Transcript BUSINESS STRATEGY CONCEPTS & IMPLICATIONS FOR IS/IT …

Strategic Planning
for Information
Systems
Third Edition
John Ward and Joe Peppard
CHAPTER 2
AN OVERVIEW OF BUSINESS
STRATEGY CONCEPTS
& THE IS/IT STRATEGY
IMPLICATIONS
1
Learning Objectives:1. Evolution of strategic planning in
organizations
2. Strategic framework
3. Business planning process
4. Business planning tools & techniques
2
• CHAPTER 1 – Evolution of IS/IT.
• IS strategies MUST BE developed within the
context of corporate and business strategic
planning processes.
$$$
Achievement of business objectives/goals
Maximize ROI
IS/IT
Enabling strategic use of information
Gain competitive advantage
Repel competitive Threat
3
PLANNING
INVOLVEMENT
IS managers should
understand the
corporate
perspective of the
world
IS Managers
Business Managers
• Formal approaches to business planning – 1950s
• Evolved to cater for changes of the dynamic business environment
4
Strategic Planning in Organization
• The formal approaches to business
planning started in 1950s.
• They have evolved since in order to
take account of technological,
economics, social and political changes.
• They will continue to evolve in response
to the dynamics of the business
environment.
5
Evolution of Strategic Planning
6
Evolution of Strategic Management
Maturity
Effectivness
Of Strategic
Decision
Making
I
N
C
R
E
A
S
I
N
G
- Well– Defined
Strategic Framework
- Multi- Year
Budgets
- Annul Budgets
- Functional
Focus
- Strategically Focused
Organisation
- Gap Analysis
-“ Static”
Allocation of
Resources
Phase 1
Financial Planning
Phase 2
Forecast– Based
Planning
Meet Budget
Predict the
Future
- Situation Analysis
and Competitive
Assessments
-
- Evaluation of
Strategic Options
- Reinforcing
Management Processes
-“ Dynamic” Allocation
of Resources
- Supportive Value
System and Climate
Phase 3
Externally Orientated
Planning
Think
Strategically
VALUE SYSTEM
Widespread Strategic
Thinking Capability
Phase 4
Strategic
Management
Create the
Future
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The Evolving Nature of Strategic
Planning in Organisations
• In 1980, a model was developed to describe
the increasing maturity of strategic planning in
organisations. The model consists of 4 phases.
• In phase 1, the focus is on cash flow and
annual financial planning.
It involves simple techniques to develop
medium term budgets.
The focus of the management is to reduce
everything to a single financial issue –
meeting the budget.
8
Cont…
• In phase 2, the focus is on trying to predict,
or forecast, what is likely to happen within a 5
years horizon.
Historical performance analysed and projected
into the future using internal trends and
external parameters such as economic and
market research data.
It forecasts sales and market growth and
predicts the effects on income and expenses
and changes to the balance sheet.
Plans are still quantitative and internally
oriented, focusing on what is targeted and the
resources available.
9
Cont…
• In phase 3, the organisation starts to look
outside itself an concentrate on understanding
the nature of competition in its industry, and
positions itself to gain advantage.
Managers try to shift company’s product portfolio
to more attractive market sectors.
• In phase 4, the organization is driven by
innovation and becomes capable of creating its
own business environment.
Thus, the organisation gains a leading role in the
industry. Obviously, the leadership will require
continuing innovation.
10
Strategic Planning in
Organizations
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What is Strategy?
• A strategy is a collection of statements that express or propose a
means through which an organization can fulfill its primary
purpose or mission
– A chosen strategy must focus and coordinate the firm’s
activity from the top down toward accomplishing its mission
– Developing a strategy begins with:
• a thoughtful understanding of the firm’s mission
• analysis of the environment
• a detailed assessment of how various business units interact
• Strategy (text book)
“An integrated set of actions aimed at increasing long-term
well-being and strength of enterprise relative to competitors”
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Why Are Strategies Needed?
To proactively
shape how a
company’s
business will
be conducted
To mold the independent
actions and decisions of
managers and employees
into a coordinated,
company-wide game plan
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Relationship of Strategies to Plans
• Strategy is a collection of statements that expresses
or proposes a means through which an organization
can fulfill its mission
– Identifies the goal or objective
– Insights
• Plan is a detailed description of how an
organization can accomplish its mission
– Lays out in detail the steps necessary for the organization
to accomplish the goal
– Plans turn insights into actions
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Missions vs. Strategic Visions
• A mission statement
focuses on current
business activities -“who we are and
what we do”
–
–
–
Current product and
service offerings
Customer needs being
served
Technological and
business capabilities
A strategic vision
concerns a firm’s
future business path -“where we are going”
Markets
to be pursued
Future technologyproduct-customer focus
Kind of company that
management is
trying to create
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What is a Strategic Plan?
Where firm is headed -Strategic vision and
business mission
Short and long term performance
targets -- Strategic and
financial objectives
Action approaches to achieve
targeted results -- A
comprehensive strategy
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Establishment of Strategy
There are essentially three processes that can
contribute to the establishment of a strategy:
1. Strategic thinking – creative, entrepreneurial insight into
the ways the enterprise could develop.
2. Strategic planning – systematic, comprehensive analysis to
develop a plan of action.
3. Opportunistic decision-making – effective reaction to
unexpected threats and opportunities.
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Thinking Strategically : The
Three Big Strategic Questions
1. Where are we now?
2. Where do we want to go?
Business(es) to be in and market
positions to stake out?
Buyer needs and groups to
serve?
Outcomes to achieve?
3. How do we get there?
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A Company’s Strategy is Partly Planned
and Partly Reactive
Company
Experiences,
Know-how,
Resource
Strengths
and
Weaknesses,
and
Competitive
Capabilities
Actual
Compan
y
Strategy
Reactive Strategy
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The Strategic Framework
•
•
Any organization in stages 3 and 4 of the
model will need to consider most aspects
of the FW (see page 71) to succeed.
Three layers factors:1. The external environment
2. Pressure groups and stakeholders
3. Internal business planning
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A Strategic FW
• The external environment
– Economic/ Social / Political / Legal / Ecological /
Technological
• Pressure groups and stakeholders
– Shareholders / Competitors / Customers/Suppliers /
Government / Unions / Employees / “The public” /
Media / Financial Institutions
• Internal business strategizing and planning
– “SBU” / Objectives / Situation analysis / Future
strategies
Page 71 - Text
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A Strategic Framework
EXTERNAL ENVIRONMENT - More rapid change and increasingly global influences
Monitoring Signals
Economic
Social
from the Environment
PRESSURE GROUPS - Demanding recognition and rapid management response
Media
Share
Holders
Allocation
Techno of Created
logical Wealth
Shareholders
Competitors
Government
Market analysis
Unions
Organiza
Management Competitive analysis
tional
PEST analysis
Values
Threats and
Values Value
Industry analysis Opportunities Customers
System
Objectives
Where are we now?
Strengths & Weaknesses
Monitor
And Control
Identify future
strategies
Evaluate
Feedback
Customers
Suppliers
Analysis of
Internal resources
and competencies
Select
Implement
Public
Suppliers
Unions
Employees
Public
Political
Financial
Institutions
Employees
Government
Demanding ‘fair share’ of created wealth - STAKEHOLDERS
Ecological
Legal
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The External Environment
• PEST (Political, Economic, Social and
Technological )Analysis
Political:
Government type and stability
Freedom of press, rule of law and levels of
bureaucracy and corruption
Regulation and de-regulation trends
Social and employment legislation
Tax policy, and trade and tariff controls
Environmental and consumer-protection
legislation
Likely changes in the political environment
Economic:
Stage of business cycle
Current and project economic growth,
inflation and interest rates
Unemployment and labor supply
Labor costs
Levels of disposable income and
income distribution
Impact of globalization
Likely impact of technological or other
change on the economy
Likely changes in the economic
environment
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Socio-Cultural:
Population growth rate and age
profile
Population health, education and
social mobility, and attitudes to
these
Population employment patterns,
job market freedom and attitudes to
work
Press attitudes, public opinion,
social attitudes and social taboos
Lifestyle choices and attitudes to
these
Socio-Cultural changes
Firms can draw conclusions
as to the significant forces of
change operating within the
environment.
Technological Environment:
Impact of emerging technologies
Impact of Internet, reduction in
communications costs and increased
remote working
Research & Development activity
Impact of technology transfer
PEST Analysis is a useful tool for
understanding the “big picture” of
the environment in which firms
are operating, and the
opportunities and threats that lie
within it.
By understanding the
environment, firms can take
advantage of the opportunities
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and minimize the threats.
Pressure Groups &
Stakeholders
Pressure Groups:
• Make demands of the organization;
• Demand their existence and effects be acknowledged;
• Expect appropriate responses from mgmt to satisfy their
particular interest;
Stakeholders:
•Have a direct financial interest in the organization and demand
a fair share of the wealth created;
•Expect some form of material and financial benefit;
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Pressure Groups:
•
•
•
•
•
•
•
•
•
•
Media
Shareholders
Competitors
Suppliers
Government
Unions
Customers
Public
Financial Institution
Employees
Stakeholders:
• Shareholders
• Customers
• Public
• Suppliers
• Unions
• Employees
• Government
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Internal Business Strategy
Formulation and Planning
Value System
Objectives
Market analysis
Competitive analysis
PEST analysis
Industry analysis
Where are we now?
Strengths & Weaknesses
Identify future strategies
Evaluate
Feedback
Monitor
And Control
Threats and Opportunities
Analysis of
Internal resources
and competencies
Select
Implement
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Business Strategy Formulation
• Identify, evaluate, and decide strategies to be pursued;
• Establish how to achieve the strategies by planning for the
required actions and by effective development and use of
resources;
• Determine scope:
– Whole organization versus
– Strategic Business Unit (SBUs): a unit that sells a distinct set of
products & services, serves a specific set of customers and
competes with a well-defined set of competitors;
– Can be reconciled by considering the enterprise strategy as
combination of achievement of corporate objectives via SBU
contributions;
– Reflect Corporate/SBU relationship and possible inter-SBU
relationships
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Business Planning Process Elements
1. Objectives
2. Situation Analysis
3. Future Strategies
• Described by reference to
profitability, growth, market share,
customer satisfaction, new product
development, employment, social
responsibility, etc.
• Changes from year to year, evolve
quite significantly over a period of
time;
• Reflect values of organization,
management, and major stakeholders;
• Values are expressed in terms of
MISSION or VISION statement
– Long term aims and purpose;
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Types of Objectives Required
Strategic Objectives
Outcomes focused
on improving longterm, competitive
business position
Financial Objectives
Outcomes focused
on improving
financial
performance
$
30
Situation Analysis
• Where are we now ?
• Consists of two essential elements:
– looking inside the organization;
– looking outside the organization.
•
•
•
•
•
•
INTERNAL
Resources available in the
organization;
Financial health of the organization;
Employees, skills, training,
experience, motivation, resulting
business competencies;
Physical assets, age, technology,
usefulness;
R&D
The organization, its structure and
relationships, attitudes and culture,
and effectiveness of operational and
management processes, and its ability
to change the circumstances;
•
•
•
•
•
EXTERNAL
Market segments, and within them,
identifying competitors (current &
potential);
Market shares within segments –
increase share or increase the total
size of market;
The organization’s position in the
product life cycles
An examination of all current and
potential competitors to understand
their current and potential
strategies, Strengths & Weaknesses;
Future competitive actions –
concerning potential substitute
products and thrusts into new
markets;
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S.W.O.T Analysis
• Strengths: attributes of the organization that
are helpful to achieving the objective.
• Weaknesses: attributes of the organization
that are harmful to achieving the objective.
• Opportunities: external conditions that are
helpful to achieving the objective.
• Threats: external conditions that are
harmful to achieving the objective.
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Creative Use of SWOTs: Generating
Strategies
•
•
•
•
How can we Use each Strength?
How can we Stop each Weakness?
How can we Exploit each Opportunity?
How can we Defend against each Threat?
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TOWS analysis
• Strengths and Opportunities (SO) – How can you use your
strengths to take advantage of the opportunities?
• Strengths and Threats (ST) – How can you take advantage
of your strengths to avoid real and potential threats?
• Weaknesses and Opportunities (WO) – How can you use
your opportunities to overcome the weaknesses you are
experiencing?
• Weaknesses and Threats (WT) – How can you minimize
your weaknesses and avoid threats?
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Business SWOT
Business Strengths:
· Technical innovation
· Reputation
· Product quality
· Market position
· Employees with long tenure
· High values
· Customer relationships
· Flexible
Business Opportunities:
·
·
·
·
·
Use of Web technology
Worldwide company growth
Vendor-managed inventory
Smaller lot sizes
Business process improvement
Business Weaknesses:
· Profitability
· Cost competition
· Continuous improvement
· Silos by department
· Lack of competitive information
· Global presence
· Communication
· Reactive, firefighting
· Execution of projects
· Strategic planning, focus
· Internal controls and metrics
· Customer satisfaction metrics
Business Threats:
· Seasonality of product
· Larger competitors
· Reverse auctions on Web
· Legislature changes
· Federal funding changes
· Economic uncertainty
· Consumers desires changing
· Price pressures
· EPA and environmental regulations
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· International competition
IS SWOT
•
•
•
•
Business application
Technical infrastructure
People, organization, culture
Processes
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Application Strengths and Weaknesses
Strengths
Weakness
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
They work
Customized
Handles volume, throughput
Relatively stable
Interface broker
Warehouse functionality
Web-based functionality
Electronic EDI
Scalable costs
Not designed for current business
Manufacturing functionality weak
Information access
Data integrity
Size/volume limitations
Visibility to costs, profit
Architecture out of date
Risk
Not flexible, requires programming
Customized, not best practice
Warehouse, shipping systems
Interfacing data
Ease of use, “green screen”
Standard ERP functionality lacking
CRM lacking
International
Fragile
Not real-time
Tools
Costs relative to functionality
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Technical Infrastructure Analysis
Strengths
· Reliable
· Standard PC hardware/software
environment
· Up-to-date technology
· Security, firewalls, UPS, anti-virus
· Standard network components
· Management tools
· Internet cost-effective WAN
· Gigabit Ethernet backbone
Weakness
· Large, complex server
infrastructure
· Microsoft Office 97
· Potential limitations of Internet for
WAN
· Gauntlet firewall
· Server failover
· Some single points of failure
· SAN
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IT Organization, Culture
Strengths
· Knowledgeable people
· Have made improvements
· Fun environment
· Strong IS values
· Institutional skills
· Upper management
commitment
· Customer service focus
· Resources allocated per
division
· Flexibility
Weakness
·
·
·
·
·
Leadership
Decision making
Trust, respect
Too many meetings
Organizational structure
- Managers, span of control
- No project management
- Clarity in roles
- Business analyst role
- Worldwide coordination
- Skill set capacity
· Accountability
· Teamwork
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IS Process Analysis
Strengths
· Some documented policies,
procedures
· Job descriptions
· System change log, SCR
process
· Project management framework
· Partial disaster recovery
process
Weakness
· Informal processes,
inconsistent, undocumented
· Project management not
implemented
· Complete test system, process
· Documentation
· User training
· Prioritizing
· Governance, overall steering
committee
· Business continuance plan
· Communication
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Future Strategies
• This can provide both defensive mechanism
against possible future threat and capability to
exploit the opportunities by identifying the
pressure groups and the stakeholders;
• Future options can be discovered by undertaking
scenario planning to identify ‘discontinuities’
and predict the potential implications or bring in
outside experts to facilitate ‘breakthrough
thinking’;
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Future Strategies
• Future possible strategies are evaluated against
criteria, such as the following :
– The risks – financial and managerial; and likely responses
of main competitors;
– The degree to which the organization needs to create new
capabilities to be offensive or improve control to be
defensive;
– Appropriateness of current organization structure to
achieve intended strategies;
– The ability of the organization to implement the strategy
in terms of ability, resources, processes and culture;
– The implications for customers and trading partners;
– Requirement for alliances or joint ventures to enable or
secure strategies;
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Strategy Implementation
43
Realities of Strategy Development
Imposed
changes
INTENDED
STRATEGY
plans
Unexpected
constraints or
options
New
opportunities
EMERGENT
STRATEGY
Failed
implementation
REALISED
STRATEGY
Unrealized
Strategies
44
Strategy Tools and Techniques
45
Business Planning Tools &
Techniques
• The Boston Consulting Group Business
Matrix (Product Portfolio)
• Policy/portfolio matrices
• Competitive Forces and Competitive
Strategies
• Industry Analysis
46
Product Life Cycles &
Product Portfolios
High
Wild Cat
or
?
or
Problem Child
Star
Market Growth
&
Cash Use
FUNDS
$’000
Cash Cow
Dog
Low
Low
High
Market Share & Cash Generation
Boston Consulting Group
47
IS/IT Support for Wildcat Products
• Low market share, high growth market
• Focus on:
– Product and/or process development
or
– Customer identification, segmentation
48
IS/IT Support for Star Products
• High market share, high growth market
• Focus on:
– Identifying customers & requirements
and/or
– Business innovation to meet market
– requirements & differentiate
49
IS/IT Support for Cash Cow Products
• High market share, low growth market
• Focus on:
– Keeping costs low
and
– Control of business relationships & activities $ $ $
50
IS/IT Support for Dog Products
• Low market share, low growth market
• Focus on:
– Reducing costs or securing customers to
improve profit performance
– Very little innovation as line may be
discontinued
51
Threat of
New entrants
Bargaining
Power of
Suppliers
Rivalry
Among
Existing
Competitors
Threat of
Substitute
Products or
Services
Bargaining
Power of
Buyers
Industry Competitive
Forces
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53
Factors Affecting the Impact of
Competitive Forces
• New entrants will be inhibited by:
–
–
–
–
Capital requirement
Patents and specialist skills required
Distribution channels available
Achieved/required economics of scale and
resultant cost advantages
– Number and size of existing rivals and intensity
of competition
– Differentiation and brand establishment/loyalty
– Access to raw materials/critical resources, etc.
54
Factors Affecting the Impact of
Competitive Forces
• Substitute product/service:
– Customer awareness of need and means of
satisfaction
– Customer sensitively to value for money and
ability to compare
– Existing loyalty of customers-impact of
‘industry’ promotion
– Ability to differentiate product etc.
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Factors Affecting the Impact of
Competitive Forces
• Competitive rivalry will be intensified by:
– Market growth slow (or in decline)
– Small number of similar sized competitors
dominate
– High fixed costs and/or high exit barriers for all
rivals
– Overcapacity, and/or capacity increments are
large units
– Commodity-like, undifferentiated products, etc.
56
Factors Affecting the Impact of
Competitive Forces
• Buyers’ power will be increased by:
– Concentrated/few buyers making high volume
and/or high value of purchases
– Low switching costs across suppliers
– Price sensitive and many alternative sources of
supply
– Weak brand identities, products not differentiated
– Buyers capable of backward integration due to
low ‘entry’ costs, etc.
57
Factors Affecting the Impact of
Competitive Forces
• Suppliers’ power will be increased by:
– Few suppliers-high switching costs for rivals and
suppliers deal with many small customers
– Potential substitute suppliers/resources not easily
available
– Supplied goods make up large part of firms’ costs
– Suppliers capable of forward integration or bypass
to customers, etc.
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Implications for IS/IT Strategy
• The opportunities and threats that IS/IT can offer and
pose will vary over time in an industry, partly due to
the role IS/IT can play and partly due to the economic
and competitive situation of the industry.
• IS/IT innovation can stimulate new industry growth
or, in some cases, hasten the decline of certain
industries.
• IS/IT can be immediate impact and obvious.
• But, in other, the effects are secondary and require
other changes in business economics and social
behavior or parallel developments in other fields
before the become fully effective.
59
Industry Analysis
• How can IS/IT affect nature & value of
product or service and it’s life cycle?
– Electronic financial and business services, e.g.
Banks
– Online publishing, e.g. online journals
– Recruitment services via Internet
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Industry Analysis (Cont.)
• How can IT affect demand, extend markets
geographically, or provide new distribution
channels?
– Direct financial services
– Online marketing, e.g. Amazon
– Auctions & financial markets
61
Industry Analysis (Cont.)
• How can IT affect the cost base of key
processes or change the balance between
flexibility & standardization?
– Publishing, from preparation of materials by
authors to the final printing process.
– Automated warehousing/tracking
– Document digitization, for back-office process
62
How IS/IT Has Affected Competitive
Forces: The airline Industry
1. How can IS/IT
build barriers?
By increasing IT entry cost for
reservation systems
By tying in distribution channels
(travel agencies)
By sharing capacity and ticketing costs
via alliances and integrated systems
2. How can IS/IT
build in switching
cost for
customers?
By linking purchasing and remittance
systems to reduce overheads of
customer
Discount/volume packages to
discourage piecemeal purchase
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How IS/IT Has Affected Competitive
Forces: The airline Industry
3. How can IS/IT
change the basis of
competition?
Lower costs: optimize yield per
aircraft
Differentiate service: reconfiguring
aircraft due to demand
Niche/focus service into high yield
sectors (e.g. business travel)
Low-cost/low-price ‘no frills’
service with online direct
booking, bypassing agents
64
How IS/IT Has Affected Competitive
Forces: The airline Industry
4. How can IS/IT
change the balance
of power in
supplier/customer
relationship?
Agent is constantly aware of seat
availability of competing airlines
Airline can readily promote unsold
capacity via chosen agents or
direct to customers via online
booking with variable pricing
based on sales patterns
5. How can IS/IT
generate new
products/services?
Integrated travel package to high
mileage business customers,
bypassing agencies
New routes/schedules to cater for
demand
65
Impact of Competitive Forces and
Potential IS/IT Opportunities
Key force
impacting the
industry
Business implications
Threat of new Additional capacity
entrants
Reduced prices
New basis for
competition
Buyer power
high
Potential IS/IT effects
Provide entry barriers/reduce
access by
- exploiting existing economies of
scale
- differentiate products/services
- controls distribution channels
- segment markets
Forces prices down
Differentiate products/services and
Demand higher quality
improve price/performance
Require service
Increase switching costs, of buyers
flexibility
Facilitate buyer product selection
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Encourage competition
Impact of Competitive Forces and
Potential IS/IT Opportunities
Key force
impacting
the industry
Business implications
Potential IS/IT effects
Supplier
power high
Raises prices/costs
Reduced quality of
supply
Reduced availability
Supplier sourcing systems
Extended quality control into suppliers
Forward planning with supplier
Substitute
products
threatened
Limits potential
market and profit
Price ceilings
Improve price/performance
Redefine products and services to
increase value
Redefine market segments
Intense
competition
from rivals
Price competition
Product development
Distribution and
service critical
Customer loyalty
required
Improve price/performance
Differentiate products and services in
distribution channel and to consumer
Get closer to the end-consumerunderstand the requirement
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Generic Strategies:
low-cost
• IS/IT implications:
– Deal with basic business information process efficiently
and link them together
– Flexibility system increases the cost of development and
operation=> simple systems, often standard packages
implemented w/o change
– Integration can reduce the opportunities to improve the
efficiency of any particular process
– Information is not seen as a key resource for exploitation,
but as an overhead cost to be processed efficiently with
minimum additional IS/IT overhead
68
Generic Strategies:
Differentiation Strategy
• IS/IT implications:
– Flexible systems to extract information from an integrated
database or comprehensive data warehouse =>sophisticated
systems and user tailoring rather than standard solutions
– If mismanaged this can lead to unnecessary spending on
IS/IT=> ask the following issues:
•
•
•
•
•
•
Find out more about customer requirements
Monitor customer perception of service
Enable rapid and accurate response to customer queries
Provide a range of delivery options to meet customer needs
Reduce new product introduction lead times
Enable knowledge sharing across the organization to facilitate
innovation
69
Generic Strategies:
Niche/Focus Strategy
• IS/IT implications:
– Identifying the target market, and developing a
unique base of information about the selected
market and its needs
– Establishing a specialist process via system to
produce a clear cost advantage or distinctive
customer value proposition
– Linking the organization via systems into the
business processed of customers to increase
switching costs and establish potential barriers
to re-entry from general market servers
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CONCLUSION
• IS Strategies must be developed
within the context of business
strategic planning processes.
• Thus, the investment in IS/IT
throughout an organization can be
directed towards the achivement
of business objectives
71