Business Strategy Concepts and the Implications for IT StrategySudhir Tandon 22/09/01
Agenda Evolution of Strategic Management Strategic Information Management Why has IT/IS become more strategic in nature? Strategic IS/IT vs. Traditional IS/IT What is IS/IT strategy ? IS Strategy vs. IT Strategy
Agenda Alignment of IS/IT with Business Strategic Alignment Model Case Study
Evolution of Strategic Management Phase 1 - Financial Focus Annual Budgets Inward looking
Phase 2 - Forecast Based Planning 3-5 year horizon Forecast based Gap analysis Plans are still internally oriented
Evolution of Strategic Management Phase 3 - Externally oriented planning Competitive assessment Evaluation of the Product Market Relationships Dynamic allocation of resources
Phase 4 - Strategic Management Strategically Focussed Organisation Driven by Innovation Creating the Future
Implications for IT Strategy IT planning is normally in phase 1 even if the organisation is in phase 2 or 3 In case of recession companies have to look for short term financial survival - IT, which requires 8-12 months to deliver takes a back seat Companies can move back from 4 to 3
Strategic Information Management 3 Important ideas related to SIM 1. Development and support of the strategic management process aiding in collection of strategic information (competitor info., market intelligence, industry database) aiding in the strategic planning process (strategic database access)
Strategic Information Management2. Developing Systems in support of business operations 3. Competing through informationSIM is defined as IS/IT strategies which significantly improve information use in order to enhance performance and coordinate activities across functional and business unit lines, as well as interactions with external entities, in pursuit of competitive advantage
Why has IS/ IT become more Strategic in Nature? The cost of maintaining existing systems and the significant investment in time and money required to develop new systems. IS/IT increasingly affects Corporate Strategy as it impacts the choice of options open to a company Helps develop strategic business scenarios through expert systems and monitor the same through EIS IS/IT affects the organization structure. Reduced reliability on middle management due to availability of information
Why has IS/ IT become more Strategic in Nature? Impacts the organizations interfaces with the external environment i.e. suppliers, customers etc. Impact of change management on the people
Strategic IS/IT vs. Traditional IS/IT External Focus Differentiation Sharing the benefits Business Driven Innovation Incremental/ Prototyping approach Focus on Internal Processes Cost Reduction Localised Benefits Technology-led Development Black box approach
What is IS/IT strategy?IS/IT strategy involves creating a structured framework for Information Systems need, together with IT solutions IS StrategyDemand Oriented Application Focussed Infrastructure Services Needs Priorities
IT StrategySupply Oriented Technology Focussed
Mainly concerned with aligning IS development with business needs and with seeking strategic advantage from IT. It represents the demand side. Mainly concerned with the technology which is going to be used, the enabling mechanism. It represents the supply side
Business and IS Why is ALIGNMENT so important?Despite working on different levels, IT and business executives must communicate better in order for companies to experience the benefits of technology - InformationWeek, September 1998
But often alignment is not the reality IBMs Advanced Business Institute finds in a survey of 800 US companies (representing 15 different industries) that:
42% : business and IS strategy are NOT properly aligned 8% : no opinion/dont know 50%: OK!
Source: Enablers and Inhibitors, InformationWeek 1998
6 most important factors in alignment Senior executive support IS managements involvement in strategy development IS understanding of the business Existence of partnership between business and IS/IT leaders Level of priorization of IS projects IS/IT managements leadership abilitiesSource: Enablers and Inhibitors, InformationWeek 1998
HOW to identify IS opportunities
(or strategic use of IS) Using business planning techniques ...
Using business planning techniques to create alignment w/ IS strategy Competitive Forces Boston Matrix Critical success factors Generic business strategies The Value Chain SWOT Analysis
Competitive ForcesNew entrantsThreat of New entrants
SuppliersBargaining Power of Suppliers
Buyers/ CustomersBargaining power of Competitors
Threat of substitute products or services
Alignment: Implications for IS Strategy? ASK:New How can IS/IT build entrants barriers to entry?How can IS/IT change balance of power w/ suppliers?
How can IS/IT change the basis of competition?
Buyers/ CustomersHow can IS/IT build in switching costs for customers? How can IS/IT change balance of power w/ customers?
How can IS/IT Substitute generate new products services? Products
Source: W&G p.85/86 (Tables 2.3/2.4)
Key force New Entrants
Business Implication Additional Capacity Reduced Prices New basis for Competition Need for substantial resources
Buyer power high
Provide Entry Barriers by: Exploiting existing economies of Scale Differentiate products Building Loyalty/ high switching costs Control distribution channels Force Prices down Building Loyalty/ high switching costs Demand higher quality Lower Costs Higher Service levels Facilitate product selection/ customize Undercutting products & service Differentiate products
Business Implication Reduced availability
IS/IT Opportunities Use SCM to reduce cost of selling for supplier Forward Planning Backward Integration Apply EDI for cost reduction Building Loyalty/ high switching costs Lower Costs Facilitate product selection/ customize products & service to increase value to customer
Raises Costs Supplier Power High Reduced quality
Substitute products threat
Limits potential market and price
Intense Price competition Reduce costs improve price performance Competition Product development Use information to from rivals Distribution andservice critical differentiate Segment Markets and tailor to meet their requirements Get closer to end customer
Competitive AdvantageTo gain competitive advantage over its rivals, a firm must either provide comparable value to the customer, but perform activities more efficiently than its competitors (lower cost), or perform activities in a unique way that creates greater buyer value and commands a premium price (differentiation). Enterprises, through their strategies, can influence the five forces and the industry structure, at least to some extent. There are three basic strategic stances that enterprises can adopt.
Generic Business Strategies Low cost
Alignment Implications for IS/IT Strategy? ASKLow cost: How can IS/IT help - avoid overhead costs? - link business processes effectively? Differentiation: How can IS/IT help - meet customer requirements? - monitor customer perceptions? - achiever faster delivery? - improve quality control? - foster R&D? Niche/focus: How can IS/IT help - identify target markets? - get unique information on target market? - distinguish products from general offers?
Potential IS/IT AreasLow Cost DifferentiationProduct Product Engineering Project Control design and systems Systems Development Integrated Systems for R&D Databases Manufacturing Professional Workstations CAD Email Operations Inventory Mgt. System Process Control System Labour Control System Procurement System CIM Quality Assurance system Quality Monitoring for Suppliers
Potential IS/IT AreasLow CostMarketing Streamline Distribution System Campaign monitoring system Customer Mailer System Enquiry Monitoring system Inventory Mgt. System for Spares Order Processing System Service Control System Field sales
Differentiation Customer Database Market Intelligence System POS displays and kiosks Competition Analysis Telemarketing Call Centre Diffrential Pricing Dealer Support E-sales
Sales and Service
Boston MatrixHighWILD CAT
or PROBLEM CHILD
Low High Market Share
Source: W&G, p. 68
Alignment: Implication for IS Strategy?High
Support customer focus: understand demand! Promote growth, variety, volume Business innovation satisfy/differentiate Business productivity Control customers and suppliers DEFEND Position!!!
Product/process development Identification of customers Effective information exchanges
Source: W&G, p. 71
Support ActivitiesInfrastructure - Legal, Accounting, Finance Human Resource Management Recruitment, Training Product and Technology Development R&D, IT, Process design etc. Procurement - Vendor evaluation, Subcontracting Inbound Outbound Sales and Operations Services Logistics Logistics Marketing
e u l a V d e A = t s o C n i g r a M
Primary Activities A manufacturing companys