Week 1 Friday, July 21

1
Week 1Friday, July 21

• Introduction
• Strategic grid, business model
• Opportunities and Threats Porters Five Forces
  Model
• Strategy and strategic planning
• IT Doesnt Matter Article

2
What This Class is About

• Information technology (IT) has become a major
  driving force of todays businesses. As an
  enabler (facilitator) and integrator, IT has
  opened many strategic opportunities and provided
  the means to seize competitive advantages in
  marketplaces. The topics covered throughout this
  course will emphasize ITs prominent role in
  business strategy.

3
Introductions

• What is your view on IT in business?

4
Which is the Most Versatile Hand Tool?
Vise
Saw
Tape measure
Pipe wrench
Pliers
Flat bladed screwdriver
Hammer
Bubble level
5
Flat Bladed Screwdriver

• Screw
• Hammer
• Chisel
• Pry bar
• Punch holes
• Set nails
• Stir liquids
• Putty knife
• Score and cut
• And the list goes on

6
IT is Similar to a Flat Bladed Screwdriver

• IT provides the means for businesses to do
  something better!
• Leverages other resources
• Enables and enhances business processes
  Facilitates efficiency and effectiveness
• Seizes competitive advantages
• Levels the playing field Small businesses can
  look and behave like big businesses
• Extends the business beyond its boundaries
  Strategic alliances, strategic outsourcing,
  supply chain management
• And the list goes on

7
What You Should Take Away from This Class

1. Place IT solutions in the strategic grid Match
   the solution to the business
2. Businesses do not adopt technology for
   technologys sake
3. Focus on the business and not the technology
4. IT leverages other resources and processes
5. IT introduces organizational change
6. IT integrates the enterprise
7. Knowledge is an organizational resource

8
IT Leverages Other Resources
CRM leverages Relationship Marketing
9
IT Leverages Other Resources
Business Intelligence
10
IT, the Great Integrator
Enables and enhances business process
11
IT Allows a Business to Seize Competitive
Advantages
Price Competition
12
IT Allows a Business to Seize Competitive
Advantages
Convenience
13
IT Allows a Business to Seize Competitive
Advantages
Customization
14
IT the Great Equalizer IT Evens the Playing
Field
Which of these businesses is larger?
15
Extends the Business Beyond Its Boundaries
Horizontal integration
16
Extends the Business Beyond Its Boundaries
Vertical integration
17
Supply Chain ManagementInter-Organizational IT

• Coordinating suppliers
• From EDI (electronic data interchange) to the
  Internet
• Establishing close and tight relationships
• Loose integration ad hoc and occasional
• Close integration formal exchange of
  information between businesses
• Tight integration sharing a business processes
  (e.g., UPS)
• Becoming a customer-centric value chain (virtual
  enterprise)
• Risk sharing
• Supply chain (suppliers) vs. demand chain
  (distributors and retailers)

18
Rules, Enabling, Business Models and IT Adoption
19
IT and Business Two Golden Rules

• IT does not (directly) increase productivity
• Businesses do not adopt new technology for
  technologys sake
• What value does it add to the business?
• How does it support the business strategy, goals
  and objectives?
• Can it be linked to competitive advantage?
• Whats the bottom line?

20
IT and Business

• Briefly
• IT enables fundamental changes in the way work is
  done
• IT enables the integration of business functions
  at all levels within and between organizations
• IT causes shifts in the competitive climate of
  many industries (i.e., breakthrough technology)
• IT presents new strategic opportunities for
  organizations that reassess their mission and
  goals
• Successful application of IT requires changes in
  management and organization structure

21
IT and Business (cont.)

• A major challenge exists for management to lead
  their organizations through the transformation
  necessary to prosper in the globally competitive
  environment

22
Business Model

• Defines how an enterprise interacts with its
  environment to define a unique strategy, attract
  the resources and build the capabilities to
  execute it
• Creates values for all stakeholders

Simply put, the business model defines how inputs
are converted to outputs
23
IT and the Business

• Adoption of IT must be within the capabilities of
  the business
• There must be a clear vision of how technology
  will be used for a clear profitable gain
• A proposed IT solution must take into account
  organizational factors
• Strategic grid

24
Business Models and IT Adoption

• For example Two successful grocers taking two
  different approaches to business

25
Peapod
26
Peapod
27
Peapod
Virtual store
28
(No Transcript)
29
Select by flavor
Select by brand
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(No Transcript)
31
Running total
Shopping basket
32
Check Out Pick a Delivery Date
33
Enter Account
34
Peapod
Due to the nature of the merchandise (i.e.,
highly perishable, low profit margin), customer
expectations and the high cost of fuel, logistics
becomes an major concern
35
Peapod
Suppliers maintain Peapods inventory
Peapod receives the order
Peapod assembles the order
Customer sends order via Web
Peapod delivers the order
Peapod bills the customers credit card
Customer receives order
36
Raley's Foods
"Bricks and mortar" retailer
37
Raley's Foods
Limited web shopping
38
Business Model

• Discussion
• Define the business model
• Identify the market segments, opportunities and
  threats
• What role does IT play in the business model?
• What is the effect of IT in the business model?
• How does IT impact the business?

39
Opportunities and Threats
Crisis (weiji)
Opportunity (jihui)
Opportunities grow out of crises (Necessity is
the mother of invention -- Plato)
How does the business capitalize on its threats?
40
Strategy and Four Models and Frameworks

• Strategic Grid
• Porters Five Forces Model
• Richard Nolans Stages Theory
• Strategic Alignment

41
1. Strategic Grid
42
Strategic Grid
Management of IT depends on how the business
views IT
High
Factory Operational IT
Strategic Strategic IT plan, initiatives
Impact on Existing Business Operations
Current IT important but future IT developments
are unlikely to improve competitive advantage
Existing and future IT developments critical to
success
Support Basic elements
Turnaround Gradual adoption
IT has little relevance to existing or future
success
Existing IT is unimportant but future
developments are crucial to survival
Low
High
Low
Impact on Strategy (future competitive
environment)
McFarlan and McKinney (1983)
43
Placing a Business in a Quadrant

• How important does management feel the current IT
  systems are to the business?
• How important does the business think future
  developments in IT will be for the business?

Planning a future for IT
44
Strategic Grid

• Quadrants
• Support goals target local improvements and
  incremental cost savings (e.g., office
  automation)
• Factory designed to reduce costs and improve
  performance of the core operations
• Automation and computerize functions
• Turnaround designed to exploit emerging
  strategic opportunities
• Integration of the organization
• Strategic commitment to use IT to enable both
  core operations and core strategy
• IT an integral part of strategy

45
2. Porters Five Forces Model
46
Porters Five Forces ModelForces that Shape
Strategy
?
How will the business react to threats (and
opportunities)?
Potential Entrants
Threat of new entrants
Industry Competitors
Bargaining power of buyers
Bargaining power of suppliers
Customers and Buyers
Suppliers
?
?
?
Rivalry among existing firms
Threat of substitute products or services
?
Substitutes
47
Contending Forces

• The state of competition depends on the five
  forces
• The collective strength of these forces
  determines the ultimate profit potential of an
  industry
• Strongest force or forces determine the
  profitability of an industry and are of greatest
  importance in strategy formulation

48
1. Threat of Entry

• New entrants bring new capacity, desire to gain
  market share, and often substantial resources
• Barriers
• Economies of scale
• Product differentiation
• Capital requirements
• Cost disadvantages independent of size
• Access to distribution channels
• Government policy

Seriousness of the threat depends on the barriers
and the reaction of the incumbents
49
Power of Buyers and Sellers

• Suppliers Can exert bargaining power on
  participants by raising prices or reducing the
  quality of the goods and services
• Buyers Can force down prices, demand higher
  quality or more service, and play competitors
  against each other

50
2. Suppliers are powerful if

• Dominated by a few companies
• Products is unique or well differentiated, or has
  built-up switching costs
• Not obligated to content with other products for
  sale to the industry
• Poses a credible threat of integrating forward
  into the industrys business
• Industry is not an important customer (of the
  supplier group)

51
3. Buyers are powerful if

• Concentrated or purchases in large volumes
• Products/services are standard or
  undifferentiated
• Products form a component of its product and
  represent a significant fraction of its cost
• Earns low profits, which create great incentive
  to lower its purchasing costs
• Industrys product is unimportant to the quality
  of the buyers products or services
• Industrys product does not save the buyer money
• Pose a credible threat of integrating backward to
  make the industrys product

52
4. Threat of Substitutes

• Substitutes limit the potential of an industry,
  particularly profits
• Industry must upgrade the quality or
  differentiate the product/service
• Substitutes that deserve the most attention are
  those that
• Subject to trends improving their
  price-performance trade-off
• Produced by industries earning high profits

53
5. Rivalry Among CompetitorsJockeying for
Position

• Intensity depends on
• Competitors are numerous or roughly equal in size
  and power
• Industry growth is slow, precipitating fights for
  market share
• Product/service lacks differentiation or switch
  costs
• Fixed cost are high or the product is perishable
• Capacity normally augments in large increments
• Exit barriers are high
• Rivals are diverse in strategies, origins and
  personalities

54
Strategy Formulation

• Strategy depends on the companys strengths and
  weakness relative to the threats
• Strategic plan may
• Position the company so its capabilities provide
  the best defense against competitive forces
• Influence the balance of forces through strategic
  moves
• Anticipate and respond to shifts in factors
  underlying forces to exploit change

55
Approaches to Strategy

• Positioning the company so it is the least
  vulnerable to its competitive forces
• Taking the offensive and alter the market
• Exploiting industry evolution (change)

How can IT make a difference?
56

• How Competitive Forces Shape Strategy, Michael
  E. Porter, Harvard Business Review, March-April
  1979.

57
3. Nolans Stages Theory
58
Nolan's Stage Theory

• All organizations go through four stages for IT
  adoption
• Introduction
• Contagion
• Control
• Integration

IT is recognized as a resource
59
Nolan's Stages Theory
An organizations experience with adopting IT
Integration
Investment in IT
Control
IT Resource
Contagion
Introduction
Diffusion
Time
Stage 1
Stage 2
Stage 3
Stage 4
60
4. Strategic Alignment
61
ITs Role In Business Strategic Alignment Model
Coalignment
External
Business strategy
IT strategy
Business scope, competencies, business governance
Technology scope, competencies, IT governance
Strategic Information
Organizational infrastructure
IS infrastructure
Administrative infrastructure, processes, skills
Applications infrastructure, processes, skills
Internal
Business domain
IT domain
Functional Integration
62
In a Nutshell
Business
IT
Alignment
Vision
Strategy
Strategy
Business networks (Competitive Advantage)
Process Reengineering (Control, enhancing,
leveraging)
Capabilities
Capabilities
IT infrastructure
Alignment
Value
63
A Few More Factors to Consider

• IT Planning Dilemma
• Investments in IT

64
What Does It Take to Become Strategic?
IT for competitive advantage
IT to compete
Basic IT for operations
65
IT Planning Dilemma
Which should come first?
Should an IT strategic plan precede an
organizational strategy?
Enabling technologies
?
Information Technology Strategic Plan
Organization Strategic Plan
Should the strategic plan specify the
technologies to adopt?
Direction
66
Introducing IT into the Organization
Inductive Change
Deductive Change
Top-Down
Bottom-Up
Mission Statement
Mission Statement
Context
Strategic Plan
Strategy
Initiatives
Policy
Tactical Plan
Implementation Adoption
Operational Plan
How does an organization introduce changes in IT?
67
Strategy and Threats
Threats
Opportunities
Strategy
How does the business capitalize on its threats?
68
What are strategy and strategic planning?
69
Strategy

• The essence of strategy formulation is coping
  with competition.
• Michael Porter, 1979

70
What is Strategy?

• Strategy is the pattern of missions, objectives,
  policies, and significant resource utilization
  plans stated in such a way as to define what
  business the company is in (or is to be in) and
  the kind of company it is or is to be. It
  defines
• The product line, markets and market segments for
  which products are to be designed
• The channels through which these markets will be
  reached
• The means by which the operation is to be
  financed
• The profit objectives

71
What is Strategy?

• Cont.
• The size of the organization
• The image which it will project to employees,
  suppliers and customers Bullen and Rockart,
  1981

72
What is Strategy?

• Defines the revenue and growth potential of the
  organization
• Focuses attention and resources on a specific set
  of goals and the projects required to achieve
  them Applegate, Austin and McFarlan

73
Strategy
Vision
Introspect
Mission
Purpose
Strategy
Achievement
A strategy incorporates the vision and mission of
the business
74
Strategy

• Vision statement reflects the organizations
  future aspirations and direction
• Mission statement represents the intents or
  purpose of the organization
• Strategy embodies the image, customers
  (markets), business model and measure of
  achievement
• IT as an enabler to proactively implement change
  (i.e., innovate ? competitive pull) or reactively
  adapt to change (i.e., Porters 5 force model,
  technology ? push)

75
Strategic Management
Strategic Planning
Management Control
Operational Control
76
Strategic PlanningShould

• Be forward looking
• Focus on external factors and opportunities, and
  their impact on the business
• Specify the direction the business should take
• Markets to pursue, image to project, business
  model
• Be long-term
• Depending on the industry, 2 to 5 years
• Formal vs. informal
• Extent to which is documented and the frequency
  of planning

77
Levels of Management

• Strategic Planning
• "Strategic planning is the process of deciding on
  objectives of the organization, on changes in
  these objectives, on the resources used to attain
  these objectives, and on the policies that are to
  govern the acquisition, use, and disposition of
  these resources."
• Management control
• "Management control is the process by which
  managers assure that resources are obtained and
  used effectively and efficiently in the
  accomplishment of the organization's objectives."

78
Levels of Management (Cont.)

• Operational control
• "Operation control is the process of assuring
  that specific tasks are carried out effectively
  and efficiently."

Anthony, 1965
79
Gaining a Competitive Advantage with IT

• IT alone is not a strategic differentiator
• Enables the business to do things
• Does not have a direct effect on productivity
• Must be coupled with other innovative processes
• Lessons from IT practice
• Value from IT comes only when it is paired with
  concurrent innovations in business practice
• IT's economic impact comes from incremental
  improvements
• Strategic differentiation emerges over time
• Short-term