2005S Eb Ch03 Strategic Planning

8/3/2019 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



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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



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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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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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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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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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impacted on

competitive rivalry?



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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



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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

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2005S Eb Ch03 Strategic Planning

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