1 Strategic alignment theory
REF:Henderson &Venkatraman IBM SYSTEMS JOURNAL, VOL 38, NO 4, 1999 http://researchweb.watson.ibm.com/journal/sj/382/henderson.pdf
1.1Strategic alignment Model
Answer to the question:“How to reconcile the dramatic
increase in the role of IT in organisations and markets with the evidence of minimal productivity gains at a aggregate level of the economy?”
1.1Strategic alignment Model(cont’d)
Inability to realize value from IT-investments is due to the lack of alignment between the business and the IT strategies of the organisations(companies)
1.1Strategic alignment Model(cont’d)
The model is based on two fundamental assumptions: the economic performance is
related to the ability of management to create a strategic fit between the external position of an organisation in the competitive market and the internal appropriate administrative structure to support its execution
This strategic fit is a dynamic process
1.2 Concept of Strategic Fit
Business Strategy : external domain(view)
company versus competitive market products make or buy decision partnership distribution channels ...
1.2 Concept of Strategic Fit(cont’d)
Internal domainHow do we support the external domain? Business processes product development customer services human resource skills …
IT-strategy: same concept as for the business strategy:internal and external views
1.2 Concept of Strategic
Fit(cont’d) Business strategy
externalproduct market offering
pricing,quality,channelsmake /buy of products
internaladmin structuresbusiness processeshuman resources
IT strategy external
information technology scopesystemic competenceIT governance
internalIT architectureIT processesIT skills
1.2.1 IT strategy: External
Information technology scopeI.e specific information technologies that support current business initiatives or could shape new business strategy initiatives for the company electronic imaging internet business expert systems E-business Wireless communications …
1.2.1 IT strategy: External (cont’d)
Systemic competence the attributes of the IT -strategy which
can be used as a competitive weapon to support actual or future business strategies
system reliabilitycost performanceinterconnectivityFlexibility…
1.2.1 IT strategy: External (cont’d)
IT governance selection and use of mechanisms for
obtaining the required IT competenciesjoint ventures with vendors,competitorsoutsourcingjoint researchalliances...
1.2.2 IT strategy: Internal
IT architecture portfolio applications configuration of HW/SW data model
IT processes operations development monitoring and control systems
1.3 Functional integration
Strategy integration business strategy IT strategy
Operational integration organisational infrastructure IT
infrastructure
see fig 1
Business strategy IT Strategy
Business scope
Distinctive competencies
Businessgovernance
Technology scope
systematic competencies
ITgovernance
Administrative infrastructure
processes skills
architectures
processes skills
Strategy integration
Operational integration
External
Internal
Fig 1:Strategic Fit
ITinfrastructure
Organisational infrastructure
Business strategy
Driver:role of top mgt:role of IT mgt:performance criteria:
Business strategystrategy formulatorstrategy implementercost/service center
Fig 2:Strategy execution alignment perspective
Driver:role of top mgt:role of IT mgt:performance criteria:
Business strategytechnology visionarytechnology architecttechnology leadership
Business strategy ITstrategy
IT infrastructure
Fig 3:Technology transformation alignment perspective
e.g. Colruyt
Driver:role of top mgt:role of IT mgt:performance criteria:
IT strategybusiness visionarycatalystbusiness leadership
Organisational infrastructure
Business strategy IT strategy
Fig 4:competitive potential alignment perspective
Driver:role of top mgt:role of IT mgt:performance criteria:
IT strategyprioritizerexecutive leadershipcustomer satisfaction
Organizational infrastructure
IT infrastructure
IT strategy
Fig 5:service level alignment perspective
1.4:4 dominant alignment perspectives
Strategy execution:fig 2 most common
Technology transformation:fig 3 f.e. Colruyt
Competitive potential:fig 4
Service level:fig 5
1.5 Comments
External and internal IT strategyCompanies have to realize that the source of IT competencies is not entirely within the company but involves a complex area of alliances and partnerships with a wide ranging set of firms in the marketplacedynamic model:changes in time based on shifts in the business environment
1.5 Comments(cont’d)
Performance criteria of IT should be reconceptualized= mix of 4 criteria costcenter:competition with
outsourcing service center:offered SLA versus
best- in- industry profitcenter:revenue +outside
delivery investment center:possibility to
reinvest+R&D
1.6 conclusionsExternal focus becomes very importantField research proves that the inadequate fit between external and internal domains of IT is a major reason for failure to derive benefits from IT investments
MIS: PILOT PARAMETERS
competenceCost of
restructuring versus
flexibility
competence
value
Governance/alliance
Measures and control
Business concepts in a networked world
Ref: CORPORATE INFORMATION SYSTEMS MANAGEMENT
6th editionLynda Applegate,F.Warren Mc Farlan,James Mc Kenney
Chapter 2
ValueDelivery
Risk Management
Strategic Alignment
PerformanceMeasurement
StakeholderValue
External
Internal
business it
Technology is changing the business
Technology is providing Flexible channels for procuring and
distributing products and services Tools to create and package content in
all its many forms,including data,voice and video
Offering of new opportunities and enables the development of new capabilities that were difficultto achieve before the commercialisation of the www.
Linking Strategy to Value
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-2
ValueWhat is it? How will we…?
An organization returns value to stakeholders by:
• Increasing equity cash flows available to owners and investors that hold stock in a company
• Decreasing the cost or increasing the benefits returned to non-equity stakeholders.
• Meeting an expectation or need of a customer, supplier, partner or employee.
• Generating trust and confidence that the organization will deliver what it promises.
• Ensure strong growth in earnings?• Generate positive equity cash flow?
• Increase market value?• Personalize our products and services to meet the expectations and needs of all members of the business community.
• Increase reputation and image among all stakeholders?
• Generate confidence and trust?
Capabilities and Community
What is it? How will we…?
An organization’s capabilities and community enable it to:
• Improve operating performance• Leverage information, knowledge and expertise
• Achieve rapid penetration and loyalty of the business community(including customers, suppliers and partners)
• Increase ability to respond quickly to opportunities and threats
• Achieve best-in-class operating performance?
• Develop a modular, scalable, and flexible infrastructure?
• Build and manage strong partnerships with employees and the community?
• Increase the lifetime value of all members of the community?
• Build, nurture, and exploit knowledge assets?
• Make informed decisions and take actions that increase value?
• Organize for action and agility
Business Concept
What is it? How will we…?
An organization’s business concept defines:
• Market opportunity• Products and services offered• Competitive dynamics• Strategy for capturing a dominant position
• Strategic options for evolving the business
• Attract a large & loyal community?
• Deliver value to all community members?
• Price our product to achieve rapid adoption?
• Become #1 or #2?• Erect barriers to entry?• Evolve the business to “cash in on strategic options”?
• Generate multiple revenue streams?
• Manage risk and growth?
External
Internal
business it
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-3
Classifying Network Business Models
Classifying business capabilities
Business build on a networked infrastructure Focused distributors Portals producers
Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers
Focused distributorsProvide products and services related to a specific industry or market nicheThere are 5 types of focused distributors in function of the following characteristics: Does the business assume control of inventory? Does the business sell online? Is the price set outside the market or is online
price negotiation and bidding permitted? Is there a physical product and service that must
be delivered?
Types of focused distributors
Models and examples
Own inventory
Sell online Price set online
Physical product or service
Likely revenues
RetailerStaples.com
yes yes no yes Product/service sales
MarketplaceEloan.com
possibly yes no no -Transaction fees-Service fees-commissions
AggregatorAutoweb.com
no no no possibly -referal fees-advertising fees-marketing fees
InfomediaryInternet securities
no yes yes no -subscription fees-advertising fees
ExchangeEbay.com
possibly possibly yes possibly Depends on model
Focused distributor capability trends
Those with no”online business transaction”are losing powerAggregators are evolving into marketplaces and/or vertical portalsMultiple capability models are required to ensure flexibility and sustainabilityFocused distributors are aligning closely with vertical and horizontal portals and are evolving their model to become vertical portals
Classifying business capabilities
Business build on a networked infrastructure Focused distributors Portals producers
Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers
Portals
Definition:”a doorway or gate ,especially one that is large and imposing”There are 3 types of portals in function of the following characteristics: Does the business provide gateway access to a
full range of online information and services including search,e-mail,messaging,chat …?
Does the business provide access to deep content,products and services within a vertical industry?
Does the business provide information and services for all types of users ,or are the information and services specific to a well-defined affiliation group(fe.students,women,…)
Types of portals
Models and examples
Gateway access
Deep content and solutions
Affinity group focus
Likely revenues
Horizontal portalsAOL.comYahoo.com
yes Possible,often through partnership with vertical and affinity portals
Possible,often through partnership
AdvertisingAffiliation and
slotting feesSubscription or
access fees
Vertical portalwebMD.comCovisint.com
limited yes no -Transaction fees-commissionsAdvertisingAffiliation and
slotting fees
Affinity portalRealtor.comIvillage.com
possible Focused on affinity groups
yes -referal fees-advertising fees-Affiliation and slotting fees
Portal trendsHorizontal and vertical portals are emerging as dominant sources of power within consumer and business marketsHorizontal portals are joining forces with horizontal infrastructure portals to provide not just access to content and services but also access to network and hosting servicesLarge media and entertainment portals that represent the convergence of data ,telephone,television and radio networks are emerging in the consumer space.These portals unite content development,packaging and distribution components of the value chainB2B portals provide both horizontal access to business networks and vertical industry wide solutions
Classifying business capabilities
Business build on a networked infrastructure Focused distributors Portals producers
Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers
producersProducers design and make and also may directly market,sell and distribute products,services and solutions
There are 3 types of producers in function of the following characteristics: Does the business sell physical products and/or
provide face-to-face services?
Does the business sell information-based products and/or services?
Does the business provide customised products and/or services?
Types of producersModels and examples
Sell physical product/services
Sell information based product/services
Level of customisation
Likely revenues
ManufacturersFord motor companyProcter&gamble
yes possibly Low to moderate
Product salesService fees
Service providersAmexSingapore airlines
yes possibly Moderate to high
-Transaction fees-Service fees-commissions
EducatorsHarvard UniversityVUB
possibly possibly Moderate to high
-registration or event feeSubscription feeHosting fee
Information and news servicesDow joneseuromoney
yes yes Moderate to high
Transaction fees-Service fees-commissionsSubscription fee
Producer portalsCovisintGlobal healtcare
possibly yes high Transaction feeService feeMembership feeConsulting feeIntegration fee
AdvisersAccentureMckinsey
yes yes Moderate to high
registration or event feeSubscription feeMembership fee
Producer capability trends
Producers must be best in class to surviveSome large full-service producers (amex,citigroup,..)are acquiring a full range of services and products and then integrating them to provide vertical solutions required by the customers.These solutions are offered through company-owned portals and also through a wide variety of distribution agreementsIndustry supplier coalitions are forming to enable virtually integrated B2B commerce within and across industry groups
Classifying business capabilities
Business build on a networked infrastructure Focused distributors Portals producers
Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers
Infrastructure distributors
Enable technology buyers and sellers to transact businessThere are 4 types of infrastructure distributors in function of the following characteristics: Does the business assume control of
inventory? Does the business sell online? Is the price set outside the market oris the
price negotiation and bidding permitted?
Types of infrastucture distributorsModels and examples
Controlinventory
Sell online Price set online
Physical product or service
Likely revenues
Infrastucture retailerscompUSA.com
yes yes Not usually yes Product salesservice fees
Infrastucture MarketplaceingramMicro
usually yes Not usually but may be customised
yes -Transaction fees-Service fees-commissionsChannel assembly fee
Infrastructure Aggregatorc/netZD Net
no no no possibly -referal fees-advertising fees-marketing fees
Infrastructure Exchangeconverge
possibly possibly yes yes Depends on model
infrastucture distributors capability trends
The speed of obsolescence of the technology,coupled with the complexity of the solution and slim margins,has forced massive consolidation in networkand computing technology channelsThose distributors that take ownership of inventory are searching for inventoryless,just-in-time business modelsDistributors that have the capability for custom configuration of products and services are gaining power
Classifying business capabilities
Business build on a networked infrastructure Focused distributors Portals producers
Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers
Infrastructure portalsThey provide consumers and/or business with access to a wide range of network,computing and application hosting servicesThey are differentiated by the following characteristics/ Does the firm provide “gateway access” to
networks,data centers or Web services? Does the firm host,operate,and maintain
networks,data centers or Web services? Does the firm provide access to hosted
application services?
Types of Infrastructure portals
Models and examples
Internet/network access and hosting
Hosted apllications and solutions
Likely revenues
Horizontal infrastructure portalsAmerica onlineBritish telecom
yes Trough partnership with noninfrastructure portals and ASPs
Service feesHosting feesAccess feesCommissionTransaction fees
Vertical infrastructure portalsIBM e-business Solutions
Often Trough partnership with horizontal infrastructure portals
yes -Transaction fees-Service fees-hosting feesMaintenance and update fees
Infrastructure portals trends
Horizontal infrastructure portals are merging or partnering with horizontal content portals to increase value created through intangible assets such as information,community and brandConvergence of voice,data,and video channels and global acceptance of a common set of standards are leading to global industry convergence at the content and the infrastructure level
Classifying business capabilities
Business build on a networked infrastructure Focused distributors Portals producers
Business providing the network infrastructure Infrastructure distributors Infrastructure portals Infrastructure producers Infrastructure service providers
Infrastructure producers
They design,build,market and sell technology hardware,software,solutions and servicesThey are differentiated by the following characteristics: Does the business manufacture computer or
network components or equipment? Does the business develop packaged
software? Does the business provide infrastructure
services or consulting?
Types of Infrastructure producers
Models and examples
Manufacture equipment
Develop software
Services/consulting
Likely revenues
Equipment/component manufacturerIBMIntel
yes possibly possibly Product sales or licencesservice feesMaintenance feesUpdate feesInstallation and
integration
SoftwarefirmsSAPSiebel
rarely yes possibly Product sales or licencesservice feesMaintenance feesUpdate feesInstallation and
integrationfee
Custom software and integration service providersEDS
possibly possibly yes -commissionService feesTransaction fees
Infrastructure servicesFederal express
rarely possibly yes commissionService feesTransaction fees
Approaches to Business Model Evolution
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-4
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EnhanceAdd functionality or features to current
product/service offerings or improve
performance of existing business
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or enter new geographic markets
ExtendEnter new line of business and/or add new
business models
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product/service offering
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EnhanceAdd functionality or features to current
product/service offerings or improve
performance of existing business
ExpandAdd new product/service offerings
or enter new geographic markets
ExtendEnter new line of business and/or add new
business models
ExitExit a business or market or drop a
product/service offering
Evolving American Express Interactive: Timeline of Events
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-5
Product/Service Enhancements
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-6
Evolving American Express Interactive:
EnhanceEnhance
Product/Service Category Expansion
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-7
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Business Model Extension
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-8
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An Integrated View
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-9
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Evolving Amazon.com: Timeline of Events
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-10
Product/Service Enhancements
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-11
Enhance
Category and Geographic Expansion
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-12
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Business Model Extension
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-13
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An Integrated View
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 2 Figure 2-14
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