2005S Eb Ch03 Strategic Planning
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Transcript of 2005S Eb Ch03 Strategic Planning
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Chapter 3
E-Business strategy formulation
Strategic management ofE-Business
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Important trends enabled by IT and Internet
Ability to re-engineer supply chainsUse of information to smooth out inefficiencies &bottlenecks, & thus achieve efficiency &effectiveness gains
Ability to re-engineer relationships withcustomers
Manipulate large amounts of information aboutcustomer to identify trends, preferences
Improve decision making about delivering oncustomer value proposition
Ability to use Internet to disseminate informationthroughout organisation
Results in more efficient internal operations
Why focus on e-businessplanning?
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Strategy vital to achieving benefits ofthese trends
IT adopting more strategic roleConcern about delivery of business value
To realise value, need to undertake strategicanalysis of possibilities of IT and Internet
High stakes with IT investmentsNeed to recognise and manage risk, andweigh this against the achievement oforganisational objectives
Why focus on e-businessplanning?
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Proportion of capital expenditure on IT
50% capital equipment expenditure in someorganisations and in some industries
Future of business now inextricably linkedto IT
Why focus on e-businessplanning?
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Challenges
How to leverage connectivity, speed, and
accessibility created by Internet and
associated technologies toextend/enhance/enable our business vision?
To be successful (viable) long term, must
identify where profitability lies
Must develop coherent strategies by which to
exploit potentialities of I/IS/IT to deliver value
to customers and shareholders
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SISP*defined
...planning for the effective long-
term management and optimalimpact of information, information
systems, and information
technology
(Ward & Griffiths 1996, p.6)
*SISP: Strategic Information Systems Planning
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Objectives of planning IS/IT/
e-commerce requirements
Ensure that focus of all IT investments
(including Internet-based technologies) ison delivery of business goals andobjectives
Ensure all stakeholders (especially senior
management team) understand what IT andInternet can achieve
Increase their commitment to deploy IT toenable achievement of organisational
objectives
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Objectives of planning IS/IT/e-
commerce requirements
Develop appropriate resourcing levels forIT and e-commerce
Establish priorities for IT investments
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What is business strategy?
Plan that integrates organisations goals,
policies, actions into integrated whole
Direction organisation takes in order to competeeffectively and meet stakeholder expectations
Requires vision (challenging desired future
state for organisation) and mission (reason forexistence, overriding purpose
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Business, IS, and ITstrategies
(Ward & Peppard 2002)
Business Strategy
IS StrategyDemand oriented
Application focused
IT StrategySupply oriented
Technology focused
IT impact& potential
Establish directionand objectives
Articulate informationrequirements and systemsneeded to deliver thatinformation
Identify technologicalinfrastructure required
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Impacts of Internet onplanning
Business Strategy
IS Strategy
IT Strategy
Has a major effect of Internet
(and hype!) been to elevate
strategic thinking about technology
to the level of business strategy?
Implicationsof
Internet
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Objectives of e-businessplanning
To ensure that IT and e-commerce support andenhance achievement of business objectives
To achieve cost-effective investment in IT and
e-commerce for measured business benefits
Controlling expenditures and ensuring deliveryof value from IT
To protect existing information and IT assets
Reduce maintenance costs
To prioritise IT investments according to ability tosupport achievement of business objectives
To gain commitment and understanding of seniorexecutives with respect to the role of IT in the
organisation
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Who should be involved?
Specialist planners
Senior executives
Senior IS
management
Representatives
from different
functions
Trading partners?
Major customers?
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Problems of NOT planning
competitors gain competitive advantage
business goals unachievable due to systemslimitations
organisational information resource notadequately exploited
systems not integrated
duplication of effort
inaccuracy
poor management information
lack of commitment from senior executives
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new systems fail to deliver business
benefits
lack of focus on business needs
technologies become a constraint on
business
no means of prioritising appropriateresource levels for IS/IT
Problems of NOT planning
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Framework for e-business strategyformulation
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Understanding long term goals and vision fororganisation
Its strategic intent (Broadbent & Weill 1997)Understand external environment
Identify potential synergies and economies ofscale through similarities between business
units
Appreciate impacts of Internet on organisationand industry
Appreciate the strategiccontext
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Understand external and internal ITenvironments
Recognising key IT trends in industryAppreciate how competitors and business partnersare using IT
Understand internal strengths and weaknesses
Recognise capabilitiesPerform audit of IT infrastructure, IT skills and ITmanagement
Appreciate the strategiccontext
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High level strategicvisioning and thinking
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Articulate business and ITmaxims
Business maxims: high level statements about
competitive position, how value created for
customers, intentions regarding growth anddevelopment, its position of use of resources,
etc.
IT maxims: statements about how informationand IT will be valued and deployed in the
organisation
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Defining key parametersfor IT
Role of IS/ITstrategic enabler (opportunistic) or support?
Sourcing of IS/ITInsourced, selectively sourced, or outsourced?
Structure of IS/IT deptDecentralised, federal, or centralised?
View of IT infrastructureEnabling or utility view?
Decisions about parameters should be aligned with business strategy
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Complementary views ofstrategy
View presented so far regards strategy asdeveloped from understanding of nature ofcompetition, industry and organisational
structure and competitive responseBut strategy can be articulated based onunderstanding of internal resources, capabilitiesand competencies, and access to external
resources etc., which can be harnessed as sourcesof competitive advantage
Each perspective offers valuable insights intostrategies that an organisation can adopt
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Tools to support strategyformulation
SWOT analysis
Product and service lifecycles
PEST analysis
Competitive forces analysis
Value chain analysis
Critical success factor analysis
Business technology audit
Gap analysis
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SWOT analysis
Strengths, Weaknesses
Analyse internal capabilities, skillsLook to exploit strengths for advantage
Consider weaknesses and minimise potential
disadvantage
Opportunities, Threats
External analysis to identify opportunities forexploitation, threats to be minimised or countered
SWOT analysis can provide understanding ofIT resource requirements and futuredevelopments
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SWOT Analysis
RetreatProtect1.
2.
StrenghtenAttack1.
2.
1.
2.
1.
2.
Self
Environment
WeaknessesStrengths
Oppor-
tunitie
s
Threats
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Industry and product
lifecycles
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Product and service
portfolios
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Product lifecycle emergence
demand is uncertain
market ill-defined
I/IS/IT focus:
market researchproduct development
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Product lifecycle growth
need major investment to meet growth in
demand
marketing
production
new product development
revised supplierrelationships
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I/IS/IT focus:
support growth
must not inhibit ability to satisfy demand
create barriers to entry
tie in suppliers and customershigh investment needed
Product lifecycle growth
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competition increases
supply starts to exceed demand
fight to retain market share
Product lifecycle maturity
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I/IS/IT focus:
defensive strategy
understand competition
increase productivity
more efficient, effective use of resources
build up customer switching costs
better management of supply anddistribution channels
Product lifecycle maturity
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cost effective in serving market
I/IS/IT focus:
detailed and accurate management info
demand forecasts
profitability of customers, products
cost controls
Product lifecycle decline
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Product and service lifecycle
Help managers think creatively about
whether or not they have information
needed to manage wildcats, rising stars,cash cows and dogs effectively
Helps to identify gaps in existing
information provision
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PEST Analysis
Political/legal
Government legislation, taxation, industrial relations,privacy, environmental protection requirements, etc.
EconomicStage of economic cycle, unemployment, inflation,interest rates, relative affluence of society
Sociocultural
Lifestyle changes, demographic characteristics,income distribution, consumer preferences, etc.
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PEST Analysis (cont.)
Technological
Rate of technological innovation, rate of infusion
and diffusion with respect to technology
Consider key environmental influences,drivers of change and how these might change
over time
For e-businesses, consider how technological
change is driving changes in other areas
Consider role of IT in exploiting of mitigating
against the effects of these changes
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Threat of new entrants
Barriers to entry will be high if
economies of scale are extremely important
capital requirement of entry is highaccess to distribution channels is difficult
patents or specialist skills are required
there are a large number of existing rivals
existing rivals are large and stronglypositioned
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competition in the industry is intense
product offerings in the industry are highly
differentiated
high brand loyalty exists
access to raw materials or other criticalresources is difficult
Threat of new entrants (cont.)
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How has the Internet,
vastly increased connectivity,
and improved communication channels
impacted the
threat of new entrants?
Threat of new entrants (cont.)
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Threat of new entrants
New entrants mean
additional capacity
reduced prices
new basis for
competition
IS/IT can
reduce costs
increase rate of product /
service innovation and
development
better control distribution
and supply channels
achieve better match
between products and
customers
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Bargaining powerof suppliers
Supplier power is likely to be high
few suppliers
switching costs are high
there is a possibility of the supplier
integrating forward
brand of a supplier is powerful
suppliers customers are of little
importance to the supplier
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How has the Internet,
vastly increased connectivity,
and improved communication channels
affected thebargaining power of suppliers?
Bargaining powerof suppliers
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Supplier power high
If supplier power is high
prices/costs will tend tobe higher
quality of supply willtend to be lower
there will tend to bereduced availability ofsupply
IS/IT can
use supplier sourcing systemshelp to extend quality control
into suppliers
enable forward planning with
suppliers throughinterorganisational systems
including the use of EDI
and/or Internet technologies
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Bargaining power of buyers
Buyer power is likely to be high when
there are few buyers
there are alternative sources of supply
component or material cost is a highpercentage of total cost
there is a threat of backward integrationby the buyer if satisfactory prices orsuppliers cannot be obtained
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How has the Internet,
vastly increased connectivity,and improved communication channels
affected the
bargaining power of buyers?
Bargaining power of buyers
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Buyer power high
If buyer power is high
prices forced down
higher qualitydemanded
service requirements
higher and moreflexible
higher competition inindustry
IS/IT can help by
differentiating
products/services
improvingprice/performance
increasingswitching costs ofbuyers
facilitating buyer
product selection
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Threat of substitution may take many forms:
actual or possible substitution of one product
for another
a new process may render a product
superfluous
substitutes may be thought of as competing for
discretionary expenditure
doing without can also be thought of as a
substitute
Threat of substitution
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How has the Internet,
vastly increased connectivity,and improved communication channels
impacted on thethreat of substitution?
Threat of substitution
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Threat of substitute products
The threat of substitute
products
tends to limit thepotential market and
profit
tends to put a ceiling
on prices
IS/IT can reduce the effectsby
helping to improve
price/performancehelping to enhanceproducts and services toincrease value
improving rate ofinnovation
identifying new customerneeds
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Competitive rivalry will be intensified if
market growth is slow or in decline
a small number of similar sizedcompetitors dominate
there are high fixed costs and/or there are
high industry exit barriers for all rivalsthere is over-capacity in the industry
Rivalry within industry
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How has the Internet,
vastly increased connectivity,
and improved communication channels
impacted on
competitive rivalry?
Rivalry within industry
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Intense competition fromrivals leads to
aggressive competition onprice
competition regardingproduct development
distribution and servicebeing critical factors incustomer choice
the need for customerloyalty
IS/IT can reduce the effects by
helping to improve price
performancehelping to differentiate
products and services
helping the firm get closer to
the end consumer
understand the requirements
or needs of the end
consumer
Rivalry within industry
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Using competitive forces
identify / analyse significant players in eachforce
determine nature / strength of impact ofeach player
devise strategy to exploit / defend /
neutralise impactsidentify opportunities for IS/IT to support /implement / manage strategy
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Value chain analysis (internal)
Value chain analysis enables
consideration of internal activities and
processes, thus understanding where
costs are incurred, and where value is
added
Examines organisation in terms of
primary activities (core business
processes) and support activities
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Internal value chain analysis
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External value chain analysis
C i i l f
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Important device for ensuring that managersreceive information they need to monitor
achievement of corporate goals andobjectives
CSFs require information to monitorachievement in key result areas
CSFs may require systems enhancements ornew systems
Critical success factoranalysis
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Critical success factor analysis
CSF d h l h i
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CSFs and the value chain
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Business-technology audit
Provides managers with an assessment of
business value of IS, against an assessment
of their technical quality
Business value: value judgement about
contribution an IS makes to achievement of
business goals and objectives
Technical quality: assessment of age,amount spent on maintenance, ease of
maintenance, required infrastructure, risk
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Business-technology audit
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Gap analysis
Aims to identify and then help remedy gaps
that exist between skills, knowledge,
competencies, capabilities that anorganisation requires to be successful, and
resources an organisation currently has
C bi i th t l
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Combining the tools
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Portfolio of systems
At end of strategy formulation process,organisation should be clear on
business goals and objectives
e-business goals and objectives
how IT used to support achievement of goalsand objectives
State of existing portfolio of systems
Where strengths and weaknesses lie
Prioritised set of new systems, requiredrefurbishments
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Portfolio of systems (cont.)
Application portfolio analysis helps to mapbalance required of new investments andmaintenance of existing investments
Portfolio of systems needs to be aligned withbusiness strategy
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Application portfolio analysis
Matching portfolio against
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Matching portfolio againststrategy
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Circumstances dictate changein portfolio