MD240 Strategy and Strategic Information Systems

Why is it Important for Managers Today to Consider the Strategic Role of Information Systems?

Strategic Advantage and IT

Important
What

Managerial Questions

is strategy? What is strategic advantage? Information Systems as a strategic resource How do we use Information Systems to achieve some form of strategic advantage over competitors?

Strategic Advantage and IT

Does the infrastructure (and how it is operated) support the strategy?

Business Pressures/ Threats

Strategy/ Strategic Response

Information Architecture
(Conceptual Model)

Information Infrastructure
(Specific Resources Actually Put In Place)

Knowledge of Configurations of I.T.

Knowledge of Hardware, Software, Databases, Networks

Classification of types of I.T. (Taxonomies) Engineers must know and the performance characteristics Understanding of relationship of specific I.T. resources between I.T. types and capabilities/performance

What is Strategy?

What is Strategy?
Strategy Definitions

Strategy

A plan Early 1990s definition:

A well coordinated set of objectives, policies, and plans aimed at securing a long-term competitive advantage. A vision for the organization that is implemented. a careful plan or method the art of devising or employing plans toward a goal the art and science of military command exercised to meet the enemy in combat under advantageous circumstances

Websters Dictionary

What is Strategy?
Strategy Definitions

Strategy

Henry Mintzberg:

Explicitly planned: Intended Strategy

Realized: planned and succeed Unrealized: planned but fail

Implicit, not explicitly planned yet executed: Emergent Strategy

Planned Strategy

Executed Strategy

Failed Strategy

Emergent Strategy

Strategic Advantage

Strategic Advantage and IT

Evolution of Strategy Concepts

Competitive Strategy
Competitive

Strategy Speeding Up

Advantage

Sustainable Competitive Advantage

defensible market position (CQFDS), unique core competence long-term barriers to competition, non-competitive profits (>0)

Temporary (Non-Sustainable) Competitive Advantage

Strategic

Advantage

Sustainable Strategic Advantage

long-term, dominant strategy, strategic systems, strategic structural changes

Temporary Strategic Advantage Leverageable Strategic Advantage (Carr)

dominant strategy is only a stepping-stone to future dominant strategies

Strategic Advantage and IT

Evolution of Strategy Concepts
Venkatraman
Three

(BU) and Subramaniam (BC Prof.)

eras of approaches for achieving strategic advantage

Portfolio of Business (1970s)

performance a result of businesses you pick to be in motivated by economies of scale

performance a result of internal processes and routines, which provide distinctive capabilities motivated by economies of scale and scope performance a result of building a wide array of relationships with external companies that possess hard-to-imitate capabilities motivated by economies of scale, scope, and expertise

Portfolio of Capabilities (mid 1980s)

Portfolio of Relationships (mid 1990s)

Information Systems as a Strategic Resource

Information Systems as a Strategic Resource

Inwardly
focused

Strategic

Outwardly
aimed

Strategic

on internal processes
lower costs increase employee productivity improve teamwork enhance communication

at direct competition beat competitors

new services new knowledge that leads to new services

Information Systems as a Strategic Resource

Hayes and Wheelwright (1985) - operations effectiveness, applies equally well to ISD effectiveness

Stage 1: Internally Neutral

not seen as a source of process improvement technology Minimize negative impact of functional area on organization Top management in control; tells dept. what to do not seen as a source of external competitive advantage source of internally focused competitive advantages viewed as competitive force in the business function drives issues of top-management strategy making

Stage 2: Externally Neutral

Stage 3: Internally Supportive

Stage 4: Externally Supportive

Information Systems as a Strategic Resource

Competitive Marketplace
Externally Strategic

Company A
Internally Strategic
Inter-Firm Strategic Focus Alliance

Company B

Managing for Strategic Advantage

Elements of Strategic Management

Innovation
Response-Management Long-Range

Planning
Intelligence

Competitive

How Can Managers Formulate Strategies and Strategic Information Systems?

Models for Understanding Strategic Threats and Formulating Strategic Responses

Model #1:
Porters Competitive Forces Model
Threat

of new competitors Bargaining power of suppliers Bargaining power of customers Threat of substitute products or services Rivalry among existing firms

Model #1:
Porters Competitive Forces Model Generic Response Strategies Market Size Cost leadership Niche Broad Differentiation Cost Focus Cost Focus Strategic Other dimensions Advantage
Strategic

positioning Customer service Operational Effectiveness

Cost,

Diff.

Focus

Diff.

Quality, Flexibility, Delivery

Model #1: Use of Porters Model

List

players Analyze business drivers Devise a strategy Investigate supportive information technologies

Models for Understanding the Value Creation Process

Model #2:
Porters Value Chain Analysis Model
Porters Value Chain
Firm Infrastructure Human Resources Management

Technology Development
Procurement Profit Margin Outbound Logistics Marketing & Sales

Inbound Logistics

Operations

Service

Model #2:
Porters Value Chain Analysis Model Primary Activities Inbound logistics Operations Outbound logistics Marketing / sales Service

Model #2:
Porters Value Chain Analysis Model Support Activities Firm infrastructure Human resource management Technology department Procurement

Model #2:
Porters Value Chain Analysis Model
What

do you notice about the position and role of the Information Systems Department in this model? What is the role of the ISD now?

Model #2:
Porters Value Chain + Virtual Value Chain
Suppliers Virtual Value Chain Buyers Virtual Value Chain

Profit Margin Information Flow Information Flow

Profit Margin

Value Chain

of Supplier

Value Chain

of Buyer

Profit Margin

Profit Margin

Models for Identifying Where IT Can Be Deployed for Strategic Advantage

Models #3-7:
Strategic Information Systems Frameworks
Porter

and Millars framework Wiseman and MacMillan framework Bakos and Treacy framework McFarlans Application Portfolio Analysis Customer resource life cycle framework

Model #3:
Porter and Millar Five-Step Process
Assess information intensity (note: quite subjective) High implies strategic opportunities exist

customers need a lot of information to understand and/or use a product suppliers dependent on information

Determine

the role of IT in the industry structure Identify and rank the ways in which IT can create competitive advantage Investigate how IT might spawn new businesses Develop a plan for taking advantage of IT

Model #4:
Wiseman and MacMillan Framework
Enhances

Porters generic strategies; adds four defense strategies:

Innovation

Growth
Alliance Time

Model #5:
Bakos and Treacy Framework
Competitive

Advantage drivers: Bargaining Power

Search

related costs Unique product features Switching costs

Comparative
Internal

Efficiency

efficiency Interorganizational efficiency

Model #6:
McFarlans Application Portfolio Analysis
Classify
High

potential of IT applications

potential

Data mining, direct marketing

Key

operational

Online scheduling/parts ordering/maintenance E-procurement Account tracking, online training

Strategic

Support

subjective evaluation done by managers based on expectations of current and future IT benefits

Model #7:
Customer Resource Life Cycle Framework
Ives

and Learmouth, 1984 Customer relationship key to strategic advantage Thirteen fundamental stages of the customer relationship Useful for thinking about e-Commerce & eServices

Model #7:
Customer Resource Life Cycle Framework

Establish customer requirements Specify customer requirements Select a source, match customer with a supplier Place an order Authorize and pay for goods and services Acquire goods and services Test and accept goods and services Integrate into and manage inventory Monitor use and behavior - (ex: Real Networks) Upgrade if needed - (ex: Internet browsers) Provide maintenance - (ex: Internet browsers) Transfer or dispose of product or service - reverse supply chain, green mfgr. Accounting for purchases

Implementing and Sustaining Strategic Information Systems (SISs)

SIS Implementation
SIS

Implementation

Often

takes months or years to complete development and become operational Failure rate of SIS implementations is quite high large risks when SIS implementations fail several strategies for sustaining advantage from SISs
outward systems fairly easy to duplicate inward systems more difficult to duplicate create systems difficult or expensive to duplicate combine SIS implementation with structural changes to organization

Summary
Strategic
Cost

Information System Applications

leadership Differentiation Growth Alliances Innovation Improve internal efficiency Customer-oriented approaches

Summary

Prior to the 1990s, Information Systems and the Information Systems Department

Often were not viewed as strategic resources More common: cost centers ISD head probably not included in strategy making Internet/other I.T. connect every portion of organization to supply chain and to customer

Shift in view

I.T./I.S. now has direct impact

Delivering competitive dimensions more effectively Sensing and responding to competitive threats more quickly
Sustainable vs. Leveragable

Competitive and Strategic Advantage often is now short-lived