IT Strategy in Businesses

Prof. Anindita Paul Indian Institute of Management Kozhikode

Why is it important?
Evolving environment-Information an economic good Competitive edge necessity (for competition) and advantage (for differentiation) Existing Processes useful, efficient, effective, responsive Progressive New processes emerging, new capabilities developed
Information Technology (IT) has always been a wildcard in business, a source of opportunity and uncertainty, of advantage and risk.

What is IT Strategy?
IT strategy for any organization provides effective, efficient, responsive and flexible systems to meet the current and future business as well as legislative requirements. IT strategy is further subdivided into the following subcomponents:
IT application strategy (identifies applications to address the business needs) classified as Support, Factory, Turnaround or Strategic category Technology management strategy for IT (addresses the choice of long-term view of the technology, their sustainability, availability and reusability) IT management strategy (IT projects must meet the business expectations in desired time, cost and budget; decision on outsourcing vs. doing in-house; change management)

Why is IT Strategy important?

Long term view of IT Spells out the current needs and vision to sustain competitive advantage Assist in operationalising companys processes Provides a cost effective framework for executing business strategy IT Strategy would provide and sustain an information technology framework to enable the firm to meet its mission, objectives and strategic aims

Business Strategy
BS is a set of objectives, plans, and policies for successful competition in markets. Porter defines business strategies such as cost leadership, differentiations, niche focus or innovation which a firm can adopt. Characteristics of BS
It is long-term (3-5 years) in nature. It specifies what the organization's competitive advantage will be. It focuses on a few key areas. The pattern of decisions made over time is, in fact, an organization's business strategy.

Course Objective
To help business executives take important steps on the path of IT enabled transformational change.
Create an environment for executives in defining and executing not only technology strategy, but also business strategy.

Course Outline
Today IT Strategy in Business Strategies for Planning and Applying IT (SISP) Organizing and Leading IT Mid Terms Strategies for IT Program Management, IT Service Management Planning and Measuring Returns on IT Investment

Text Book
Lynda M Applegate et.al. (2007) Corporate Information Strategy and Management, 7th Edition. Tata McGraw Hill

Topics for MIS 1

Challenges and Opportunities of IT in Business IT Strategy Development for Competitive Advantage Sustain Competitive Advantage Business and IT Alignment Meaning Drivers Framework Tips

Challenges
Global competition
Individual firms need to operate at same level of efficiency Quality needs to be at par Acceptable prices

Differentiation that provides a unique mix of value necessary for survival

Opportunities Provided by IT
IT cuts cost, increases speed and supports business activities through applications, communications and technology (Operational effectiveness and efficiency in Pizza Hut, Dominos) IT provides variation and choice by pooling together capabilities to support the activities of the firm. (Unique value for Toyota and Dell customers) Extending scope and reach to customers through the internet (more products more audiences). Not necessarily selling their own products such as airlines becoming travel companies, hospitals are getting into health tourism, Moser-Baer getting into media distribution.

Threats of the IT-Enabled World

The legal and social definitions of an organization as business practice outpaces legal and regulatory policy
International competitiveness and trade, intellectual property, privacy, security, family, community, education, and culture.

Companies are spending huge amount to manage their IT . However, businesses struggle to quantify the results of the IT systems and consider it as cost of doing business. Technology has become a core enabler and, in some cases, the primary channel through which business is done. Most of it is done without long-term thinking or proper planning.

 Business executives have begun to wrest control from IT executives who have failed to meet the challenges. The ripple effect of one industry, one country or one natural disaster is felt more often in other places, sooner than expected in the changed world where IT is implemented.
This needs IT deployment keeping utmost levels of constant preparedness, "battle ready" conditions and agility in mind.

Conflicting views of IT in business

Business executives often view IT with apprehension, as the province of technocrats primarily interested in new features that may have little relevance to real-world business problems. Technology executives often consider business managers to be short sighted, lacking the vision to exploit all that technology has to offer. Both business executives and technology executives struggle as they attempt to implement increasingly complex systems in the face of rapid change in business and technology.
Applegate, L. M., Austin, R. D., and McFarlan, F. W. (2007), Corporate Information Strategy and Management, Tata McGraw-Hill, New Delhi.

IT Strategy Development for Competitive Advantage

How organizations can use IT to gain competitive advantage? For this, the IT strategy planner must understand the strategic dimension, points of opportunity as well as areas of concern.
Identifying the IT systems as strategic, support, turnaround or factory type. Support or factory applications can be outsourced so that less management intervention is needed in managing them.

Whether corporate strategy should drive IT or vice versa?

McFarlans Strategic Grid

Incremental improvement Centralizing internal processes such as back-office processes (payroll, purchasing, and benefits management) Business Process Design Re-engineering Core operating process-Supply chain management, new product development Emerging Opportunities Revenue growth from new service offerings that built on internal IT-enabled business processes. Business Transformation IBM Business Transformation Outsourcing (not only outsourcing but into consulting as well)

Sustain Competitive Advantage

(Piccoli and Ives, 2009)
Response Lag Driver- The time it takes for competitors to respond aggressively enough to erode the competitive advantage. 4 barriers to erosion fully capture the determinants of sustainability
IT Resources Barrier (firms endowment of IT resources) Complementary Resources Barrier (co-specialized complementary assets such as access to distribution channels, cross-selling) IT Project Barrier (design, develop, and introduce the information processing functionality needed to deliver the value proposition) Preemption Barrier(even after successful imitation, the leaders position cannot be threatened)

Barriers IT Resources Barrier

Response Lag Drivers IT Assets IT Capabilities IT Infrastructure Information Repositories Technical Skills IT Management Skills Relationship Asset

Complementary Resources Barrier IT Project Barrier

Complementary Resources Technology Characteristics Implementation Process Visibility Uniqueness Complexity Complexity Process Change

Preemption Barrier

Switching Costs

Tangible co-specialized investments Intangible co-specialized investments Collective Switching Costs

Relationship Exclusivity Concentrated Links

Value System Structural Characteristics

 2 dynamic processes that contribute to reinforce barriers

Organizational Learning
The capacity or processes within an organization to maintain or improve performance based on experience

Asset Stock Accumulation

The process by which a firm accrues or builds up a resource over time as a result of a consistent pattern of resource flows.

What does Business and IT Alignment mean?

Business Strategy is a firms long-term plan regarding its products and services, its core competencies and behaviour in the marketplace. IT strategy pertains to the firm's long-term decisions regarding choice of technology, application development or use of packages solution, outsourcing or in-house staffing and initiatives to make IT strategic to its business. The alignment between IT and business is a construct concerning the degree of congruence of an organization's IT strategy and IT infrastructure with the organization's strategic business objectives and infrastructure. Due to the use of IT in all walks of business processes and execution, complexity and investment in IT systems have grown manifold. Business and IT are so interdependent these days that it cannot win unless they have a common envision drive towards the goal, support each other and run at equal speed and energy.

How to use the Strategic Alignment Model

Strategy (External)

Building Blocks:
Scope Competencies Governance Structure Processes Skills Scope Competencies Governance Infrastructure Processes Skills Strategic Fit

Infrastructure (Internal)

Identify your strongest and weakest domain

Strategic Fit Functional Integration and Cross-Domain Relationship Need to develop communication with and increase understanding of weaker domains

Business Information Technology Functional Integration

Understand relationship between domains when change in strategy occurs

Strategy Execution IT is an Expense

Business Strategy is the driver of both Business and IT Infrastructures Priority is to improve business processes, which places focus on changing business infrastructure. IT focus is on application development, driven by need to support business infrastructure
Top Mgmts Role? Strategy Formulator

IT Mgmts Role?
Business Strategy Scope Competencies Governance IT Strategy Scope Competencies Governance Strategy Implementor Performance Criteria for assessing IT financial parameters reflecting a cost center focus Risk? IT reacts to support business processes not viewed as a strategic resource

Business Infrastructure Structure Processes Skills

IT Infrastructure Infrastructure Processes Skills

Technology Transformation Business Strategy Drives Need to Develop IT Strategy

Assume: Business strategy and infrastructure are aligned IT strategy needs to define technologies integral to business strategy Focus is aligning IT strategy and IT infrastructure
Top Mgmts Role? Technology visionary IT Mgmts Role? Technology Architect Performance Criteria for assessing IT Based on technology leadership often utilizing a benchmarking approach Risk? IT is not integrated IT infrastructure lags and does not adequately support business infrastructure

Business Strategy Scope Competencies Governance

IT Strategy Scope Competencies Governance

Business Infrastructure Structure Processes Skills

IT Infrastructure Infrastructure Processes Skills

Service Level Providing IT services

Information is a core product or service
Business strategy and IT strategy may be aligned
Top Mgmts Role? Prioritizer IT Mgmts Role? Leadership

Focus is to enable business infrastructure by fitting IT infrastructure to IT strategy

Business Strategy Scope Competencies Governance IT Strategy Scope Competencies Governance

Business Infrastructure Structure Processes Skills

IT Infrastructure Infrastructure Processes Skills

Performance Criteria for assessing ITBased on customer satisfaction (end-userneeds surveying, service-level contracting) Risk? May lose sight of business strategy; IT viewed as a service function independent of business strategy.

Competitive Potential IT Enables Strategic Opportunities

Assume: IT strategy and infrastructure are aligned IT strategy necessary to build distinctive core competency Business infrastructure needs to evolve to fit new business opportunities enabled by IT
Top Mgmts Role? Business Visionary IT Mgmts Role? Catalyst Performance Criteria for assessing ITBased on business leadership with qualitative and quantitative measurements Risk? Large IT investments; Change organizational structure to address info flow problems; Re-train employees with new IT.

Business Strategy Scope Competencies Governance

IT Strategy Scope Competencies Governance

Business Infrastructure Structure Processes Skills

IT Infrastructure Infrastructure Processes Skills

Lessons from the Strategic Alignment Model

Need for IT external and internal domains Understand strong/weak domains and cross-domain relationships Different roles of business and IT executives Re-conceptualize assessment of the performance of IT

Facilitators of Alignment
Leadership level congruence (business leaderships desire to take along IT leadership in strategy formulation development and execution). IT's ability to identify and partner with business (ITs ability to understand business and develop IT plans linked to the business plan to gain competitive advantage) IT's ability to deliver (how IT delivers and meets its commitment)
If the first two have been done right, the third factor becomes somewhat easy.

Challenges of Alignment
Mismatch between strategic objectives and the deployment of IT (mostly due to the absence of a well-articulated strategy) Limitation in capturing the end-users requirements Lack of uniform and seamless communication of the strategy to the entire organization (to prepare the employees to respond to the strategic IT plan initiatives)

Frameworks for IT and Business Alignment

Communication (alignment is achieved through good communication between the CEO and CIO and ITs strategically positioning within the organization) Architecture (first define business architecture and superimpose IT architecture; now add information and structure; information is the glue that binds business and IT, it is the structure that translates strategy into processes and infrastructure) Technology (operational alignment at the user level covering business role, information role, function of IT as well as of IT infrastructure) People (high-performing businesses with a tactical and supporting role for IT require informed and responsive support from the IT utility team)

Tips for Business and IT Alignment

1. 2. 3. 4. Steering committee Joint task force group Appointing IT champion in the user department Appointing function wise user advocate or subject matter expert in IT department 5. Sabbatical to IT or business user function 6. Joint projects for innovation 7. Making IT members part of executive committee, strategy group 8. Co-authoring papers and seminar presentations by user and IT on its achievements 9. Team developments, joint training of user and IT professionals 10. Encourage cross transfer of IT and business users at managerial level

Prep for Next Class

Strategies for Planning and Applying IT (SISP) Chapters 3 and 4 Applegate Grover and Segars (2005) Case - World Bank Optional Reading Brown, Irwin, "Strategic Information Systems Planning: Comparing Espoused Beliefs with Practice" (2010). ECIS 2010 Proceedings. Paper 140. http://aisel.aisnet.org/ecis2010/140 Information Technology Strategic Plan 2009-2013. (2009). (pp. 1-27): Department of Homeland Security. Office of the Chief Information Officer.( http://www.dhs.gov/xlibrary/assets/cio_infotech_strategic_plan_20092013.pdf)