Innovation in Digital Enterprise 2012

Contents
Introduction: .......................................................................................................................................... 2 Definition of Innovation ........................................................................................................................ 2 About Toyota:........................................................................................................................................ 2 How did technology change Toyotas business model? ............................................................ 2 Did Toyotas have a choice or was it a competitive necessity? ................................................ 4 What are the drivers for Toyotas innovation? ............................................................................. 4 What are the social and ethical impacts of introducing new technologies? ............................ 5 Technologies impact on the companys stakeholders and vice versa? ................................... 6 Different Challenges regarding the recent changes and how these were overcome? .......... 7 IT Governance: ..................................................................................................................................... 8 Background: ...................................................................................................................................... 8 Definitions: ......................................................................................................................................... 8 The Purpose of IT governance: ..................................................................................................... 8 IT Strategies and factors which the organisations might consider: .......................................... 9 Key governance functions: ............................................................................................................. 9 1. Strategy ................................................................................................................................... 10 2. Risk Management and Compliance .................................................................................... 10 3. Value Delivery ........................................................................................................................ 10 4. Monitoring and Reporting ..................................................................................................... 10 5. Stakeholder Communication ................................................................................................ 10 6. Decision Making ..................................................................................................................... 10 IT Governance Framework: .......................................................................................................... 11 Val IT framework: ....................................................................................................................... 11 COBIT framework (Control Objectives for Information related technology):..................... 12 Structure of IT governance: .......................................................................................................... 13 Drawbacks of poor IT governance: ............................................................................................. 14 Different aspects within IT governance:...................................................................................... 15 IT Planning: ................................................................................................................................. 15 IT security: ................................................................................................................................... 16 IT Project management and security: ..................................................................................... 17 Bibliography .......................................................................................................................................... 19

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PART A:

Introduction: This article or research is carried out in order to do an in-depth analysis of the role technology plays in terms of Toyotas innovative processes, which makes up part A. During this research we are considering various aspects like the Drivers and their influence towards innovation and their influences, the social and ethical impacts that the innovation has on the organisation. In the second part the discussion of various topics such as IT governance, IT planning and related topics are being carried out.

Definition of Innovation: Innovation is a process by which we are able to create a new or a better version of the existing product, services or ideas which are already available in the market, what the government has and finally what technology the society is using currently.

About Toyota: Toyota Motor Corporation is a multinational automaker situated in Japan. The company was established in the year 1937 by Kiichiro Toyoda. Toyota in 2010 became the worlds largest automobile manufacturer in terms of production and it also scaled up to become the 9th largest company in the world by revenue. The main reason for Toyotas success is their unique corporate philosophy, set of rules and attitudes that govern the use of its resources. Toyotas philosophy is often called as the Toyota production system, much of Toyotas success in the world markets can be attributed directly to the synergistic performance of its policies in human resources management and supply chain networks. How did technology change Toyotas business model? The business model of Toyota is an integrated low cost differentiated strategy. In this kind of business model the major aspect of study is trying to find out the lowest

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possible operational cost along with unique position suitable for Toyotas process or operational strategies that separates them from the competition, even Toyotas new slogan which is moving forward which reflects their plans and action for the future also matches with the Toyotas business model. (Porretto, 2004) This unique business model of Toyota has made it as the leading automobile manufacturing in the world; Toyota now has the market share of 14% in the first 4 months of the year 2005 with an incredible jump of 2.3% from the year 2004. In 2000 Toyota launched a new process of working making use of cost effective strategy called CCC21( construction of cost competitiveness for the 21st century) for low cost operational expenses, this strategy is based on the policy of purchasing the best parts at the lowest cost with shortest lead times. According to a source from Toyota, it has come to our knowledge that Toyotas has started to undertake a manufacturing revolution which includes using or adapting the concepts of lean manufacturing and Just in time production which are instrumental in the developing todays business methods and managerial values which is known as Toyotas ways. (Strategos International, 2007)

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Fig1:Toyotas Business Models for indonesia (Novateur's Thoughts 2009) The above mentioned business model for specifically developed for Indonesia based on the working environment and the region specific strategy which is being applied for this model (Novateur's Thoughts 2009) Technology like the one being used in manufacturing department has had major influences on the Toyotas business model, with respect to the process and supply chain operations within and outside the Toyota manufacturing plant. Did Toyotas have a choice or was it a competitive necessity? Toyota is considered as one of the most innovative company in the automobile sector, in this case the technological innovations which are being going on are a competitive necessity and especially Toyota had a huge responsibility on its shoulders so as to improve its working process in order to stay in the game profitably when compared to its competitors. Due to the fact that general motors was losing its market share due to the lack of innovative solutions being introduced which might be due to the old cultural belief which had taken over the GM ways of working. To avoid such situations Toyota was constantly in pursuit for innovative ideas to improve the working process, in order to do so Toyota usually try and introduce highly reliable and fuel efficient cars which consistently outperformed GM brands on product quality. Toyota also introduced low cost manufacturing and was also successful in getting such methods into existence while its competitors were unable or to slow in this field of constant R&D which provided Toyota with the competitive advantage. Toyota also developed a superior brand appeal which was entirely based on greater customer experience. Even though Honda followed in the footsteps of Toyota, the company was relatively slower to adapt to the changes. This is example through which we understand the use of technology and being innovative acted as a source of gaining the competitive advantage. (Willie Pietersen, 2012) What are the drivers for Toyotas innovation? As Toyota is a private organisation driven by the goals of maximizing profits, beat the competition, please the stake holders, striving to become best of the lot has led to the organisations innovative ways of handling and doing work.

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So in this case the drivers for innovation with respect to Toyota are 1. Stakeholders interest: The idea of the stakeholders interests in the companies functioning is considered as one of the guiding principles which are essential in Toyota being innovative. 2. Urge to be better than the competition: automobile sector is rapidly becoming the very innovative sector with many players emerging within the industry and to survive in such environment Toyota has to be constantly up-to-date or be an innovator. In this case Toyota has chosen to become an innovator by coming up with an innovative ways in the production system, such kind of production system which makes use of lean manufacturing and this kind of production system is called as Toyota production system. Many of the other manufacturers in automobile sector tend to make use of this system with some changes to the process. (Toyota Motor Corporation, 2006) 3. Culture: Toyotas boasts about having a very deeply rooted culture. The Culture of Toyota has been evolving round the 3 major beliefs, which are Engineering importance [monozukuri] Continuous improvement [kaizen] Reliance on their own corporate resources to solve problems. (FutureLinkLLC, 2010) What are the social and ethical impacts of introducing new technologies? The most important ethical issues which is concerning for majority of the car manufacturers are the raising interest within its customers regarding the environmental issues where in customers are looking for an alternative as the likes of cars run on electricity etc. Toyota has taken certain measures in order to overcome the environmental issues which has being going on for a long time. Here Toyota has been on a continuous run to develop different and suitable products which have the capability to overcome the current environmental issues which have been going on in the current automobile industry. Toyota has taken some steps in order to control or overcome the environmental issues which have been surrounding not only Toyotas vehicle but the entire automobile sector. (Toyota 2012)

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Fig 2: steps to overcome ethical issues (Toyota 2012) Social impact is nothing but the impact that technology has on the customer in general, also issues face by the organisation. Toyota to make its brand more sociable that is to make the brand awareness within the automobile customers have effectively used many technologies in order to provide the comforts and the safety for its customers many of the comforting features might be a larger leg space for the people sitting at the back, having good quality suspension which reduces the discomfort while travelling. Some of the security features like the airbag, the vehicle lane correction system; ABS, antiskid system etc. have been put into effect so as to give its customers a better feeling of safeness while driving any Toyota product. Toyota also provide a higher end service to customers at affordable price, this is done by employing workers and giving them effective training along with schemes to retain them. Technologies impact on the companys stakeholders and vice versa? In case of Toyota the different stakeholder who are taken into consideration before any ideas of improvement or changes to be implemented are as shown bellow

Fig 3: Different Stakeholders within Toyota (Toyota, 2010)

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Stakeholders

Customers

Employees

Business Partners Local Communitie

Shareholders

Toyota CSR policies suggest that the organisation believes in management interacting with the stakeholders so as to contribute towards sustainable development. All the groups of stakeholders as shown in the above figure are taken into consideration while making important decisions with respect to the improving of existing technologies or adapting to a new style of technology. Toyota also aims that the CSR activities be carried out in accordance to the companys corporate culture. Using this type of interdependence between technology and stakeholders Toyota is able to innovate successfully. (Toyota 2010) Different Challenges regarding the recent changes and how these were overcome? The new technological improvements may propose certain limitations like the misinterpretation between shareholders and the customers this might be due to the miscommunication of ideas these are overcome by trying to involve customers into the idea giving process. Trying to implement new technologies each and every time so to keep up with their reputation. This type might lead to additional financial burden on the customers. This

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can be overcome by making use of the necessary changes to a process either by replacing it completely or updating the current process. Part B

IT Governance: Background: IT governance first emerged in 1993. IT governance is a part of the governance focused on information technological systems and their performance and risk management. There has been a rise of interest in this particular field due to the fact of having a greater accountability for decision making are it use of IT. (UCLA, 2010) IT governance is a set of relationship and processes designed to ensure that the organisations IT is in a position to sustain and extend the organisations strategies along with the objective delivering benefits and maintaining risk at an acceptable level. Definitions: IT governance is nothing but specifying the decision rights and the correct accounting frame work required to encourage the desirable behaviour of the use of it. (Weill and Ross, 2004) The definition of IT governance in views of the IT governance Institute which expands the definition to include foundation mechanism, the leadership and organisations structures and process that ensures that the organisations IT sustains and extends the organisation strategies and object. (IT governance institute, 2006) Effective IT governance helps in ensuring that the IT supports the business goals, in return optimizing the business investments which have been made with respect to the IT systems along with efficient management of IT related risks and opportunities. The Purpose of IT governance: IT governance is to direct IT endeavour in order to ensure that the organisations objective and the IT performance are in relation with each other. The organisations objectives are as show in the list:

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Aligning of the IT with respect to the enterprise in order to attain the organisational goals and or to fulfil the promised benefits. Use of IT in order to exploit the organisations strengths in order to make use of the opportunities and maximizing benefits. Responsible Use of IT resources. Up to the mark management of the IT related risks. (Iliescu, 2010)

IT Strategies and factors which the organisations might consider: IT strategy articulates the enterprises intention to use IT, based on business requirement. In order to formulate an effective IT strategy the factors that must be taken into consideration by the enterprise being considered are: Business objectives and competitive environment of the enterprise. Current and future technologies. Costs. Risks. IT capabilities of the enterprise. Cost of current IT structure Past failures and successes

After the issues are addressed the IT strategy can be translated in the forms of following: Business Functions: Functional requirements need to be delivered by applications and IT services. Application Functions: applications and datas logical structure must be in order to deliver the required. Key governance functions: This framework is in terms with the alignment and is accountable with respect to the following governing functions with respect to the 2 types of view those being Vertical and Horizontal.

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1. Strategy It is a way of getting the right direction, planning, aligning with the organisations principles, along with monitoring and review the IT systems. 2. Risk Management and Compliance Before any IT system is put in place the risks which are associated with each every stages of the IT system must be evaluated and to counter these problems a definite strategy must be in place. 3. Value Delivery The newly applied IT services or process must be able to increase the profitability of the process. 4. Monitoring and Reporting After the evaluation process the next is to monitor continuously the IT system so as to make it available and running each and every time, also checking for any tracks where the strategy does not match with the business principles. It also involves reviewing IT leadership issues or aspects. 5. Stakeholder Communication Identification of appropriate stakeholders and levels of interaction both internal and external to the IT function. 6. Decision Making Finally after all the above steps are successfully completed the decision has to be made regarding whether the correct IT systems were put in place.

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Fig 4: Global Best IT practices (Iliescu 2010) IT Governance Framework: Val IT framework: This is a comprehensive framework which is used to create or enable the creation of business value from IT enabled investments. Val IT connects a set of practical and proven governance principles process and practice that are used to give the board members or the decisions makers some guidelines using which they can make suitable decisions in order to optimize the values obtained from the IT investment. Val IT supports the enterprise goal of creating optimal value from IT enabled investments Some of the key terms which are used by the Val IT publications are: Project: A clearly setup list of activities which are concerned so as to deliver a defined capability to the enterprise based on the existing terms and condition. Program: A list of interrelated projects put together in order to achieve both necessary and desired results. The program is primarily unit of investment within Val IT Portfolio: Grouping, managing and monitoring of objects of interests in order to optimize business values. (ISACA 2012)

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Fig5: VAL IT frame work (ISACA 2012) COBIT framework (Control Objectives for Information related technology): It is the only business framework which is useful for governance and management of IT. This evolutionary version incorporates in itself the latest thinking in enterprise governance and management along with providing globally accepted and used principles, practices, analytical tools, related models to help increase the trust in the value form info system. COBIT 5 is an extension of COBIT 4 which is done by integrating some other popular frame works like RISKIT, VAL IT, ITIL and some other related standards from the ISO Major benefits of using COBIT: Helps in maintaining high quality information which is essential to support business decisions. Helps in achieving strategic goals along with realizing the benefits got out of the business through effective use of IT Achieving operational excellence through reliable and effective use of applicable technologies Maintain IT risk to certain acceptable levels Optimizing the cost occurring over the IT services and technology. (ISACA 2012)

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Fig 6: 5 principles and 7 enablers for the COBIT framework (ISACA 2012) Structure of IT governance: Fig 7: IT governance structure (Orgeon State university 2012)

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a) IT Strategy Committee: Its a particular group within any organisation whose role is to understand the various issues related to IT and further advise the top management or board of directors. This committee is responsible for improving or extending the role of IT within any organisation along with proper planning of governance. The additional responsibility invested into this committee is to try to align different departments so that their IT is successfully implemented. (ITGI 2006). b) IT Steering Committee: The role of the steering committee is to convert business and strategic goals into plans which work or fits perfectly with the business principles. The main responsibility given to this committee are project management, information security and quality of service. The committee works in tandem with the stakeholders by hearing to their inputs about business needs and the organisation technological needs so as to have a clear picture of the relationship between business and IT (Zee 2002). The duty of this committee within the organisation is to plan and implement the decisions taken by board. This group has the responsibity of implementation task on their hand so must have the correct blend of people of all field. c) Audit Committee: - Here every organisation usually will be having 2 sets of auditors like the internal auditors and the external auditors, the internal auditors are those who work with the company all the time, the external auditors are the once who are asked to do a surprise visits by the board. The internal auditors job is to check on the fact whether the IT systems being used are in clear connection with the business principles, the role of the external auditor is to do surprise check to see if the internal auditors work is up to the mark or not . (Marks 2010). Drawbacks of poor IT governance: Most of the times when the reason why the board may have a negative experience with IT is due to the ineffective IT governance which is being considered as the root cause which might result in the following effects: 1. Loss of business, reputation or weakened competitive positions. 2. Deadline not being met which results in increase in cost of working or cost of production, and lower quality than expected.

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3. The efficiency and core processes of the enterprise being negatively impacted by poor quality of IT deliverables. 4. Failure to bring innovation or deliver the promised benefits due to lack of proper IT (Iliescu 2010) Different aspects within IT governance: IT Planning: It is a set of standard rules within the Information technology domain. It is concerned with making the planning process for IT investments and decision making a lot quicker and more set of aligned process (Leaver 2009) (Architecture and governance magazine 2008) Suggest that IT planning is becoming a major discipline within the strategic planning domain where enterprise architecture is of the major concerns. IT planning is of importance when there is a merger and acquisition process is taking place, this is due to the fact that the two organisation under question might have two different sets of IT systems in place where in effective planning is required to make the M&A process a successes. In order to do this there must be an early start for planning, establishment of transition teams and a common meeting point so as to communicate important details which are subjected to as 1 st critical steps in IT planning. There are some key factors to be taken care of before going ahead with IT planning after any M&A, some of which are as follows: Hardware Application software Network Architecture Security Issue Communication Training Budget Special issues (BOOMER 2008)

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IT security: After all the process of IT planning the most important aspects of IT is its safe usage, so due to this condition the aspect of IT security is of the upmost importance. The emphasis on IT security is much higher due to the fact that there were some recent cases there was important public information being stolen along with the queens child welfare charity details. So as to standardize the IT security there are some regulatory body like the ISO which sets up standard procedures and guidelines for the setting up of proper IT security. The IT department of any organisation is the most regulated department as it has been allocated the role of the gatekeeper for the organisations sensitive and secret data, this is due to the fact that electronic information has become more like a valuable currency within the private and commercial space where in a particular organisation might have to share most of its information with its customers, partners and its suppliers in order to streamline the process, by doing this the organisation might run into the risks of exposing some of the sensitive information to the outside world. So in order to reduce such kind of risk taking the standard rules and regulations have been set up where in all the members involved in the value chain are bound together by a set of conditions which they have to follow. Some of the common acts passed by the UK government are data protection act, computer misuse act, payments card industry data security standards etc. (Knights 2011), along with the strict IT measures data protection strategies also should be applied. (Barrett 2009) suggests that the new bill which was passed regarding the data protection topic earlier this year gave a significant power to the IT commissioner to regulate the data protection system.

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Fig 8: EuroPrise view of data protection and management (Carroll 2012) This model is defined by a regulatory body set up by European Union Data Protection authorities. IT Project management and security: Project Governance is framework using which project decisions is made. The role of Project Governance is to provide a decision making frame work which is logical, robust and reliable in order to clearly govern the organisations capital investments The 3 pillars of project governance are: Structure: here structure refers to the structure of the governing committee. In a larger governing body there are various stakeholder groups and user groups being involved. (OGC 2009) People: the effectiveness of any committees are dependent on what kind of people the committee is made up of Information: here information is nothing but the data which decision maker uses and must consist of regular reports on the projects and also the issues and risks that the project might or has faced. Brief about the several project governance principles which are:

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Principle 1: ensuring the single point accountability for the project to be termed as successful. Principle 2: Ensure Separation of stakeholder management and project decision making activities. Principle 3: Ensure separation of project governance and

organisational governance structure (Garland 2009).

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