Chapter 1: The Information Systems Strategy Triangle

Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99223 chen@jepson.gonzaga.edu
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Essential Value Propositions for a Successful Company

Business Model Core Competency Execution
Set corporate goals and get executive sponsorship for the initiative

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Information System Strategy Triangle

Strategy Triangle
Business (Firm) Strategy
Where is the business going and why?

Needs and priorities

Organizational Strategy
Infrastructure and services

IS/IT Strategy
How it can be delivered?
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What is required?

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Information System Strategy Triangle

A business strategy is a well-articulated vision of where the business seeks to go and how it expects to get there. An organizational strategy is the organizations design, as well as the choices it makes to define, set up, coordinate, and control its work processes. IS strategy is the plan the organization uses in providing information systems and services.
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The Information Systems Strategy Triangle

Successful firms business strategy drives both their organizational and IS strategies: They must, therefore, seek to balance business, organizational, and IS strategies IS Strategy is affected by the other strategies a firm uses. Changes in IS strategy must be accompanied by constant adjustments in the other two IS strategy can have (sometimes unintentional) consequences on business and organizational strategies 5
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BRIEF OVERVIEW OF BUSINESS STRATEGY FRAMEWORKS

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Striving for Competitive Advantage

Firm level: Industry & Competitive Analysis
Competitive Forces Model Competitive Strategy DAvenis Hypercompetition Model (7s)

Business level
Value-Chain Analysis

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A Business Strategy is:

A well-articulated vision of where the business seeks to go and how it expects to get there It is the form by which a business communicates its goals The following are examples of wellaccepted models of business strategy Models used: Porters generic strategies model; DAvenis hypercompetition model
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Business Strategy Frameworks

Porters Generic Strategies Framework (and its variants) Hypercompetition and the New 7-Ss framework (DAveni)

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Figure 1.2: Porters Generic Strategy Framework 3 Strategies for achieving Competitive Advantage

Competitive Advantage
Lower Cost Position Uniqueness Perceived by Customer

Industrywide (Broad Target)

Overall Cost Leadership

Differentiation

Particular Segment only (Narrow Target)

Focus

Competitive Mechanism
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TM -10

Porters Competitive Advantage Strategies

Cost leadership: be the cheapest Differentiation: focus on making your product and/or service stand out for non-cost reasons Focus: occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation.
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Variants on Differentiation Strategy

Shareholder value model: create advantage through the use of knowledge and timing (Fruhan) Unlimited resources model: companies with a large resource can sustain losses more easily than ones with fewer resources (deep pocket
advantage)
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Business Strategies
and its Competitive Advantage
Lower Cost Position Uniqueness Perceived by Customer

Industry wide (Broad Target) Particular Segment only (Narrow Target)

Cost Leadership

Differentiation

Cost Focus

Differentiation Focus

Industrial economy
Competitive Mechanism
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Knowledge-based economy
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TM -13

Hypercompetition and the New 7-Ss framework (DAveni)

Every advantage is eroded. Sustaining an advantage uses too much time and resources that can be a deadly distraction. The goal should be disruption, not sustainability of advantage. Initiatives are achieved with a series of small steps.
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DAvenis Disruption and 7-Ss

Vision for Disruption
Identifying and creating opportunities for temporary advantage through understanding Stakeholder satisfaction Strategic Soothsaying directed at identifying new ways to serve existing customers better or new customers that are not currently served by others

Old 7Ss: structure, strategy, system, style, skills, staff, and superordinate goals.

Market Disruption

Capability for Disruption

Sustaining momentum by developing flexible capacities for Speed Surprise That can be applied across actions to Build temporary advantage

Tactics for Disruption

Seizing the initiative to gain advantage by Shifting the rules Signaling Simultaneous and sequential strategic thrusts With actions that shape, mold, or influence the direction or nature of the competitors response 15

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DAvenis (new) 7-Ss

Approach
Superior stakeholder satisfaction Strategic soothsaying

Definition
Understanding how to maximize customer satisfaction by adding value strategically Seeking out new knowledge that can predict or create new windows of opportunity Preparing the organization to react as quickly as possible Preparing the organization to respond to the marketplace in a manner that will surprise competitors Finding new ways to serve customers which transform the industry Communicating the intended actions of a company, in order to stall responses by competitors Taking a series of steps designed to stun and confuse competitors in order to disrupt or block their efforts

Positioning for speed

Positioning for surprise

Shifting the rules of competition Signaling strategic intent Simultaneous and sequential strategic thrusts

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Example:
At General Electric, Jack Welch, implemented a DYB (Destroy Your Business) approach by placing employees in the shoes of competitors to highlight weaknesses and find fresh ways of meeting customer needs. Similarly GEs Medical Systems Division used DYB to respond to the challenges posed by the Internet.
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Why are Strategic Advantage Models essential to planning?

Giving up authority on IS decisions is giving up IS strategy Poorly chosen IS infrastructure undermines strategy Business strategy needs to address: 1. What is the business goal or objective? 2. What is the plan for achieving it? What is the role of IS in this plan? 3. Who are the crucial competitors and cooperators,and what is required of a successful player in this value net? 18
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Figure 1.5 Summary of key strategy frameworks

Framework
Porters generic strategies framework

Key Idea
Firms achieve competitive advantage through cost of leadership, differentiation, or focus. Speed and aggressive moves and countermoves by a firm create competitive advantage

Application to Information Systems

Understanding which strategy is chosen by a firm is critical to choosing IS to complement that strategy.

DAvenis hypercompetition model

The 7 Ss give the manager suggestions on what moves and countermoves to make. IS are critical to achieve the speed needed for these moves

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Figure 1.5 Summary of Key Strategy Frameworks

Generic Strategies: Competitive Advantage (CA) through low cost, differentiation or focus Hypercompetition: CA is temporary, created through speed and aggression in the market
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Figure I.6 Business Level: The Value Chain

(Value)

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Figure. Enhanced Model of Built To Last: Continuity and Change in Visionary Companies
 Strategic Competitive Advantages and creating values

Preserve Core Values Core Purpose Change Culture & Operating Practices Specific Goals and Strategies Processes

Safety Quality Care Efficiency Effectiveness Innovation Management IT (tangible, strategic mechanism)

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BRIEF OVERVIEW OF ORGANIZATIONAL STRATEGIES

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An Organizational strategy is:

the organizations design, as well as the choices it makes to define, set up, coordinate, and control its work processes A plan that answers the question: How will the company organize on order to achieve it goals and implement its business strategy? Models used: business diamond; managerial levers
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Figure 1.6 The Business Diamond

Business Process

Tasks and Structure

Values and Beliefs

(Source: Hammer et al, 1994)

Management and Measurement Systems (control)

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Managerial Levers:
Organizational Design Variables
Organizational variables
Decision rights Business Processes Formal reporting relationships Informal networks Authority to initiate, approve, implement, and control various types of decisions necessary to plan and run the business. The set of ordered tasks needed to complete key objectives of the business. The structure set up to ensure coordination among all units within the organization. Mechanism, such as ad hoc groups, which work to coordinate and transfer information outside the formal reporting relationship.

Control variables
Data Planning Performance measurement and evaluation Incentives The information collected, stored, and used by the organization. The processes by which future direction is established, communicated, and implemented. The set of measures that are used to assess success in the execution of plans and the processes by which such measures are used to improve the quality of work. The monetary and nonmonetary devices used to motivate behavior within an organization. The set of implicit and explicit beliefs that underlie decisions made and actions taken.

Cultural variables
Values

Figure 1.7 Managerial Levers

Execution
Organization
Decision rights Data

Control

Business processes

Strategy

Formal reporting relationships

People, Information, and Technology

Planning

Organizational effectiveness

Informal networks

Values

Incentives and rewards

Performance measurement and evaluation

Culture
Source: Cash, et al., 1994

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Understanding Organization Strategy means answering the following Questions:

1. What are the important structures and reporting relationships within the organization? 2. What are the characteristics, experiences, and skill levels of the people within the organization? 3. What are the key business processes? 4. What control systems are in place? 5. What is the culture of the organization?
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Figure 1.8 Summary of Org. Strategy Frameworks

Framework Business Diamond Key Idea There are 4 components of an organization: business processes, values and beliefs, management control systems, and tasks and structures. Organizational variables, control variables, and cultural variables are the levers manager can use to affect change in their organizations Usefulness in IS Discussions Using IS in an organization will affect each of these components. Use this framework to identify where these impacts are likely to occur

Management levers

This is a more detailed model than the Business diamond and gives specific areas where IS can be used to manage the organization and to change it
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BRIEF OVERVIEW OF INFORMATION SYSTEMS STRATEGY

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An IS strategy is:
The plan the organization uses in providing information systems and services. IS strategy can itself affect and is affected by changes in a firms business and organizational strategies. Models used: a basic framework for understanding IS decisions relating what (architecture) and who and where (other source considerations) that represent important planning constraints.
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Figure 1.9 Information Systems Strategy Matrix

What Hardware
List of physical components of the system List of programs, applications, and utilities Diagram of how hardware and software components are connected

Who
Individuals who use it Individuals who manage it Individuals who use it Individuals who manage it Individuals who use it/ Individuals who manage it/ Company service obtained from

Where
Physical location

Software

What hardware it resides upon and where that hardware is located Where the nodes are located, where the wires and other transport media are located Where the information resides
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Networking

Data

Bits of information Individuals who stored in the use it system Individuals who manage it

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Figure 1.10 Comparison of the economics of things with the economics of information

Things
Wear out Are replicated at the expense of the manufacturer Exist in a tangible form When sold, seller ceases to own Price based on production costs

Information
Doesnt wear out, but can become obsolete or untrue Is replicated at virtually zero cost without limit May exist in the ether When sold, seller may still possess and sell again Price based on value to consumer Costly to produce, but cheap to reproduce
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Summary of Key Strategy Frameworks

Framework Porters generic strategies framework Key Idea Firms achieve competitive advantage through cost leadership, differentiation, or focus. Speed and aggressive moves and countermoves by a firm create competitive advantage. Companies cooperate and compete at the same time. Usefulness in Information Systems Discussions Understanding which strategy is chosen by a firm is critical to choosing IS to complement that strategy.

DAvenis hypercompetition model

The 7-Ss give the manager suggestions on what moves and counter moves to make and IS are critical to achieve the speed needed for these moves. Being cooperative and competitive at the same time requires IS that can manage these two roles.

Brandenberg and Nalebuffs co-operation model

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Conventional and IT design variables

Class of Variable Structure Conventional Design Variable
Definition of organizational subunits Determining purpose, output of subunits Reporting mechanisms Linking mechanisms Control mechanisms Staffing Tasks Workflows Dependencies Output of process Buffers Formal channels Informal communication

IT Design Variable
Virtual components

Electric linking Technological leveling Production automation Electronic workflows Virtual components Electronic communications Technology matrixing collaboration Electronic relations customer/supplier relationships Electronic customer/supplier relationship Electronic linking mechanism

Work process

Communications

Interorganizational

Make vs. buy decisions Exchange of materials Communications

Source: H. Lucsa and J. Baroudi, The Role of Information Technology in Organization. JMIS, Spring 1994, pp. 9-23
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End of Chapter 1

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