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Information Systems Strategy: Crowd Funding

Question:- Business Case Presentation

Task:- Length 2500 words

Please select one current, key IT/business topic from the list below and prepare a comprehensive management briefing in how you will be able to expand the company’s operations in the following areas:

– Crowdfunding

– Rapid Prototyping (eg. 3D Printing)

– The Internet of Things

Part 1:- Provide an overview of the topic selected; identify its strategic importance to the organization and/or to industry; discuss the opportunities and benefits it can bring to the organization and/or industry; and give a considered overview of the issues and potential problems associated with its use. You should also include any other factors that you believe are relevant to your management report on the topic.

Part 2:- Recommend a broad implementation plan for the introduction and implementation of the selected key IT/business topic within your selected organisation. The overall aim of the report is to bring your management audience completely up-to-date in all aspects of your selected key IT/business topic. Case study examples of how other organisations have used the selected topic/technology should be a helpful part of your report. Your recommended implementation plan should be a high-level management plan for the organization, not a detailed project plan. [Financials and technical specifications are not required.

Rationale

This report relates to this subject’s third and fourth learning objectives:

1.) Be able to critically analyse and select appropriate innovative information technologies that can be used to strategically transform organisations.

2.) Be able to critically evaluate an organisation’s strategic IT management processes; and create procedural knowledge documentation for continued improvement recommendations.

Answer: Selected Topic: Crowd Funding

Introduction

Crowd funding has drastically revolutionised the fund raising activities of organisations by providing new ways of generating funds to support the new venture projects. Crowd funding primarily aims to provide funds to entrepreneurs for establishing their new business through the help of money donated by people using online medium (An Introduction to crowd funding, 2012).Thus, crowd funding can de defined as an specific means of developing funds for an new venture project through asking money from large number of people using online sources such as social media, creating websites, promoting the business on different websites etc. It is mainly an online method of financing a specific project through granting small donations from different people. The increasing use of information technology devices among people is the main reason behind the developing the concept of crowd funding.

The enhanced usage of online devices among people can be effectively used by businesses to promote their new project and generate funds from people for supporting the establishment of such projects. Crowd funding differs from traditional practices of generating funds for new businesses as it uses internet through which entrepreneurs can communicate with a large number of people who can contribute small amount of money for establishment of new businesses. Thus, the concept of crowd funding is a new IT buzz that is rapidly gaining importance for generating funds from people to finance new venture projects (An Introduction to crowd funding, 2012). In this context, the present report illustrates the significance of crowd funding in electronics industry. In addition to this, the report will also present a broad implementation plan for the implementation of crow funding in emerging electronic company such as Xiaomi.

Strategic Importance of Crowd funding

Crowd funding is rapidly gaining importance as older method of raising finance are proving to be less effective in providing capital to entrepreneurs for giving reality to their new project ideas. Traditional practices used for raising funds for entrepreneurs mosty include venture capital, bank loans, angel investors etc. On the contrary, crowd funding uses online tools and devices for raising funds for small businesses. Thus, crowd funding enables entrepreneurs to finance their new project or any initiation by a group of individuals, instead of professional parties, such as banks, venture capitals and business angel. In addition to generating funds from people, crowd funding also helps to develop good relations with customers and thus proves to be a marketing tool before the establishment of the business. Entrepreneurs through the use of crowd funding can communicate with a large number of people and can promote their ideas among huge number of people. Crowd funding is an attractive way for the entrepreneurs to launch their business among large number of people through the use of social media channels.

In addition to this, entrepreneurs can also take ideas from the people before establishing their venture project that can assist them in the successful completion of the project. Thus, crowd funding aim to provide both intrinsic and extrinsic motivation to people for contributing their resources for establishing a business project. Intrinsic motivation relates to the pleasure of taking part in a particular project. On the other hand, extrinsic motivation relates to the rewards received in the form of money and goods by taking part in a new project. Thus, the technique of crowd funding provides motivation to the people to encourage their participation in launch of any business project. It inspires people to donate funds for a particular cause by providing proper knowledge about the cause of establishment of new project.

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Crowd funding is becoming an increasingly attractive way to generate capital for consumer electronics companies that are still in emerging phase. For example, a single campaign of crowd funding through the crowd funding website Indieogogo has attracted almost $13 million in funding for launching a Smartphone app. The entire crowd funding is expanded to generate $ 5.1 billion globally for electronics industry in US and thus represent great potential for future in raising funds for emerging electronics companies in the U.S. market. Thus, crowd funding proves to be a cost-effective method for entrepreneurs to raise funds for their new project.

Benefits and opportunities of Crowd funding

Crowd funding presents an interesting and attractive way to grow capital and customer base. Crowd funding enables small businesses to raise money for launching, expanding or promoting their new venture project. This is the main reason for a large number of entrepreneurs, increasingly using the concept of crowd funding, to generate low cost and easy funds for supporting the establishment of their new enterprises. Crowd funding enables entrepreneurs to finance their new project or any initiation by a group of individuals, instead of professional parties, such as banks, venture capitals and business angel. The people donating funds to the entrepreneurs in crowd funding does not involve a stake in business as compared to traditional methods of financing through which people invest in the formation of a company to acquire a stake in the business and thus have a share in the profits earned by the company.

Crowd funding is relatively easier than traditional methods of financing a new business project. Traditional methods involve applying for a loan or other complex procedures before gaining finance for a new project. In this regard, crowd funding is an easier way to generate finance as the entrepreneurs only need to choose the platform for sharing their ideas among large number of people. Thus, crow funding had provide different opportunities to emerging businesses for accessing capital from people through generating small contribution from large number of people in shorter time. Thus, the model is more successful than other models for generating finance for the establishment of new businesses that require full investment from a single individual or organisation. Crowd funding is a new and upcoming sector and has provided opportunities to many small scale entrepreneurs in raising funds. Investment is done in the form of donations, debt and equity crowd funding. It has both, benefits and risks associated with it. It is also known as the alternative source of funding and also helps in creating awareness in regard to a company’s project. Thus, crowd funding can generate proper funds for electronics consumer companies in U.S.

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Potential Problems in Crowd Funding

Crowd funding is an easier and cheaper means of raising funds but there are some problems associated with the use of crowd funding. There are various risks associated with the use of crowd funding activities such as patent disputes, abuse, fraud etc. Crowd funding may also lead to the establishment of destructive ideas of entrepreneurs that should not be turned into reality. Thus, many wrong businesses also get established through the use of crowd funding. Crowd funding has also lead to the establishment of many businesses and thus there has been influx of investors and thus has considerably reduced the barrier of establishing new businesses. In addition to this, companies that acquire finance through crowd funding face problems in raising funds at later stage of development from other sources such as banks due to lesser credibility of the companies in the eyes of financial institutions.

There also exists risks associated with intellectual property rights and patents as the project financed through crowd funding faces difficulty in gaining intellectual property and patent right due to its lower credit rating. Crowd funding websites also allow people to gain ideas from the business projects of other entrepreneurs that are not relatively protected by intellectual property rights. Business people can easily implement these ideas for the growth and development of their businesses. Also, Crowd funding websites does not promise equity for the people involved in businesses in exchange for donations and thus people due to lack of acquiring a stake in the business does not grant larger funds for raising the projects.

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Thus, the use of crowd funding can be done only done for establishing small projects and are not meant for the development of larger projects. Moreover, there are several legal issues associated with the use of crowd funding activities. Thus, it is advised to the people to get well versed with the legal issues associated with crowd funding before investing their funds into any new venture project. Crowd funding is a new concept and can create legal issues in regard to current laws and regulations. As per the laws of the United States, Security and Exchange Commission (SEC) regulates the selling of securities in the form of investment to general public. It is illegal on behalf of a company to sell its securities to public without the approval from SEC. Some of the important aspects in SEC proposal rule book are:

• Companies are permitted to raise an amount of $ 1m in one year.

• There is a limitation on the amount of investment allocated to crowd funding portals.

• Companies that seek funds through crowd funding are required to disclose information to crowd and SEC.

• Companies are also required to disclose audited financial statement that offers a detailed discussion in regard to their financial operation and prospect.

• Limitation is imposed on company’s means of advertisement.

• Protection of rights of investors by educating them through crowd funding portals.

• Rules and consequences in context to changes and cancellation of offerings by company and campaigns.

• There is a restriction on compensation by third party referrals, for investors and companies.

• Companies and individuals should be eligible for operating crowd funding portals.

PART 2:

Implementation plan for crowd funding in Xiaomi

Xiaomi is a Chinese electronics company that is in emerging phase. The company designs, develops and sell smart phones, mobile apps and consumer electronics. The company can generate larger amount of funds through the use of crowd funding for launching their products in other major countries. Crowd funding websites can help the company that is still in the developing phase to generate funds from large number of people for launching a campaign that can effectively promote the company in developed countries.

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Crowd funding website such as Indiegogo, Kickstarters, peerbackers, rockethub etc can help to promote the company name among the consumers in many parts of the world in a relatively shorter span of time (Adams, 2013). The company can implement crowd funding through the adoption of crowd funding model. There are four main types of crowd funding models namely, donations, rewards, equity based and credit based. The company can choose any of the models described below for the implementation crowd funding in the company:

Donation based:- This model facilitates in gathering people and inspiring them to donate for a project online. The people are motivated to grant donation for developing a specific project through giving them proper knowledge regarding the potential benefits that they can derive with the establishment of the business. Crowdrise and Cause are two popular sites that raise funds with the help of donation model. In this model, people donate funds towards a given project without any expectation of financial gain or return. . Donors are given a small reward as a token of thanks for their contributions. Rewards and incentive depends largely on the size and nature of a project (Adams, 2013).

Reward:- This is another model of crowd funding that aims to raise funds from people in exchange of rewards. This model is mainly used for funding projects that are creative, entrepreneurial and social in nature. This model facilitates people to contribute in a project and in turn receive non financial rewards. The model can be used for small entrepreneurs to raise funds as they have to give only non-financial rewards (Adams, 2013).

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Equity:- This is also another model of crowd funding in which people are given a stake in their business for financing a particular business project. This model of crowd funding facilitates business organisations to sell ownership stakes through crowd funding, in order to seek funds. This provides an opportunity to investors to become shareholders and receive financial returns against the investment made by them which proves to be a motivational factor for the people to invest in a specific new business project (Adams, 2013).

Credit:- This model of crowd funding is relatively new and completely different from other model of crowd funding. Under this model, crowd invest money in the form of small increments in a company’s projects and expects a return at a fixed rate of interest. This model helps in attracting large number of investors as return on investment is offered to the crowd.

Thus, the company can implement any of these models for generating funds for the company to launch its products in other major parts of the world. The company can choose a specific crowd funding website for developing a campaign that would aim to acquire funds from people all over the world. Crowd funding provides entrepreneurs, who are struggling to access capital due to lack of brand image in the external market place, an alternative means of financing (Adams, 2013).

Summary

Crowd funding is a practice of funding projects with the help of raising funds from people. It done with the help of internet; companies that seek funds through crowd funding develop their web page in order to create awareness among people about the project. Crowd funding is an easy method of getting finance than the traditional practices of raising funds that involve complex procedure before acquiring finance for starting a new project. Crowd funding can prove to be extremely beneficial for the electronics consumer industry to provide funds to the companies that are still in emerging phase and lack the availability of sufficient funds to promote their business among other countries. In this context, crowd funding can provide them a platform through which they can share their ideas and opinions among the people and receive their feedbacks before developing a new app or any other new electronic product. This will help the company to mitigate the risk associated with the launch of any new product.

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References

Adams, P.R. (2013). Crowd Funding Made Simple: Plan, Publicize, Get Crowd Funding. Prince R. Adams.
An Introduction to crowd funding. (2012). [Online]. Available at: https://www.em-a.eu/fileadmin/content/REALISE_IT_2/REALISE_IT_3/IntroToCrowdfunding.pdf [Accessed on 20 September 2014].
Business finance explained. (2014). [Online]. Available at: https://www.gov.uk/business-finance-explained/overdrafts [Accessed on 20 September 2014].
Cortese, A. (2011). Locavesting: The Revolution in Local Investing and How to Profit From It. John Wiley & Sons.
Cunningham, W.M. (2012). The JOBS Act: Crowdfunding for Small Businesses and Startups. Apress.
Damus, M. (2014). Online Crowdfunding Platforms: Developing Concepts for Supportive Instruments Beyond the Funding Phase. Epubli.
Dresner, S. (2014). Crowdfunding: A Guide to Raising Capital on the Internet. John Wiley & Sons.

June 24, 2016