figure 1: The Skandia AFS Value Chain
Alliance Partners Alliance Partners
In 1991, Carendi as CEO of the renamed Skandia Assurance and Financial

Services (AFS), reported directly to the Skandia Group’s new president and
CEO, Björn Wolrath (See Exhibit 4 for an organization chart). From 1991 until
his retirement in 1997, Wolrath would shift Skandia’s business strategy away
from traditional insurance work and towards Carendi’s concept of value-added
financial services. As Skandia’s independent brokers typically sold competitors
financial products, success of this new business strategy depended on Skandia
AFS’s ability to effectively manage alliances on both ends of the value chain, and
to excel in product packaging, administration, and marketing support.
Skandia AFS’s business model would allow the company to manage this
federative structure with minimal staff. The concept, which would become the
basis for international growth, was based on a "federative structure", in which the
specialists in the organization were tied together through a common values
system, but who operated autonomously, to develop client-based solutions.
Skandia would employ 50 core "competence leaders"(executive teams from each
international business unit); 1,500 Skandia AFS staff members would manage
functional support areas (information technology, logistics, and administration).
These two groups of Skandia employees would service 25,000 alliance partners
(agents, banks, brokers, and independent financial advisors) who managed
6
funds, customer contacts, product distribution, and "customer relationship
development" to 500,000 end customers around the world (see Figure 2).
Figure 2: Skandia AFS Alliance Network
CUSTOMERS: 500,000
ALLIANCES: 25,000
STAFF: 1,500
CORE: 50
This “imaginary organization” or system of network alliances allowed Skandia

AFS to leverage 16 people for every full time employee. Skandia could easily
manage large increases to its customer base without radically increasing its
fixed costs. Carendi believed this "federative" concept allowed the company to
“mine” new ideas derived far out in its network.
With no formal organizational linkages to connect this international alliance
network, Carendi created informal connections with people in the extended
network to improve information flows and create a knowledge sharing culture.
He insisted that as much company information as possible be made easily
accessible to all AFS operations. Carendi also recognized the value of I/T to
package experiences, share knowledge, and interconnect its “federative”
business model; 13% of Skandia AFS’s staff was IT specialists. AFS would
establish a common IT architecture known as the integrative Global Area
Network (GAN) infrastructure to allow for electronic mail and file sharing (i.e.
Lotus notes) as well as for efficient transaction processing. Carendi's objective
was to establish an electronic knowledge networking system to connect
members of the alliance and provide them with access to information and
knowledge both inside and outside the company. The GAN linkages also
allowed IT competencies to be transferred to others and by 1995 the company
was actively apportioning IT work to its distribution network and to its fund
managers. For example, American Skandia’s ACCESS system was used by
15,000 brokers in the US to market products and ease the customer
application process by providing distributors direct access to applications and
other administrative forms.
Phase 2 (1991-1996): Value Beyond the Financial Statement -

The Intellectual Capital Initiative and the Growth of a Control Orientation
Carendi appreciated the power of network relationships to create business value,

stating, “The ASF federated model was an effective means to leverage the
hidden value of knowledge within and outside the formal organization.” His
frustration with traditional financial performance measures pushed him to look for
ways to quantify this "hidden value". Wolrath also felt that Skandia needed to find
a way to quantify the company’s hidden value in order to improve the company’s
7
market capitalization, which he did not believe reflected Skandia’s true worth.
Establishing a Language of Knowledge Based Value: A New Performance

Measurement System to Capture the Knowledge Conversion from People
to Structural Capital
In 1991, Carendi established a function reporting to AFS’s CEO to develop a way

of systematically assessing Skandia AFS’s intellectual capital and named Leif
Edvinsson as the “world's first” Director of Intellectual Capital. Edvinsson had
previously held the position of Senior Vice President of Training and
Development in Skandinaviska Enskilda Banken’s Human Resources
department (one of Sweden's largest banks). The function's first task was to
devise indicators that could serve as tools to better grasp the company's
"imaginary" (federated) structure. His new role included:
• Identify and improve the visibility and measurement of intangible assets.

• Capture and package intellectual capital for transfer to other AFS units.
• Cultivate and develop human capital through training and knowledge networking.
• Create the ability to manage and recycle intellectual capital in AFS to improve product
commercialization and reduce operating costs.
Edvinsson began his new job at Skandia AFS by defining intellectual capital—
which he saw as the difference between a company’s financial capital and its
market value. Intellectual capital was therefore a “hidden” asset, since no
accounting, standard reporting or measurement indicators existed for either
human or structural capital. Intellectual capital was defined as the sum of a
company’s human capital (the knowledge, skill and experience of individual
employees) and structural capital (the manifestation of knowledge and skills into
a company’s IT systems, processes and customer relationships); see Figure 3.
Figure 3: The Skandia Value Scheme

Market Value
Financial Capital Intellectual Capital
The knowledge, skill and The manifestation

experience of employees Human Capital Structural Capital of human capital
into systems,
processes, and
customer
relationships
Edvinsson set out to develop a standard set of indicators to capture AFS’s

intellectual capital. To sell the concept, he traveled office to office around the
world to share his views. However, his role, was sometimes perceived as
problematic because his background was in human resources and not business
or I/T. “But after a while, they realized that there was the broader potential to
8
develop something that could really be useful,” he commented. One part of
these "missioning" efforts was devoted to Skandia AFS’s Board of Directors. In
1992, Edvinsson gained support from the AFS Board to develop a supplement to
Skandia AFS’s 1993 Annual Report devoted to intellectual capital. Surveying
Skandia AFS’s subsidiaries in the US, UK, Columbia, Spain, Germany, and
Switzerland, Edvinsson assembled a list of approximately 50 items, which were
subsequently summarized into a more manageable 10 key terms (trademark,
concessions, customer, distribution system, fund management system, IT
system, core competence, key persons, partners & alliances, and structure). This
list became the basis for the first set of intellectual capital indicators (see Exhibit
5).
The 1993 annual report also highlighted Skandia AFS’s Business Navigator—a
model similar to the Balanced Scorecard by Norton and Kaplan –which
categorized performance measurement indicators into five focus areas: financial,
customer, process, renewal and development and human (see Figure 4).
Figure 4: Skandia AFS’s Business Navigator
History
Financial Focus
Financial Focus
Customer Process
Human Today
Focus
Focus Focus
IC
Renewal and Development Focus Tomorrow
IC = Intellectual Capital
Financial Focus: financial results (e.g., indicators such as fund assets/employee, value
added/ employee).
Customer Focus: relationships built up with clients (e.g., market share, surrender ratio, fund
assets/customer, satisfied customer index, telephone accessibility, number of alliances).
Process Focus: the efficiency of internal processes (e.g., administrative expenses/managed
assets and revenues, cost for administrative errors/management revenues, processing
time, out payments, applications filed without error).
Renewal and Development Focus: investments made to develop future human and
structural capital (e.g., competence development expense/employee, business
development expense/managed assets, and number of new launches).
Human Focus: individual competencies and capabilities important in providing solutions to
customer problems (e.g., employee turnover, training expense per employee, satisfied
employee index, and development investment related to individuals and teams).
By 1995, all Skandia AFS business units were using the Navigator in their
business planning process. Each unit would define their business concept, and
9
identify key success factors in each of the Navigator’s 5 focus areas that would
help drive the company towards its business goals. This planning process
application of the Navigator would allow flexibility and adaptation of the model to
each unit’s specific culture and business practice.
By 1998, the Navigator was instituted as a Skandia Group enterprise-wide
reporting and business-planning tool, replacing traditional budget reporting with a
real-time process planning model based on development of goals, success
factors, and indicators in each of the Navigator’s five focus areas. This system
was completely automated and allowed managers to click on different process
areas and indicators for which they were responsible. The Group would also take
the Navigator a step further by encouraging employees to create their own
personal Navigators to develop goals in each of the Navigator’s five focus areas
for personal development, career growth, and job satisfaction. An IT system—
called Dolphin—provided transparent access to each unit’s planning material. In
2000, Skandia created a wholly owned subsidiary – IC Visions—to market and
sell the Navigator system.
A Control Orientation for Knowledge Based Enterprise: Carendi’s Push for

“Thrust and Trust”
Carnedi believed that effective common values and leadership were critical to
creating an environment in which human capital could be transformed into
structural capital (see Figure 5). With performance systems in place, Carendi
took the lead to articulate a management philosophy that was radically different
than the traditional Skandia approach. Carendi believed that this new federative
structure demanded a different way of managing people. Whereas Skandia
management revolved around traditional hierarchical chain of command, formal
reporting lines and top-down decision-making, Carendi envisioned a company
based on delegated responsibility and individual initiatives where people used
self and group monitoring based on valid and available performance indicators.
To fully utilize the potential of people, Carendi believed he had to maintain an
informal and entrepreneurial culture. He described this management style as
“thrust and trust” in which senior executives outlined broad and challenging
priorities (thrust) and then empowered people to take action to accomplish them
(trust). Supporting this style would be a well defined and “open” performance
measurement system focused on group and individual performance being
publicly available. When things went wrong, Carendi encouraged open
discussion of the problems among peers, giving rise to a culture in which people
own up to their errors and lessons to be drawn from them.
A requirement of the thrust and trust philosophy was to create a “high trust
culture”, which would encourage knowledge exchange. Carendi began using the
term “work permits”, whereby people would be encouraged to collaborate freely
in order to gain and share knowledge. He wanted to give his people “work
permits” to be curious and take pioneering initiatives. Carendi said, “The goal
10
was to promote information transparency, a concept that was more powerful and
important to developing intellectual capital than the idea of information transfer.
Overall, this “thrust and trust” philosophy was designed to encourage the most in
people, assign responsibility for accomplishments and mistakes, to publicly
present performance results and air problems for group learning, and to weed out
weak links. Carendi’s philosophy included:
• Creating a challenging working environment in which learning was driven by people who
pushed each other through open and honest disagreement.
• Developing a high trust culture characterized by shared values, transparent
communications, and the encouragement of people to accept responsibility and take risk.
• Recruiting the best people and developing them toward these common values and
eliminating those that do not thrive in this culture.
Figure 5: Creating Structural Capital
Structural Capital
Human Capital
Leadership
Values
To encourage the movement of human to structural capital, Carendi pushed the

Skandia AFS’s information technology department to develop systems to
formalize knowledge transfer. For example, the IS unit devised a system to
speed the opening of offices in new countries. The system consisted of
standardized administrative modules (accounting procedures, pre-designed
products, information about funds management and underwriting, policy letters,
and payout information). These modules were used to reduce the time needed
to create a new office by 50% and provided a tool set that could easily customize
products to meet the needs of local markets. In essence, by sharing knowledge
through greater use of computerized structural capital, prototypes reduced the
amount of human capital required to start-up a new Skandia AFS office.
By 1997, Skandia AFS’s business concept had proved highly successful, with
annual premium volume rising an average of 70%. Unit linked assurance
contributed to 75% of Skandia Group revenues. In addition to its successful
business performance, AFS Skandia’s work in developing its intellectual capital
concepts had caught the attention of the international business and academic
communities. Because of the considerable interest generated outside Skandia
AFS in the concept of intellectual capital and the Navigator, and to share the
11
learning, other business units within the Skandia Group became involved with the
concept. Controllers and human resources people from the other parts of
Skandia had formed a "reference group" on intellectual capital, which met to
refine intellectual capital issues, and produce communication materials (e.g.,
video on intellectual capital) and channels to diffuse the ideas to other parts of
the Skandia Group. Group management continued to support the idea of
developing public supplements to Skandia Group’s Annual Report.
Phase 3 (1997-2001): Human Capital Initiative - A People Orientation That

Recognizes that Creating Knowledge Starts with People
In 1997, the head of Skandia’s Nordic businesses, Lars-Eric Petersson,

succeeded Wolrath as President and CEO of the Skandia Group. He entered the
position at a time when traditional views towards insurance and savings were
changing in the market, as government retirement systems around the world
moved towards individual pension schemes, and away from fully funded state
plans. Explosion of Internet technology had also lowered the insurance
industry’s once high technology investment barrier, but also provided interesting
options concerning the ability of the parent company to capture customers
directly, and create IT-based products and services. Petersson launched into a
three-year “Rationalization Program” that divested the company of its
reinsurance operations and squarely positioned Skandia as a global financial
services company. No longer a pure, traditional, insurance company, Petersson
was concerned about developing the skills, competencies and creativity with the
existing employee base to sustain the company in this new business
environment—one that would demand customized product and service offerings,
rather than traditional static insurance products of the past.
Skandia Group CEO wants Business Capabilities Developed at AFS
Business Unit Diffused Through Corporation
The new CEO, Petersson, applauded the success of the AFS alliance/network
business model and the intellectual capital initiative, however, he worried that
many of Skandia’s people in units outside of AFS, especially in Skandia’s P&C
and Asset management businesses, continued to operate under the old business
assumptions and management styles. Petersson also believed that while
Skandia employees had become more accountable and responsible based on
use of the Navigator measurement systems and ‘thrust and trust’, he was
concerned that many employees did not have the skill set to create innovative
products and the ownership and motivation to respond to customer needs.
Lastly, Petersson was concerned about Skandia’s image in the market place. Its
new goal—to be the leading global supplier of flexible financial solutions—would
challenge every person in the company to portray this face to a client base who
still thought of Skandia as an insurance company. Under Petersson’s directive
and Edvinsson’s direction, Skandia embarked on several major projects at the
Skandia Group level to help develop human capital capabilities to address
12
Petersson’s concerns and diffuse the successes achieved in AFS throughout the
enterprise.
The Skandia Future Center
With the Navigator project taking on a life of its own within the Skandia Group,
Edvinsson turned his attention to his next project—what he termed a knowledge
innovation tool—the Skandia Future Center. Envisioned as a prototype of future
working life, the Future Center was designed by Edvinsson as a place that would
optimize opportunities for creative dialogue and knowledge sharing. He
described, “It is a place where new ideas are born, so that the world can be
changed, where dialogue is a tool for value-creating renewal. It is a place of
discovery, an arena for the cultivation of intellectual capital.” Renovating an old
villa 35 minutes outside of Stockholm, Edvinsson designed the center with rooms
of different environments, different colors, different music, different furniture,
different aromas (vanilla for creativity, cinnamon for belonging) to give people a
choice of the atmosphere they preferred. The kitchen served as the reception
center—a place where knowledge recipes could be created, where food and
stimulating talk could release thoughts and feelings.
Groups from any of the Skandia companies could come to the Future Center—
with the mandate of brainstorming ideas, developing future business scenarios,
or learning from experts in different fields. During its first 18 months, 7,000
visitors experimented with the Center, and the Center reported that it had been
instrumental in developing competence alliances within Skandia and with outside
partners. Edvinsson’s idea about creating informal meeting places for knowledge
exchange also found its way into Skandia corporate and business offices, with
“knowledge cafes” being created throughout the company.
Innovation Encouragement
To encourage entrepreneurship, Skandia began two programs. The first,

Skandia Opportunity, created an in-house competition where employees were
asked to compete to develop innovative business ideas. In the first round, 40 in-
house entrepreneurs were selected and given the resources to develop their own
business concepts. In a second venture, Skandia created Skandia Innovation
(SIVA) a development company whose aim was to develop new financial
products and services.
Human Capital Development Program
In 1998, for the first time, Skandia brought all its human resource departments
from all its operating companies together to create a human capital development
program for the entire company and to place HR personnel at the forefront of
influencing employee and leader behavioral and values development. The goals
of the Development Program were to:
13
• Make Skandia a rewarding workplace for committed employees.
• Teach managers how to drive responsibility down into their organizations
through delegated responsibility, trust, and knowledge sharing.
• Help change employees’ attitudes and working behaviors related to
responsibility, trust, and knowledge sharing through modification to individual
performance evaluation schemes.
• Recruit the best personnel with Skandia values.
To attain these goals, HR personnel were renamed “consultants” and marketed

to business units as a consulting support organization with the task of improving
work methods and supporting value creation and leadership skills. In this way
the HR departments were proactively taking the lead in recruiting and developing
the Skandia human capital (people’s knowledge and skills) and their commitment
to effective knowledge use in the company.
As a part of this effort, knowledge and innovation contributions were made a key
evaluation criterion in individual performance evaluations, with employees being
asked to itemize and defend their contribution to the company’s knowledge base
through areas such as new product ideas, improved business processes,
customer service or general sales increases. A recognition program was
instituted which highlighted individual contributions to new product ideas. To
identify problem areas, the HR group created a web-based tool to conduct
dynamic attitude surveys. To encourage employees to take responsibility for their
own skill training and development, Skandia developed “competence insurance”
where Skandia and employees allocate a certain amount of their salaries to a
competence account which would give employees the financial means to take an
extended leave of absence with pay in order to pursue studies. Cooperation
projects and recruitment opportunities were also pursued with local universities
around the world, and a Skandia scholarship fund was created to encourage
higher education among Skandia employees. In part, because of its efforts to
create a strong human capital initiative that has as its focus the development of
people’s knowledge and competence, Fortune magazine named Skandia as one
of the best companies to work in 2000 and 2001. In 2002, Fortune singled out
Skandia, naming it one of the 10 Greatest Companies to Work for in Europe.
Phase 4 (1994-2001): The SkandiaBanken Experiment - Realizing I/T Value

through Structural Capital
At Skandia, structural capital is defined as the manifestation of people’s

knowledge and skills in systems, processes and customer relationships.
According to this definition all firms should have at least a minimal level of
structural capital. However, it is the extent to which a company can convert the
tacit knowledge of its employees, partners and customers into more effective
processes and customer relationships that determines whether a company is
higher or lower in structural capital.
We have seen in the previous three phases that over time specific business units
14
of Skandia have learned to leverage the knowledge of network relationships,
begin to measure and control intellectual capital, change cultural norms through
their “Thrust and Trust” initiative, and develop people knowledge creation
capabilities through the innovative, if not unusual, programs (e.g., Future Center).
Through the SkandiaBanken initiative, Skandia Group spins out a reconfiguration
of its past learning, establishing a start-up direct banking company that employed
learning from the previous phases. This section will discuss the success of
SkandiaBanken, the development of its structural capital and, in particular, the
paths taken to improve three vital information capabilities: Information
Technology Practices (ITP); Information Management Practices (IMP); and
Information Behaviors and Values (IBV) that underlie its business capabilities.
The Creation of SkandiaBanken
Fearing competition from bancassurance competitors, in 1994 Skandia Group’s

senior managers including CEO Wolrath and Deputy CEO Petersson (see Exhibit
7) decided that the time was right to create a banking arm to supplement its other
products and services. Swedish banks had successfully lobbied the government
for a long-term savings plan--Individual Pension Scheme--which had opened up
the market for new savings products. This new tax legislation lowered tax rates
on pension savings from approximately 80% to 50%.
Customer dissatisfaction with the institutional banking system also favored entry
into the banking market. In 1992, the Swedish banking system was on the brink
of ruin following credit losses of SKr 73 billion and operating losses of SKr 50
billion due to collapsing real estate values. The crisis was so severe that two of
Sweden’s four leading banks, Nordbanken and Gota Bank, were taken over by
the state. SKr 65 billion in bailout funds were used to support these two banks.
The state created two “bad bank” units, Securum and Retriva, to which bad loans
were funneled from Nordbanken and Gota Bank. In 1993, the two banks were
merged into Nordbanken, creating the largest bank in Sweden. Both taxpayers
and competing banks harshly criticized the bailout. Skandia senior managers
saw an excellent market opportunity to launch a new banking concept given the
public’s distrust of traditional bankers—one that would market itself as the
“truthful” bank—to differentiate its products and services.
Skandia’s senior management made two critical decisions with regard to the new
bank. First, they decided to put SkandiaBanken into a “pure laboratory” situation
away from the problems and pressures of the overall Skandia Group. It was
hoped that the past learnings concerning leveraging alliances and developing
intellectual capital would flourish within a “greenfield” approach. They decided to
spin off and transform a profitable finance company (car financing and home
mortgages) they had acquired into the new bank. Skandia would provide a “loan”
15
of SKr 1.5 billion to launch the bank, to be repaid within two years.1 As long as
the business was profitable, the new management team would have a carte
blanche to manage the business without Skandia Group’s interference.
Petersson stated, “This hands-off approach had been successful in the past and
had resulted in development of the AFS business and a capability to effectively
manage alliances” (see Phase 1).
Second, the new bank would be totally branchless--a concept unheard of in

Sweden at the time--relying solely on telephone channels and Internet
technology to create a direct banking model. Attempts to develop direct
branchless banking services in Sweden’s large institutional banks had met with
mixed success, often failing due to conflicts with customer ownership and
channel competition. Without these conflicts, Skandia felt that it could develop a
successful low-cost, innovative bank.
Managing a business model based completely on valuable information:
The success of SkandiaBanken’s business model would be based on the

company’s ability to closely manage and coordinate six separate business units
who would provide a variety of financial products to banking customers and auto
dealers—Skandia’s two main customer bases. SkandiaBanken would
differentiate itself by offering savings account interest rates 2-3% above market
rates (see Exhibit 8 for description of business).
To support higher-than-market interest rates, SkandiaBanken would not be able

to manage deposits on the short market. Instead, it needed to cover account
deposit rates by closely maintaining deposit and lending levels so that deposit
levels would not outstrip the company’s ability to offset the cost through lending
interest rates. Customers would also need to be encouraged to channel savings
deposits into revenue-creating areas such as multi-investment funds and equities
when they called the bank and spoke to a customer representative.
In addition, SkandiaBanken had to be able to minimize costs by creating the

most efficient operational structure as possible, and be able to leverage a small
employee base. Although first to market, SkandiaBanken would need to stay
ahead of institutional banks with deep pockets, which would quickly ramp up their
Internet businesses. To this end, SkandiaBanken’s people needed to be acutely
aware of customer needs and requests, and the organization needed to be
flexible enough to quickly change to meet those needs. The ability of the
company to quickly and accurately convert people’s sensed knowledge to usable
company information shared through the bank was key.
1 Within three months SkandiaBanken paid for the initial cash outlay of SKr 1.5 billion, 21 months ahead of
schedule.
16
SkandiaBanken’s Management Team: Leveraging the Lessons from
Previous Initiatives – Control and Information Orientations
To meet this business challenge, Skandia senior management chose two long-
term Skandia employees whose skill sets seemed to complement each other.
Skandia management’s choice for Managing Director was Goran Lenkel, who
had been managing Skandia’s highly profitable car financing and home mortgage
company around which the new bank would be built. Lenkel was known at
Skandia as an astute business manager, and his management philosophy
mimicked that of Skandia Group--using quantitative business measurement
indicators (see Phase 2) to carefully manage a business, teaching people how to
make informed decisions based on these measurement systems, and a
fundamental belief in pushing decision making as far down into the organization
as possible—a combination of entrepreneurial and control orientations that
mimicked Carendi’s “thrust and trust” management style.
CIO Kent Nilsson, the Structural Capitalist, and Information Orientation
To complement Lenkel’s business acumen, Skandia management teamed him

with a CIO--Kent Nilsson. Nilsson was a career Skandia employee who had
been in charge of developing the operational systems at DIAL—Skandia’s
telephone insurance company. Although a “non technical IT manager,” Nilsson
had been extremely successful at managing DIAL’s infrastructure from a
business, rather than a technical perspective. Nilsson’s management philosophy
focused on developing superior customer relationships through managing a
company’s process and systems development in a cost effective, targeted way.
Nilsson believed that the company’s structural capital—the ability to capture

human knowledge and standardize and distribute information and organizational
learning in a systematic and targeted way—was a key to maintaining cost
effective business operations, and to serving the customer in the most effective
and efficient way possible. Nilsson would later explain:
What I did at SkandiaBanken was to create a way of thinking about IT from the customer
viewpoint that would allow people to view the role of IT not as separate from the business
but as critical to customer satisfaction. I created a model that shows how customers
evaluate SkandiaBanken from the IT perspective (how reliable and easy are our
systems?), from the process perspective (how quickly and accurately can the company
perform?) and from the product and service perspectives (does the company offer me a
competitive product and does the company respond to my needs?).
As the CIO, Nilsson saw I/T playing a key role in the conversion process between
Human Capital and Structural Capital. He was also convinced that if every
employee could be sensitized to “listen” to the customer—“how he thought, what
he wanted, what he did not want, how he evaluated SkandiaBanken’s products
and services”—the company could develop the capability of quick response,
flexibility, and product leadership to sustain a competitive advantage. Similar to
17
the Skandia Group’s definition of structural capital, Nilsson called his popularized
model the “Mickey Mouse Model” (see Figure 6)
Figure 6: Structural Capital as “I use what people at SkandiaBanken

defined through the Customer now call the “Mickey Mouse” diagram,
which to me represents the customer
viewpoint, to get people to think more
holistically about our business. A
Products & Process customer does not just “see” the
Services products and services being offered to
him, but also evaluates us on the
processes, or routines, we set up to
deliver these products. The customer
might not evaluate us directly on the IT
IT
that we have, but it is a necessary part
of the entire model because it allows us
to create the customer experience. “
Viewpoint - Kent Nilsson CIO
Eventually all employees could describe the model and were talking and thinking
about structural capital without even knowing it.
Specifically, Nilsson believed their I/T capabilities had matured over time, and
that their people were very effective users of I/T to successfully support their
business model. The process of I/T improvement (we term IO Maturity1) had
helped improve the company’s Structural Capital (see Figure 7).
Figure 7: Information Orientation (IO) Maturity: Developing a way for human

capital to be manifested as structural capital in SkandiaBanken
Market Value
Financial Capital Intellectual Capital
The knowledge, The manifestation

skill and Human Capital IO Structural Capital of human capital
experience of Maturity into systems,
employees processes, and
customer
relationships
The process by which

human capital is
manifested in
structural capital
1 See: Marchand, D. A., Kettinger, W. J., and Rollins, J. D. “Information Orientation: People, Technology, and the Bottom
Line,” Sloan Management Review (41:4), 2000, pp. 69-80; Marchand, D. A., Kettinger, W. J., and Rollins, J. D Information
Orientation: The Link to Business Performance, Oxford UK: Oxford University Press, 2002;
Marchand, D. A., Kettinger, W. J., and Rollins, J. D Making the Invisible, Visible: How Companies Win with the Right
Information, People and IT. Chichester and New York: John Wiley Publishing, 2001.
18
He was not alone in this opinion, most managers both within SkandiaBanken and
Skandia Group agreed that they had improved I/T correctly by integrating its
application in a holistic and business focused approach, rather than a purely
technical approach. When these senior managers talk about the specific value
I/T offers SkandiaBanken, they did not talk about technical or infrastructure
capabilities, but rather about “….how well we know our customer, how well we
coordinate, how well we know what each other are doing, how well we work with
partners….” In essence, senior managers at SkandiaBanken reported
themselves as being good at embedding effective I/T use into its business
capabilities.
Working The Knowledge Conversion Zone
From 1994-2001, Nilsson and Lenkel set in place a Knowledge Conversion

process that would allow the knowledge, skill and experience of employees to be
manifested in structural capital. The consequence of these managerial actions is
a set of paths aimed at improving I/T capabilities in three areas related to
information and knowledge use:
• Information Technology Practices
• Information Management Practices
• Information Behaviors and Values
The ability to improve each of these three information capabilities to a point

where each is considered “good” or “excellent” by managers in a company we
refer to as “maturity”. The remainder of this section outlines how the “Information
Oriented” senior executives at SkandiaBanken, developed these three
capabilities in terms of paths, roles and actions.
Improvement Path 1: Developing IT Maturity – Information Architecturalism
A Mini Case Example: SkandiaBanken Car Dealer Portal
In 2001, SkandiaBanken launched an IT innovation --a Car Dealer Portal-- to

manage its relationship with car dealers. Unlike its retail-banking customer,
SkandiaBanken’s auto loan “customer” was not the end-customer purchasing the
car, but over 500 car dealers in Sweden, Norway and Denmark. SkandiaBanken
worked out exclusive finance packaging arrangements with Peugeot, Honda,
Mazda and Suzuki; local dealers were then required to work with SkandiaBanken
to provide negotiating, marketing, finance and sales agreements. Skandia
insurance products were also part of the financing package.
19
The purpose of the portal was to:
• Standardize the products and services offered to dealerships by the unit’s sales people.
• Reduce the bank’s servicing cost by switching dealership reliance on telephone service to
self-service.
• Improve the bank’s ability to make informed decisions about an end-customer’s credit
worthiness and credit risk.
• Improve the bank’s relationship with dealers by providing them with value-adding information,
tools and services that would make the dealer’s jobs easier, and more effective.
• Provide information that would help dealers perform their jobs better.
Each dealer’s website was personalized for the dealer (e.g., “Mazda Car
Financing”) and included:
• The 4-second online credit application: In 2001, SkandiaBanken provided dealers with an
on-line credit application for customers buying the vehicle, and an answer within four
seconds; the site also allowed dealers to print out or send the application directly by fax for
signature of persons applying for the loan. Roger Alm, manager of Car Financing, explains,
dealers want to close the deal as fast as they can. They do not want the customer going
home to question his decision to buy or lease a car. They want an immediate response from
us about the loan application so they can sign the papers before the customer leaves the
dealer.”
• Online Skandia insurance application: link to Skandia car insurance products and online
application and approval.
• Tax calculator: allowed dealers to provide customers with tax calculations immediately.
• News: general and dealer-specific information.
• Sales statistics: personalized sales statistics for each car dealer (e.g., six months sales
report). SkandiaBanken also provided each dealer with customer reports for follow-up
business. Alms states, “We provide our dealers with sales tips. For example, if we know that
someone has only six months left on a car loan that was purchased three years before, we
can provide the dealer with information on the customer and the car. The dealer then calls
the customer, tells him that he has a huge demand for that type of used car, and asks if the
customer would like to come in and see any of his new models? We are trying to provide
tools that make the dealer’s life a little easier.
• Interest report: daily lending interest rate information.
• E-Learning: designed to provide dealers with a training site for new employees on financing
and auto sales.
• Auto auction: provides dealers with the opportunity to bid on SkandiaBanken cars for sale
from defaulted loans. Eventually, the site would allow dealers to buy and sell vehicles from
each other.
• Car registration: online registration of cars with national transportation agency.
Included with the introduction to the portal was a major effort to “computerize” dealers
through a computer, technical and software support.
The Paths to IT Practices (ITP) Maturity

Conversations with SkandiaBanken staff suggest that they followed a maturity
path whereby they made improvements in using IT to support operations to
improve their IT for Business Process Support; improvements made to their IT for
Business Process Support were used to improve their IT for Innovation Support.
Finally, improvements to these three types of IT support enabled the company to
improve its IT for Management Support. See Figure 8.
20
First, excellence in IT for Operational Support would provide system stability
and functionality of the new Dealer Portal to allow credit check and application
systems to run smoothly and quickly 24/7. Without this competency,
SkandiaBanken would lose dealer confidence and they would not use the Portal.
Second, this competency would allow the car financing call center, originally
operated by a separate system and staff, to be integrated into a centrally-run call
center, eliminating the need for additional staff.
By 2000, SkandiaBanken had built a reputation for system quality with customers
and external groups. For example, Microsoft Europe studied SkandiaBanken’s
Internet site, developing a case for how to develop system reliability, which was
then used to revamp Microsoft’s European operations.
Excellence in IT for Business Process Support would provide SkandiaBanken

with a key competency for the Portal: the ability to seamlessly link internal
business processes with externally maintained customer databases and
database tools such as the Swedish National Credit Investigation Center
(individual credit ratings), Swedish National Car Market Valuation database, the
Swedish Central Car Registration database, Dunn & Bradstreet scoring models
and internally-maintained SkandiaBanken customer databases. This would
eliminate the need to go through a middleman, and eliminate the need to create
proprietary customer and credit databases. Before Internet technologies had
improved and TCP-IP standards were developed to provide this functionality,
SkandiaBanken was among the first in Europe to develop an application (the “IT
Switchboard”), which would give SkandiaBanken the technical ability to easily
interface with other industry IT infrastructures, systems and databases.
Excellence in IT for Innovation Support would allow SkandiaBanken to explore

and quickly implement innovative product and service offerings for customers.
For example, the Dealer Portal supported two innovative services. The first was
an application allowing detailed analysis of each dealer’s sales statistics and
sales suggestions based on customer information maintained by SkandiaBanken
through its car financing. The second was an auto auction system where dealers
could bid on cars from SkandiaBanken’s defaulted customers, or on each other’s
cars.
Finally, Excellence in IT for Management Support would provide systems and

applications to improve SkandiaBanken’s ability to make good business
decisions. In the Dealer Portal, for example, the 4-second credit risk analysis
and approval process was designed to improve SkandiaBanken’s risk analysis,
which in the past had been managed by a credit approval manager in
SkandiaBanken. The ability to implement this management tool was based on: a
stable operating platform; the ability to access information and tools from
databases outside of SkandiaBanken and integrate that information into a
standard set of decision rules for credit worthiness; providing the IS Function the
21
opportunity, time and resources to focus on IT for innovation and IT for
Management Support; and, the ability of car financing managers to define
decision rules based on knowledge and experience of the unit.
To make this improvement path occur at SkandiaBanken, senior managers took

on specific roles and made specific actions that pushed the company along these
paths. A summary of these roles and actions can be found in Table 1.
22
Figure 8: The Path to IT Maturity
IT for Management 4 second credit risk analysis and approval
process; improves risk management process.
Support
IT for Innovation Personalized auto dealer sales tips; auto auction.

Maturity
Support
IT for Business Direct, seamless link to national credit and

vehicle registration infrastructure and databases;
Process private databases (Dunn and Bradstreet).
Support
Reputation for systems quality (Microsoft Case).
IT for Operational Non-value adding systems outsourced (little staff

time devoted to maintaining operational systems).
Support
Integration of dealer call center into central call
center.
1
23
Table 1: Information Technology Practices Roles and Actions at SkandiaBanken
Key Players: Responsibility Roles Actions
CIO (Acting as IT Operational Support Linguist Defined a common IT language that could be understood by both general managers
Deputy CEO) IT Process Support and IS Function managers.
IT Innovation Support
IT Management Support Created an IT Liaison/Translator position (staffed with non-technical person who
understands IT) in each business unit to ensure accurate communication and avoid
miscommunication between managers and IS Function.
Business Leader Represented SkandiaBanken rather than IT Department in all IT-related decision
making.
Missionary Articulated and defined holistic model of the business conceptual model of role of IT
within the entire business. Responsible for bringing more holistic viewpoint of business
goals and customer needs to decision making process and teaching people how to “lift”
their viewpoint past IT to customer and business needs.
Team Broker, Builder, Responsible for making sure the right people from each department were involved in IT
Facilitator design and decision making, building team understanding of issues, facilitate group
decision making.
Process Policeman Defined rules for IS Development:
and Educator • Simplicity and practicality over complexity
• Lowest cost option—What is the customer willing to pay for?
• Outsource operational support in all cases possible
• Keep IS staff small
• No new system implementation unless requested by customer
Developed and standardized IT planning and decision making process (including info
content, functionality and systems design) to guide all decisions.
Customer Advocate Represented customer viewpoint in decision making:
What is the customer need?
Does the system fit the customer need?
Does the customer want to pay for the system?
Advisor/Critic Responsible for providing critical advice concerning system simplicity, usability, cost.
24
Improvement Path 2: Developing Information Practice (IMP) Management
Maturity – Information Managerialism
A Mini Case Example: SkandiaBanken “Alt I Ett” Account
SkandiaBanken customers were offered an “All-in-One” (Allt I Ett) account where

all banking services offered by the bank (savings account, CDs, Visa card,
mortgage and auto loans, mutual funds, stock trading and insurance products)
could be accessed and managed through a web interface (see Figure 9).
SkandiaBanken products and services, the Allt I Ett account, added several other
services: bill payments, salary direct deposit, and for the first time in Sweden’s
history, direct money transfer between SkandiaBanken accounts and accounts in
other banks. Customer accounts could be accessed through the internet, WAP,
Digital TV, or telephone channels using one pin code.
Savings account
Certificate of
deposit
Home mortgage
Auto loan
Fund account
Stock account
Retirement plan
Skandia Insurance
products
Figure 9: ‘Alt I Ett’: Example of web-based customer accessed accounts
SkandiaBanken offered the most competitive interest rates in the market,

averaging 2% to 3% more than competitors’ rates. SkandiaBanken’s manager
believed in being truthful and transparent with its customers during all contacts.
25
To this end, account interest was capitalized every month, uniformly regardless
of the customer’s account levels--in contrast to traditional banking accounts that
calculated annual interest based on average and minimum totals. Lenkel noted:
“This was different from competitor account products. We were not interested in
setting up a complicated tracking system to determine minimum monthly
balances to confuse our customers. We were interested in offering a simple
product at a competitive, fair price that would seem reasonable to our customers.
Customers were charged no account fees (including ATM withdrawals, money
transfers, bill payments, line of credit), no service fees (including VISA card), and
no minimum deposit, making SkandiaBanken the most competitive and most
comprehensive, personal banking service in the market. The product was aimed
at a very specific customer base: those people wanting a comprehensive,
essentially self-service, straightforward financial management tool with a
comprehensive product suite.”
While the bank did not offer personal financial advice, it did provide customers
with many financial management tools and information through its web site. For
example, loans, funds, and pension account information from sources outside
SkandiaBanken could be added and tracked for easy access on the Allt I Ett
account; a risk analysis tool allowed customers to evaluate their own portfolio
risk, as well as risk in the market; lines of credit could be applied for and granted
automatically on-line; and personalized statistics of each customers’ financial
portfolio were provided to help customers make better informed financial
decisions.
SkandiaBanken’s web site was geared to provide customers with the best
information available to help them make informed decisions. Quality over quantity
and simplicity over complexity were the two mantras that helped guide
information provided to customers. In the stock trading site, customers could
read the latest analyst company and industry reports, often written by
SkandiaBanken to ensure information quality.
When offering funds, SkandiaBanken chose the top performing funds

(approximately 90 SkandiaBanken funds and external funds) to offer to
customers, rather than offering all funds available in the market. SkandiaBanken
was the only private bank in the Nordic region that fully allowed its customers to
choose from among competing products. Simplifying a potentially complex fund
product was the goal of the fund purchasing. The site offered on-line advising
services and interactive analysis tools such as portfolio analyzer, time vs. risk
analyzer, and the “living yield curve” (interest rate comparison and analysis) to
help customers make informed investment choices.
At SkandiaBanken’s mortgage loan site, customers could access information

about home mortgages in its “loan school” and apply on-line for a mortgage,
automatically receiving an answer in 15 seconds—a banking industry first.
26
The Paths to Information Management Practices Maturity

path whereby they made improvements in collecting information to improve
organizing information. Improving the way information was organized improved
the company’s ability to maintain information; improvements to information
maintenance improved the ability of company managers to process information
and make better decisions. Finally improvements to all of these information
management practices allowed company managers to sense information better
with customers and see changes in the external market. See Figure 10.
Collecting, Organizing, and Maintaining Information
Information and web-site content was bounded by a set of information rules to

guide its development:
• The Simplicity Rule: All information provided to customers must be easy to understand
and communicated in the simplest and most straightforward way possible. It must be
carefully and deliberately chosen so as not to overload the customer. “The key to our
business is not to provide all the information, but the relevant information.”
• The Customer Needs Rule: All information provided on the company web site must
address or answer a customer self-service or decision making need. As a result,
SkandiaBanken would filter all information provided to the customer. Each business unit
was responsible for developing its own content to meet specific customer needs of that
specific product or service.
• The Organizing Rule: All information should be organized in a simple, straightforward

format including easy access.
• The Litmus Test Rule: Call center representatives would work off the same web-
interface as customers. “If our customer representatives cannot easily explain our
services and find the information they need, there is no way the customers are going to
be able to do so on their own.”
• The Replacement Rule: To add new information to the web site, something would need
to be removed.
To manage development of information for new products and services,

Nilsson developed a structured, step-by-step process to guide development
efforts that dealt with collecting, organizing and maintaining information:
1. Identify a cross-function team including business managers, IT developers and product

managers.
2. Identify customer decision needs: What information does the customer need to have or
what is the decision the customer needs to make?
3. Review the Business Case: Why do we want to add this information service? Is it based
on just a “feeling” or are there facts and a business case? What are the business
decision needs?
27
4. Outline the information process:
Where does the information come from?
What are we going to do with the information?
Who needs to have access to this information--within the business unit and across the
entire company?
Who is going to maintain the information?
What information do other departments add to the process?
What format will provide the most convenient access and use?
5. Simplify the process--eliminate as many sub-processes and instructions as possible to
satisfy the largest number of customers.
6. Determine appropriate technology application (if necessary).
Maintenance of information for appropriateness and completeness was not only

done through customer and customer representative testing, but through regular
analysis of web-site use using click through analysis. Information not used by
customers was immediately dropped from the web site.
Processing Information
Once an information management process had been put in place,

SkandiaBanken turned its attention to improving the way its people made
decisions. First, employees were taught how to develop performance indicators
and use information available to them either through the company’s databases or
externally to make decisions based on information, not gut feel.
A well-managed customer database also allowed SkandiaBanken to know its

customers from a transaction and data point of view. Lenkel observed: “We know
from being able to link with the national database that holds salary information
that we have attracted the top 10% to 15% of preferred banking customers in the
country. From this information and from customer profiles, we are able to offer
“preferred” customers some service advantages that make their customer
experience the best it could be. For example, a telephone call from a preferred
customer will bump his or her call ahead of the waiting queue to a customer
representative without his or her knowing the reason.”
Second, as the organization grew and institutionalized the information

management process, SkandiaBanken looked for opportunities to automate
business decision processes. Similar to the car loan processing system,
SkandiaBanken developed a 15 second home mortgage application review
process through the web, improving their review process and lowering the
company’s credit risk. In another application, Internet pop-ups were used for
cross-selling suggestions based on customer segment and product analysis.
Sensing
The most challenging aspect of developing mature Information Management

Practices, however, was developing an organizational competency to sense
changes in customer preferences, market shifts and economic conditions.
28
Lenkel commented: “Our ultimate goal is to succeed in listening to our
customers, and to change based on what they tell us that they want. Customers
need change constantly. If we do not know what they are thinking, what they
expect from us, we will fail as a company.”
To facilitate customer sensitivity, a process was created to collect and distribute

customer complaints and problems collected through email correspondence and
telephone conversations in the call center. Complaints and suggestions were
grouped according to topic area and posted on the company’s intranet every
week. Regular customer surveys were conducted to help monitor changes in
customer needs and expectations as well. General managers were also
encouraged to help people in their units develop ways to create a 2-way dialog
with the customer to gain greater insights and knowledge about the customer.
Nilsson and Lenkel also strove to build customer sensitivity with employees by
focusing every team discussion around the customer—whether in product, IT, or
management meetings. Nilsson explained, “When you talk about the customer,
you can’t just think about your own area. You have to think about what other
people in your company are doing that affect the customer.”
In an unconventional move, the management team implemented a policy that no

new products or IT system could be introduced to customers until the customer
had requested the product or service. WAP service, for example, was not offered
to customers until they asked for it, even though IS had developed the system in
anticipation of the service. “What does this policy do?” commented Nilsson. “It
forces our employees to constantly listen to the customer, rather than telling the
customer what we think he wants or needs.”
Figure 10: The Paths to Information Management Practices Maturity
Customer Request Rule: No new product or service

introduced to the customer unless requested by the
Sensing customer (even IT projects under development); focus
company discussion around customer
Automated cross selling (internet pop ups) based on

Processing customer segmentation; 15 second mortgage
Maturity
application process
Replacement rule: Nothing added to the web site unless

Maintaining something is removed -- cut information overload; IT-
aided analysis of website content use
Keep it simple: call center reps use same user interface

Organizing as that used by customers; customer needs rule
Ear to customer: customer suggestions rigorously

Collecting recorded and acted on; targeted customer surveys;
simplicity rule
29
Better sensing practices were also encouraged by making sure SkandiaBanken’s
business model and customer definition was understood at all levels of the
organization, and how individual, functional and business unit goals fit together.
Lenkel explained, “The pattern for these goals together must be the company
goal. That’s the best way to encourage people to sense the right information.”

Table 2: Information Management Practices Roles and Actions at

SkandiaBanken
Senior -Information Business Leader Made sure business model was clearly
Manager— Sensing understood at all levels of company; defined
-Information
CEO business rules
Processing
Decision Making Taught general managers how to implement
Teacher fact-based decision making in their areas of
responsibility
Customer Developed customer sensitivity with

Representative employees to encourage better sensing
CIO (Acting -Information Information Defined information management practice

as Deputy Sensing Process Leader rules and institutionalized information
-Information
CEO) management planning, maintenance and
Collecting
-Information distribution processes for product
Organizing development, website content, and cross-
-Information functional business information needs
Maintaining
-Information
Processing Customer Developed customer sensitivity with
Representative employees to encourage better sensing
Team Leader Identified problem-solving teams, based on

knowledge and experience, not
organizational title
30
Improvement Path 3: Developing Information Behaviors and Values (IBV)
Maturity - Information Culturalism

path whereby, as they made improvements to information integrity (absence of
manipulation of information for personal gain that might render the information
inaccurate), people in the company relied more on formal information sources
since they were viewed as accurate and of good quality. Reliance on improving
formal, as opposed to, informal information sources of information allowed the
company to develop and “cascade” the use of transparent, quantitative
performance measures that tied individual goals to unit and company goals, thus
giving senior managers more “control” over their operations. Reliance on these
transparent control systems promoted information transparency, as most people
in the company “knew what everyone else was doing.” This phenomenon
seemed to improve trust within the company so that mistakes could be
addressed in a constructive way and used as learning points for the rest of the
company. By improving transparency in the company, people reported to be
more aware of the information needs of others in the company, thus improving
information sharing across the entire company. Finally, a bias for acting on
information and taking risk was supported by the creation of a high trust, high
information sharing culture. See Figure 11.
“When we began SkandiaBanken, we didn’t want to create a typical bank with

many standards and rules that stopped people from thinking,” explained Nilsson.
“We were not interested in organizational structure and we created a flat,
unstructured culture supported by good business process. We specifically
wanted people to think laterally, not vertically, and to think creatively, not
conventionally. When you talk about organization, people tend to get complacent
and think that things can’t be done in a different way. We wanted to maintain an
atmosphere of creativity and action.” Adopting the philosophy of the Skandia
Group, Lenkel and Nilsson set out to develop a “Thrust and Trust” management
culture at SkandiaBanken based on the ideas of accountability, responsibility and
a bias towards action. Motivating employees to take responsibility and act on
information was critical to maintaining SkandiaBanken’s lean operations. It was
also important to weed out employees who could not take responsibility.
Pushing decision-making to the lowest levels of the organization was one mantra
practiced by both Lenkel and Nilsson to inculcate proactiveness in the company.
When employees approached either senior manager asking about how to deal or
solve a problem, Lenkel or Nilsson would always begin the conversation with
“What would you like to do?” “SkandiaBanken’s working culture encourages
employees to contribute their experience and knowledge to constantly improve
the company’s structural capital through its process, systems and customer
relationships,” said Lenkel. In a role uncharacteristic of traditional CIOs, Nilsson
took on the task of developing many of the “soft” human and behavioral elements
of SkandiaBanken’s working culture such as making people talk to each other,
31
being open, breaking down the walls between people. These soft issues
included behaviors and values directly related to how information would be used
by employees in the company: information integrity, information formality,
information control, information transparency, and information sharing.
Information Integrity: Supporting the High Trust Culture
Behaving truthfully with information was the first organizational value on which
Lenkel and Nilsson built SkandiaBanken’s reputation in the market. Marketing
itself as “the truthful bank”, SkandiaBanken promised its customers to always
provide them with accurate, unbiased, and open information concerning account
fees, interest calculations and web-site content. This value also extended to
working behaviors within SkandiaBanken. Employees who distorted information
for political or personal gain were not tolerated, and immediately fired from the
organization. By reducing distortions in information through the information
systems, SkandiaBanken could ensure information quality and accuracy. If
information was perceived as accurate, people would be more likely to trust and
use that information.
Information Formality
In the beginning of SkandiaBanken’s creation, Lenkel and Nilsson had to solve

several critical problems—that of getting people to use the information
provided through formal company sources—i.e., on the company’s systems—
rather than rely on personal information or informal sources. Second, they had
to encourage people to use the systems to make their own experience and
knowledge explicit for others to use in the company. “We are a direct bank
with very few employees,” described Lenkel. “We needed to make sure that
people understand that it is critical that all information be made available for
everyone to use.”
To discourage information hoarding, Lenkel insisted that people get rid of

paper sitting on their desks and enter it into the system. Several years later,
Lenkel pushed this concept further by removing all bookcases from
management offices.
Information Control: Using Quantitative Indicators for Performance

Measurement
To control SkandiaBanken’s business operations, Lenkel used performance

indicators and business measures on every level of the organization—from
senior management, through business units and down to individuals—to guide
and influence working behaviors and synchronize business goals. These
indicators were made transparent for everyone in the organization to see so that
everyone would know what the rest of the company was doing. Individual and
business unit goals were also directly tied to company goals and general
managers were charged with making sure people in their units understood the
connection.
32
Once indicators were developed, the IS Function helped to track and report these
indicators on an on-going basis. In the call center, a computer-based monitoring
system tracked--in real time-- service levels, average call times, down times and
customer response rates for both individuals and teams. Call center employees
were encouraged to check the system regularly and to use it as a tool for setting
and attaining goals, rather than as a management watchdog system.
Information Transparency: Learning from Mistakes
Developing a transparent organization came under Nilsson’s responsibilities. He

explained, “Having an open attitude and transparency are critical for getting
people to take action and help others in the organization even if they don’t like
them personally. If you don’t have anything to hide, if you talk about issues
openly, this does not become a big deal. You need an open atmosphere where
people are not afraid to talk and get input from other employees. The more
people that are involved, the more people that take ownership of the problem.
And feel pride when it works.”
To create awareness of personal degrees of openness, Nilsson facilitated a

personal openness exercise based on 360-degree feedback of all senior and
general managers. Managers rated each other to determine if colleagues tended
to be more of an open person, or a closed person.
Nilsson also strove to create information transparency by developing an

organizational tolerance for making mistakes, and learning from these mistakes.
“We can’t be afraid to change the path if we see that we are going the wrong
way. This is such a common problem in many businesses. They spend so much
time and money on one way they feel that they have to continue going that way,
even if the customer disagrees. We want to encourage people not to be afraid of
making mistakes and to try to do things in different ways.”
Information Sharing: Willingness to Look Beyond Functional Lines
To encourage information sharing between people and units, break down

barriers for communication, Nilsson discouraged development of a formal
organizational hierarchy at SkandiaBanken to get people thinking past traditional
organizational lines and sharing information based on need, not title.
To facilitate knowledge sharing and dissemination, SkandiaBanken developed an

internal board system for every business unit. Members of different functions
and units were asked to sit on the boards of other units, which also included
Lenkel and Nilsson.
SkandiaBanken also believed in circulating people to different positions and units

in the company to build broader competencies with its people, and encourage
knowledge transfer between business units.
33
To stress the importance of prompt action and encourage “real time sharing” of
business information, Lenkel discouraged formal management meetings to
ensure that problems were dealt with immediately, rather than wait to be solved
during long, often unproductive, management meetings. Similarly, Lenkel also
instituted an open door policy, rather than an appointment-setting culture.
Anyone needing to speak with him was encouraged to stop by his office at any
time, and he encouraged this behavior with all members of the organization.
Information Proactiveness: “Thrust and Trust”
In addition to setting the expectation for action in the organization and pushing
decision making down into the organization, in 2000 Lenkel and Nilsson instituted
a self-monitoring policy for all employees, eliminating middle management
positions (e.g., team leaders in Call Center). By 2000, service levels were
among the highest in the online banking industry, with an average call pick-up of
nine seconds and e-mail response rates of five minutes. In addition Lenkel and
Nilsson instituted a business policy based on an employee’s “freedom to act.”
Employees automatically had management’s support for any action or decision
they would like to pursue. However, if the action failed, employees were
expected to learn from their mistake, and not repeat the mistake. Employees
who continued to repeat mistakes would eventually be fired from the company.
This freedom to act philosophy was based on the belief that employees would be
more proactive if they felt that they were in control of their own working
environments.
34
Figure11: Information Behaviors and Values
Maturity Path
Thrust and Trust: We are “expected to act”; dynamic working plans --
Proactiveness group established, self regulated; peer education; one of highest
customer service levels in banking industry.
Sharing Few formal management meetings --people obligated to share problems

with managers in real time; no formal org. hierarchy; Internal board
system.
Maturity
“Senior management trusts us and lets us make mistakes”. Open

Transparency discussions of mistakes and solutions codified; IT: “Success depends
on a carefully planned series of small mistakes to avoid making large,
unplanned ones.”
Everyone knows what everyone else is doing - Performance info
Control transparent at all levels; “people know their targets for revenues and
costs;” incentives tied to transparent reporting.
No paper on desks; removal of bookshelves to encourage people to put

Formality info into the system; “all the information I need to run my business I
can find easily in the system”
Truthfulness: practiced top-down (e.g. transparent service fee schedule,

account interest capitalized every month, CEO’s controversial letter
Integrity asking customers to increase average withdrawal amounts).

35
Table 3: Information Behaviors and Values Roles and Actions at SkandiaBanken
Senior Manager— Information Integrity Thrust and Trust Role Took personal responsibility for driving and instituting the thrust and trust
CEO Information Formality Model model with managers in the company.
Information Control
Information Coach Viewed himself as a coach for people in the organization—he was there
Proactiveness to develop personal skills of the people he worked for.
Senior Manager— Information Integrity Senior Manager Responsible for improving information behaviors across entire company,
CIO (Acting as Information Transparency not just in direct area of responsibility (IT). Approached management of
Information Sharing
Deputy CEO) IS function from perspective of a senior manager, driving the same
behavioural model into that organization.
Organizational Took on responsibility for developing many of the “soft” areas related to
Behavioralist building an “information culture,” including behavioural modification
techniques, personal awareness building, team dynamics, thinking about
the role of structure in fostering appropriate working behaviors.
36
Phase 5 (2001-2002): Recognition of I/T Value Through the Structural
Capital Created: Merging SkandiaBanken Back into Skandia
Despite Skandia’s general success in developing its intellectual capital programs,

by 2001 the crash of the world’s financial markets had begun to hit Skandia’s
sales, which had peaked in 2000 with a record US$23 billion (SEK 206,867
million). In 2001, with a portfolio of global savings products dependent on a
strong economy, sales had plummeted 33%, and the Group recorded a loss.
(See Exhibit 9).
However, one of Skandia’s smaller companies—SkandiaBanken—had continued
to maintain a profit despite the market conditions. This pure-play Internet bank
created in 1994 had been profitable from its inception and while most pure
Internet banks around the world had failed, SkandiaBanken continued to grow
and expand its business in the Nordic region. For 3 years in a row, Sweden’s top
personal finance magazine had named SkandiaBanken Best Bank in its annual
customer survey, beating all the institutional banks in the country.
Yet even given SkandiaBanken success, Petersson and others senior executives
saw problems in SkandiaBanken’s original business model. They were
particularly concerned that SkandiaBanken was limited in terms of its growth
potential and that it possessed more intrinsic value in terms of reconfigured
structural capital capabilities that might be diffused into the parent corporation to
rejuvenate languishing business units and, particularly, inspire operational
change in the way Skandia Group managed customer relationships. The general
feeling among the Skandia Group’s senior managers was that “SkandiaBanken
had built viable structural capital and business capabilities but not a sustainable
business” at a scale of operation appropriate for a company the size of Skandia.
In May 2001, Skandia Group’s CEO Petersson announced the merger of
SkandiaBanken with Skandia Marketing--Skandia’s direct sales organization
offering savings and insurance products in the Nordic market. Similar to
SkandiaBanken, the Marketing group consisted of Skandia in-house sales agents
and branches that sold Skandia products directly to retail customers, rather than
through the independent brokers and agents of the AFS network model.
The business strategy behind the merger was to develop SkandiaBanken from a
“niche” bank to a “one-stop shopping bank.” Overnight, the new SkandiaBanken
grew to 1,121,000 customers, doubling the number of employees to 1,020, and
adding 109 regional offices to SkandiaBanken’s 3 international offices in
Sweden, Denmark and Norway. The regional offices would be turned into
Advisory branches for the bank, and personal advisory services and products
would be offered from each branch (See Table 4). Additionally, SkandiaBanken
would now become Skandia’s primary distribution channel for all Skandia retail
products and services in the Nordic region. The goal of the new organization was
to grow to two million Nordic customers by 2006.
37
From a business perspective, the strategy served an immediate need to grow
SkandiaBanken’s customer base more quickly, and allow the groups to cross-sell
more effectively. From Petersson’s perspective, however, the merger
represented a much larger goal—to develop a premier direct sales organization
for distribution of Skandia products and services to supplement the alliance
structure built for product distribution through indirect agents.
"This is a natural step for Skandia," commented Petersson, President and CEO
of Skandia Group. "We have built up unique experience and a depth of
knowledge in the global savings market over a long period of time. We are now
mustering our strengths by integrating our businesses to form the premier private
bank in the Nordic region. The new private bank will meet the customers'
expectations for qualified financial advisory services and an open menu of the
market's best savings products…SkandiaBanken is seen in the marketplace as
an industry innovator and we need to continue to portray this image in the market
with the new organization.”
Table 4
SkandiaBanken SkandiaBanken
Issue
(Internet bank only) (with Advisory Branches)
Increasing Customer base limited to Expanded customer base
customer base customers wanting only (retail bank) by expanded
(growth) internet services (niche customer segment preferring
bank;1/2 million customers branch and advisory
/market) services
Growth limited to geographic New operations can be

expansion (expensive-- profitable more quickly with
requires large up-front expanded definition of
capital backing; time to customer, products and
recreate or transform services
international operations)
Increasing Products restricted to Advisory branches can offer

Product/Service relatively simple, easy to wider selection of complex
Offerings understand product offering savings products based on
richer customer sensing in
face-to-face meetings.
Internet banking continues to
offer excellent backend and
account management.
Organizationally, the new bank was broken into two parts: the Internet Bank,
which remained under the management of Goran Lenkel, and an Advisory Bank,
under the direct management of Per Wahlstrom. Kent Nilsson was promoted to
38
head up the IT department for the entire structure, and an outsider, Peter
Carrick—former CEO of Lernia and long-time employee of SkandiaBanken rival
Sparbanken—was named President of the new SkandiaBanken.
At the time, the Advisory Bank consisted of over 100 physical branches operating
independently, with few common IT infrastructure or systems, few standardized
business processes, and no common information or knowledge strategy to
provide agents with the best information to service the customer. The
organization also lacked the ability to use focused business information and
systems to guide development of a stable, profitable business strategy. The new
merged organization would free up “the original SkandiaBanken team,” as
Petersson referred to Nilsson and Lenkel, to focus their effort on improving the
Advisory Bank branches’ structural capital — processes, systems, and customer
relationships— through their experience with building IO maturity through IT,
information management and information behavioral processes.
Petersson viewed the capabilities that SkandiaBanken had developed since

1994-- the ability to create efficient processes, develop superior customer
relationships, and use IT in a focused, innovative way—as the means to
transform the way Skandia Group operated and created value in the future.
However, the merged organization would have an enormous task ahead of them
to resolve many issues before they could realize the new vision (See Exhibit 11).
Fundamental Takeaways from Skandia Case
1. Corporations can be thought of as knowledge based enterprises, directing

derived value of their knowledge at ever changing business conditions.
Skandia demonstrates this concept and offers a new language to talk
about value (e.g., business capabilities, structural capital, information
capabilities, human capital, etc.).
2. Senior Executives assess value through business capabilities delivered by

the firm’s structural capital (processes and stakeholder relationships); see
Figure 12.
3. Value originates in people’s knowledge (tacit) that must be converted into

useful structural capital in a knowledge conversion activity or zone
dependent of good information capabilities.
4. Senior Executives’ perceptions of “value” are market situational and time

dependent. As business conditions change, the relative value of
underlying capital/resources changes and requires reconfiguration to
maximize business value.
39
5. Companies that build the best (controlled and flexible) structural capital
sustain their competitive advantage over the long-term by successfully
evolving into newly configured forms to meet ever changing business
conditions.
6. Senior Executives possess specific orientations (entrepreneurial oriented,

control oriented, people oriented, and information oriented) that influence
their perceptions of value and the corresponding actions they undertake.
7. Senior Executives do not directly perceive significant I/T value in and of

itself, but rather recognize it as embedded in structural capital enabling
business capabilities that address important competitive needs.
8. Information Orientation (IO) Maturity is a path to information capability

improvement that facilitates knowledge conversion into business
processes and stakeholder relationships (structural capital) by taking a
more comprehensive approach that includes information architectural-ism
(ITP), information managerial-ism (IMP) and Information cultural–ism
(IBV).
9. Approaching I/T value with the more holistic business capabilities and
information-oriented perspectives offers I/T greater validity both with
senior managers and general managers (see Figure 13).
10. If CIOs demonstrate the leadership, they will be accepted as a core

Business Leader, Structural Capitalist and Cultural Strategist (see Figure
14).
40
Major Finding: Senior Executives See Valuable I/T as
Embedded in Valuable Business Capabilities and Structural
Capital
Direction of Value Creation
When Business
Capabilities are
meeting our current
and future
competitive needs, My
then I view the knowledge
“Capitals” we have & skills
formulated as
Valuable. It not, we
need to take action
IO Maturity
Customer
Relations
Senior My
knowledge
Executive & skills
Business
Processes
Capability
My
knowledge
Direction and Filters of Value Assessment & skills
53
Business Structural Information
Capability Capital Capabilities Human Capital
Figure 12
41
What companies can do to create I/T value from perspective of
the senior executive
My
IO Maturity
Customer knowledge
Relations & skills
Business
Capability Processes
Senior Human Capital

Executive Business Structural I/T
Capability Capital Paths Start a Human
Capital Initiative:
Start an IO Maturity
Take the Business Develop measurement Innovation programs
Improvement
Capability View: scheme to support control
Initiative: Improve Recruitment
orientation
processes
Look at the role of Measure IO in your
Assess knowledge
I/T in relation to the company Improve skill and
leveragability intra- and
business capability experience training
inter-organizational Develop program to
being developed and
push maturity Create Human Capital
make sure I/T is Develop program aimed at
through IO Consultants
addressing needs “Thrust and Trust”
improvement paths
Popularize Structural Capital
Become a BC Leader
concept into a cultural norm Lead IO effort
and support
entrepreneurial
Push for standards maintain
orientation
flexibility
Roles: Roles: Roles: Roles:
CEO driven CIO driven CIO driven CEO driven
57
CIO collaboration/ CEO collaboration/ CEO collaboration/ HR leadership
support support support
Figure 13
42
Study Finding: Senior Executives Look for structural capitalist to
lead the conversion process from knowledge to effective, flexible and
controlled processes. Sometime CIO takes lead and sometime others.
Direction of Value Creation Who is leading

our effort ?
My
Customers knowledge How is the effort
IO Maturity Paths
& skills be conducted?
Are we getting
better?
Partners
My
Stakeholder Senior
knowledge
Relationships Executive
& skills
•ITP
•IMP
•IBV
Employees Processes
My
knowledge
& skills Direction and Filters of Value Assessment
86
Human Capital Information Structural Business

© Kettinger and Marchand 2004 Capabilities Capital Capabilities Figure 14
43
Exhibit 1: Skandia’s Competitive Market Space and Value Change
“Skandia's business concept is based on cooperating in networks with fund groups and
distributors for the delivery of innovative, world-class financial services," says Lars-Eric
Petersson, President and CEO of Skandia. "We are now focusing on the links in the value chain
that fit in with Skandia's long-term strategy: product development, selection of funds and fund
companies, marketing, and sales support for our distributors." Skandia continues to leverage the
capabilities developed through SkandiaBanken.
Independent Fund Management

Fund management is offered via independent fund companies. Skandia cooperates with some of
the world’s foremost fund groups, with strong, global brands, but also with managers with strong
positions in local markets.
Fund selection: Today Skandia is the world’s largest provider of externally managed funds. This
“managing the manager” concept, entailing the procurement and monitoring of asset
management, is one of Skandia’s core competencies. Skandia identifies interesting categories
and types of funds that complement each other, selects the best management companies, and
continuously evaluates the performance of funds and fund managers. This evaluation process is
based on the following points of analysis: investment philosophy, people, process, performance
and potential. Through this process Skandia creates value-added for its customers and
distributors.
Product Packaging: Product packaging entails putting products together with the help of
information technology and financial solutions. Product packaging is based on a conceptual
product platform that can be composed to form various models that are adapted to local markets.
This entails the use of a common platform consisting of an IT solution, back-office systems,
human resources, and so on. This platform is then adapted to the conditions in the local markets
with respect to laws, tax rules and general market terms.
Marketing & Market Support: Skandia’s market support unit serves as a hub, which provides a
high technical level of service and support to distributors with the help of dynamic sales support
systems. Market support entails everything from personal visits, seminars and training days, to
providing tools for portfolio and fund analysis. It also entails putting demands on distributors to
live up to Skandia’s high quality standards. Marketing of Skandia’s products to distributors is
handled by people in the company’s own sales support organization. In the USA they are known
as wholesalers, and there are similar functions in other countries.
Distribution: Distribution to customers takes place primarily via Independent Financial Advisers,
brokers and banks, except for in the Nordic market, where SkandiaBanken also handles
distribution. The form of distribution varies strongly from market to market, depending on local
conditions such as legislation and infrastructure. By offering ever-stronger market support,
Skandia increases its opportunities to forge relationships with its customers.
44
Exhibit 2: External Recognition of Skandia’s
Knowledge Management Efforts
Date: Event:
August 1992 First intellectual capital meeting with people outside Skandia, including Tom
Stewart from Fortune and international business people, (Stockholm, Sweden).
Winter 1993 CIO Magazine: "IQ Measurement Approach", (IDG, USA).
Spring 1993 Featured at IDG & CIO Conference on Information Technology and Knowledge.
December 1993 Ernst & Young Symposium, "Exploring New Values and Measurements for the
Knowledge Era", presentation, (Washington, D.C.)
January 1994 Fortune article: "Measuring Company I.Q.", (Time Inc, USA).
October 1994 Fortune cover story: "Your Company's Most Valuable Asset: Intellectual Capital",
(Time Inc, USA).
Fall 1994 Ernst & Young Symposium: Knowledge Advantage, (Boston, Massachusetts).
February 1995 Human Resources Banking and Insurance article: "From I.Q. to ECU", (Lafferty,
Dublin).
February 1995 Stockholm Stock Exchange, Assessing Knowledge Companies.
April 1995 Visualizing Intellectual Capital in Skandia, Supplement to Skandia Group's 1994
Annual Report.
August 1995 Renewal & Development and Intellectual Capital, Supplement to Skandia
Group's 1995 Interim Report.
September 1995 Featured at Knowledge Imperative Symposium, American Productivity Center,
Arthur Andersen & Co., (Houston, Texas).
June 1999 Named in 1999 as one of the world’s leading knowledge management
companies by the KNOW network.
June 2000 Named in 2000 as one of the world’s leading knowledge management
companies by the KNOW network. Recognized for success in establishing a
knowledge culture and maximizing value form the enterprise intellectual capital.
May 2001 Named to the Balanced Score Card Hall of Fame by the BSC Collaborative for
early institution its own version of the balanced score card.
June 2001 Named one of the world’s 10 Most Admired Knowledge Enterprises (MAKE) in
the 2001 MAKE Study. Ranked number 8 after GE, HP, Buchman Labs,
Microsoft, Siemens and followed by BP, McKinsey and Cisco.
January 2001 Fortune Magazine named Skandia one of the best companies to work for in
and 2002 Europe. http://www.ontv.se/clients/skandia/fortune/open_eng.html
January 2002 Named one of the 10 Great Companies of Europe by Fortune.
45
Exhibit 3: SkandiaBanken’s IO Dashboard
SkandiaBanken, Skandia’s banking operations,

Excellence
in IT scored high on Information Orientation (IO) in
previous study providing a venue to study how a
company improves perceptions of I/T value.
Excellence in
Information
Management
Excellence in
Information
Behaviors and
Values
(People)
Study Benchmark:
Top
169 senior 50%
management teams
Bottom
from 109 global
50%
companies
46
Exhibit 4: Senior Executive Players Concerning Skandia AFS – 1991-1996
Björn Wolrath
CEO, Skandia Group
Lars Eric Petersson

Deputy CEO, Skandia Group
Jan Carendi
CEO, Skandia AFS
Leif Edvinsson
Director of Intellectual Capital,
Skandia AFS
47
Exhibit 5: 1993 Skandia AFS Report Supplement:
Balanced Annual Report on Intellectual Capital
Focus Area Indicators

Financial Focus Return on Net Asset Value
Result of Operations
Value Added per Employee2
Customer Focus Number of Accounts
Savings / Account
Surrender Ratio
Alliances Focus Number of Brokers (Producing)
Number of Fund Managers
Number of Funds
Premium/Broker (Producing)
Savings/Fund Manager
Human Focus Number of Employees
Gross Premium/Employee
Savings/Employee
Personnel Turnover
Number of Leaders/Managers
Share Female Leaders/Managers
Personnel Expenses/Employee
Personnel Expenses/Total Administrative Expenses
Training Investments/Employee
Process Focus Number of Accounts/Employee
Administrative Expenses/Gross Premium
Total Expenses/Gross Premium
Administrative Expenses/Savings (Average)
Total Expenses/Savings (Average)
IT Focus Computers/Employee
IT Investment/Expenses
IT Investment/Account
IT Employees/Total Employees
Innovation Focus Business Development Expenses/Total Expenses
Production from New Launches
2 Result of Operations, before business development expenses and personnel expenses, divided by number
of employees
48
Exhibit 6: Senior Executive Players Concerning Skandia Group’s Human
Capital Initiative: 1997-2001
Lars Eric Petersson

CEO, Skandia Group
Leif Edvinsson
Knowledge Leader, Skandia Future
Center
49
Exhibit 7: Senior Executive Players Concerning SkandiaBanken 1994-2001
Björn Wolrath
CEO, Skandia Group
Lars Eric Petersson

Deputy CEO, Skandia Group
Göran Lenkel Kent Nilsson

Managing Director CIO
DIAL, Skandia telephone-

Skandia Car
based direct
Financing Company
Insurance Company
50
Exhibit 8: SkandiaBanken Business Overview 1994-2001
A wholly owned unit of the Skandia Group, SkandiaBanken was Skandia’s Nordic
retail bank focused on savings and financial management products and services.
With 600,000 customers in the Nordic region (Sweden, Norway and Denmark),
the bank focused on the direct distribution of banking products and other Skandia
insurance and financial planning products. Products and services targeted
primarily the personal banking and lending markets (deposit and lending, stock
and mutual fund trading, savings deposit accounts, certificates of deposit, fund
trading, stock trading, car financing and home mortgages, and individual pension
savings accounts) with a few commercial products (liquidity accounts, certificates
of deposit, vehicle leasing); see Figure 15.
Figure 15: SkandiaBanken Products, 2001
Personal
Stock
Fund trading
trading
Vehicle
Home financing
Financing
Distribution of
Skandia
Certificates Savings
Insurance
of deposit deposits
solutions
Investment/credits Insurance
Certificates Liquidity
of deposit accounts Savings deposits: Featuring the “All-In-One”
account for individuals
Certificates of deposit: A type of savings with
Vehicle
fixed interest and varying maturities
leasing
Liquidity: A deposit account for commercial clients
(legal persons)
Vehicle and home financing: Lending to
individuals
Stock trading: Online stock trading service via
Commercial
custody account
Fund trading: Distribution and trading in funds via
custody account
Vehicle Leasing: Financing of vehicle fleets
Distribution of Skandia Insurance solutions:
Sales of Skandia’s insurance products
51
SkandiaBanken’s Organization
SkandiaBanken Sweden was organized into 5 business units:

• Banking Products
• Car Financing2
• Home Mortgages
• Mutual Funds
• Equity Trading
Five divisions provided support to the business units:

• Information Technology
• Customer Service (Call Center)
• Credit Operations
• Accounting
• Human Resources
In the beginning of 2001, 380 employees serviced SkandiaBanken’s 600,000 customers.

SkandiaBanken’s Internet site averaged 1.6 million hits/month; in-bound telephone calls averaged
70,000/month; and customer emails averaged 8-10,000/month.
SkandiaBanken was created in October 1994, and made Swedish banking industry history with
two “firsts”: as Sweden’s first direct branchless bank, and as the first successful entry of a “non-
bank” into the highly monopolistic Swedish banking market. Relying solely on Internet and
telephone channels, the Internet bank’s customer base grew an average of 26% per year3
between 1995 and 2000 to become Sweden’s fifth largest bank in personal banking and its fourth
largest bank in terms of Internet customers.4 During the same period, deposits had a five-year
annual average growth rate of 30%, with lending rates at five-year annual average growth rate
of 37%.
In April 2000, SkandiaBanken began its first cross-border expansion into neighboring Norway,
copying the Swedish banking and operational models. In January 2001, the Internet bank
acquired Din Bank, a pure-play Internet and telephone bank with products and services similar to
those of SkandiaBanken. Din Bank, the leading niche bank in Denmark, had approximately
30,000 customers, deposits of DKr 1.7 billion,5 lending of DKr 0.6 billion and shareholders’ equity
of DKr 171 million.
2 By 1999, SkandiaBanken was one of Sweden’s top three auto financing institutions. The other two
included GE Capital and SEB.
3 40% of SkandiaBanken’s customer base was Skandia customers; the remaining 60% of customers came
from the general public.
4 The top three banks in numbers of Internet customers included Nordea (formerly MeritaNordbanken),
ForeningsSparbanken and Skandinaviska Enskida Banken.
5 1 Danish krone, DKr 1 = US$0.12 = €0.13 (December 2001)
52
SkandiaBanken Business Performance
In spite of competitors’ predictions of failure, SkandiaBanken had boasted seven

profitable years, with operating income at SKr 53 million for 2001 (approximately
US$5.3 million) becoming one of the few profitable Internet banks in Europe.
(SKr million) 2001 2000 1999 1998 1997 1996 1995

Interest income 1,679 1,065 857 787 654 619 501
Interest expense (1,115) (617) (504) (485) (395) (370) (283)
Commissions (net) 685 150 96 128 143 97 73
Net result of financial transactions 5 1 0 (1) (6) 20 2
Other operating income 64 49 12 12 2 7 58
Operating income total 1,318 648 461 441 398 373 351
Administrative overheads (1,163) (547) (357) (319) (255) (241) (226)

Other operating expenses (99) (33) (24) (34) (29) (42) (41)
Depreciation and (3) (18) (13) (9) (9) -- --

write-downs of tangible fixed assets
Total expenses (1,265) (598)6 (394)7 (362)8 (293) (283) (267)

Credit loss, net 0 13 (4) (3) (1) (4) 1
Operating income 53 63 63 75 104 86 85
Its success was also recognized externally, when Sweden’s leading personal
finance magazine, Privata Affärer, awarded SkandiaBanken’s Swedish
operations the Best Bank of the Year award for three years in a row (1998-2000),
and Best Account (2001).9 The Jury stated,
SkandiaBanken is better than other banks in every subcategory. Its Internet service is
simpler to use and easier to understand, its interest rates are better, its fees are lower, and
its offering of services is immense. For people who have the opportunity to use the Internet
as a tool for handling their banking business, SkandiaBanken is unbeatable.
Other awards included Internetworld magazine’s “Best Internet Bank” in Sweden,

Norway’s “Best Bank of the Year” by the Norwegian computer association, and
“Fund Manager of the Year” by the personal savings magazine Sparöversikt
(1996 to 1998). Findings of an annual independent audit found a 92% customer
satisfaction rate among SkandiaBanken’s customers.
6 Included investment in Norwegian operations.
7 Included investment in Norwegian operations.
8 Included fully expensed development costs of SKr 26 million for Internet equities trading service and a
customer investment marketplace.
9 Privata Affärer based its selection on interviews conducted with approximately 12,000 customers.
53
Exhibit 9: The Skandia Group 2001 Sales (in SEK millions)
Businesses
(includes
SkandiaBanken),
414
Direct savings,
7,561
Mutual Funds,
34,831
Life Assurance,
Unit linked
1,276
assurance,
93,502
Its largest geographic markets included the US (with 44% of 2001 sales), the UK
(with 28% of 2001 sales), and Sweden (with 11% of 2001 sales).
54
Exhibit 9 (cont): The Skandia Group 2001 Balance Sheet
55
56
Exhibit 10: Senior Executive Players at Merged SkandiaBanken 2001-2002
Lars Eric Petersson

CEO, Skandia Group
Peter Carrick
CEO, SkandiaBanken
Kent Nilsson
CIO, SkandiaBanken
Göran Lenkel Per Wahlstrom

Executive Vice President Executive Vice President
Internet Bank Advisory Bank
Note: In 2003, both Lars Eric Petersen and Peter Carrick left the company
and Goran Lenkel was promoted to CEO of the entire Skandiabanken
57
Exhibit 11: Challenges Facing Merged SkandiaBanken
Key Issues to Resolve in Merged SkandiaBanken
Channel conflict Skandia Agent fears disintermediation of position by

Internet channel
Incentive and control systems Internet bank operates incentive and reward
programs on group performance (SkandiaBanken
“owns” the customer; Advisory bank operates
incentive system based on individual company agent
(agent “owns” the customer). How are agents
compensated for their customers migrating to
Internet only advise or account management?
Complexity of product and appropriate sale channel How should products be segmented based on
appropriateness to channel (internet vs. in-person)?
Cross Selling Strategy How aggressively should products be cross-sold in

each channel? What cross-selling strategy best
benefits Skandia products on a broader level?
Customer Definition and Segmentation What customer base is the new SkandiaBanken
targeting? Are the branches’ customers different for
the Internet banks?
Relationship vs. standardized customer interaction What differences exist between interaction with
customers on-line/telephone vs. in person, and how
can these differences be standardized in structural
capital for new SkandiaBanken?
Scope of overall activity (“bigness”) What differences in terms organizational structure

and culture will exist between the small,
entrepreneurial, pre-merger SkandiaBanken
organization and the large, more in-personal
organization that must be resolved for new business
model?
Front office/back office integration What common systems and processes must be
developed to create efficient branch-based
operations?
Information Capability Transfer How can SkandiaBanken set up a process to

transfer information capabilities consistently to a
much larger organization? What additional
dimensions need to be included developing an
information capability in the new organization?
58
Appendix 2
DELL Inc.: Working an Informated

Opportunity Zone to I/T Value
Prepared by:
Authors with the Assistance of Bryce Giemza of the University

of South Carolina and Rebecca Chung of IMD.
Note: This case extends: IMD-3-1149 (Chung, R., Marchand, D. A. and Kettinger, W.J., 2003) “Dell’s Direct
Model: Everything to Do with Information.” Wherever possible multiple accounts of the same event were
solicited as well as secondary sources were used to increase validity.
DELL Inc.: Working an Informated Opportunity Zone to I/T Value
From the start, our entire business was oriented around listening to the customer…and delivering
what the customer wanted. Our direct relationship has enabled us to benefit from real-time input
from real customers…The concept behind the direct model has everything to do with
information…It’s free flow of information, no intermediaries, no boundaries, fast reaction times.
Michael Dell, Chairman of the Board, and CEO of Dell Computer
Does I/T drive value? Can companies still gain strategic advantage
by using IT?
Absolutely. Take Dell as an example. Last quarter we had three days of inventory. Our
inventories are turning well over 100 times per year, and we do use information
(emphasis added) a bit in that process…If you assumed IT was a commodity and all
companies were the same, then every company would have three days of inventory.
Well, they don’t. Some companies have three turns of inventory a year. All Companies
do not get the same results from their investments in IT. The world is still very much in
the early stages of people figuring out how to use IT.
Michael Dell, Chairman and CEO of Dell Computer, Fortune April 19, 2004
Introduction
This case describes how Information /Technology (I/T) value was achieved at
Dell Incorporated, an icon for efficiency, low cost leadership, speed, and
flexibility. It is a company famous for it’s I/T driven Direct Model, build-to-order
production, and entrepreneurial leadership. The case provides an understanding
of how value evolved at Dell over the last 20 years. The value creation
exploration which began as an entrepreneurial exploit out of Michael Dell’s
college dorm room in the early 1980s has grown to become what is today the
world’s largest PC maker (regaining #1 from HP as of Q1, 2004). In particular,
we focus on development of three management capabilities – Entrepreneurial
Orientation, Control Orientation, and Information Orientation (IO) - which push
Dell down the value continuum resulting in superior business performance.
The case opens by briefly outlining Dell’s history and business background. Next
we will discuss Dell’s direct model and build-to-order production. Later, the Value
Creation/Assessment model derived out of the Skandia case is re-visited and
further validated by mapping Dell‘s value creation evolution path to the model.
The crux of the Dell case study findings includes five phases (see Figure 1) that
describe the evolutionary path taken in creating a flexible and controlled
structural capital offering new business options.
1) Entrepreneurial Orientation and IO – we first explore Dell’s ability to recognize

and exploit market opportunities through agile responses to customers, partners
and suppliers. Michael Dell and Dell Computers – often synonymous – are
2
quintessential entrepreneurs who further honed their business options valuation
skills via a strong Information Orientation. In fact, we see working the
“Opportunity Zone” with Entrepreneurial Orientation and IO as Dell’s “Alpha
Zone”. It was from here that they further matured their information orientation,
control orientation and, finally, people orientation.
2) Then we identify how Dell further refines and extends its direct model via
Control Orientation and IO to create value. Dell virtually integrates all segments
of their value chain (Supplier↔ Dell ↔ Customers) via the Internet improving
control (cost & quality), supplier, partner, and customer agility. We focus on how
they re-engineered business processes to be more standardized and tightly
coupled, striking the balance between control and flexibility.
3) We next describe People Orientation at Dell – how they tried to create an info-
centric culture during the early years of honing the business model until today’s
senior management issues, solutions, and “Managing the Dell Way.”
4) Current successes and hopes for the future define the Working Machine
section.
5) Finally, we will discuss case findings, lessons learned, and leave you with a
new way to think about value creation – a new framework derived from Dell: The
Knowledge -Based Value Model.
Figure 1: Dell Case Timeline early 1980s - Today
3
Purpose: Why did we Study Dell?
1. Dell is a company famous for its Direct Model and build-to-order

production – selling customized computers directly to the customer – and
has shaken the entire PC industry with its unconventional, innovative, and
highly efficient information driven direct distribution capabilities.
2. Dell’s Direct Model evolution was driven by I/T. By studying Dell we were
able to observe knowledge and I/T value creation instances.
3. Dell’s ability to move into new high volume I/T distribution businesses are
quintessential examples of flexible reconfiguration of business processes
offering new business options.
4. Extending learning from the Skandia Case, the Dell case will leave you
with a new way of looking at knowledge and business value creation via
an all-encompassing Knowledge Based Value Framework.
Dell’s History and Business Background
In 1984, Michael Dell founded Dell Computer Corporation while building PCs out
of his dorm room. It started with upgraded IBM compatibles, and then shifted to
assembling their own design in 1985, when Dell introduced the Turbo, featuring
the Intel 8088 processor running at eight megahertz. In 1987 Dell was the first
computer systems company to offer next-day, on-site product service. IDell went
public in 1988 with an initial public offering of company stock worth $29.75 million
(3.5 million shares at $8.50 each). In 1990, Dell began selling through retail
stores like CompUSA, Circuit City, and Price Club which only lasted three years.
Dell introduced its first notebook computer in 1991, a success placing Dell in the
Fortune 500 for the first time in 1992, and shortly thereafter it was ranked a top-
five computer system in the world. In 1993, they decided to pull out of the retail
sector after posting its first quarterly loss, and decided to remain focused on
further honing the direct model and build-to-order production capabilities.
Tremendous results in revenues, profits, and market value continued, and Dell
ranked No. 1 in global market share for the first time in 2001.
Now Dell Inc., they recently took ‘Computers’ out of their name, reflecting the
evolution of the company to a diverse supplier of technology products and
services including consumer electronics, PC peripherals, printers, storage,
networking, and services.
Dell's fourth-quarter in fiscal year 2004 was its best operating period ever. The
company achieved record product shipments, revenue, operating and net
4
income, and earnings per share. .Full-year sales were $41.4 billion, operating
income was $3.5 billion and per-share earnings were $1.01, all Dell records. In
April 2004, Dell employed approximately 46,000 worldwide.
Source: Site Dell’s website
Dell’s Direct Model

From the start, our entire business was oriented around listening to the customer…and
delivering what the customer wanted. Our direct relationship has enabled us to benefit from
real-time input from real customers.i…The concept behind the direct model has everything
to do with information.ii
Michael Dell, Chairman of the Board, and CEO of Dell Computer
Dell’s Direct Model revolutionized the PC industry, minimizing inventory and

reducing the product to market lead-time; this results in tremendous competitive
advantage via both operational speed and cost efficiency. For example, a Dell
customer can get on the phone or sign onto the Internet (accounting for more
than half of Dell’s revenue) and directly order a built-to-order computer.
Corporations and institutions can also make purchases through their account
managers. Because there are no distributors, the model saves unnecessary
distribution time and costs, as well as competition for retail shelf space (See
Figure 2).
Figure 2: Distribution Model Channel Comparison
5
With its singular focus on the customer, the model takes five basic tenets and
creates a unique way of buying and selling technology, that not only sets Dell
apart, but set standards for customer experience.
The five tenets of the Dell Direct model are:

1. Most Efficient Path to the Customer
With no intermediaries to add confusion and cost, Dell is organized around groups of customers
with similar needs. This allows our teams to understand the specific needs of specific customers -
without customer needs being "translated" by inefficient resellers and middlemen.
2. Single Point of Accountability
Dell is the single point of accountability so that resources necessary to meet customer needs can
be easily marshaled in support of complex challenges.
3. Build-to-Order
Dell provides customers exactly what they want in their computer systems through easy custom
configuration and ordering. Build-to-order means that Dell does not have to maintain months of
aging and expensive inventory. As a result, they typically provide customers with the best pricing
and latest technology for features they really want.
4. Low-Cost Leader
With a highly efficient supply chain and manufacturing organization, a concentration on

standards-based technology developed collaboratively with industry partners, and a dedication to
reducing costs through business process improvements, Dell manages to provide astonishing
lower costs than competitors industry competitors like HP & IBM.
5. Standards-Based Technology
Focusing on standards gives customers the benefit of extensive research and development from
Dell and an entire industry - not from just a single company. Unlike proprietary technologies,
standards give customers flexibility and choice.
Source: Dell’s website
The customer order acts like an information trigger to drive the assembly,
delivery and after-sales customer servicing processes. Once an order enters
Dell’s system, the plant schedules assembly and informs suppliers to arrange JIT
delivery of parts. The company keeps a maximum of three days of component
inventory, whereas most of its competitors stock finished product inventory for up
to 40 days. As a result, the direct model lowers the risk of obsolescence and
inventory costs. As well, the build-to-order cycle takes less than 5 hours from
start to finish - the fast delivery increases customer satisfaction.
Once an order is entered into the information system, the company tracks each
unit sold from the initial sales contact, through the assembly and delivery
processes, to after-sales service. The customer services team can easily identify
information about customers and their orders and help fix any problems. And the
product engineering, marketing and sales teams use the information from the
database to design and offer products needed by customers.
6
Dell and the Value Creation and Assessment Framework
A company’s current business capabilities result from its existing resource

deployment or, as we term this, structural capital (business processes and
stakeholder relationships). Business capabilities are the result of business
options that have been exercised in past strategic decisions. Examples of
business capabilities are: 1) SkandiaBanken’s capability to cross-sell and up-sell
to maintain higher than normal bank account interest rates, or the potential of
Skandia to disintermediate insurance agents to directly sell insurance polices; 2)
Dell’s ability to sell direct and build-to-order while maintaining low unit cost, or
Dell’s potential to move into other new high volume IT distribution businesses.
Structural Capital is the explicit manifestation of knowledge in terms of business

and managerial processes, including informational exchanges between
stakeholders (customer, supplier, partner, and shareholder) and data/ knowledge
repositories. Examples of structural capital include: 1) Wal-Mart’s supply chain
processes, where the reading of barcodes of purchased products at the checkout
register is directly transmitted to suppliers who are in turn responsible for
inventory management and product provision to Wal-Mart stores; 2) Cisco’s
Internet-based product installation and maintenance system, and 3) Dell’s built-
to-order sales process, where customers design their orders.
Because companies are continuously reconfiguring structural capital based on

changing market conditions, senior executives must constantly be developing
new business options that consider the market’s present and future opportunities
but must mediate these opportunities against the realities of existing investments
in structural capital. Strategy changes often mean reconfiguring or acquiring new
structural capital to address these anticipated competitive needs.
What does a CEO see as he peers through each layer of a company’s

operations? First, are specific business capabilities that result from the current
configuration of structural capital that have been engineered or evolved to
address a company's unique business context. Entrenched within structural
capital are the resource building blocks (capital, physical assets, business
processes, and stakeholder relationships) represented by explicit knowledge.
Drill down deeper and you find the information capabilities – that structure these
processes and human interactions around purposeful organizational activity – in
essence delivering the right information, to the right location, at the right time, so
the right activity takes place. Mature information capabilities act like a change
agent converting hidden knowledge or tacit knowledge to explicit, formalized,
codified knowledge - structural capital.
But, where does this transformation process start? With people - the human
capital within the organization and entire value chain. Exemplar companies
follow the path of good corporate and personal information management skills
(IMP), supported by solid IT practices (ITP), combined with a favorable
7
information culture (IBV) whereby good information values and behaviors
accelerate the conversion of tacit knowledge into controlled, and yet flexible,
business processes and, ultimately into unique business capabilities,
competitively distinguishing the company.
Recognizing and managing this path from people’s knowledge to structural

capital - an integrated learning and knowledge management cycle, represents a
powerful way of doing business (See Figure 3). Executives with an information
orientation (IO), and companies with information orientation maturity in improving
IBV, IMP and ITP, are armed with continuous knowledge development across
their network, value chain, or human capital touch points.
Figure 3 outlines this framework at work in Dell. Pictured is Michael Dell sensing
environmental triggers in the market place, assessing structural capital
capabilities to respond, and countering with strategic initiatives that later may
develop into valuable business capabilities. Each response or strategic decision
by Dell represents a separate dimension in time or value assessment instance.
Figure 3: Dell’s and Value Creation and Assessment
How Did Dell Create Value and Recognize I/T Value?
Direction of Value Creation Replication

Stakeholders of model Competitive
geographically
Environmental
Expansion triggers What did Michael
IO Maturity Paths
CUSTOMERS My in vertical
knowledge Markets Dell See, Do,
And learn
Cash
Over time?
management T1
Supplier
management
SUPPLIERS Stakeholder
My Relationships Dell
knowledge
Build-to-order
manufacturing
T2
& skills
Brand
•ITP management in
•IMP commodity T3
distribution
•IBV
EMPLOYEES Processes
Customer focus/
My segmentation
knowledge
& skills
Direction and Filters of Value Assessment
29
Human Capital Information Structural Business

© Kettinger and Marchand 2004 Capability Capital Capability
8
Phase I: Entrepreneurial Orientation and IO Maturity
(Early 1980s - 1986): Learning to Work the Opportunity Zone
Our strategy is the direct business model: bringing great value to customers through a
unique and world-class supply chain, customer intimacy, and great support. It’s also the
bedrock for our relationships – direct communication. It’s how Michael and I deal with
each other. It’s how we expect our team to deal with each other. It’s how we expect
them to deal with customers.
Kevin Rollins, COO
Entrepreneurial Orientation is the dynamic capability to sense and position

market opportunities in terms of agile responses to customers, partners and
suppliers. This requires the development of strategic foresight to sense business
options, stakeholder insight into future customers, suppliers and partner needs,
systemic insight into the firm’s ability to reconfigure existing structural capital
addressing a business option, and a competence in risk assessment of
alternative business options. Clearly, certain senior executives possess an
intuitive entrepreneurial orientation (a 6th sense); however, to the extent that this
entrepreneurial orientation is well informed (informated) will add tremendous
precision to strategic decision-making and fundamentally reduce the risk of
competitive moves.
In the early 1980s, the demand for IBM PCs exploded and firms began to offer
“IBM clones,” – a red flag to an alert entrepreneur. Michael Dell had his antenna
out and not only recognized the market opportunity but also exploited it by
starting to sell customized computers--IBM clones—out of his dorm room while at
the University of Texas – Austin. When revenues reached $80,000 per month in
May of 1984, Dell at the age of 19, possessed the propensity for risk and the
strategic foresight to drop out of college and start Dell Computers. By the end of
1986, Dell had achieved sales of $60 million.
Was it beginners luck? Or, was Michael Dell born with an innate ability to sense
slam-dunk business propositions – a born entrepreneur? Probably a bit of both.
Dell may have had a stroke of luck considering the market demand for PCs and
lack of supply in the early 80s, although it was Dell’s keen strategic foresight and
propensity for risk that put him in the position to be successful. Furthermore, Dell
had the systemic insight and methodical process awareness to recognize a
second opportunity – The Direct Model.
Avoiding distributors and retailers, Dell sold its customized products to all its
customers via a low-cost and an easy-to-access channel: the phone. At that time,
direct distribution was considered unorthodox and typically only utilized by
manufacturers selling products directly to their best accounts in order to enhance
customer service. But Michael Dell had a keen sense for exploring new
alternatives and pursuing knowledge about opportunities for competitive
advantage. He believed that middlemen (distributors and retailers) were not
9
necessary. He commented, “The indirect channel was based on a marriage of
the unknowing buyer and the unknowledgeable seller…that marriage could not
last.”
Business Options
The fundamental basis of the value of the firm is its capability to both exploit
current assets and explore future opportunities.
Business Options represent a senior executive’s continuous valuation of the firm

based on his/her assessment of its capability to exploit its current investment in
structural capital to deliver currently needed business capabilities and to explore
the possibilities that existing or acquired structural capital is flexible enough to
deliver business capabilities needed in the future.
The perceived value of structural capital components will vary overtime as

market conditions change. Executives on a senior management team also differ
on their personal structural capital valuation bias and the points at which they see
the potential to reconfigure or acquire structural capital to address a present or
future business need.
This continuous business options valuation cycle as shown at Dell (assessing &
strategizing, re-assessing and strategizing, again & again...) clearly comes more
natural to certain individuals and organizations than others although there are
managerial steps that can be taken to better align oneself to fully optimize
entrepreneurial potential. Entrepreneurial Orientation coupled with a strong
Information Orientation (IO) is the formula for entrepreneurial prowess.
Information Orientation is a managerial capability indicating the extent to which

the senior executives of a company are focused on effectively using and
managing information. In essence, it is the extent to which senior managers are
actively pushing for improvements in the conversion of human capital into
structural capital.
Without IO senior executives are often flying blind, unable to decode or navigate
their way through constantly changing, and seemingly chaotic, market conditions
which are bombarding them with signals, and nuggets of information – some of
which may create value and improved business performance, while others could
end in actions potentially destroying shareholder wealth. Senior Executives need
to be capable of assessing changes in value. Without Information Orientation a
senior executive’s view of business capabilities and ability to assess business
options are cloudy as illustrated in Figure 4 below. When the Senior Executives
vision is clouded he/she is unable to surpass high levels of uncertainty, resorting
to risky, less flexible, broad-based strategic initiatives.
10
Figure 4: Non-Informated Business Options Valuation Cycle
Entrepreneurial Orientation without Mature IO:

Miscues in the Opportunity Zone
Intuitive
Difficultly Assessment
Reconfiguration Assessing of Business
Business Options
Exploitation Options
Assessment Acquisition
Value
Strategize
Delivery Clouded Vision
Clouded Blunt, Uncertainty Questionable
Sporadic, Gap Dynamic Limited
Strategic
Dell
& Rigid Stakeholder Senior
Market Insight Foresight
Strategic Conditions Uncertainty Executive
Actions Gap
Limited
Systemic
Uncertain Opportunities Assess Insight
of true Risk
value of Sense Aversion
Value
Structural Exploration Changes Legend
Capital, options Understanding of Market
Market
I/T and Moves and Ability to
Assessment Respond
Human
Understanding of Structural Capital
Capital Components: Process Activity
Standardization, Coupling,
Modularization
Michael Dell is a true entrepreneur – the spirit that got him where he is today and
continues to drive value at Dell Inc. Michael Dell and senior managers honed the
business, and pushed Dell with continued entrepreneurial actions coupled with
IO and later controls, which were also developed via IO. Dell senses new
opportunities by looking through the business capabilities all the way down the
value creation continuum (human capital → dynamic information capabilities →
I/O Paths → structural capital → business capabilities).
As illustrated in Figure 5, Dell, an entrepreneur with IO, is able to assess

business options on the fly and react with appropriate changes in strategy and/or
reconfigurations of structural capital to not only exploit the current situation, but
also explore future business needs and opportunities. Effective use of
information and IT helps Dell hone their existing business, and business options
valuations, by affording them more accurate and timely information to make
effective decisions. Furthermore, this grants them the flexibility to take risks and
make smaller mistakes, back off strategic initiatives that are failing more quickly
than their competitors, and re-focus energies in the appropriate direction.
11
Figure 5: Business Options and Time Based Competition
Informated Assessment of Business Options
Exploring the possibilities that existing or

acquired Structural Capital is flexible enough
to deliver future needed business capabilities
Exploiting the current

investment in Structural Capital Senior Executive's Assessment of Industry
to deliver presently needed Assessment of Positioning: At Any Point
business capabilities Business Options In Time
IO
Maturity
31
© Kettinger and Marchand 2004
Dell continued along the IO Maturity path further honing the business and pulling
in the reins to drive efficiencies and cost savings via IO – investing in
infrastructure (ITP), e-business initiatives (ITP), and people - changing employee
mindsets to create an info-centric culture (IBV); and as the IO matured it
continued to drive business value.
Throughout the history of Dell – the two management capabilities

(entrepreneurial orientation & IO) feed off each other creating a domino effect.
Dell is particularly good at customer agility or leveraging the voice of the
customer for gaining market intelligence and detecting competitive action
opportunities and adjusting structural capital accordingly to further develop and
build business capabilities. For example, Dell aspires to bring customers the
latest technology. In 1986, it unveiled the industry’s fastest-performing computer
and received rave reviews in the technology press. In the same year, Dell
entered the “large companies” market segment. Dell quickly realized that the
needs of the new segment and individual consumers were very different. Hence,
in order to give this new segment sufficient customer focus, the company
strengthened its distribution capability by adding a direct sales force, which had
specific knowledge and skills to understand and satisfy customer needs.
Figure 6 below illustrates Dell, who as an Entrepreneur with IO possesses lucid

vision, able to identify good entrepreneurial opportunities, and then execute on
business options with precision and acute implementation actions.
12
Figure 6: Informated Continuous Business Options Valuation Cycle
Entrepreneurial Orientation with Mature IO:

Working the Opportunity Zone
Acute,
Intuitive
Fluid, Assessment
& of Business
Options
Flexible
Strategic Reconfiguration Acquisition
Value Creation is Clear
Actions Delivery
Exploitation LUCID VISION
Dynamic Stakeholder
Strategize Market Assess Insight Strategic Dell
Informated
Foresight Senior
Conditions Systematic
Risk Insight Executive
Value Calculated
Insight Opportunities
Value
Changes
Exploration
Clear Assessment
Value Assessment is Clear
Understanding
of True Value Naturalness to
Structural Assessing
Capital, I/T and Business
Options:
Human Capital
“S/he is so Good”
Phase II: Control Orientation & IO
(Late 1980s - 2002): Recognizing a Need to Work the Control

Zone
While working the “Opportunity Zone” with an informated Entrepreneurial

Orientation has to be Dell’s “Alpha” Zone1, firms must balance opportunity with
rationalized exploitation of existing structural capital investments. At Dell, surging
market demand and tremendous growth at the end of the 1980s served to hide
some structural capital problems. During this period, tremendous expansion
meant that the company outgrew its infrastructure. Although Dell was in the
information technology business, its own IT infrastructure (ITP) was primitive in
terms of organizing and sharing the information (IMP) collected and capturing the
knowledge gained by each salesperson or employee.
1
The Alpha Zone is the zone that drives subsequent maturity of other key managerial zones: control zone,
knowledge conversion zone, and knowledge creation zone.
13
In 1989, the problems started to surface, and Dell experienced their first major
hiccups. The first problem was related to supply chain management. It bought
more memory chips than it needed, when the price of chips was at the peak of a
cyclical market, right before the recession in 1990. And, even worse, memory
chip capacity went from 256 kilobytes (KB) to one megabyte (MB), and the
excess inventory at Dell became obsolete almost overnight. Dell was not yet the
market leader, and therefore did not have much negotiating power with its
suppliers. It was stuck with too many chips that no one wanted. The write-down
of the inventory greatly depressed Dell’s earnings to only a penny per share in
one quarter. Dell had to slow its growth and postpone international expansion.
This negative experience led Dell to realize that the company needed to develop
capabilities to better manage inventory and its suppliers. Michael Dell noted:
We learned that improving the speed of our inventory flow is not only a
winning strategy but a necessity…We also made a greater commitment to
understanding and utilizing forecasting. (IMP)
A second problem was related to the philosophy of soliciting and acting upon
customer feedback. As Dell’s competitors were pushing forward with
technological innovation, Dell followed the crowd and made the mistake of
creating technology for technology’s sake. Dell learned that it had to better
understand the needs of different customer segments and tailor its offerings to
meet them. In addition to the salespeople, the company required its engineers to
develop the ability to sense customer needs (IBV).
Later, Dell had cash flow issues, and learned that it had to change its focus from
“growth, growth, growth” to a set of more balanced priorities--“liquidity,
profitability and growth.” To do so, the company needed to have information to
understand its cash flow and profitability in each segment and channel (IMP).
There was also a problem of people’s mindsets when it came to taking

advantage of information (IBV). For example, Michael Dell criticized the
information systems group belief that their job was only to create information
systems, rather than to facilitate the flow and use of information among
employees, customers, suppliers and shareholders throughout Dell’s processes.
In essence, he want to see the IS function act more like structural capitalists.
Michael Dell also realized that he needed to correct the ways his people
managed and used information. First, he doubled the budget for information
systems to link every Dell operation (ITP). Then, the company acquired business
analytic and reporting tools, and started a laborious and revealing process to
analyze every segment and channel carefully to come up with a profit and loss
statement for each (IMP).
Michael Dell started with the managers, hiring ones who were more information-
oriented. In addition, he made all managers take responsibility for the
14
performance of their businesses, and hence, develop the urge for information on
cash flow and profitability. Dell also trained its managers, especially engineers
with no business education, on how to collect and use such information for
business decisions (IBV).
To create an info-centric culture across the organization, Dell made employees

share responsibilities to facilitate the sharing of knowledge, perspectives and
ideas across different functions. It also encouraged employees to learn from their
mistakes. Dell hired people who were proactive and willing to share information
(IBV).
Previously, Dell used to monitor salespeople’s progress only against sales

objectives. To increase the focus on profitability, Dell improved its information
system and compensation scheme to enable salespeople to find out in advance
the profit margins of each product they sold and to motivate and reward them for
enhancing profitability.
Dell also enabled employees to use information to build customer relationships.

As a customer--Mark Mastrianni, a GE manager--noted:
This relationship from the very beginning has been driven by data, not dinners. Dell
knows how long it took to ship a product after receiving an order, whether a product
caused a problem, whether the problem was fixed with a phone call, how long the
telephone call lasted, whether the service man arrived on time, and how long he
stayed…Dell measures customer satisfaction every which way.iii
Dell quickly addressed their finance, customer service, and supply chain
management issues with information and I/T. They pulled in the reins, and set
out to virtually integrate the value chain bringing all stakeholders closer together
in one transparent information flow via standardized business processes and e-
Commerce. I/T played a vital role in refining and honing the business model.
The key was to strike a balance between control and flexibility. Dell utilized the
management capabilities of Control Orientation coupled with IO.
I/T was used to coordinate the entire value chain and business processes like
sales, procurement, logistics (supply chain & inventory management),
production, and customer service. Processes were standardized and tightly
coupled. Figure 7 below provides a better understanding of the relationship
between process activity standardization and coupling. Standardized processes
have definable and documental process activities with knowledge codified; the
resulting business process routines are often detailed and specific with
predictable outcomes. These process activities represent the unique manner in
which work is organized, coordinated, and focused to produce a valuable
product, service, or a management decision (e.g., assembling the product,
quality checks, identifying customers, selling products, hiring employees, ect.).
When structural capital can be highly standardized, the firm controls decision
rights, events are recorded and evaluated in real time, and exception
15
management can be instantaneous. Diagnostic control systems can observe
performance providing opportunity for management to drill down, compare, and
generally monitor divisions, teams and individuals. Performance can also be
compared against key performance indicators and process improvement can be
continuous. Process coupling is the extent to which one step in a business
process is tightly connected (dependent on fixed inputs and outputs) to the next.
Under more dynamic business conditions, the extent to which a firm can operate
efficiently with easily decoupled processes or loosely coupled process activity
subcomponents will help determine how flexibly it can respond to changing
market conditions.
Figure 7: Flexibility from Process Activity Standardization & Coupling
At Dell results from both business process standardization and tighter coupling
with partners and customers reduced inventory, increased operational
efficiencies, improved customer service and greater overall performance control.
Dell focused on building processes that accommodate “a highly time sensitive,
low product life cycle, commodity distribution driven industry”. To virtually
integrate all segments of the value chain (Supplier ↔ Dell ↔ Customers), Dell
spearheaded Internet or e-commerce initiatives, which leads to further refinement
of the business model: improved control (cost & quality), supplier, partner, and
customer agility. Refer to Figure 8 below for a visual aid demonstrating how
information drives value within the value chain at Dell. They developed
information flows at all stages of the value chain which resulted in strong
partnerships with suppliers, free flow of information internally (cross-functionally
and throughout the ranks via a flatter organizational structure), and lastly, a direct
relationship or information link to the customer – all via the internet.
16
Figure 8: Dell’s Virtually Integrated Value Chain
In the past, Dell used to order parts daily or weekly in batches. With the Internet, it
could download incoming customer orders every hour, generate a new
manufacturing schedule every two hours based on the availability of parts, and
place parts orders in real time. The supplier had 15 minutes to confirm whether it
had the requested parts, and an hour and 15 minutes to deliver them to Dell’s
plant.
Any supplier that missed the schedule would receive a written reprimand almost
immediately.iv Therefore, Dell rarely needed more than two hours’ worth of parts
inventory.v This saved inventory costs as well as loss from obsolescence for both
Dell and its suppliers. For example, one of Dell’s suppliers, Nypro, was able to
cut its inventory for Dell by 70%--from two weeks’ worth to only three days’.vi
17
Since Dell could order certain parts as often as 12 times a day, it converted the
invoice filing process from being paper-based to being Internet-based to smooth
the accounts payable process. This improvement in information processing
shortened the cash conversion cycle and saved an estimated $2.4 million per
year.vii
Moreover, Dell could provide suppliers with feedback on their performance

online.viii For example, on the website Dell tracked the parts that had failed during
production or after sale. Suppliers could also use the site to compare the price and
quality of their products with those of their competitors, and work collaboratively
with Dell on product designs, leading to a saving of about 30% in development
time.ix
Dick Hunter, vice president overseeing supply chain management at Dell, stressed
the importance of supply chain efficiency, “Because the company spends so much
on material costs even saving a small percentage amounts to a lot of money.”x
(The components account for about 60% of the delivered cost of a PC system.xi)
Therefore, if suppliers were not using the website, Michael Dell would personally
e-mail them to encourage them to use it. Within eight months of the site launch,
Dell had successfully pushed its top 33 suppliers, from which it bought 90% of its
components, to use the site.xii By 2000, Dell was completing 90% of its
purchases online,xiii and had achieved savings of $150 million from
Valuechain.Dell.com--three years earlier than expected.xiv Dell’s goal was to link
Premier Pages to Valuechain.Dell.com so that as its corporate or institutional
customers typed in their orders, suppliers would immediately see their
component requirements.xv
The virtual integration of the supply chain not only provided Dell, its customers,
and its suppliers with operational efficiencies, but also facilitated a more
panoptic-like (if you feel like you are being watched you self regulate) control
model with suppliers and partners, with real time exception management to
monitor performance of all members of the value chain.
In 1994, Dell began further integrating the Internet into the direct model with a
focus on customer agility by launching its own website www.dell.com which
improved customer service, reduced costs, and strengthened their brand.
Customers reacted positively to Dell’s website launch, and therefore, Dell acted
on customer feedback to introduce a feature allowing customers to configure
computer systems online--adding or subtracting various combinations of
components such as memory disk drives and modems--and calculate the final
price of their system in real time. To make it easier for customers to reach Dell,
the company launched Dell ConnectDirect. This Internet sign-on process allowed
small companies to personalize their web home pages with customizable news
content and links to Dell’s services, continuing to extend and hone the direct
model to offer more value, more customization, and more integration built into
Dell products.
The new sales channel was well received. By the end of 1996, Dell recorded
more than $1 million online sales per day. IBM and HP allowed individual
18
consumers to buy PCs directly online only late in 1998. Businesses still had to
go through resellers to fulfill online orders because neither manufacturer wanted
to upset their existing distribution channels.
In 1997, Dell launched its first custom-made online web links for relational
customers--“Premier Pages.” These password-protected links allowed
corporations or institutions to save the costs of procurement and maintenance by
making paperless purchases, tracking orders online and obtaining basic technical
support online. In addition, customers saw Premier Pages as a tool to control PC
purchases, as they were able to use their website to obtain a global overview of
assets and enforce product standards in local business units.xvi Premier Pages
were available in different languages (by 2000, the number of Premier Pages had
increased to more than 50,000).
To encourage online procurement, Dell recommended that customers use a

software program that ensured quick authorization by allowing instantaneous
communication between different personnel and the customer. It routed the order
requisition made by the customer’s purchasing agent to two authorizing
managers for approval within 60 seconds. Then, it sent the purchase order to
Dell over the Internet. On average, the product was delivered within two days of
the order being placed. The software also reduced errors in the procurement
process from about 200 per million transactions to 10 per million, and decreased
the cost of processing by $40–$50 for each order.xvii
For Dell, Premier Pages made it easier and faster to close deals. Since prices
were immediately updated on Premier Pages, customers could avoid the
inconvenience of going back and forth to check the most recent prices with their
account managers and could obtain internal approval more quickly. The account
managers feared that the Internet would do away with their jobs, but Dell made
them understand that the Internet would give them more time for value-added
consultancy services, instead of wasting time on preparing specification sheets
and dealing with order status inquiries. According to Tom Martin, Dell’s director of
global business development:
A sales rep’s active selling time could increase two- or three-fold with the
online model. In the traditional direct model, a sales rep spent 45% of
his/her time on operational matters, 15% of his/her time on active selling
and the rest on travel. In the online environment, the time spent on
administrative details could fall to 15% with 45% of time focused on selling
activities.
In addition to holding annual Platinum Council meetings to solicit customer

feedback, the company conducted usability lab tests to review how to improve
customers’ experience of using its products. Dell also established a Customer
Experience Council, consisting of eight members from finance, sales, product
development, manufacturing, corporate communications and IT.xviii The council
19
developed performance metrics to monitor and reward employees’ performance
with regard to customer satisfaction. For example, Dell tracked the number of
times a system developed problems within the first 30 days of purchase and the
amount of time to fix it.
In 1999, Dell launched “E-Support-Direct from Dell,” which allowed the company
to resolve customers’ technical issues online in real time without dispatching
service technicians. (By 2003, approximately half of the company’s technical
support activities occurred online, leading to huge savings.)
There were about 500,000 technical service calls by phone per quarter, and an
average call lasted about 10 to 15 minutes, with the first few minutes spent on
diagnostics. With the Internet, technicians could reduce call time by 10% by
uploading the customer’s system information and asking the customer to submit
the diagnostics online.xix
For on-site service visits, Dell developed an information process to ensure

customer satisfaction. Every customer call would trigger two electronic
communications: One to inform the technician about the service request, the
other to instruct Dell’s parts department to ship the needed parts directly to the
customer before the technician arrived.
Dell also developed information systems and processes to ensure efficient

delivery. First, the company set up an Internet connection with shipping
companies to arrange pick-ups. Second, Dell stopped carrying computer
monitors. Instead, when a machine was ready to be shipped from any of its
factories, Dell would send an e-mail to the shipper, which would obtain a monitor
directly from a supplier’s stock and schedule it to arrive with the PC.xx This
process saved inventory-carrying costs in addition to delivery costs and time.
In 2000, Dell launched the “Dell E Works” program. Through partnerships with
various software and service companies, the program aimed to act as a single
point of contact offering e-commerce solutions (hardware and software
configurations) and services. However, the following year, when the “e” bubble
burst, Dell downplayed this program and removed the web link from its home
page.
The same year, Dell partnered with Ariba to launch an electronic marketplace for
Dell’s small and medium-sized customers to purchase office supplies and other
goods and services from different suppliers. However, Dell ended the project
after four months because of a lack of customer and vendor interest.
Dell, not only astute entrepreneurs, has gone to be methodical process

engineers and very control oriented. The virtually integrated value chain
initiatives refined and further extended the direct model and customized
production capabilities while delivering control and flexibility. Michael Dell
20
comments, ”We enjoy the advantage of continuing to refine our model while
others retrofit theirs.”
Phase III: People Orientation: Balancing Heavy Entrepreneurial

and Control Orientations with People Orientation
Your people want to build careers. We’re starting to manage our cultural elements
much the way we manage operational excellence.
Michael Dell
We set new strategic goals, financial goals, organizational goals, and started our change-of-
culture activities. We set up a whole range of initiatives. Michael and I have changed in
terms of our maturity about how to run a company this big and sustain growth – how you
become not just a great financial institution but also an organization where people develop.
That’s necessary to have a great company at $60 billion or $70 billion.
Kevin Rollins
In the fall of 2001, internal interviews revealed that subordinates thought Dell,
was impersonal and emotionally detached, while Rollins was seen as autocratic
and antagonistic. Few felt strong loyalty to the company's leaders. A survey
taken over the summer, following the company's first-ever mass layoffs, found
that half of Dell Inc.'s employees would leave if they got the chance. Fearing an
exodus of talent, the two executives focused on the gripes (see Table 1). Within
a week, Dell faced his top 20 managers and offered a frank self-critique,
acknowledging that he is hugely shy and that it sometimes made him seem aloof
and unapproachable. He vowed to forge tighter bonds with his team. Some in the
room were shocked. They knew personality tests given to key execs had
repeatedly shown Dell to be an "off-the-charts introvert," and such an admission
from him had to have been painful. Michael Dell didn't stop there. Days later, they
began showing a videotape of his talk to every manager in the company --
several thousand people. Then Dell and Rollins adopted desktop props to help
them do what didn't come naturally. A plastic bulldozer cautioned Dell not to ram
through ideas without including others, and a Curious George doll encouraged
Rollins to listen to his team before making up his mind.
Source: Business Week, November 3, 2003)
We now have a 360-degree evaluation process. Michael and I share the 360 feedback,
good and bad, with all our direct reports. They have a free shot at telling us what they
don’t like about us and what they think we could do better. They wanted more feedback.
They wanted an opportunity to participate more in the decision-making. They wanted us
to be more open. We were maybe not as friendly as we could have been in making them
want to stay here socially.
Source: Fortune , Rollins (April 19, 2004)
21
Table 1: Managing the Dell Way
BE DIRECT NO EXCUSES NO VICTORY LAPS

It’s an attitude, not just a Dell believes in accountability To Dell, celebration breads
business model. When the above all else: “There’s no complacency. He once
CEO talks, he doesn’t mince ‘The dog ate my homework’ at rejected an idea to display Dell
words, and workers shouldn’t Dell,” he warns. A manager artifacts in the company’s
either. They’re supposed to must quickly admit a problem, lobby because “museums are
question everything and confront it, and never be looking at the past.” When
challenge their bosses. And defensive. Dell ruthlessly they succeed, managers must
no one is exempt. In Dell’s exposes weak spots during make due with a short e-mail
own annual 360-degree grueling quarterly reviews. or a quick pat on the back.
review, workers complained of And execs know they had The founder’s mantra:
his detached style, so he has better fix the problems before “Celebrate for a nanosecond,
pledged to be more the next meeting. then move on.”
emotionally engaged.
LEAVE THE EGO AT THE NO EASY TARGETS WORRY ABOUT SAVING

DOOR It’s not enough to rack up MONEY, NOT SAVING FACE
The company favors “two-in-a- profits or turbo charge growth Unlike its rivals, Dell is quick to
box” management, in which – execs must do both. Miss a pull the plug on disappointing
two executives share profit goal, and you’re not new ventures. The latest:
responsibility for a product, a cutting costs fast enough. despite a year of work and
region, or a company Overshoot it, and you’re extensive news coverage,
functions. That forces them to leaving sales on the table. In Michael Dell spiked a plan to
work as a team, playing off the past year, the server put e-commerce kiosks in
each other’s strengths and storage, and networking chiefs Sears stores after just four
watching out for each other’s were reassigned, despite solid were installed. Instead, kiosks
weaknesses. results. “Pity the folks who are going to public areas in
didn’t use all the bullets in their malls.
gun,” says a former exec.
Source: Business Week, Nov. 3, 2003
Phase IV: The Working Machine – End Zone Results Today
Today, Dell’s business model is hitting on all cylinders. They have outperformed
Fortune 500 stocks from 1993-2005, and continue to set the pace just coming off
another strong quarter with all key performance indicators – shipments, revenue,
earnings per share, and net income – at all time highs.
"Dell is alone in simultaneously providing customer’s great value, growing faster

than the industry and earning a compelling profit for investors," said Kevin
Rollins, the company's president and chief operating officer (and soon to be
CEO). "Doing that requires a high-quality, low-cost business model and great
discipline. We have both."
Dell's year over year profitability continues to improve ,both in absolute terms and
as a percent of revenue. Mr. Rollins said Dell expects fiscal-2005 product
shipments to rise more than 20 percent, ahead of anticipated industry growth.
22
The resulting company volume should produce annual revenue of $49.2 billion, ,
and earnings per share of 1.29 cents. Dell is gunning for $60 billion in revenue by
2006
Phase V: Lessons Learned at Dell – The Knowledge Based

Value Model
The examples from Dell clearly demonstrate the importance of I/T, and its ability
to create value in an organization, increasing business performance. These
examples represent how Michael Dell and his senior executives respond to
changes in the market, configure structural capital, and how information supports
these actions. For example, the strategic outcomes of their actions produce
business capabilities that include the ability to sell direct, build-to-order while
maintaining low unit cost, and the potential to easily move into new high volume
IT distribution businesses.
Examples of business capabilities at Dell include:

• Customer Focus / Segmentation
• Brand Management in Commodity Distribution
• Build-to-Order Manufacturing
• Supplier Management
• Cash Management
• Expansion in Vertical Markets
• Replication of Model Geographically
Dell is particularly astute in regards to entrepreneurial orientation and control

orientation, both coupled with high information orientation, helping them better
exploit existing structural capital to flexibly explore reconfiguration of structural
capital into new business options. Observation of these cause and effect path
relationships led us to take the I/T Value Creation and Assessment Framework,
introduced in Skandia, one step further and introduce a new comprehensive
model: The Knowledge Based Value Model
The Knowledge Based Value Model
The model is an extension of the original framework adding two component

parts: 1) a structural capital continuum (from high structural capital: process
activities standardization and process coupling to less structured capital: process
modularity and knowledge facilitation and reuse), and 2) business capability
exploitation (cost / quality control and brand / product leverage). Incorporating
these components ultimately leads to an end result, the end zone of superior
performance and perceived value.
Another key addition to the Knowledge Based Value Model is the inclusion of
Management Capabilities – dynamic management capabilities needed to push a
23
company along the value creation path and better enable value assessment.
The ovals in the illustration below or “Management Capabilities,” can be thought
of as the maturity of key levers that senior management utilizes to create value
along the value creation continuum. We saw Dell utilize these “Management
Capabilities” time and again. For example, Dell continually demonstrated the
strategic foresight (Entrepreneurial Orientation) to sense opportunities
(environmental triggers) in the market place, and countered by investing in
information systems (Information Orientation), and hiring & training quality
people (People Orientation) to create an info-centric culture, and also use
performance metrics (Control Orientation) like customer satisfaction to ensure
success.
In order to create value resulting in better business performance, companies

need to be good at all facets of this model. A company cannot typically be
successful by being good at one area over the long run, as we saw at Dell.
Hence, we leave you with a new way of looking at value creation and
assessment. Please see Figures 9 and 10 – first with relation to Dell and next as
an overall model applicable for value creation and assessment at all companies.
24
Capability Control Actions Rationalization Actions Phase 2:
Control
Zone
Phase 1 and 2:
Control Orientation:
Conversion Zone -I/T to understand forecasting END ZONE
-I/T to sense customer needs/feedback
Direction of ValueOrientation:
Information Creation - Insistence to have suppliers use e- • Out performed Fortune
-Investments in I/T infrastructure business capabilities 500 ’93-’03
- e-business initiatives
- I/T addresses cash flow /supply chain • fiscal 4th quarter ’03
- -Premier Pages was their best ever
- On-line procurement Business
Most Structured Capability • 2006 goal to be a $60
Capital: Exploitation billion (revenue) Co. –
• Direct Model • Sharing best practices requires annual growth
•Operational Efficiency of 15%
Information • On-line procurement
Human Capabilities: via standardization •Built-to-order Mftg. Figure 9: Knowledge
• Forecasting I/T tools •Real time exception capabilities
Capital: •eApplications Based Value Model
management •Customer
Stakeholder
• www.dell.com at Dell
Focus/Segmentation
Knowledge •ConectDirect • Customer service
initiatives via the web •Intro of Dell Brand •Commodity distribution
•E-support Direct capabilities
(www.dell.com; Connect •On-line store fronts
•Dell E Works Direct) • Failed Retail •Ability to replicate
•Collecting and •Sales initiatives via the initiative business model in
Phase 3: processing info web (Premier Pages) International varying geographies and
Knowledge • Transparency Less Structured Capital Expansion verticals
Creation and sharing • New verticals • Supplier management
Zone /product lines capabilities
Business Cap.
People Orientation: Entrepreneurial Orientation: • Cash management
Exploration
- Dell Inc. starts in Dell’s dorm room capabilities
-hiring of info minded managers
-Trained employees to use internet - Direct Model & built-to-order Strategy
- 360 degree evaluations - Leveraging distribution capabilities
in other verticals
Phase 1:
Capability Building Actions Entrepreneurial Action: Opportunity
Driven by Entrepreneurial Actions Based on Business Options Zone
25
Capability Control Actions Rationalization Actions
Knowledge
Conversion Zone Control Orientation:
Control
- Process Think
Information
- Panoptic Vision
- Measurement Range
Zone
Orientation: - Thrust and Trust
- IT Architectural-ism
- Info Managerial-ism
- Info Cultural-ism Business
Capability
Exploitation
Most Structured
Capital: • Cost / Quality
Information Control
Human Capabilities: • Process Activities End Zone
Capital: Standardization • Brand / Product
• IT Practices
Leverage Superior
• Info Mgt. • Process Coupling
Stakeholder
Practices
Performance
Knowledge and
• Info. • Supplier Agility
• Process Modularity Perceived
Behaviors
• Partner Agility
and Values • Knowledge Value!
Facilitation and Reuse •Customer Agility
Legend:
Less Structured Business
Capital: Capability
People Exploration Value Creation
Orientation: Path
- Selecting
Knowledge - Training Entrepreneurial Orientation: Opportunity Management
Creation
- Facilitating
- Rewarding
- Strategic Foresight
- Systemic Insight
Zone Capabilities
Possible Effect
Zone - Freeing - Stakeholder Focus
- Risk Propensity Assessment
and Actions
Capability Building Actions Entrepreneurial Action:

Driven by Entrepreneurial Actions Based on Business Options
Figure 10: Knowledge Based Value Model (Kettinger 2004)
26
i
Dell, Michael. Direct from Dell. London: HarperCollins, 1999, p. 22.
ii
Dell, Michael. Direct from Dell. London: HarperCollins, 1999, p. 80.
iii
Morris, Betsy. “Can Michael Dell Escape the Box?” Fortune. October 16, 2000, p.63-77.
iv
Gupta, Vivek. Dell.com’s IT Architecture. Icfaian Centre for Management Research Case
No. 902-009-1, 2002.
v
Jones, Kathryn. “The Dell Way.” Business2.0, February 2003.
vi
Rocks, David. “Dell’s Second Web Revolution.” Business Week, September 18, 2000, p. EB43.
vii
“How Dell’s A/P Department Avoided Paper Invoice Deluge from JIT System.” Managing Accounts
Payable, September 2002, p. 1.
viii
No. 902-009-1, 2002.
ix
“Michael Dell Says Online Sales Represent a Fraction of Internet’s Massive Business Potential.” Dell
press release, August 25, 1999.
x
Aston, Adam. “How Dell Keeps from Stumbling.” Business Week, May 14, 2001, p. 38.
xi
Faletra, Robert. “Real Costs of Ownership.” Computer Reseller News, September 22, 1997, p. 14.
xii
Roth, Daniel. “Dell’s Big New Act.” Fortune, December 6, 1999.
xiii
Rocks, David. “Dell’s Second Web Revolution.” Business Week, September 18, 2000, p. EB43.
xiv
No. 902-009-1, 2002.
xv
Roth, Daniel. “Dell’s Big New Act.” Fortune, December 6, 1999.
xvi
Rangan, V. Kasturi and Marie Bell. Dell Online. Harvard Business School Case No. 9-598-116.
xvii
Gupta, Vivek. Dell.com’s IT Architecture. Icfaian Centre for Management Research Teaching Note No.
902-009-8, 2002.
xviii
Fickel, Louise. “Know Your Customer.” CIO-100. August 15, 1999, p.63.
xix
Rangan, V. Kasturi and Marie Bell. Dell Online. Harvard Business School Case No. 9-598-116.
xx
No. 902-009-1, 2002.
27
Appendix 3
The CEMEX Way:

Working an Informated Control Zone to I/T Value
Prepared by:
Authors with the assistance of Rebecca Chung of IMD
Note: This case extends: IMD-3-1341 (Chung, R., Marchand, D. A. and Kettinger. 2005) “CEMEX Way:
The Right Balance Between Local Flexibility and Global Standardization.” Wherever possible
multiple accounts of the same event were solicited as well as secondary sources were used to
increase validity.
The CEMEX Way:
Working an Informated Control Zone to I/T Value
We want to keep innovating…but we want to have that under control… The company now
is much more complex, and we had to go through a very expensive process of
amalgamating our business processes throughout the world--saying ‘This is THE CEMEX
WAY of doing x, y and z’… it became a way of growing very fast and leveraging what we
know… Information is your ally: You use it to detect quick and get better faster, or
determine who is better and then you go and find out why…As we grow, we clearly need
more information. I must admit that I want the information for myself.
Lorenzo H. Zambrano, Chairman of the Board and CEO
“I personally don’t like to talk about technical issues. I am more of a philosopher. I spent three
years studying different philosophies of human behavior and have worked very hard to
incorporate these philosophies into the Cemex culture… When you are dealing with changes
to beliefs, values, practices you are in essence trying to create a different human being. My
role is to constantly challenge people in the businesses, to change their mindset, to help them
think about things differently.”
Gelacio Iniguez, former CIO, Cemex
The landscape of the cement industry had changed. Through acquisitions

CEMEX had grown from a local Mexican cement producer to the world’s third
largest (next to France’s Lafarge and Switzerland’s Holcim). (Refer to Exhibit 1
for industry figures.) The knowledge and best practices accumulated through this
journey were well represented in the philosophies of “The CEMEX Way,”
launched in 2000.
The CEMEX Way was not only a process standardization program coupled with
first-class information practices that together facilitated control and flexible
growth, it was also an attitude and way of life at CEMEX. The company invested
$200 million in the CEMEX Way to document and share best practices globally. It
was a push for explicit knowledge that was formalized, codified and transparent.
To cultivate employee attitudes and behaviors of knowledge sharing and
effective information practices, the company also refined its performance
appraisal criteria and developed culture-building initiatives. In addition to saving
costs of $150 million per year, the CEMEX Way facilitated rapid learning and
integration of acquisitions. Its results were reflected in the company’s increased
productivity, cash flow and profit margin (refer to Exhibit 2).
Zambrano and his senior management team were eager to leverage the
company’s investments in the CEMEX Way to strengthen their business
capabilities. The real question was whether the company could continue to grow
and succeed globally following the approach and lessons embedded in the
CEMEX Way of doing business.
2
CEMEX’s Global Growth and the Development of an Informated
Control Orientation
Early History: Becoming a Domestic Leader (1906 – Early 1990s)
CEMEX, founded in 1906, is headquartered in Monterrey, Mexico. In 1968,

Zambrano, the grandson of the company’s founder, joined CEMEX. He recalled,
“I wanted to manage this company since I was ten.” Over the years, Zambrano
had worked at every level of the company and had learned every detail of the
business. In 1985 he became CEMEX’s CEO at the age of 41.
Since more than half of CEMEX’s cement sales in Mexico came from individual
homebuilders who bought bagged cement rather than bulk, Zambrano believed
that the only threat to the realization of CEMEX’s true potential was the traditional
view that cement was a commodity and did not need branding. Hence, CEMEX
launched an aggressive marketing campaign to raise the company’s profile in
Mexico--it placed CEMEX’s logo in prominent positions ranging from cement
bags and delivery trucks to bullrings and soccer stadiums.
From the beginning Zambrano saw the importance of an information-oriented

organization:
Information is your ally: You use it to detect quick and get better faster, or determine who is
better and then you go and find out why…As we grow, we clearly need more information. I
must admit that I want the information for myself.
In 1985, IT was not perceived as critical in the cement industry. Within Cemex,
there were only 20 PCs, and information systems across the company were not
linked. In 1987 Zambrano hired Gelacio Iniguez as CIO to build CEMEX’s
technological infrastructure. Shortly after joining the company, Iniguez discovered
executive resistance to IT. Iniguez launched a three-year IT development plan
and received full support from Zambrano, and naturally executives followed.
In the same year, CEMEX made use of Mexico’s first satellite, forming a
telecommunication infrastructure permitting data and voice transmission among
the 11 geographically dispersed production facilities in Mexico. This system was
later integrated with a global positioning system (GPS) to support worldwide
delivery dispatching. The network allowed CEMEX employees access to
information across the company, independent of the unreliable local telephone
system.
In 1989 to protect its position in Mexico, CEMEX acquired domestic competitor

Tolteca, and became the largest local cement producer. The acquisition posed
integration issues. For example, consolidating Tolteca’s Hewlett-Packard
platform with CEMEX’s IBM AS/400 platform was both technically and human
resource intensive. CEMEX’s management came to recognize that standardized
process management, information practices and behaviors were needed to
support rapid consolidation of the acquired entity.
In 1990, Iniguez’s team launched an Executive Information System (EIS) to

provide executives with easily accessible and reliable consolidated information
on the performance of their production plants. Using this capability, Zambrano
3
often made random “virtual” inspections via the EIS to detect problems. If he saw
that the operating level of a cement plant was below the benchmark, he would
not wait to talk to the manager but rather directly call a plant worker to find out
what had happened and why corrective action had not been taken.
Zambrano not only demanded accurate, timely operational information but also
insisted that employees utilize it. Fernando Gonzalez, President – South America
and Caribbean, commented:
Zambrano has to be informed. Also, he expects people to be informed…Never give an

excuse that you don’t know. You must be in the business.
Over time, the EIS provided managers with the capability of a panoptic gaze over
all their direct reports. A culture of information transparency grew, whereby
managers could also drill down and obtain reports in areas outside their direct
responsibility, further instilling enterprise knowledge building and accountability.
Global Growth and the Beginnings of an Informated Entrepreneurial

Orientation: (Early 1990s – 1997)
Commencing International Acquisitions
By the early 1990s, Mexico’s economy had started to allow more foreign entry.
Since pressure from global competition soared, Zambrano realized that
international acquisitions were necessary to survive:
We suddenly found ourselves competing with very large international companies at a time
of consolidation in the global cement industry. There were few independent producers left.
Either we became large and international, or we would end up being purchased by a
bigger player.1
To establish a presence in Europe, where all the leading cement companies

were based, in 1992 CEMEX purchased Spain’s two largest cement producers--
Valenciana and Sanson--for nearly $2 billion. Analysts criticized the acquisitions,
arguing that CEMEX had overpaid at a cyclical peak2 and the merger would
cause the company to take on too much debt. Analysts also doubted the ability of
CEMEX’s senior management to run a European company well.3
Zambrano commented:
It was really almost reckless to do what we did, but we didn’t know any better. The risks did
not appear to be so bad. So, we jumped into the pool and then learned to swim later.
Perhaps being able to take risk is a good quality to have when you are growing a
company.
1
Crawford, Leslie. “The Global Company: Long Reach Opens New Sources of Finance.” Financial Times,
November 7, 1997.
2
Ibid.
3
Rossier, Roland. “How the Mexican Corporation CEMEX Turned into a Cement Industry Giant.” Le Temps
(Geneva), Tuesday, October 26, 1999.
4
Maturing of an Information Orientation and the Emergence of IS as
Structural Capitalists (Early 1990s – 1997)
CEMEX sent a post-merger integration team (“PMI team”) of experts to the
operations in Spain to transfer management knowledge and integrate the
operations. During the integration, the team recognized that the main hurdle was
people’s reluctance to give up their own corporate culture and current practices
of information use, rather than the technicalities of merging the IT platforms. CIO
Iniguez shared his insight:
The interpretation of IT is really poor. I have never overly focused on the technology part.
Instead, the center of IT was human beings. And we could leverage human beings and
business processes with technology.
The PMI team spent months training people on how to use IT and follow the new
business processes. Iniguez explained:
Assuming individuals will use technology or data because it is available is a mistake.

Unless management devotes the required resources for training...the integration will be
superficial.
In 1992, CEMEX launched a three-year business process reengineering program

to shift the company’s IT focus from technological infrastructure to business
processes and information use. With the adoption of the JD Edwards’ enterprise
resources planning (ERP) software package for applications such as finance and
distribution, CEMEX had begun its move to enterprise process standardization.
To assist in ERP software customization and to ease future integration of
acquisitions, CEMEX standardized its application software development
methodology around a highly structured process and software mapping
technique called Architecture of Integrated Information Systems (ARIS), invented
by the German professor A.H. Scheer. The ARIS approach uses a formal naming
system to describe enterprise processes, functions, controls and data views, and
outlines a step-by-step approach for all phases of the development and process
management.4 Adopting this highly structured engineering approach served two
purposes: it facilitated consistent training for the technical staff and it provided a
clear process mapping and technical description of CEMEX’s business
processes and software applications. These process maps could be easily
communicated and compared by the PMI teams and by managers in soon to be
acquired entities.
Iniguez also recognized that a purely engineering approach to process

reengineering did not account for people’s communication and psychological
dimensions. To capture the “people” component, CEMEX trained a group of
managers in philosophy and psychology. The group learned a technique
4
Professor Scheer continues to produce many books on the ARIS technique. For an example of a book
available at the time ARIS was introduced at CEMEX, see: Business Process Engineering, Berlin –
Heidelberg: Springer-Verlag, 1989 or investigate IDS Scheer (Saarbrücken) at http://www.ids-scheer.com
5
developed by two Stanford professors, Fernando Flores and Terry Winograd,
known as speech-act method.5 The speech act method maps conversation
transactions and categorizes communication as requests and promises in order
to facilitate organizational communication. Gilberto Garcia, IT Planning Director
summed up the method’s premise:
Business is a collection of simultaneous conversations, and every conversation involves an

act of commitment. (‘Can you do this?’ ‘I will pay that amount.’) In this network of
commitments, everyone in a process is a customer, a provider, or both at once. Thus,
where process and people are concerned, you should not only track information, but also
people’s commitments.
The combination of the “hard” ARIS approach with the “soft” speech-act
approach formed the basis for a deeper understanding of information systems
and people necessary to begin to refine best-of-breed business processes.
Another component of the reengineering program was the formation of multi-
functional teams inside plants to facilitate cross-training and continuous process
improvement. CEMEX motivated team members by sharing part of the direct cost
savings with them. One example of the process improvements was the reduction
of project approval time from one month to two days.
The impact of the reengineering program could also be seen when CEMEX
launched the Dynamic Synchronization of Operations system in 1995 to track
truck movements and deliveries in Mexico. The system increased truck
productivity by 35% and marked the beginning of same-day delivery of ready-mix
concrete,6 with a guaranteed delivery time of within 20 minutes of the scheduled
time.
The system implementation also focused on diffusing this information culture.

CEMEX began requiring its staff to think about changing information practices
while they worked. For example, truck drivers were required to collect customer
feedback upon delivery to be entered into online customer files; and telephone
order takers were required to apologize to any dissatisfied customers.7
Iniguez noted:
A lot of people always say that we developed a good system. What we actually did was to
create a new culture, one that was based on commitments.
To achieve all these project objectives, senior executive sponsorship was

essential. For example, when CEMEX rolled out Lotus Notes to advance
paperless information sharing, employees in Spain were so used to seeing loads
5
Professor Flores later did consulting for CEMEX to further train and refine the approach within CEMEX. For
reference see: Understanding Computers and Cognition: A New Foundation for Design, Winograd T. and
Flores F., MA: Addison Wesley, 1987.
6
Ready-mix concrete was produced in batching plants and delivered direct to the building site in trucks with
rotating barrels. It constituted 20% of CEMEX’s sales and 8% of the company’s EBITDA.
7
Dolan, Kerry A. “Cement Meets the Cyberworld.” Forbes, June 15, 1998.
6
of paper on their desks and on the floor and could not imagine being able to use
the “box” (computer) to communicate with each other via e-mail. Zambrano
admonished his staff, and changed their information practices: “I don’t want
paper from you anymore.”
IT Practices Maturity: IT COMPANY

During this period, CEMEX made another unconventional move. It realized that
its IT team had been developing competence in integrating IT platforms and
foresaw the potential of leveraging this competence to offer consulting services
to other companies. In 1993 CEMEX set up Cemtec as its in-house IT service
provider. Iniguez recalled, “A lot of people said that it’s stupid…we produce
cement…we don’t need an IT company.”
Developing Post-Merger Structural Capital
CEMEX continued to acquire cement operations in other Latin American markets

such as Venezuela, Panama, Dominican Republic, Colombia and Chile. Hector
Medina, Executive Vice President – Planning and Finance, explained the matrix
that summarized the company’s acquisition strategy:
One axis of the matrix was called attractiveness. And the other axis was called proximity,
which we would think of mainly as cultural proximity rather than geographic proximity.
These emerging markets were attractive because their demand for infrastructure-
-and hence cement--was large relative to their population. The cultural proximity
also gave CEMEX an advantage over Lafarge and Holcim, which focused on
developed markets, as the CEMEX had knowledge of how to operate well in
these emerging Latin markets. For example, CEMEX had experience of branding
cement in the individual homebuilders segment, dealing with complicated
distribution and delivery logistics, and building technological infrastructure in
emerging markets.
To leverage previous integration experience and to ensure the integration of

people’s mindsets and information practices, a multinational PMI team,
consisting of people-oriented experts and managers from different countries, was
sent to each acquired entity. In this way, the company continued to accumulate
integration expertise over time.
Having global operations allowed CEMEX to better manage the cyclical nature of
the cement business. For example, it was able to survive the 1995 peso
devaluation and severe Mexican recession because of the operating cash flow
that its operations in other Latin emerging markets generated. However, as a
result of the acquisitions, CEMEX’s financial leverage ratio8 deteriorated,
reaching a record high of 5.3 in 1995. Therefore, the company had to improve its
financial leverage and cash flow.
CEMEX also had a trading arm for buying and selling cement, which helped
manage variability in demand and allowed plants to run at full capacity. The
trading arm owned a fleet of ships for specific shipping routes, and having global
8
Defined as net debt divided by EBITDA for the previous 12 months.
7
plants permitted CEMEX to sell excess cement to nearby countries to minimize
shipping costs and delivery time. For example, one of the profitable routes was
from Venezuela to Florida.
Seeing the Value in “Structured” Capital and the Contributions of I/T:

Expansion into Non-Latin Emerging Markets (1997 Onward)
In 1997 CEMEX made its first entry into non-Latin emerging markets by
purchasing a 30% stake in Rizal Cement in the Philippines, through CEMEX Asia
Holdings Ltd.9 It was challenging because very few distributors controlled the
channels of distribution. Zambrano described:
If a distributor said, “ I won’t buy from you today” our plant would be idle for one day.
However, we did not have the experience to become a distributor. So, we had to learn
more about the existing distribution and to gain independence by developing our own sales
force to create direct association with smaller shops.
CEMEX continued with a series of acquisitions in other markets such as Egypt

and Thailand. CEMEX’s trading arm performed country market research prior to
market entry. For example, they piloted markets to measure demand via buy-in
selling to target segments. Egypt and Puerto Rico were prime examples of
countries where this strategy worked well. In addition, the acquisition criterion of
“proximity” had evolved from “cultural” proximity to “system” proximity. CEMEX
learned that IT people should be part of the due diligence team to ensure that it
would be feasible to integrate the acquisition target’s IT infrastructure, processes
and behaviors within CEMEX. The ARIS process mapping, the speech-act
development approach, and graphical representation of business processes that
were the products of these methods, were starting to bear fruit in codifying
CEMEX’s best-practice knowledge. These process maps could be quickly shown
to managers from acquired companies to help bring them into compliance with
CEMEX practices.
This approach enabled CEMEX to develop an internal worldwide benchmarking

database for procurement, production and sales that all employees could access.
As information in these acquired entities had generally been reserved only for
senior management, the new database created an openness which helped
remove the skepticism of some employees within newly acquired business units
and encouraged them to share information and learn from mistakes.
Zambrano and his management team had now demonstrated their ability to
manage a global company. In 1998, Forbes magazine recognized Zambrano as
one of the world’s smartest entrepreneur-billionaires. In 1999, CEMEX was
ranked as the best-managed cement producer in Spain, after quadrupling
operating margins there. These achievements, and others, led to the listing of
CEMEX on the New York Stock Exchange in 1999.
9
CEMEX had a 77% stake in Asia Holdings Ltd.
8
Recognizing a CEMEX Way of Doing Business: Growth in Developed
Markets (2000 Onward)
Since financial analysts perceived CEMEX as “risky” because of its base in

Mexico--a developing country with high country risk--and its operational focus on
emerging markets--which were prone to political and social instability--the
company needed to create a more diversified portfolio. In 2000, in its largest
acquisition, it purchased Texas-based Southdown, the second largest US
cement producer, for $2.9 billion. Southdown offered CEMEX direct access to a
growing but undersupplied US market, a strong brand name, excellent production
technology and, hence, a stable stream of operating cash inflow and better
market perceptions.
However, Southdown’s corporate culture was very different. Its management
team had a US-centric culture and operated in a very decentralized manner.
Southdown’s people were not used to making information available quickly or to
the informational transparency that permeated CEMEX’s culture. Hence, CEMEX
faced some initial resistance from Southdown’s managers and employees. To
solve this problem, CEMEX invited talented Southdown employees open to the
concept of continuous improvement and information sharing, to join the
multinational PMI team and help improve processes and information use at
Southdown. As one senior executive put it, “If you can be both a ‘hungry’
businessperson and information sharer, it is best.” Although it was difficult, the
team successfully completed the integration process in four months. The
remaining Southdown managers embraced the CEMEX practices and
encouraged that the CEMEX co-brand appears on the Southdown product.
Such enculturation of those that rose through the corporate ranks was normal at
CEMEX. Zambrano stated:
The new executives would come to our headquarters, they would stay here for a while, [to
be] let’s call it “indoctrinated,” or they would grow, you know, into our way of doing things,
and then they would go out to a country…
Learning from Entrepreneurial Actions: Experimenting with New Ventures

to Build Business Options (2000 Onward)
Because of the increasing use of the Internet, in September 2000 CEMEX

launched a new subsidiary, CxNetworks, to build a network of e-businesses.
Zambrano appointed 31-year-old Juan Pablo San Agustin, CEMEX’s Vice
President of e-business, as CEO of the new subsidiary and Iniguez as the Chief
Technology Officer. CEMEX was planning to invest 10% of operating free cash
flow a year, about $100 million, in CxNetworks. At the time Zambrano
commented:
CxNetworks’ success will add enormous value to our overall efforts to e-enable the
company, not only by helping us provide a broad range of online services and products to
our customers and by creating the new networks that are integral to success in the digital
age, but by contributing to the building of the e-culture throughout CEMEX.10
10
“CEMEX Launches E-Business Strategy.” CEMEX press release, September 13, 2000.
9
Within six months of its incorporation, CxNetworks had launched:
• Construmix and Construplaza: online marketplaces for a variety of construction materials

for construction companies and professionals in Latin America and Spain, respectively.
• Neoris: CxNetworks merged Cemtec with four leading Internet-solutions providers and
e-business consulting companies in Argentina, Venezuela, Brazil and Spain to form Neoris
with 1,200 professionals. Neoris combined Cemtec’s experience of integrating different
computer platforms with these partners’ knowledge of their home markets to focus on e-
commerce consulting. A few months later, Neoris acquired 100% ownership of Tinta
Invisivel, another consulting company in Portugal, and 55% ownership of CoSite, a
developer of Internet-based logistics products for increased utilization of trucking fleets.
In mid-2001, the e-market started to shake out. Construmix and Construplaza

were downgraded to become information sources for customers. Although these
portals had made a minimal financial contribution to CEMEX, CxNetworks had
accumulated knowledge about how e-marketplaces and other industries
operated. San Agustin reflected:
In Zambrano’s mind, we need new sources of wealth for the future. It takes a long time to
develop a new business. Even if you buy a new business, you still need the skills to run it
and add value to it.
In contrast to the e-ventures, Neoris remained competitive and profitable, and set
out to acquire new customers from different industries. For example, it formed a
joint venture with PVA International Inc., a New York based technology
management consulting firm, which brought in a strong customer base of
financial services organizations such as Citigroup and J.P. Morgan Securities.
In addition, CxNetworks launched Arkio in Mexico City in July 2001 to experiment

with another business concept: to provide one-stop shopping for construction
materials for small and medium-sized construction companies and professionals.
These customers were dissatisfied at having to deal with as many as 20
distributors to build a house, often paying higher prices and receiving late
deliveries. Arkio focused on face-to-face interactions with customers by using a
direct sales force, a call center, and display centers of 600 to 1,000 square
meters in size as sales channels. A centralized warehouse of about 10,000
square meters was used to keep inventory of 20,000 stock keeping units. San
Agustin explained the potential benefit of Arkio:
On-time delivery is critical for our customers in the construction industry. What we learn is
the delivery logistics of construction materials other than cement, which requires a high
level of coordination. This learning can be transferred to other countries.
Strengthening Distribution in Mexico (2001 Onward)
Through experiences such as entering the market in the Philippines, Zambrano

and his senior management team learned that they had to strengthen their
distribution capabilities. In mid-2001, CEMEX started building a network of
building material distributors under its retail brand name of Construrama. CEMEX
10
gave these distributors bulk purchase discounts, market studies, training and
software programs such as payroll and marketing to help them sell more CEMEX
products. By mid-2003, CEMEX had certified 741 distributors, with more than
2,050 stores to channel CEMEX’s cement and other key construction materials to
end-users across Mexico. About 65% of CEMEX’s cement sales in Mexico were
through Construrama stores. Zambrano commented on the strategic value of this
initiative, “I think Construrama can go into many developing markets but in
different variations.”
Working in the Knowledge Conversion Zone: Formalizing the CEMEX Way
The CEMEX Way: Governance Model Driving Value
For many years, Zambrano and his management team had been supportive of
local units investing in IT to improve performance and to share best practices.
In 1999, the fact that IT costs had increased to as much as 5% of sales rang
“alarm bells” for Zambrano. He found out that even with their past efforts, there
was still duplication of some systems, processes and functions across the
company. He then asked the IT Department (300 people worldwide), “How can I
be assured that IT will continue to create strategic value in the business in the
near future?” Hence, in 2000, the company invested $200 million to launch the
CEMEX Way, a company-wide program, to build on what had already been
learned and further standardize best-practice processes globally.
Francisco Garza, President – North America and Trading, remarked:
Our employees’ world should be the whole world, not just a country or region. They should
have a global view and share best practices developed around the world.
The program started by creating an open corporate information infrastructure to

allow the sharing of best-practice processes via Intranet. In parallel, CEMEX
created a new governance model that aimed to improve the business results of
different regions by ensuring permanent standardization of eight types of best
practice processes (refer to Exhibit 3a and b). CEMEX formed eight e-groups,
each specialized in a core process.
A senior executive sponsored each e-group, which consisted of experts from
different areas of the organization and representatives from IT and human
resources (refer to Exhibit 4 for roles of e-group members). Their mandate was
to look at which processes should be further standardized and which should be
improved before standardizing. Zambrano remarked:
We made very general programs in Mexico that are very complex with a lot of logistics
involved. These programs might not be so good in Spain, for example, in which
infrastructure is very good, the business system has become very efficient, and customers
are large and buy in bulk. This contrast has taught us that a great process can always be
improved…You design a car, you put it on the road, and then you have to fine-tune it.
11
The e-group used a role-centric approach to assess and improve business
processes. G. Garcia explained:
We want to understand, for any particular role, what the need for information and service
is. Roles are not just internal. [For example,] our partner who supplies our trucks plays a
particular role in our process of service delivery to our customers. [And our partner also
needs information about our customers and us.]
Then, the e-group would use a single methodology and tools defined by the
Business Process Center to document and consolidate the best set of practices
in order to form a knowledge base (refer to Exhibit 5). This CEMEX Way
knowledge base was a result of the continuous improvement efforts of CEMEX
employees and would be a key asset of the company.
The CEMEX Way: Value Payoffs
Through the CEMEX Way, the company could save costs of $150 million per
year. For example, IT spending decreased to 2% of sales and the standardized
online procurement process saved 5% of the purchase cost of indirect goods and
services. Continuing to use and enhance their ARIS and speech-act process
mapping techniques, now a component of developing and maintaining the best-
practice processes “process blueprints”, the CEMEX Way would reduce the time
for integrating a newly acquired company. For example, the time needed to
integrate Southdown in 2000 and Puerto Rican Cement in 2003 was only four
months and two months respectively, as opposed to 18 months for the first
acquisition in Spain in 1992. The CEMEX Way also enabled the company to
quickly launch initiatives to increase customer satisfaction. For example, the
open corporate information infrastructure enabled CEMEX to launch a new
electronic storefront in different countries as often as every two months, while
being able to customize the online offerings to local requirements. Most
importantly, the CEMEX Way further refined the company’s disciplined approach
to documenting and sharing knowledge developed within CEMEX, as G. Garcia
put it:
If we did not have this program, we could be in the hands of consultants, and not be able
to achieve intellectual property or competitive advantage.
“Sharing best practices” is now always on the agenda of business unit

management meetings. For example, energy was one of the highest variable
costs in the cement business, and CEMEX had been continuously looking for
opportunities to save on them. Plants in Mexico used a mixture of more
expensive oil or gas and less expensive coke. However, plants in Spain had
developed a technology to use 100% coke, which was subsequently transferred
to plants in Mexico. Later, engineers from Mexico developed a technology to use
100% petroleum coke that cost even less and was less volatile. They transferred
the new technology back to Spain.
The CEMEX Way: Finding the Right Balance Between “The Control Zone” and
the “Opportunity Zone”
After controlling the expenses, the CEMEX Way evolved into another level:
striking a balance between innovation and standardization. Zambrano explained:
12
I think we have to let go and to begin to actively look for great ideas. Someone told me that
one of the units is hiring locals to develop some small applications that they think they
need for marketing. We don’t want to kill any initiative. Therefore, we developed a new
process in which we have a group of peers who will let the unit try the idea out, observe
the unit, and then say if the idea is fine or not. Either we will do it your way, or we will do it
a different way. But there is going to be only one way for the company.
Recognizing the Value of Process Modularity and Reconfiguration of

Structural Capital
The next step of the CEMEX Way was to increase sharing of best practices with
other companies. Garza remarked:
We talked to the firemen in Boston and taxi drivers in Colorado to understand how they
can get through the chaotic traffic. You need to go outside of your own industry.
Consider the challenge of delivering ready-mix concrete. Contractors often change their
orders at the last minute, but on average, it took three hours between the time when a change
order was received and when the order could be delivered. To decrease turnaround time in its
Mexican market, CEMEX equipped most of its fleet of concrete mixing trucks with global
positioning satellite (GPS) locators, allowing dispatchers to arrange deliveries within a twenty-
minute window, versus the three hours CEMEX's competitors require.
This isn't traditional benchmarking, since managers don't simply copy something they see
elsewhere. Rather, they take pieces of process or technology that they find and recombine
them in novel ways to solve customer problems. The CEMEX team that developed the GPS
system got the idea from a 911-call center they saw in Houston. Having identified contractors'
need for just-in-time delivery, the team reasoned by analogy that emergency response teams
faced a similar problem of quickly reacting to urgent requests from unpredictable sources.
Based on this insight, they studied how the call center dispatched paramedics within ten
minutes despite traffic congestion and unpredictable call patterns.
Armando Garcia, Executive Vice President – Development, added:
The end game of the CEMEX Way is a continuous process of improving, definitely a
competitive advantage…We are very good but we are not content.
People Orientation: Fusing and Information Culture with the Corporate

Culture
To make the CEMEX Way work, CEMEX had to make sure that the company
had the talents and attitude to continue developing and sharing best practices.
Garza added:
You create a culture. Then, you live in it and try to improve the culture towards where you
want to be next…We would like to see a more aggressive attitude at all levels--our people
try more new things to do things better and share best practices.
The human resources department organized various management succession-

planning programs to develop talents. For example, executives with high
leadership potential were selected for the Global Leadership Program to receive
13
coaching from more experienced executives, including Zambrano himself. In
another program, talents were identified to join the multicultural PMI teams to
gain on-the-job integration experience.
To instill and reinforce values and behaviours that support the company’s
strategy, the human resources department also developed a “Building the
Future” initiative for implementation in different countries. For example, graphics
titled “Global landscape,” “The road to value” and “Building the future together”
would be circulated throughout the company to stimulate conversations among
employees like, “Where do you see yourself in the global picture of the
company?”; “How do you make promises to your colleagues, customers and
suppliers?”; and “How do you measure your delivery on promises”. Luis
Hernandez, Senior Vice President – Organization and Human Resources,
explained, “If you want to change people’s behavior, you need to change the way
they feel about things first.”
The strategic planning department also introduced a balanced scorecard (refer to

Exhibit 6) to help employees understand CEMEX’s strategies and motivate them
to execute the strategies by developing and sharing better practices. Hernandez
stressed, “We emphasize the recognition of a behavior, not a person.”
Future Developments: Value Payoffs

But the Need to Move Forward
In mid-2003, there were changes in CEMEX’s senior management. For example,
San Agustin took on the additional role of Senior Vice President – Corporate
Strategic Planning to look at where CEMEX should invest and how the company
should allocate resources and to analyze merger and acquisition opportunities;
Arkio was moved from CxNetworks to North America and Trading (refer to
Exhibit 7). Management was reviewing the performance of CxNetworks and
CEMEX overall. Neoris changed focus from e-commerce to process redesign
and implementation, such as Enterprise Resources Planning and Customer
Relation Management. It became one of the three leading IT consulting firms in
Mexico and Spain, with expected revenue of $140 million in 2003.
CEMEX had come a long way in developing its culture with a unique CEMEX
Way of doing business. It had grown to be a global leader threatening the two
largest firms in its industry. As a high-growth business, it had developed a
dynamic capability to turn the tacit knowledge of its employees, acquirees and
customers into explicit knowledge embedded in its documented best practices.
Recognizing the need to continue to gain access to the company’s knowledge,
Zambrano reflected:
A company is really a sum of talents. You can guide with general principles, you can watch
some things closely, but people have to learn from experience. Some learn very, very
quickly, and are so informed … it is unbelievable.
CEMEX had gained a high level of transparency and control. Under the influence
of the CEO and its senior executives, the company had become information-
oriented.
CEMEX was strong in Latin markets: 63.7% of its worldwide production capacity
and 67.8% of its global sales came from Latin markets (refer to Exhibit 8).
14
However, other emerging markets, especially China (annual production capacity
of 600 million tons) and India (annual production capacity of 100 million tons),
were huge opportunities. As the company moved ahead, Zambrano expressed
his ambition:
You define home base differently as time goes by…but at least our home base is Latin
America and Spain now. We need to expand that…Forget about mature markets in
cement…continue to take more risks and go to more exciting places of the world…this
would be where you can grow.
But entering these markets was very challenging, as CEMEX knew little about
them. Zambrano and his senior management were reflecting on what lessons
they could learn from the last two decades in order to overcome these challenges
and continue their success as a key global player in the cement industry.
Exhibit 1
Cement Industry Financial Highlights 2002
CEMEX Lafarge11 Holcim12

Annual production capacity
80.9 160 110
(million tons)
Countries with operations 30 75 70
Net sales (US$ billion) 6.5 17.9 10.3
EBITDA (US$ billion) 1.9 3.4 2.7
EBITDA margin 29% 19% 26%
Majority net income
520 559 401
(US$ million)
Net income margin 8% 3% 4%
Employees (approximate) 26,000 77,000 50,000
Net sales / employee (US$’000) 247 199 183
EBITDA / employee (US$’000) 72 42 47
Source: Company information
11
€1 = US$1.23 (December 10, 2003).
12
SFr 1 = US$0.79 (December 10, 2003).
15
Exhibit 2
CEMEX’s Growth
1990 2002 Compound Annual

Growth Rate
Net sales (US$ million) 1,305 6,543 14%
13
EBITDA (US$ million) 324 1,917 16%
EBITDA margin 24.8% 29.3%
Majority net income 11%
148 520
(US$ million)
Financial leverage14 4.5 3.2
Annual production Not
80.9
capacity (million tons) Available
Countries with operations 2 30
Number of employees 14,000 26,000 5%
13
EBITDA (operating cash flow) is earnings before interest, taxes, depreciation and amortization.
14
Defined as net debt divided by EBITDA for the previous 12 months.
16
- 17 -
Exhibit 3a
The New Governance Model to Improve Business Results through Effective Processes
North South Europe/

America America Asia
Commercial
Ready Mix
Accounting
Planning E-Groups
E-Groups
responsible
responsible for
for
HR process
process
effectiveness
effectiveness
Finance and
and CEMEX
CEMEX
Way
Way
Procurement
Operations
Regional
Regional Organization
Organization
responsible
responsible for
for
business
business results
results
Source: Adapted from CEMEX

17
- 18 -
Exhibit 3b
The e Groups
Ready-Mix
Commercial Accounting Planning
Concrete
Customer-facing Accounting Analysis,
Processes
processes & & cost budgeting &
specific
logistics for management forecasting
to ready-mix
cement business
business
Finance Human
Operations Procurement Resources
Cash
Production & Sourcing & management, Roles &
quality supplier bank relations responsibilities,
assurance relationships & capital compensation,
markets & recruiting
18
- 19 -
Exhibit 4
Roles of E-Group Members
2 Business Process
Experts
• Individuals from a variety

of CEMEX locations
• Proven experience and
recognition in specific fields
1 Executive Sponsor /
3
Group Leader
Business Process Owner
• Process expert with proven
track record • Corporate Vice President
•Coordinates team responsible for strategic direction
activities and analysis •Oversees as many
as three groups
5 4
IT Support Human Resources
• Business process • Supports design and

Design implementation of “The
•Technology CEMEX Way” throughout
development organization
19
- 20 -
Exhibit 5
Building and Managing the Knowledge Base
e-Group
e-Group
CEMEX WAY
Business Process Center
• KNOWLEDGE
manages
• BASE
the knowledge base
• (Centralized)
e-Group
e-Group’s documentation
efforts are consolidated
in a common repository To achieve consolidation
(knowledge base) a single methodology and
set of tools must be used
(provided by Business
Process Center)
20
- 21 -
Exhibit 6
CEMEX’s Balanced Scorecard Pathways
Maximize Total Business Return
Operations Service Brand Loyalty Network Growth
This pathway focuses In this pathway we Ultimately, we are

on reducing the cost extend the focus to This pathway focuses The focus is on following a global
of cement supplied the order fulfillment on the end user of the matching the supply of strategy in
cement and the our capacity (including
within the network of process, all the way construction market. manufacturing, trading, competition with other
assets of the firm. to the cement and premixed products global players.
distributors, direct and aggregates
It is about optimizing and premixed The key process is integration) with the We now “roll up” all
the performance of products buyers. the creation of a market demand. our individual market
each cement plant brand that builds trust strategies into a
individually, and in the The emphasis is on with the ultimate end global strategy, with
context of the network the service dynamics user (construction and acquisitions as the
premixed products).
of assets of CEMEX. involved, including major driver of our
transportation, global position.
physical distribution
and premixed
products operations.
Adapted from CEMEX
21
- 22 -
Exhibit 7
CEMEX’s Organization Chart as of May 2003
President & CEO
Lorenzo H. Zambrano
EVP Planning EVP OHR Luis Hernández

& Finance Development IT José Luis Luna
Héctor Medina Armando J. García Technology Hugo Bolio
Energy Luis Farías
Strategic Planning Juan Pablo San Agustín
Business Development R. Castro/ P. Gastone
Legal Ramiro Villareal Controllership Rafael Garza
Comm. and Image Javier Treviño Procurement Francisco Cué
EVP
International Info. Dev. Jorge Tello Tax Timothy Cottrell
Administration
Corporate Finance Rodrigo Treviño Víctor Romo Security Jose de la Garza
Process Assessment Ricardo López Risk Management René Martínez
Admin. Services Alejandro Meléndez
Neoris Juan Pablo San Agustín
Admin. Serv. Projects Carlos Castilla
North America & Europe, Africa South America

Trading & Asia & the Caribbean
Francisco Garza José Luis Saenz de Miera Fernando González
Mexico Juan Romero Asia Ignacio Ortiz Venezuela Jaime Elizondo

USA Gilberto Perez • Philippines Jaime Ruiz de Haro Colombia Ricardo Blancarte
• Thailand Vicente Saiso
Global Trading Jorge Guajardo Nicaragua Mauricio Sanz
• Bangladesh Enrique Luna
Institutional Rel. Javier Prieto • Indonesia Francisco Noriega Panama Enzo Moschella
Arkio Alberto de Armas • Japan Randolph Wintgens D. Republic Miguel A Treviño
• Trading/Taiwan Joaquín Estrada
Costa Rica Carlos Jacks
Spain Ignacio Madridejos
Puerto Rico Giuseppe Maniscalco
Egypt José Llontop
Trading Leopoldo Navarro
Trading Germán Acha

22
- 23 -
Exhibit 8
Global Overview of Operations - 2002
Annual
Production Sales EBITDA
Capacity
Mexico 33.6% 37.9% 58.1%
Spain 13.4% 14.8% 15.2%
Venezuela 5.7% 4.7% 7.5%
Colombia 5.9% 2.9% 6.1%
Central America & 5.1% 7.5% 6.3%

Caribbean
Sub-total: Latin markets 63.7% 67.8% 93.2%
US 16.8% 26.5% 21.9%
Egypt 6.1% 2.2% 3.0%
Philippines 7.2% 2.1% 0.7%
Others 6.2% 1.4% (18.8%)
Total 100% 100% 100%

(80.9 mil tons) ($6,543 mil) ($1,917 mil)
23
Appendix 4
Citigroup’s CEEMEA Sales and Trading Unit:

The IO Intervention and Working the
Knowledge Creation Zone to I/T Value
Prepared by:
Authors with the assistance of Rebecca Chung and
Maria Wilhelmsson of IMD
Note: This case extends: IMD-3-1306 (Chung, R., Marchand, D. A. and Kettinger, W.J., 2004) “Citigroup’s CEEMEA
Sales and Trading Unit: Rapid Business Improvement through Effective Use of Information, People and IT.”
Wherever possible multiple accounts of the same event were solicited as well as secondary sources were used to
increase validity.
Citigroup’s CEEMEA Sales and Trading Unit:
The IO Intervention and Working the
Knowledge Creation Zone to I/T Value
Infocentricity cannot be compromised. I can negotiate on other things. But not this one!
Suneel Bakhshi, former head of CEEMEA Sales & Trading
In 2000, Suneel Bakhshi was appointed head of the CEEMEA1 Sales & Trading
Business at Citigroup. It was felt that the region had a significant opportunity for
improvement compared to the Latin America and Asia regions. Bakhshi was determined
to put the region on a sustainable growth path through increased client satisfaction. He
decided to make significant changes in the business and wanted to increase the client
focus by offering a more extensive range of client products. To do so he needed to
employ top class trading and risk management talent. He wanted to take a more direct
and regional approach to the treasury business to tighten controls and save costs.
Moreover, as information flow in emerging markets was highly imperfect and the speed
of decision-making in the treasury business was high, Bakhshi wanted to increase the
use of relevant real-time information to improve trading results across his diverse
region.
To make these changes happen, Bakhshi needed to leverage information, people and IT
capabilities in the unit. He went about it by building IT applications for decision-making
and product innovation that were specific to managing the fast-moving treasury business
and changing the way his team sensed, shared and used information across the region.
By late-2003, Bakhshi’s team had made significant progress. His team had become
more effective in managing and using information. For example, the traders were more
willing to share trading intelligence on a daily basis; and the salespeople were sensitive
to customer needs and innovative in designing new products to meet those needs. Over
the three years, the profit of the business doubled (refer to Exhibit 1).
Taking Over CEEMEA Sales & Trading
In April 2000, Suneel Bakhshi agreed to take over the CEEMEA Sales & Trading
business. It had about 320 employees (increased to about 360 employees by mid-
2003), and its customers included corporations, governments, and institutional and
individual customers in the CEEMEA markets. The CEEMEA region covered 31
countries grouped into the following geographic clusters: Central & Eastern Europe
(CEE), Commonwealth of Independent States (CIS), Middle East & Egypt, Africa,
Poland, Turkey and South Africa (refer to Exhibit 2 for breakdown of countries).
The unit generated revenue from two sources: 1) profit from trading financial
instruments; and 2) spread revenue from customers for providing them with hedges for
their exposures. It traded two types of financial instruments: 1) “simple” financial
1
Central and Eastern Europe, Middle East, and Africa: an emerging market region.
2
instruments, such as foreign currencies, money market instruments2 and fixed income
instruments3; and 2) derivatives,4 such as options5 and forwards.6
Bakhshi’s Value Assessment: Determining His Business Options
In Citigroup, annual financial targets were expected to be met or exceeded. Bakhshi

used the few months before he officially took over the unit to assess the situation and
gather best practices from other emerging market regions. He made the following
findings.
The relationship between the hub and the countries in the CEEMEA region was different
from that in the other two emerging market regions, where there was a very strong
relationship between the hub and the countries. Countries in the other regions generally
shared common values and practices. However, managing the CEEMEA region was
more complicated because the countries there were more diverse in size, culture, risk,
financial market development, regulatory regime, and corporate governance. Countries
in the CEEMEA region were managed in a more decentralized way and rarely shared
performance results, new ideas, and best practices. Management reporting needed
improvement with regard to accuracy and timeliness. There were no proper systems
and processes for local markets to report profitability and risks. At every month’s end, it
2
Money market instruments are short-term debts.
3
Fixed income instruments pay a fixed interest rate--bonds are an example.
4
A derivative is a financial instrument whose characteristics and value depend on those of an underlying
instrument, such as currency or debt. Advanced investors sometimes buy or sell derivatives to manage
risk associated with the underlying instrument by protecting against fluctuations in value, or to profit from
periods of inactivity or decline.
5
An option is the right, but not the obligation, to buy or sell a specific amount of a given currency or debt,
at a specified price during a specified period of time.
6
A forward is a contract obligating one party to buy and another other party to sell a financial instrument,
such as currency, at a specific future date.
3
took time to reconcile the numbers and produce even high-level management reports
immediately.
In local markets, IT was sub-optimal and information was not effectively used. There
was no integrated risk management monitoring process due to the fragmentation of
systems across the region. In most cases the procedures were manual, using
spreadsheets to control the business. People did not trust each other enough to share
information and learn from each other’s mistakes. Salespeople were still at the stage of
pushing “simple” products into the market and taking orders, rather than focusing on
client relationships and recommending alternatives to satisfy different client needs.
There were no proper systems and processes to collect and maintain customer
information.
In June 2000, Bakhshi gained some significant insights when he was participating in the
Breakthrough Program for Senior Executives at IMD in Lausanne, Switzerland. He
heard Professor Donald A. Marchand explaining the Information Orientation (IO)
Framework7 (refer to Exhibit 3). He agreed with the concept that an organization could
improve business performance if it increased its IO Maturity, i.e. how well it effectively
managed and used information, knowledge, people and IT capabilities. Bakhshi
remarked:
Infocentricity is something that I thought about, but nobody ever put it on paper and explained it
that way. This model is a science.
Bakhshi’s New ‘Value Creating’ Business Model
Bakhshi developed a new business model--a regional network with stronger

relationships between the hub in London and the countries, i.e. a strong unified team.
He wanted to build the following business capabilities: regional operational efficiency,
leveraged product expertise, pooled local market knowledge, trading expertise and
intense customer focus. He needed world-class talent with high EQ (emotional
quotient8) and infocentricity. Bakhshi was obsessed with teamwork and information
sharing.
Building infocentricity was significant because the centralized model required timely,
accurate and sufficient management reporting. Moreover, the price of financial
instruments in emerging markets was particularly sensitive to political factors.
7
The IO Framework was developed and scientifically validated during a three-year study--carried out at IMD with
the financial support of Accenture--involving 1,200 senior managers and over 200 senior management teams from
103 international companies. These companies formed the benchmark sample against which an organization could
measure its IO Maturity. References: 1) Marchand, Donald A., William J. Kettinger, and John D. Rollins. Making
the Invisible Visible: How Companies Win with the Right Information, People and IT. Chichester: J. Wiley & Sons,
2001: 24. 2) Marchand, Donald A., William J. Kettinger, and John D. Rollins. Information Orientation: the Link to
Business Performance. Oxford: Oxford University Press, 2001.
8
EQ is a measure of emotional intelligence--a person’s psychological functioning and interpersonal skills. Source:
Stein, Steven J. and Howard E. Book. The EQ Edge: Emotional Intelligence and Your Success. Stoddart Publishing,
2000.
4
To be able to profit, traders needed to have smart trading ideas and real-time
information about political changes. And to improve customer relationships, salespeople
needed sufficient customer information and tracking of their sales activities.
However, building infocentricity in the Sales & Trading unit would be a challenge:
resources for IT investment were limited; market research and analysis on emerging
markets were either not available or not reliable; and it would be difficult to change the
ways people managed and used information. As Robert Lustberg, a trader at the
London hub, commented:
If you are a trader, by definition, you are an information collector. It’s not easy to get traders to
share information because traders historically have been measured exclusively by how much
money they make.
Bakhshi’s IO Intervention: Creating Awareness for IO Change
Bakhshi discussed his ideas and challenges with his boss, Y.S. Wong, executive vice
president and global head – Emerging Markets Sales & Trading. Wong fully supported
Bakhshi and asked his team in the New York headquarters to collaborate with Bakhshi
on enhancing IT applications specific to the treasury business in the CEEMEA region.
Bakhshi recruited people whom he knew and trusted to become his direct reports, and
invited Professor Marchand to present the IO Framework to them. He wanted his new
management team to diffuse the concepts behind the IO Framework throughout the
unit.
Professor Marchand also measured the IO Maturity of Bakhshi’s team using the IO
Diagnostic™9 tool. The results (IO Dashboard™10) showed that the unit’s IO Maturity
was very low (refer to Exhibit 4). Professor Marchand helped the new management
team develop an action plan. The key initiatives included adding IT applications,
improving deal capturing and client contact processes, training staff to adopt the new
applications and processes, and designing a scorecard to measure an employee’s
effectiveness in information use. In particular, Bakhshi recognized that Michael Page,
MD – business management, had high EQ and good change management skills, and
asked him to orchestrate the implementation process.
Diffusing the IO Intervention: The New Management Team Builds Infocentricity
The members of the management team faced different challenges. They implemented
various change initiatives while building infocentricity and business capabilities.
Acting as an Involved Change Agent to Push a Shared Mental Model of IO
Bakhshi himself worked hard to drive the change. Initially, he traveled frequently to the
countries to gain support for the new business model. He also initiated the distribution of
messages and monthly newsletters to all staff, informing them of the progress of change
9
The IO Diagnostic™ tool is a trademarked product of enterpriseIQ® (see www.enterpriseIQ.com).
10
The IO Dashboard™ is a trademarked product of enterpriseIQ®.
5
and its impact on business performance. During the process, he held regular
discussions with his direct reports to form a common understanding of what building
higher IO Maturity in their unit was about and how it should evolve.
Improving IT Practices Maturity
In July 2000, Bakhshi appointed Umesh Jagtiani, MD, as regional head of eCommerce
for the Sales & Trading business. (By the summer of 2003, the eCommerce unit had
grown significantly with a team of business and technology professionals.) In addition to
rolling out Treasury products to clients, the team had built a robust intranet platform for
reporting, risk and credit management, trading information flow management and a fully
functional client relationship management (CRM) application.
Jagtiani worked closely with the Business Technology team, headed by Rakesh Joshi,
and Citigroup’s Operations & Technology unit to integrate front- and back-office
technologies. Joshi had to ensure that CEEMEA had the applications and data specific
to their business requirements.
eTreasury
The eCommerce team first built eTreasury--a portal showing information like the latest
market news, transaction details, and profit and loss. In addition, its interactive
component, Whiteboard, permitted traders to share information about markets and
generic client flows, along with “behind the scenes” impact analysis they were having on
the price of traded instruments. Jagtiani commented:
The inherent risk of contagion between different CEEMEA clusters meant that the implications of a
market event were not isolated to a specific geography. A default on domestic debt in Russia and
the devaluation of the currency, for example, would have a knock-on effect on other related
economies and potentially impact oil prices. The dissemination of information and the collective
behavior of traders were in the past difficult to gauge. Today, with the information tools and
behaviors embedded into our business, the decision-making process is based on more sound
analysis from the information.
Jagtiani and the business heads encouraged trading desks from other markets to join.
Lustberg noted:
When traders in other CEEMEA countries, such as Jordan, saw the idea flow between London and
Poland, they thought, “If they buy in why don’t we?”
CWeb
In March 2001, the team launched CWeb, an in-house solution for customer relationship
management. This application tracked information on revenue--broken down into
spread and volume by customer, product and country--and account management
activities such as frequency of customer calls/visits.
eCredit
The team launched eCredit, an online credit engine, in July 2001. This application
provided information such as credit lines, utilization and quality metrics.
6
eRisk
In October 2001, eRisk was released to help the management team assess the risk
levels of different countries. The portal included information such as consolidated
balance sheets and stress tests.
Previously, it had never been a priority for traders to record information about
profitability and risk exposure and submit it to the hub at the end of each trading day.
But reporting this information was important. Bakhshi stipulated, “Before you go home,
you need to know this information and put it on the web-based template for submission.”
If someone did not submit the information, the space on the template would turn red and
the system would automatically e-mail a reminder to that person. Bakhshi reflected,
Once I could see the Profit & Loss and risk exposure on the web, I traveled less as I was able to
know what was going on in the countries every day.
eDealer
Historically, reconciling operational activities like quoting prices, capturing deals,

verifying credit with the back office and reporting had been manual, inefficient, and
usually delayed. To increase operational efficiency, the team began a complex project in
October 2001: to build eDealer, a single centralized platform and a common database for
automating and integrating the deal capturing processes for multiple products (refer to
Exhibits 5a and 5b). This platform acted as a core to bring all portals and applications
developed earlier together.
During 2002, the team launched various features to capture:
• Foreign exchange deals--in March (rolled out to 30 countries by mid-2003)
• Fixed income deals--in September (rolled out to 5 countries by mid-2003)
• Money market deals--in October (rolled out to 7 countries by mid-2003).
The feature for capturing derivative deals would be added later.
eDealer offered huge benefits. Information that had previously been fragmented across
multiple systems was brought together to become real-time intelligence easily
accessible by salespeople, traders and managers. Streamlined processing from
eDealer straight to the back office systems increased productivity. For example, in
Russia, the treasurer was able to save 25% to 30% of his time per day and then use the
time saved for more proactive client services. It also allowed easier identification and
speedier resolution of mismatches, and hence, solved the problem of delays in
generating monthly management reports. The paperless workflow for deal booking and
authorization also saved costs. Finally, eDealer facilitated the building of an infocentric
culture. Jagtiani reflected:
In the past, traders saw information as proprietary and shared it strategically, if there was an
underlying benefit to them, or if it reflected positively on their trading views and results. Today this
information is no longer “personally” owned. A culture of transparency has transformed the way
business is managed. Both good and bad results are shared within the team, and overall the
impact on business has been extremely positive.
7
Working in the Knowledge Conversion Zone: Strengthening the Trading Arm
Bakhshi hired Anil Prasad, MD and regional head of trading, to manage the trading
team. Originally, the 18 trading desks in the London hub were in two separate locations,
with limited communication and collaboration between them. Overall morale was low.
When Prasad arrived, he put all the desks in a single location. He recalled, “On day
one, they didn’t even talk to each other, let alone share proprietary information.”
Like all other department or cluster heads, Prasad had to build an infocentric culture
within his team. He organized team-building events to develop trust among traders. He
hired trading talents only if they were team players and saw the value of infocentricity.
He stressed:
We have star traders. But they need to fit our culture... To be the best, you have to share
information and trade ideas.
Lustberg commented on his own appointment:
One of the considerations prior to joining this team was that both Bakhshi and Prasad subscribed
to a view that we need to share and promote the flow of information.
Prasad encouraged such advocates of infocentricity to persuade their peers to share

information and ideas by, for example, joining the chat on eTreasury’s WhiteBoard. He
also improved his team’s trading expertise by providing them with market research and
analyst reports as well as training.
With all these efforts, the London hub became the center of sophisticated trading
expertise. In addition to improving the trading expertise in countries, traders at the
London hub also served as role models to encourage traders in local markets to share
trading ideas and market information.
Prasad also started to provide intensive training to traders in local markets.
Pushing for ‘More’ Structured Capital: Improving the Sales Team’s Product
Expertise and Customer Focus
In 2001, Okan Pekin, MD – Sales and Structuring, engaged Greenwich Research to

conduct a survey of more than 800 clients (corporate and institutional) across 12 key
countries. The survey helped the unit understand market penetration, market share and
client perceptions to help segment the market.
Pekin pushed his team to use CWeb. Only three months after launch, it covered 5,000
clients (corporate and institutional) in 25 countries. In addition to allowing Pekin to
understand customers’ trading history and sales opportunities, CWeb enabled him to
review his team’s client contact. For example, if a salesperson had not contacted his or
her clients enough, an early warning indicator reminded the salesperson to visit the
customers, as well as alerting Pekin, who would then ask the salesperson why he or
she had not contacted the clients. Pekin coached his team to develop the ability to
sense customer needs. He commented:
Opinions of customers always override revenue numbers. The latter is backward looking while the
former is about the future. A salesperson has to ask himself or herself, “If I have to contact
customers more often, what do I ask them?”
8
He also sent his team to an in-house School of Foreign Exchange and Derivatives to
improve product knowledge and client contact skills (by mid-2003, the School had
successfully trained 150 staff).
Pekin’s team had become better at sharing sales and product development ideas and
sensing customer needs. He noted:
We had tools to communicate new concepts, disciplined processes to force new things to happen,
and incentives to change behavior. Now, the challenge is to liberate people to proactively create
and share new ideas, and take on initiatives.
Moving beyond Awareness and Establishing an Ongoing Metrics to Push and

Monitor Behavioral Changes: IO Scorecard™11
While the other change initiatives were continuing, Page formed a cross-functional team
of six to work with Professor Marchand on developing an IO Scorecard™. This was a
tool to guide the staff and measure how they sensed, shared and used information. It
was a challenge to translate the Information Orientation Framework into practical terms
in different functional contexts in this particular industry. The scorecard had to be in a
language that all staff could understand.
In February 2002, the online IO Scorecard™ was rolled out (refer to Exhibit 6). An
employee was measured on 20 aspects--for example, how frequently and how well he
or she developed quality contact with clients; how much he or she contributed to
product innovation; how much he or she contributed information and ideas to
eTreasury’s WhiteBoard; how well he or she shared best practices and mistakes; and
how much he or she used and updated eTreasury.
On a quarterly basis, each unit head had to evaluate their team’s performance. All
managers had to review their team’s performance against average scores by function,
country and the whole region. Managers also worked with the unit heads to set
improvement objectives. Staff were rewarded according to the evaluations.
Achieving Enterprise-wide IO Culturalism: IO Maturity in Different Geographic

Clusters
While the London hub continued to make progress in improving information, people and
IT practices in the region, the diversity of the region required specific changes in
information use by local treasury employees. Every sub-region faced a different set of
challenges. A few examples are looked at in more detail below.
After the Acquisition in Poland: “How Was the Day?”

In June 2000, Citigroup acquired a majority interest in Bank Handlowy, a leading state
bank in Poland. Citigroup’s Treasury unit in the country had 150 customers, whereas
Bank Handlowy’s had a customer base of 10,000 small and medium-sized enterprises.
Bank Handlowy’s Treasury unit had a hub in Warsaw and six regional offices.
Ted Dabrowski, treasurer in Poland, recalled:
11
The IO Scorecard™ is a trademarked product of enterpriseIQ®.
9
I remember when I first walked into one of Poland’s regional offices and asked, “How was the
day?” A trader just said, “Good.” When I probed to find out the transaction volume and spread, the
trader responded, “Not sure...”
Dabrowski figured out that his team should first focus on integrating the IT platforms
(three front office systems and three back office systems) and building a unified
infocentric culture. Employees in the country’s regional offices saw the acquisition and
change initiatives as opportunities; they were open to change. Employees in the
Warsaw hub, by contrast, saw themselves as professional enough to know what work to
do--and how. They regarded these initiatives as infringements of their rights, and hence,
resented them. Dabrowski needed to communicate closely with them to gain their buy-
in.
By mid-2001, dealers had changed their ways of sensing, sharing and using
information. For example, dealers started to record trading results daily, participate in
morning conference calls to share market information, and call customers. Dabrowski
commented:
You can feel the activity and life in the room, which is completely opposite to the scene shortly after
the acquisition. Now, my traders can tell me details of how the day was!
After the global economic downturn in 2001, the operations in Poland experienced tough
times. The country’s future entry into the European Union had also reduced the foreign
exchange spreads. The IO Scorecard™ helped push salespeople to make more
customer contacts and to launch derivatives. By the end of 2002, the team was calling
600 customers a day, in addition to what they used to do in late 2000--answering 400
incoming calls a day. They gained 350 customers and introduced 40 derivatives.
According to the 2002 Greenwich survey, they received high ratings for their service
quality; they increased their market shares in the foreign exchange market and the
derivative market in the CEEMEA region to 20% and 35%, respectively, making them the
leader in both markets. They increased revenue by 43% between the time of the
acquisition and the end of 2002. Dabrowski commented:
We measure people’s extent of information management and use more often than the rest of
Citigroup. It’s tiring and stressful…you feel like you are always being watched. But we offer very
good compensation for performance.
Central & Eastern Europe and CIS: Managing Diversity to Facilitate Improved
Information Behaviors
Historically, management had focused on the largest market, Russia. After Misbah
Shah took over as managing director in these clusters, he devoted more attention to
other countries and used different techniques to make the whole team change the way
they sensed, shared and used information.
For example, he turned country diversity from a management challenge into an

execution advantage. Talents from the larger and more developed countries, such as
Czech Republic and Hungary, were more confident in themselves and more difficult to
manage. By contrast, people from less developed countries, such as Ukraine, were
hungry to learn and deliver results. Therefore, Shah piloted new initiatives in less
developed countries to create success stories to influence the more developed
countries.
10
In addition, Shah sometimes sent employees to meet Bakhshi to let them understand
the level of commitment he had to IO. Shah commented:
If you micro-manage, you can make a guy give you all the accurate information. But what’s more
important is whether the guy has learned how to use the information.
With all these efforts, the cluster’s revenue had increased by 43% between 2000 and
the end of 2002. Shah reflected:
You have to be very intense about this [the process of building infocentricity]. It’s evolving…not just
implemented once. The next step is to take infocentricity externally to the customers for value
creation.
South Africa: Leveraging the London Hub’s Product Expertise and the Country’s Local
Knowledge to Introduce Derivatives
Four local banks dominated South Africa, accounting for 80% to 85% of the market.
Citigroup was the largest and the only foreign full-scale corporate bank. Before Nadir
Mahmud assumed the role of treasurer, the team had focused on “simple” foreign
exchange and money market products. Mahmud wanted to increase the effort to service
clients better by offering a more sophisticated product. Products had to be able to
satisfy local market needs. Therefore, Mahmud ensured that his team provided Pekin
with the necessary inputs to develop new products, which were then localized by about
10%. The collaboration also allowed his team to gain product expertise from the London
hub.
Traders needed to understand these sophisticated products well, so Mahmud hired

trading talents with the necessary knowledge. He also trained his team and encouraged
them to participate in eTreasury’s WhiteBoard to gain product knowledge.
By the end of 2002, the team had increased derivative revenues by 165%. According to
the Greenwich survey, in that same year they increased their market share in the
foreign exchange option market to 5%. And the team increased revenue by 180%
between 2000 and the end of 2002.
Middle East & Egypt: Alignment of Management Mindset and Goals, and Full-Speed
Transformation under War Conditions
Before Shujaat Nadeem became regional director, relationships between the cluster
hub in Bahrain and the countries were weak. For example, managers in the hub did not
pay enough visits to smaller countries such as Lebanon and Jordan. The cluster was
fragmented, with no common management mindset or goals. Management parameters,
such as balance sheets, scale of measuring risk, and levels of acceptable risk, varied
from one country to another.
Nadeem first had to focus on aligning goals and management mindset. He made a rule
that managers in the Bahrain hub had to visit all countries with the same frequency and
did so himself. He pushed his employees to use the new IT applications. For example,
two months after eTreasury was implemented, he made all his employees regularly log
onto the portal.
He also initiated and encouraged more group discussions to instill the habit of
information sharing. Nadeem commented:
11
It’s not efficient and infocentric to have separate conversations with six country managers
individually every day. I told them to communicate with me via SameTime so that all other country
managers can participate in the discussion and know what has been discussed.
Nadeem believed that his team’s performance and infocentricity would not be improved
without his close involvement:
Following the lead of Suneel, I closely monitored the results of the IO scorecard™, it allowed me to
quickly monitor the performance of the group.
In 2002, with the threat of the war in Iraq, Nadeem had to prepare to relocate the
Bahrain hub and establish mobile decision-making tools and processes if necessary. He
pushed for eDealer to be implemented in all six countries by the end of 2002. Hence,
when the war began in 2003, Nadeem was able to operate the business in a
contingency mode from both London and Bahrain without compromising the business.
The cluster increased revenue by 160% between 2000 and the end of 2002. In addition,
the information capabilities, product expertise and customer focus of the team created
the strategic value of attracting joint venture opportunities.
Impact on Business Performance

With all these efforts, the unit’s business performance improved in a number of ways.
Profit increased by 106% from 2000 to 2002 (refer to Exhibit 1). According to the 2002
Greenwich survey, the percentage of clients who regarded the unit as their “lead bank”
in the foreign exchange market and the derivative market increased respectively to 61%
(from 50% in 2001) and 38% (from 22% in 2001). Derivatives were introduced in a
number of countries.
The team also received exceptional client satisfaction scores across the region. Finally,
the unit won a number of Euromoney awards in 2002, including those for “Best in
Emerging Market Currencies” and “Best at Risk Management.”
The Future
Jagtiani summed up Bakhshi’s influence:
The reason why the idea of improving information management and use didn’t go away is because
Bakhshi continuously drove it with a passion.
In mid-2003, Bakhshi was promoted to global head of the Emerging Markets Local
Finance and joined Citigroup’s management committee. Despite Bakhshi’s departure,
people in the Sales & Trading unit were confident that they would continue with the new
information behaviors and practices he had supported. However, moving up in Citigroup
would expose Bakhshi to new challenges, where the value of an infocentric approach to
business results had yet to be proven.
12
Exhibit 1
CEEMEA Sales & Trading Unit: Financial Performance

(Figures are indexed)
2000 2001 2002 2003 Change

Actual Actual Actual Forecast 2002/2000
Revenue 206 277 323 347 +57%
Expense 100 107 105 103 +5%
EBIT* 106 170 218 244 +106%
* Earnings before interest and tax

Exhibit 2
Countries in the CEEMEA Region Geographic Clusters
Geographic Cluster Countries

Central and Eastern Europe (CEE) Bulgaria, Czech Republic,
Hungary, Romania, Slovakia
Commonwealth of Independent Russia, Kazakhstan, Ukraine
States (CIS)
Middle East and Egypt Bahrain, Jordan, Lebanon,
Pakistan, United Arab Emirates,
Egypt
Africa Algeria, Cameroon, Congo, Côte
d’Ivoire, Gabon, Kenya, Morocco,
Nigeria, Senegal, Tanzania,
Tunisia, Uganda, Zambia
Poland
Turkey
South Africa
London
13
- 14 -
Exhibit 3
The Information Orientation Framework: Leveraging Infocentricity
Information
InformationOrientation
Orientation(IO)
(IO)
Measures the capabilities of a company to
Measures the capabilities of a company to
effectively manage and use information
effectively manage and use information
Information
Information Behaviors
Behaviors and
and Values
Values (IBV)
(IBV) Information
Information Management
Management Practices
Practices (IMP)
(IMP) Information
Information Technology
Technology Practices
Practices (ITP)
(ITP)
Capability
Capability Capability
Capability Capability
Capability
The
Thecapability
capabilityofofaacompany
companytotoinstill
instilland
andpromote
promotebehaviors
behaviors The
Thecapability
companytoto manage
manageinformation
informationeffectively
effectively The
Thecapability
companytotoeffectively
effectivelymanage
manageappropriate
appropriateIT
IT
and
andvalues
valuesininits
itspeople
peoplefor
foreffective
effectiveuse
useofofinformation.
information. over
overits
itslife
lifecycle.
cycle. applications
applicationsand
andinfrastructure
infrastructureininsupport
supportofofoperational
operationaldecision-
decision-
making,
making,and andcommunication
communicationprocesses.
processes.
Proactiveness Sensing IT for Management Support

An organization is called “information proactive” when its members involves how information is detected and identified concerning:
• economic, social, and political changes; includes the software, hardware, telecommunication networks and
• actively seek out and respond to changes in their competitive
environment and • competitors’ innovations that might impact the business; capabilities that facilitate executive decision-making.
• think about how to use this information to enhance existing and • market shifts and customer demands for new products; It facilitates monitoring and analysis of internal and external business
create new products and services. • anticipated problems with suppliers and partners. issues concerning
• knowledge sharing,
Sharing Processing • market developments,
is the free exchange of non-sensitive and sensitive information. Sharing into useful knowledge consists of accessing and analyzing • general business situations,
occurs appropriate information sources and databases before business
• between individuals in teams, decisions are made. • market positioning, future market direction,
• across functional boundaries and • Hiring, • and business risk.
• across organizational boundaries (i.e., with customers, suppliers • training,
and partners). • evaluating and IT for Innovation Support
• rewarding people with analytical skills
includes the software, hardware, telecommunication networks and
Transparency is essential for processing information into useful knowledge.
capabilities that
An organization is “information transparent” when its members trust
each other enough to talk about failures, errors and mistakes in an Maintaining • facilitate people’s creativity and that
open and constructive manner and without fear of unfair involves • enable the exploration, development, and sharing of new ideas.
repercussions. • reusing existing information to avoid collecting the same It also includes the hardware and software support to develop and
information again, introduce new products and services.
Control • updating information databases so that they remain current and
is the disclosure of information about business performance to all • refreshing data
employees to influence and direct individual and, subsequently, to ensure that people are using the best information available. IT for Business Process Support
company performance focuses on the deployment of software, hardware, networks, and technical
Organizing expertise to facilitate the management of business processes and
Formality includes people
• indexing, classifying and linking information and databases
refers to the degree to which members of an organization use and • across functions within the company and
together to provide access within and across business units and
trust formal sources of information. Depending on the size, • externally with suppliers and customers.
functions;
virtualness, and geographic dispersion of an organization, this balance
• training and rewarding employees for accurately and completely
shifts towards more formal or informal information behavior.
organizing information for which they are responsible. IT for Operational Support
Integrity Collecting includes the software, hardware, telecommunication networks and technical
is an organizational value manifested through individual behavior that is expertise to
consists of the systematic process of
characterized by the absence of manipulating information for • gathering relevant information by profiling information needs of • control business operations,
personal gains such as employees; • to ensure that lower-skilled workers perform their responsibilities
• knowingly passing on inaccurate information, • developing filter mechanisms (computerized and non-computerized)
• distributing information to justify decisions after the fact or consistently and with high quality and
to prevent information overload; • to improve the efficiency of operations.
Maturity • keeping information to oneself.
Good information integrity results in effective sharing of sensitive
• providing access to existing collective knowledge;
• and, training and rewarding employees for accurately and
information. completely collecting information for which they are responsible.
Source: Marchand, Donald A., William J. Kettinger, and John D. Rollins. Making the Invisible Visible: How Companies Win with the Right Information, People and IT.
Chichester: J. Wiley & Sons, 2001: 24.
14
- 15 -
Exhibit 4
Information Orientation Maturity Results of Citigroup’s CEEMEA Sales & Trading Unit
15
- 16 -
Exhibit 5a
IT Applications
Technical Description
eDealer, the web-based platform, linked to external systems--such as the

Reuters, and Citigroup’s Money Market and Foreign Exchange online
trading systems--to capture deals in real time. It also linked to the Global
Credit Engine to obtain credit limits.
Transaction information was collected from the start, stored in a
centralized database, organized and analyzed according to user
requirements, and accessed through applications or portals such as
eTreasury, CWeb, eRisk and eCredit. In addition, the platform was
connected to Citigroup’s back-office systems for integration and
reconciliation.
16
- 17 -
Exhibit 5b
IT Applications
eDealer
Information Model
I
Reuters Internal FX Reuters Rate Global Credit • Transaction • Consolidated
N
Dealing and MM Server Engine Volumes & Revenue Balance Sheet
P Systems • Online Usage • Market Risk
U Statistics Metrics
L
D D R
T I MIS
E E A
M
S A A T
I
L L E
T
S S S
S
P Deal Interface Rate Server Interface Credit Interface eRisk

R
O
eDealer eDealer
C eDealer eTreasury eCredit
Transaction Processing
Reports
E Repository Engine
S
S
Back Office System Interface CWeb
D R
O E A
U A T
L E
T S S
P
U • Customer •Lines &
Back Office System / General Ledger Volumes & Revenue Utilizations
T • Customer Spread • Credit Quality
S • Credit Limit Status Metrics
Source: Adapted from Citigroup
17
- 18 -
Exhibit 6
Online IO Scorecard™
Source: Company information; copy of actual screenshot.
Source: Company information; copy of actual screenshot.
18

DrivingITValue Kettinger

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Driving Value from IT:

Final Report to the SIM Advanced Practices Council

1. Introduction and Background: The Knowledge Management Perspective of Value……………12

2. The Knowledge-Based Value Framework: A Common Language of Value……………………. 16

3. Expanding the Framework: Value Zones and Value Orientations …………………………….. 21

4. Working the Zones to Value…………………………………………………………………….. 38

5. The CIO as a Value Leader……………………………………………………………………… 57

6. Summary of Major Findings…………………………………………………………………….. 61

7. Recommendations To Create Value…………………………………………………………….. 63

Language of Value: Lexicon ………………………………………………………………………. 66

1. How do senior executives perceive business value?

Our project provides a business value framework to

Study Approach: A Knowledge-Based Value Framework

Figure 1. Overall Value Creation and Assessment Paths

IT Value Creation Legend

Driving Value from IT Kettinger and Marchand

Figure 2. Knowledge Based Value Framework

Driving Value from IT Kettinger and Marchand

Direction of Value Assessment and Actions

Creation Direction of Value Creation

Driving senior executive strategic actions are 4 managerial orientations: Entrepreneurial

Driving Value from IT Kettinger and Marchand

Case 1: Skandia – Working the Knowledge Creation Zone

Case 2: Dell – Working the Informated Opportunity Zone

Case 3: CEMEX - Working the ‘Informated’ Control Zone

Case Studies: Four Value-Achieving Companies

Driving Value from IT Kettinger and Marchand 7

Case 1: Skandia – Working the Knowledge Creation Zone

Case 2: Dell – Working the Informated Opportunity Zone

Case 3: CEMEX - Working the ‘Informated’ Control Zone

Case 1: Skandia – Working the Knowledge Creation Zone

Case 2: Dell – Working the Informated Opportunity Zone

Case 3: CEMEX - Working the ‘Informated’ Control Zone

Finding #9: A broad-based, shared view of Information Orientation is a critical managerial

Overall Project Recommendations

Key Recommendations: Driving Value From I/T Project

Step 1: Understand Overall Business Value

Step 2: Understand Specific Zone Paths and Actions

Table 2. Opportunity Areas Companies Can Initiate to Create Value

Value Path Component (& Project Case Study Example) Roles/Responsibilities

Business Capabilities - Senior Executive (Cxx)

Human Capital - Senior Executive driven

Driving Value from IT Kettinger and Marchand 12

Business value and information/information technology (I/T) value can be confusing

Figure 1. Study Research Problem: The Information/Technology

Scenario: I/T Business Value?

• Wants good business results.

This project addresses this communication gap by answering 3 primary questions:

The Knowledge Management Perspective of Value: Theory and Concepts

Our knowledge-based perspective of value draws upon research in the resource-based

Specifically, our framework conceptualizes converting human capital (embedded

Nillson’s CIO perspective is perfectly aligned with his CEO’s perspective:

3 Steps to Driving Value from I/T

Driving Value from IT Kettinger and Marchand 15

Driving Value from IT Kettinger and Marchand 16

Driving Value from I/T

Value Creation Path

Figure 2. Overall Value Creation Path

Driving Value from IT Kettinger and Marchand 17

IT Value Creation Legend

The Value Assessment Path

Value Creation and Assessment Summary

Strategic foresight by realizing a strategy shift was necessary to change from a