business strategy concepts- is and it strategy implications

8/3/2019 Business Strategy Concepts- Is and It Strategy Implications

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CHAPTER1 Evolution of IS/IT.

IS strategies MUST BE developed within thecontext of corporate and business strategic

planning processes.

$$$

IS/IT

Achievement of business objectives/goals

Maximize ROI

Enabling strategic use of information

Gain competitive advantage Repel competitive Threat

Prof. Rushen Chahal


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PLANNING

INVOLVEMENT

IS Managers

Business Managers

Formal approaches to business planning 1950s

Evolved to cater for changes of the dynamic business environment

IS managers should

understand the

corporate

perspective of the

world

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Strategic Planning in Organization The formal approaches to business

planning started in 1950s.

They have evolvedsince in order totake accountoftechnological,economics, social and political changes.

They will continue to evolve in responsetothe dynamics ofthe businessenvironment.

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Evolution of Strategic Planning

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Evolution of Strategic Management

Maturity

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The Evolving Nature of Strategic

Planning in Organisations

In 1980, a model was developed to describethe increasing maturity ofstrategic planning inorganisations. The model consists of4 phases.

In phase 1, the focus is on cash flow andannual financial planning.

It involves simple techniques to developmediumterm budgets.

The focus ofthe management is to reduceeverything to a single financial issue meeting the budget.

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Cont

In phase 2, the focus is on trying to predict,or forecast, what is likely to happen within a 5years horizon.

Historical performance analysed and projected

intothe future using internal trends andexternal parameters such as economic andmarket research data.

Itforecasts sales and market growth andpredicts the effects on income and expenses

and changes tothe balance sheet.Plans are still quantitative and internallyoriented, focusing on what is targeted and theresources available.

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Cont

In phase 3, the organisation starts to lookoutside itselfan concentrate on understandingthe nature ofcompetition in its industry, andpositions itself to gain advantage.

Managers try to shift companys product portfoliotomore attractive market sectors.

In phase 4, the organization is driven byinnovation and becomes capable ofcreating itsown business environment.

Thus, the organisation gains a leading role in theindustry. Obviously, the leadership will requirecontinuing innovation.

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Strategic Planning in

Organizations

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What is Strategy?

A strategy is a collection of statements that express or propose ameans through which an organization can fulfill its primary

purpose or mission

A chosen strategy must focus and coordinate the firmsactivity from the top down toward accomplishing its mission

Developing a strategy begins with: a thoughtful understanding of the firms 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?

Toproactively

shapehow a

companys

business will

be conducted

To mold theindependent

actionsanddecisions of

managersandemployeesinto acoordinated,

company-wide gameplan

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Relationship of Strategies to Plans

Strategy is a collection of statements that expressesor proposes a means through which an organizationcan fulfill its mission

Identifies the goal or objective Insights

Plan is a detailed description of how anorganization can accomplish its mission

Lays out in detail the steps necessary for the organizationto accomplish the goal

Plans turn insights into actions

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Missions vs. Strategic Visions

A mission statementfocuses on current

business activities --

who we are andwhat we do

Current product and

service offerings

Customer needs beingserved

Technological and

business capabilities

Astrategic visionconcerns a firms

futurebusiness path --

where we are goingMarkets to be pursued

Future technology-

product-customer focus

Kind of company thatmanagement is

trying to create

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What is a Strategic Plan?

Where firm isheaded --

Strategic vision and

business mission

Short andlong term performance

targets -- Strategic and

financial objectives

Actionapproaches to achievetargetedresults -- Acomprehensive strategy

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Establishment of Strategy

There are essentially three processes that can

contribute to the establishment of a strategy:

1. Strategic thinkingcreative, entrepreneurial insight intothe ways the enterprise could develop.

2. Strategic planningsystematic, comprehensive analysis todevelop a plan of action.

3. Opportunistic decision-makingeffective reaction to

unexpected threats and opportunities.

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Thinking Strategically : The

Three Big Strategic Questions

1.Whereare wenow?

2.Wheredo we want to go?

Business(es) to beinand market

positions to stake out?

Buyer

needs

and

gr

oups

to

serve?

Outcomes to achieve?

3. How do weget there?Prof. Rushen Chahal


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Company

Experiences,

Know-how,

Resource

Strengths

and

Weaknesses,

andCompetitive

Capabilities

A Companys Strategy is Partly PlannedPlanned

andand Partly ReactivePartly Reactive

Reactive Strategy

Actual

Compan

y

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 stakeholders3. 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 /F

uturestrategies

Page 71 - Text

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A Strategic Framework

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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

Technological Environment:

Impact of emerging technologies

Impact of Internet, reduction in

communications costs and increased

remote working

Research & Development activity

Impact of technology transfer

Firms can draw conclusions

as to the significant forces of

change operating within the

environment.

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

and minimize the threats.Prof. Rushen Chahal


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Pressure Groups &

StakeholdersPressure Groups:Pressure Groups:

Make demands of the organization;Make demands of the organization;

Demand their existence and effects be acknowledged;Demand their existence and effects be acknowledged; Expect appropriate responses from mgmt to satisfy theirExpect appropriate responses from mgmt to satisfy their

particular interest;particular interest;

Stakeholders:Stakeholders:

Have a direct financial interest in the organization and demandHave a direct financial interest in the organization and demanda fair share of the wealth created;a fair share of the wealth created;

Expect some form of material and financial benefit;Expect some form of material and financial benefit;

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Pressure Groups:Pressure Groups: MediaMedia ShareholdersShareholders CompetitorsCompetitors SuppliersSuppliers GovernmentGovernment UnionsUnions CustomersCustomers PublicPublic Financial InstitutionFinancial Institution EmployeesEmployees

Stakeholders:Stakeholders:

ShareholdersShareholders CustomersCustomers PublicPublic SuppliersSuppliers UnionsUnions

EmployeesEmployees GovernmentGovernment

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Internal Business Strategy

Formulation and Planning

Objectives Where are we now?Strengths & Weaknesses

Identify future strategies

Value System

Market analysisCompetitive analysisPEST analysis

Industry analysis

Threats and Opportunities

Evaluate

Select

Implement

Analysis ofInternal resourcesand competencies

Feedback

MonitorAnd Control

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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 ofresources;

Determine scope:

Whole organization versus

Strategic Business Unit (SBUs): a unit that sells a distinct set ofproducts & services, serves a specific set of customers andcompetes with a well-defined set of competitors;

Can be reconciled by considering the enterprise strategy as

combination of achievement of corporate objectives via SBUcontributions;

Reflect Corporate/SBU relationship and possible inter-SBUrelationships

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Business Planning Process Elements

1

. Objectives2. Situation Analysis

3. Future Strategies

Described by reference toprofitability, growth, market share,customer satisfaction, new productdevelopment, employment, social

responsibility, etc. Changes from year to year, evolve

quite significantly over a period oftime;

Reflect values of organization,management, and major stakeholders;

Values are expressed in terms ofMISSION orVISION statement

Long term aims and purpose;Prof. Rushen Chahal


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Types of Objectives Required

Financial ObjectivesStrategic Objectives

Outcomes focused

onimprovinglong-

term, competitivebusinessposition

Outcomes focused

onimproving

financial

performance

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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, resultingbusiness competencies;

Physical assets, age, technology,usefulness;

R & D The organization, its structure and

relationships, attitudes and culture,and effectiveness of operational andmanagement processes, and its abilityto 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 organizations 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 thatare helpful to achieving the objective.

Weaknesses

:attributes of the organizationthat are harmful to achieving the objective.

Opportunities: externalconditions that arehelpful to achieving the objective.

Threats:externalconditions that areharmful 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 yourstrengths 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 useyour opportunities to overcome the weaknesses you areexperiencing?

Weaknesses and Threats (WT) How can you minimizeyour weaknesses and avoid threats?

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Business SWOT

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IS SWOT

Business application

Technical infrastructure

People, organization, culture

Processes

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Application Strengths andWeaknesses

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Technical Infrastructure Analysis

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IT Organization, Culture

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IS Process Analysis

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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 inoutside experts to facilitate breakthrough

thinking;

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Future Strategies

Future possible strategies are evaluated againstcriteria, such as the following : The risks financial and managerial; and likely responses

of main competitors;

The degree to which the organization needs to create newcapabilities to be offensive or improve control to bedefensive;

Appropriateness of current organization structure toachieve intended strategies;

The ability of the organization to implement the strategyin terms of ability, resources, processes and culture;

The implications for customers and trading partners;

Requirement for alliances or joint ventures to enable orsecure strategies;

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Strategy Implementation

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EMERGENTSTRATEGY

INTENDEDSTRATEGY

REALISEDSTRATEGY

plans

Unrealized

Strategies

Imposedchanges

Newopportunities

Unexpected

constraints or

options

Failed

implementation

Realities of Strategy Development

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Strategy Tools and Techniques

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Business Planning Tools &

Techniques

The Boston Consulting Group Business

Matrix (Product Portfolio)

Policy/portfolio matrices Competitive Forces and Competitive

Strategies

Industry Analysis

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Product Life Cycles &

Product Portfolios

Boston Consulting Group

Star

Cash Cow

Wild Cat

or

?

or

Problem Child

Dog

FUNDS

$000

High

Low

High Low

Market Growth&

Cash Use

Market Share & Cash Generation

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IS/IT Support forWildcat Products

Low market share, high growth market

Focus on:

Product and/or process developmentor

Customer identification, segmentation

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IS/IT Support for Star Products

High market share, high growth market

Focus on:

Identifying customers & requirementsand/or

Business innovation to meet market

requirements & differentiate

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IS/IT Support for Cash Cow Products

High market share, low growth market

Focus on:

Keeping costs lowand

Control of business relationships & activities $$$

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IS/IT Support for Dog Products

Low market share, low growth market

Focus on:

Reducing costs or securing customers toimprove profit performance

Very little innovation as line may be

discontinued

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Threat of

New entrants

BargainingPower of

Suppliers

Bargaining

Power of

Buyers

Threat of

Substitute

Products or

Services

Rivalry

Among

ExistingCompetitors

Industry Competitive

Forces

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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 andresultant cost advantages

Number and size of existing rivals and intensityof competition

Differentiation and brand establishment/loyalty

Access to raw materials/critical resources, etc.Prof. Rushen Chahal


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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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Competitive Forces

Competitive rivalry will be intensified by:

Market growth slow (or in decline)

Small number of similar sized competitorsdominate

High fixed costs and/or high exit barriers for allrivals

Overcapacity, and/or capacity increments arelarge units

Commodity-like, undifferentiated products, etc.

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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.

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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 bypassto customers, etc.

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Implications for IS/IT Strategy

The opportunities and threats that IS/IT can offer andpose will vary over time in an industry, partly due tothe role IS/IT can play and partly due to the economicand competitive situation of the industry.

IS/IT innovation can stimulate new industry growthor, in some cases, hasten the decline of certainindustries.

IS/IT can be immediate impact and obvious.

But, in other, the effects are secondary and requireother changes in business economics and socialbehavior or parallel developments in other fieldsbefore the become fully effective.

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Industry Analysis

How can IS/IT affect nature & value of

product or service and its 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

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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

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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 switchingcost for

customers?

By linking purchasing and remittance

systems to reduce overheads ofcustomer

Discount/volume packages to

discourage piecemeal purchase

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3. How can IS/IT

change the basis of

competition?

Lower costs: optimize yield per

aircraft

Differentiate service: reconfiguring

aircraft due to demandNiche/focus service into high yield

sectors (e.g. business travel)

Low-cost/low-price no frills

service with online direct

booking, bypassing agents

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4. How can IS/IT

change the balance

of power in

supplier/customerrelationship?

Agent is constantly aware of seat

availability of competing airlines

Airline can readily promote unsold

capacity via chosen agents ordirect 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

demandProf. Rushen Chahal


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Impact of Competitive Forces and

Potential IS/IT Opportunities

Key force

impacting the

industry

Business implications Potential IS/ITeffects

Threat of new

entrants

Additional capacity

Reduced pricesNew basis for

competition

Provide entry barriers/reduce

access by- exploiting existing economies of

scale

- differentiate products/services

- controls distribution channels

- segment marketsBuyer power

high

Forces prices down

Demand higher quality

Require service

flexibility

Encourage competition

Differentiate products/services and

improve price/performance

Increase switching costs, of buyers

Facilitate buyer product selectionProf. Rushen Chahal

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Impact of Competitive Forces and

Potential IS/IT Opportunities

Key forceimpacting

the industry

Business implications Potential IS/ITeffects

Supplier

power high

Raises prices/costs

Reduced quality of

supplyReduced 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-consumer-

understand the requirementProf. Rushen Chahal


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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 Prof. Rushen Chahal


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Generic Strategies:

Niche/Focus Strategy

IS/IT implications:

Identifying the target market, and developing aunique base of information about the selected

market and its needs Establishing a specialist process via system to

produce a clear cost advantage or distinctivecustomer value proposition

Linking the organization via systems into thebusiness processed of customers to increaseswitching costs and establish potential barriersto re-entry from general market servers

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CONCLUSION

IS Strategies must be developedwithin the contextofbusiness

strategic planning processes. Thus, the investment in IS/ITthroughout an organization can be

directed towards the achivementofbusiness objectives

Prof. Rushen Chahal

business strategy concepts- is and it strategy implications

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