cisb444 strategic information systems planning · cisb444 strategic information systems planning...

CISB444CISB444Strategic Information g

Systems PlanningChapter 2: An Overview of Business Strategy Concepts and the IS/IT Strategy Implications © 2010, Siti Salbiah Mohamed Shariff 1

Course OverviewCourse Overview

• Strategic Planning for Information Systems explores the impact• Strategic Planning for Information Systems explores the impact that information systems (IS) and information technology (IT) have on business performance and the contribution that they make to the strategic options of organisations.

• It describes tools, techniques and management frameworks to both align strategies for IS and IT with business strategy asboth align strategies for IS and IT with business strategy, as well as seek out new opportunities through innovative deployment of technology.

Chapter 2: An Overview of Business Strategy Concepts and the IS/IT Strategy Implications © 2010, Siti Salbiah Mohamed Shariff 2

Course OverviewCourse Overview

• This course demonstrates why strategic planning for• This course demonstrates why strategic planning for information systems is essential to organisational success, especially in times of increasingly rapid change.

• Over the long term any organisation will get the information systems it deserves, according to the approach adopted to the use and management of IS/ITuse and management of IS/IT.

• To obtain the whole range of benefits available from IS/IT and avoid the potential pitfalls, every organisation must establishavoid the potential pitfalls, every organisation must establish the means to manage IS/IT as an integral part of its approach to strategic management.


Course ObjectivesCourse Objectives

• To provide an understanding that strategic planning for information• To provide an understanding that strategic planning for information systems is both essential and feasible.

• To demonstrate that organisation must establish a way of managing IS/IT strategically as part of the business development process in order to deliver the benefits available from IS/IT and to avoid the potential pitfalls in IS/IT implementationavoid the potential pitfalls in IS/IT implementation.

• To assess alternative approaches to developing information systems (IS) strategies.

• To highlight the importance of information as one of the organisation’s strategic resources


Chapter 2

An Overview of Business Strategy C t d thConcepts and the

IS/IT Strategy Implicationsgy p


Chapter 2: OverviewChapter 2: Overview

Chapter 2 considers approaches and techniques• Chapter 2 considers approaches and techniquesinvolved in business strategy formulation and strategic management and their implications forstrategic management and their implications for IS/IT strategy development.


Chapter 2: Main TopicsChapter 2: Main Topics

The evolving nature of strategy and strategic• The evolving nature of strategy and strategic planning in organisationsTh i f k• The strategic framework

• Strategy implementation• Strategy tools and techniques


Introduction• Most organisations are today aware that information• Most organisations are today aware that information

systems strategies must be developed within the wider context of the corporate and business strategy formulation p gyand implementation processes.

• It has become increasingly important that investments made in information systems and technology throughout an organisation are directed toward the achievement of business objectives and plansbusiness objectives and plans.

• IS/IT can also be an enabler of new business strategiesthat are not possible without the application of ITthat are not possible without the application of IT


Introduction• In the past a significant proportion of the money spent on• In the past, a significant proportion of the money spent on

information systems and technology has had little relationship with meeting corporate objectives.p g p j

• This is one of the many reasons why the potential benefits from investments made in IT have frequently not been realised.

• Therefore, it is vital that business managers are involved i th f d l i i f ti d tin the process of developing information and systems strategies - It must be related to their business issues.


The Evolving Nature of Strategy and StrategicThe Evolving Nature of Strategy and Strategic Planning in Organisations

Effectiveness of strategic decision making

Multi-year budgetsWell-defined strategic management

Effectiveness of strategic decision making

reas

ing

Annualbudgets

Functional

Gap analysis

Static allocation

Situation analysis andcompetitive assessment

g gframework

Strategically-focused organisation

Incr focus of resources

Evaluation of strategicoption

Dynamic allocation of

Widespread strategic thinking capability

Reinforcing managmenent valuesand processes

Phase 1 Phase 2 Phase 3 Phase 4

Dynamic allocation ofresources Innovation from knowledge and competencies

Phase 1FinancialPlanning

Phase 2Forecast-basedplanning

Phase 3Externally-oriented planning

Phase 4Strategic Management

Meet budget Predict the future Think strategically Create the future

Value System


Figure 2.1 Evolution of strategic management maturity

What is Strategy ?M t h i ll• Metaphorically:• A strategy is concerned with:

tti t th f th j (i h t t t b• setting out the purpose of the journey (i.e. what we want to be when we get there),

• where we want to go (including any intermediate destinations g ( g ythat we might visit in order to measure our progress),

• when we are going to get there,h i t hi it d• how we are going to achieve it, and

• what factors will influence our ability to complete the journey successfully.y


What is Strategy ?Th t t th f ifi d d• The strategy therefore specifies ends and path-ways, with intermediate milestones which we can use to measure success.

• Strategy can therefore be defined as:Strategy can therefore be defined as:• an integrated set of actions aimed at

increasing the long-term well-being andincreasing the long-term well-being and strength of the enterprise relative to competitorscompetitors


Strategic Management• Strategic Management is concerned with the

management, control, and monitoring of these g gends and pathways in order to ensure success:• Effective combination of coherent planning, incisive

thinking, and astute opportunismg pp• Include not only setting the strategy but also

implementing and adapting it


Strategic Planning

• Strategic Planning on the other hand, is concerned with developing the:concerned with developing the:• plans,

projects and• projects, and• initiativeswhich will allow the strategic intent to betranslated into operational achievement.t a s ated to ope at o a ac e e e t• Systematic, comprehensive analysis to develop a

plan of actionChapter 2: An Overview of Business Strategy Concepts and the IS/IT Strategy Implications © 2010, Siti Salbiah Mohamed Shariff 14

plan of action

Strategic Thinking

• Creative, entrepreneurial insight into the ways the enterprise could develop.p p


Strategic Thinking

• Strategic Thinking is concerned withchallenging• challenging,

• evaluating, andh i• shaping

strategy in order to ensure that the enterprise is optimallyiti d i t f itpositioned in terms of its:

• markets, tit d• competitors, and

• other environmental factors.


Thinking Strategically:The Three Big Strategic Questions

1. Where are we now?2 Where do we want to go?2. Where do we want to go?

– Business(es) to be in and marketpositions to stake out

– Buyer needs and groups to serve– Outcomes to achieve

3 How will we get there?3. How will we get there?


Opportunistic Decision Making

• Effective reaction to unexpected threats and opportunities.pp

• A thorough understanding of the business environment pressure groups stakeholdersenvironment, pressure groups, stakeholdersand the enterprise’s capability is required.


The Strategic Framework

• The framework considers the factors involved in business strategic management in three g glayers (See Figure 2.2, pg 71):• The external environment;The external environment;• Pressure groups and stakeholders;

I t l b i t t i i d l i• Internal business strategising and planning


External Environment• Businesses operate within a broadly-defined external environment which

need to be thoroughly analysed, understood, and interpreted early in the business strategy process.

• The 6 factors that are of enduring importance and relevant to most industries and organisations because of the speed with which they are changing and the effect they have on an increasingly ‘global’ business marketplace include:• Economic• Social• Political• Legal• Ecological• Technological• Technological

• Careful monitoring of these factors may lead to significant business opportunities or identification of potential threats in time to take action to mitigate the effects


mitigate the effects.

Pressure Groups and Stakeholder• Businesses also operates and functions under the direct

influence of two sets of forces:P• Pressure groups

• Characterised by making demands of the organisation• Shareholders, Competitors, Customers/SuppliersShareholders, Competitors, Customers/Suppliers

• Stakeholders• Have a direct financial interest in the organisation, and demand a

f i h f th lth t dfair share of the wealth created• Shareholders, Competitors, Customers, Suppliers, Government,

Employees, Unions, The Public, Financial Institution, The Media


Business Strategy Formulation andBusiness Strategy Formulation and Planning Processes

• Having considered the external environment as well as the threats and opportunities posed by the pressure groups, the organisation has to identify evaluate and decide theorganisation has to identify, evaluate and decide the strategies it is going to pursue.

• It then has to establish how to achieve these strategies byIt then has to establish how to achieve these strategies by planning for the required actions and by effective development and use of resources.

• The key components of a business planning process:• Objectives

Sit ti l i• Situation analysis• Future strategies


Strategy Implementation• Strategy implementation requires adequate resources that

are allocated effectively, appropriate organisation and responsibilities are in place and people are motivated toresponsibilities are in place, and people are motivated to contribute to the achievement of the strategies.

• It is also important to monitor performance and to controlIt is also important to monitor performance and to control activities to ensure actions taken are producing the specific results that will lead to achievement of the overall set of

bj tiobjectives.• The results of this performance measurement will be used in

a feedback loop to refine the objectives of the organisationa feedback loop to refine the objectives of the organisation.


Company’s Strategy• A company’s strategy will be affected by:

• Regulatory regimeAd i di i• Adverse economic conditions

• Disruptive technologiesNew entrants• New entrants

• Strategy must be periodically reviewed, to assess:• whether it is necessary to make minor short-term alterations• whether it is necessary to make minor short-term alterations

to the strategy, or• whether more radical by-passing is required in the face of y p g q

unforeseen obstacles


S I P l P i d P l R iStrategy Is Partly Proactive and Partly Reactive

• A company’s strategy is typically a blend of:– Proactive and purposeful actions on the part of p p p

company managers– As-needed reactions to unanticipatedAs needed reactions to unanticipated

developments and fresh market conditions.


Why Do Strategies Evolve?

• A company’s strategy is a work in progress• Changes may be necessary to react tog y y

– A failing strategy Shifting market conditions– Shifting market conditions

– Evolving customer preferences– Fresh moves of competitors– Technological breakthroughsg g– Crisis situations


Emergent Strategy

• The strategy develops over time in response to change:– mapped out expected journey– ready to reoriented the journey with newready to reoriented the journey with new

destination (if there are better opportunities or the old destination is no longer relevant to thethe old destination is no longer relevant to the enterprise)See Figure 2 3 (page 86)– See Figure 2.3 (page 86)


Strategy Tools and Techniques• Business analysis frameworks are frequently used tools of

which the most common form is the 2x2, or occasionally 3x3 matrix3x3, matrix.

• Frameworks are based on a finite and simple classification which allows the user to create a summary of complexwhich allows the user to create a summary of complex issues in a graphical form.

• They are intended to be conceptual rather than instrumental, and educational as well as analytical.

• The graphical presentation also facilitates the demonstration d t ti f l ti hi b t tand presentation of relationships between concepts.


Portfolio and Planning Matrices:The Boston Consulting Group Business Matrix

• The Boston Consulting Group (BCG) model is regarded as a complementary tool to SWOT analysis for analysing an organisation by using a 2x2 matrix, which categorises businesses, divisions or y g gproducts according to:• the present market share and • the future growth of that market• the future growth of that market.

• The objective of this model is to differentiate between “cash generators” and “cash consumers” and summarises the expected profit and cash flow, which can then be used as a guideline to form appropriate strategies for companies.

• This model can be used as a predictive device since positioning aThis model can be used as a predictive device since positioning a business element in a particular quadrant gives some advice as to how to manage that business element appropriately


Industry and Product Life Cycles

MatureGrowth

DecliningDemand < Supply

D d

Emerging

Declining

Demand > Supply

Demand < Supply

Demand

Demand

Demand > Supply

Product specificationCustomer requirementsP d i

Product enhancementCustomer serviceC it d & tili ti

Product variationsCustomer segmentationP d t t d ti

Reduce inventory levels and optimise service costsSales forecastingS b t ti t l f li

Unknown

Process designMarket research & forecastingLogistics planningIdentify costs

Capacity dev. & utilisationExtend distb. channelsSet prices/monitor marginsService from suppliersPromotion to expand customerdatabase

Product cost reductionCosting/sourcing of componentsFinished goods inventory controlPricing flexibilityValue analysis/cost reductionAnalysis of contribution

Subcontracting – control of suppliersRelease capacity for other usersRationalise distribution channelReduce administrative costs


databaseSelling supportIdentify competitor's position

Analysis of contributionTarget specific competitors

P tf li d Pl i M t iPortfolio and Planning Matrices:The Boston Consulting Group Business Matrix

HighWild Cat(Review)

Star(Invest)

High

Market

Cash Cow(Milk)

Dog(Divest)

Marketgrowth

(Milk)(Divest)

HighLow

Low

Market Share


Portfolio and Planning Matrices:Portfolio and Planning Matrices:The Boston Consulting Group Business Matrix

• Stars• Business units with a large market share in growth sectors• Strong market position in an attractive or high-growth marketStrong market position in an attractive or high growth market

• Cash cows• Units with a high market share in steady-state industries• Strong market position in mature, lower-growth markets

• Wild catsU it ith ll k t h i f t i i d t i• Units with small market shares in fast growing industries

• Low market share in a high-growth market

• Dogsg• Units with low market share in stagnant or declining markets• Weak position in a low-growth or declining market


Portfolio and Planning Matrices:Portfolio and Planning Matrices:The Boston Consulting Group Business Matrix

• The model emphasises a few key issues in strategy:• The need to manage products according to market

opportunities and pressures, not internal factors;• The need to reinvest net cash inflows into future

d t t ti i fproducts to ensure continuing sources of revenue• The need to have a complete and balanced portfolio if

the business is to thrive in the long termthe business is to thrive in the long term


Implications for IS/IT Strategy

• Stars• Systems and information focus will be toward the customer• Systems might also be aimed at allowing growth in business handling• Systems might also be aimed at allowing growth in business, handling

greater order volumes or variety of product mixtures, or types of customer service

• The main emphasis will be on business innovation• The main emphasis will be on business innovation• Systems investment focus should be to add value and cope with growth

• Cash cows• Business productivity and control of customers and suppliers to defend a

market position is the main aim• Not to allow competitors to gain advantageNot to allow competitors to gain advantage• Systems will tend to focus on control of the business relationships and

activities rather than innovation


Implications for IS/IT Strategy

• Wild cats• The IS/IT strategy is likely to focus on product and/or process

development or, alternatively, be used to identify potential customers,development or, alternatively, be used to identify potential customers, segment customer types and, then ensure that effective information exchanges occur about the product/service with the chosen segment of customers, to enable exact specification of service and product , p prequirements

• DogsU d i bl t id i t ti f IS t t ith th t f th• Undesirable to consider integration of IS strategy with the rest of the business

• IS/IT investment should follow the business direction – selective, strongly fi i ll j ifi d i i fi f b d ifinancially-justified investments to improve profit performance by reducing costs or securing customers

• Very little innovative IS/IT use can be expected


Competitive Forces and Competitive Strategies

• Approaches developed during the 1980s, mainly by Porter, have had significant influence in strategy formulation over the last 20 years.

• An enterprise exists within an industry, and to succeed, it must effectively deal with the competitive forces that exist within the particular industry.

• For example, the forces in an emerging industry such as bio-technology or genetic engineering are considerably different from those of a growth industry, say leisure or financial services, or the more mature or declining industries such as coal mining.

• The enterprise interacts with its customers, suppliers, and competitors, but in p , pp , p ,addition to these interactions, there are potential new entrants into the particular competitive marketplace and potential substitute products and services.

• To survive and thrive in this environment, it is obviously vital to understand these interactions and the implications in term of how to avoid being disadvantaged and to understand the opportunities to gain competitive


g pp g padvantage

Porter Competitive Forces Model

• Describes the interaction of external influences, specifically threats and opportunities, affecting an

i ti ’ t t d bilit t torganisation’s strategy and ability to compete


Porter Competitive Forces Model

Threat of new entrants

Bargaining BargainingRivalry amongpower

of supplierspower

of customersexisting

competitors

Threat of substitute products or

services


P t C titi F M d lPorter Competitive Forces Model


Analysing the Five Competitive Forces: How to Do It

Step 1: Identify the specific competitive pressuresassociated with each of the five forces

Step 2: Evaluate the strength of each competitive force : fierce, strong, moderate, or weak? g

Step 3: Consider the overall pattern of competitionand collective impact of all five forcesand collective impact of all five forces


St t i I li ti f thStrategic Implications of theFive Competitive Forces

• Competitive environment is unattractive from the standpoint of earning good profits when– Rivalry is strong– Entry barriers are low and entry is likelyEntry barriers are low and entry is likely– Competition from substitutes is strong

S li d t h id bl– Suppliers and customers have considerable bargaining power


Strategic Implications of theFive Competitive Forces

• Competitive environment is ideal from a profit-making standpoint when– Rivalry is moderate– Entry barriers are high and no firm is likely toEntry barriers are high and no firm is likely to

enter Good substitutes do not exist– Good substitutes do not exist

– Suppliers and customers are in a weak b i i itibargaining position


Coping With theFive Competitive Forces

• Objective is to formulate a strategy– To insulate firm from competitive pressures– To initiate actions to produce a sustainable competitive

advantage, placing added pressure on rivals– Which allows firm to define the business model for the

industry


Weapons for Competingd F t Aff ti St th f Ri land Factors Affecting Strength of Rivalry


Factors Affecting the Threat of EntryFactors Affecting the Threat of Entry


Factors AffectingCompetition From Substitute Products


Factors Affecting thef SBargaining Power of Suppliers


Factors Affecting theB i i P f BBargaining Power of Buyers


Implications for IS/IT Strategy: Industry Analysis

• Management should ask questions regarding how IS/IT could affect the essential industry ingredient:

Th d t d i• The product and services• How can IS/IT affect the nature and value of the product or service

and its life cycle?

• Markets, distribution channels, and customer behaviour• How can IS/IT affect the demand for products and services, segment

markets more effectively extend them geographically or provide newmarkets more effectively, extend them geographically, or provide new distribution channels to reach the market?

• Economics of production, distribution or servicing• How can IS/IT affect the cost base of the key processes in the

industry or change the balance in the trade-off between flexibility and standardisation?


A l i f C titi F t Id tif IS/ITAnalysis of Competitive Forces to Identify IS/IT Opportunity and Threats

• How can IS/IT build barriers to entry?• How can IS/IT build in switching costs for g

customers?• How can IS/IT change the basis of competition?How can IS/IT change the basis of competition?• How can IS/IT change the balance of power in

supplier/customer relationship?supplier/customer relationship?• How can IS/IT generate new products and

i ?services?


Competitive Strategies :Competitive Strategies :Strategic Approaches to Building Competitive Advantage

1. Strive to be the industry’s low-cost provider2. Out compete rivals on a key differentiating feature3 F k t i h d i b tt3. Focus on a narrow market niche, doing a better

job than rivals of serving the unique needs of niche buyersbuyers

4. Develop expertise, resource strengths, and capabilities not easily imitated by rivalscapabilities not easily imitated by rivals


Competencies vs. Core CompetenciesDi ti ti C t ivs. Distinctive Competencies

A t i th d t f i ti l• A competence is the product of organisational learning and experience and represents real proficiency in performing an internal activityproficiency in performing an internal activity

• A core competence is a well-performed internal activity that is central (not peripheral oractivity that is central (not peripheral or incidental) to a company’s competitiveness and profitabilityprofitability

• A distinctive competence is a competitively valuable activity that a company performsvaluable activity that a company performs better than its rivals


Competencies and Competitive Advantage

• Operational Excellence• Enabling products and services to be obtained reliably, easily, and

cost effectively by customerscost-effectively by customers.

• Customer Intimacy• Targeting markets very precisely and tailoring products andTargeting markets very precisely and tailoring products and

services to the needs of particular customer groups.• Not just to satisfy but to please customers by understanding their

d d ti th ineeds and meeting them on every occasion

• Product Leadership• Continuing product innovation meeting customers’ needs• Continuing product innovation meeting customers needs• Not only creativity in developing new products and enhancing

existing ones, but also astute market knowledge to ensure that


they sell.

Chapter 2 CompleteChapter 2 Complete


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