IT Strategy

S. Ramanathan
 What is IT Strategy?
Provide effective, efficient, responsive and
flexible systems to meet the current and
future business and legislative needs
 Components of IT Strategy
IT application strategy
Technology management strategy
IT management strategy
 Application Strategy
Identify business areas which need IT
intervention
Select, prioritize and decide about
investment and approach for
implementation
Evaluation based on present and future
importance of the application
 Strategic Grid

Factory:
Cost reduction
Quality Strategic
primarily engineered by IT in Top level involvement in IT
consultation with business
P users
r
e
s
e
n
Support Turn Around
t
Local improvements Exploit emerging
incremental cost saving strategic opportunities
initiated by end users with IT Driven by business
 Technology Strategy
Planning and selection of technology
components and tools
Considerations:
Skills available
Cost
Resources available
 IT Management Strategy
Challenges
High employee turnover
Quality and reliability of bespoke products
Risks due to system failure
Heightened expectations of business users
Trend
High service level requirements
Managing cultural changes among IT staff
and users
 Information Management
maturity Model
Level Organization Information maturity

Breakaway Prescriptive, realtime pattern-based

strategies with situational context

Differentiating Business Process Prediction, Contextual business

Integration rules, patterns

Competitive Process automation Master data management,

and workflow Dashboard, Scorecards

Foundational Task integration Production reporting, Data

warehouses. Governance,

Adhoc Command and Control; Spreadsheets

 How Information Gives You
Competitive Advantage
Michael E. Porter and Victor E. Millar
 Strategic Significance of IT
Information Technology is changing the
way companies operate
It is affecting the entire process by which
companies create their products
It is reshaping the product itself
 Value Chain
Technologically and economically distinct
activities a company performs to do its business
Value activities
A business is profitable if the value it creates
exceeds the cost of performing the value
activities
To gain competitive advantage over its rivals, a
company must either perform these activities at
a lower cost perform them in a way that leads to
differentiation
 Value Activities
Nine generic categories
Primary activities
Receipt from suppliers
Physical creation of the product
Marketing
Delivery to buyers
After sale support
Support activities
Procurement
Human resources management
Technology development
Firm infrastructure (general management, legal,
accounting)
 Value System
Value chain of suppliers +
Value chain of the firm +
Value chain of the channels +
Value chain of the buyer

Cost reduction / Differentiation in any / all

of these may lead to competitive
advantage
 Competitive Scope
Breadth of a companys activities
Four key dimensions
1. Segment scope
2. Vertical scope (degree of vertical integration)
3. Geographical scope
4. Industry scope (range of related industries in which the
company operates)
Broad scope can allow the company to exploit
interrelationships between the value chains serving
different industry segments, geographies or related
industries
Narrow scope allows focused customization of value
chain for a particular segment and thus derive
advantage
 IT and the Value Chain
Information technology transforms the way
value activities are performed and the
linkages between them (Exhibit III)
Also affects competitive scope and
reshapes the way products meet buyer
needs
IT and the Value Chain Contd.
Every activity has a physical and
information processing component
Massive amount of data can be
processed, stored and retrieved at a very
fast pace at a very low cost due to
information technology
Transforms physical processing too
computer-controlled machine tools
IT and the Value Chain Contd.
IT affects the linkages too. Drug store
providing terminals to customers for easy
ordering and invoicing
Effect on competitive scope coordination
of value activities across remote
geographies
 Transforming the Product
Historically, a products physical component is
more important for the buyer than its information
component
But service supported by sound data makes the
product more attractive for customers
Expanding information content in product as in
dishwashers and automobiles
Emergence of information as a product
 Information Intensity
See Exhibit IV
 IT is Changing Rules of
Competition
IT changes the industry structure and in so
doing alters the rules of competition
IT provides new ways to outperform rivals
and thus provides competitive advantage
IT spawns new businesses often from
existing operations
Changing the Industry Structure
Five competitive forces (Exhibit V) Information technology can alter each of these
Empower the buyer with more information and make services quick and available
round the clock to make it attractive for buyer
Make high investments in technology as in Banks to create barriers to entry
Through flexible computer-aided design and manufacturing, reduce threat of
substitutes
Electronic databases as substitutes for library research
Boundaries between suppliers and buyers are blurring electronic integration
Since scale is not important automation, barriers to entry are falling in many
industries
Automation no longer leads to inflexibility flexible manufacturing systems
Falling cost of product design has created opportunities to serve small niche markets
Lethal potential of IT: Transparent fares allow airlines customers to shop around
Creating Competitive Advantage
Lowering cost: Insurance under-writing: optimal offer by
a computer model reducing no of insurers and
documentation
Enhancing differentiation: Digital Equipments artificial
intelligence system, XCON for decision rules to develop
custom computer configurations dramatic reduction in
order filling time and increase in accuracy
Changing competitive scope: Dow Jones pioneered
page transmission technology linking its 17 printing
plants in US to produce a truly national newspaper
Creating interrelationship among industries
 Spawning New Business
1. By making new business technologically
feasible:
Blending of imaging and telecommunications
technology to support facsimile services such as
Federal Expresss Zapmail
American Airlines made SABRE available to other
airlines new revenue stream
IRCTC e-commerce site
2. By creating derived demand for new products:
Western Unions Easylink services
3. By creating new businesses within old ones:
use of barcode scanners in supermarkets
market research data
 Competing through IT
Five steps
1. Assess information intensity - existing and potential intensity of
products and processes
2. Determine role of IT in the industry structure how IT would affect in
future: would it change the five forces or boundary itself: would there
be a new definition of industry?
3. Identify and rank the ways in which IT might create competitive
advantage.
1. What are the value activities that are likely to be affected most in terms of
cost and differentiation?
2. How would IT affect the competitive scope?
3. Can IT help the company serve new segments? Or woyld the technology
allow narrowing scope and hence focused advantage in niche segments?
4. Would IT allow new competitors to enter niche markets?
5. Would IT provide leverage to expand globally?
6. Would IT facilitate interrelationships?
7. Can the company bundle more information with the product?
 Competing through IT Contd,
4. Investigate how IT might spawn new business
1. Could the company sell some information generated?
2. Do we have some information processing capacity that could
help start a new business?
3. Does IT make it feasible to produce new products?
5. Develop a plan to take advantage of IT
1. Strategic investments necessary in hardware, software and
new product development
2. Organizational changes
3. Functional managers should own information technology
initiatives. IS would manage the technology architecture,
standards
Business IT Alignment
 What is Business IT
Alignment?
Capability of IT to deliver what business
needs
Ability to play a strategic role in shaping a
new business strategy
Achieved by ability to absorb new
technology opportunities for business
benefits
Requires IT to transform from back office
support function to strategic differentiator
 Strategic Alignment Model
S
t
r Opportunities for process
a Opportunities improvement
t Priorities Technology changes
e Position Risk management
g Project priorities
y
Value
C
a People
p People Processes
a Processes Controls
bi Governance Tools
lit Infrastructure Technology
ie Culture Culture
s
 Strategic Grid

An assessment method to check the

alignment of IT with the strategic goals of
the firm
Two key dimensions to assess an
organizations IT initiatives
Impact on business operations
Impact on strategy
Oversight and governance need to be
defined accordingly
 Strategic Grid

I Factory:
m Cost reduction
p Quality Strategic
a primarily engineered by IT in Top level involvement in IT
c consultation with business
t users
o
n
O
p
e
Support Turn Around
r
Local improvements Exploit emerging
a
incremental cost saving strategic opportunities
ti
initiated by end users with IT Driven by business
o
n
s
 Can IT Support and Drive
Strategy?
Can IT change the basis of competition?
Can IT change the nature of relationships
and the balance of power among buyers
and customers?
Can IT build or reduce barriers to entry?
Can IT decrease switching costs?
Can IT add value to existing products and
services or create new ones?
 Can IT Change the Basis of
Competition?
At its core ITs function is to automate activities
But while automating IT can inform and transform
And in this IT can transcend business boundaries
A streamlined value chain can produce better
efficiencies
Timely information produced better coordination and
control
IT enabled products and services new players in the
market
(eg) American Hospital Supply Corporation, American
Airlines
 Can IT Change the Nature of Relationship and
Balance of Power in Buyer Seller Relationship?
AHSC rose to power within the hospital supplies industry
by streamlining channels, dramatically decreasing cost,
improving order accuracy and increasing speed of order
fulfillment
Customers encouraged channel consolidation
Sensing risk of exclusion, suppliers put their catalogs
online
With electronic links with suppliers, AHSC customers
could directly order from supplier inventory, which
enabled further reduction in cost and cycle time for all
members of online market
This neutral third party distributor created such a
significant shift in the balance of power that in 1985, it
was bought by Baxter Healthcare, a hospital supplier
A few years later, responding to market pressure, Baxter
was forced to spin off the supply chain business to
ensure neutrality
Does Internet Shift Power from the
Suppliers to Channel Players and
Buyers?
During late 90s, internet based channel players
flooded the market
By 2004, many of them were struggling / closed
As neutral channel players faltered, established
players rushed in
(eg) Global Healthcare Exchange (GHX)
launched by five of the largest healthcare
suppliers (with 70% of all products and services
for hospitals and doing business with 90% of the
hospitals) ; within months, more than half the
independent players disappeared
Can IT Build / Reduce Barriers to
Entry?
Proprietary systems of AHSC and AA provided initial
entry barrier.
But more sustainable advantage came from the
information generated by the technology and the value of
the loyal community of customers and suppliers
Internet, being low cost and shared, does not provide
advantage to any one player
Competitive advantage should come from building
proprietary capabilities such as loyal customer
community or quick response
In such a scenario, first mover advantage may turn a
disadvantage also
 Case Study: Amazon.com
1995: The company was started in a modest way
Quickly became no.1 online book seller
Within two years, sales: $ 148 m and customer base: > 2 m
1998: replicated the success in online music and video stores
1999 2000: spent $ 500 m in sophisticated order fulfillment
capability
Knowledge management infrastructure was created to understand
needs of individual customers to personalize services
Late 2000: Customer base: > 25 m
2001: internet stocks crashed. Need to reinvent business from retail
product sale to services model for quicker profitability
Understood the need for taking ownership of physical inventory
2004: established relationship with a number of brick-and-mortar
retailers to avoid creation of equivalent capability redefined
business from e-tailer to online / offline logistics service provider
 Can IT Raise / Lower Switching
Cost?
Internet has lowered switching cost
Price comparisons being easy, customer loyalty is rare in
Internet economy
But some companies have succeeded in creating
switching cost on the Internet too (eg) Intuit, which
allowed customer to store personal information in their
financial services software. Data have to be reentered, if
the customer moves to a different product. Intuit quickly
became market leader in the market segment with 80%
market share and 90% retention rate, competing against
giants like Microsoft
Services such as bill payment. Banking online, tax
calculation and payment, managing portfolio of
investments were all added
Intuits online version of TurboTax gained over 80%
market share in a highly competitive market
Can IT Add Value to the Existing
Products or Create New Ones?
Grocery stores selling information to
market research firms
Information component in products is
increasing as in automobiles
Total transformation of product in books,
magazines, music, video and games
 IT Impact on Strategic Risk
Can emerging technologies disrupt current
business models?
Are we too early / too late to exploit an IT
opportunity?
Does IT lower entry barriers?
Does IT trigger regulatory issues?
Can emerging technologies disrupt
current business models?
Key features of disruptive technologies
Evolve significantly faster than the dominant
technology in the industry
Enables new products, services, pricing, business
models that change the basis of competition
Trigger regulatory changes or significant customer
dissatisfaction with the status quo
These may be viewed as threats or opportunities,
depending on which side you are
(eg) emergence of minicomputers and PCs
Responding to risk: IBM example, p 50 - 52
Are we too early / too late to exploit
an IT opportunity?
Ability to identify the right time to enter
with an organization to suit the need
Allied issues
How much to invest?
How long?
How do we sustain cash flows?
When would the pay-off start?
Does IT lower entry barriers?
Wide-spread availability of Internet with
low cost open standard technologies may
bring the barrier down
Does IT trigger regulatory issues?
IT successes may invite complaints of
unfair competition
Baxter was forced to spin off hospital
supply business after its acquisition of
AHSC
Assessing IT-enabled Business
Opportunities - I
What business are we in?
Who are our customers, suppliers and
business partners?
What value do we provide to these key
constituencies? (incl. employees and
owners)
What are the competitive dynamics and
balance of power within the industry?
Can IT be used to create value and
change the basis of competition?
Assessing IT-enabled Business
Opportunities - II
Who are the biggest competitors today?
Who will they be in future?
How easy / difficult for the new players to
enter into our markets, offering a unique
value proposition and / or substitute
products and services
How easy / difficult would it be for
customers, suppliers or partners to
switch?
Assessing IT-enabled Business
Opportunities - III
How efficient / effective are our
processes?
How easy / difficult is it for customers,
suppliers and partners to do business with
us?
Could we continuously improve our
products / services and the way we do our
business?
Assessing IT-enabled Business
Opportunities - IV
Are there any disruptive changes looming
on the horizon?
Are we in a position to capitalize on these
changes?
What is the risk / return profile and the
window of opportunity?
Do we want to lead the industry or a fast
follower?
Assessing IT-enabled Business
Opportunities - V
Will changes in related industries (or even
unrelated industries) influence our
industry?
Could we extend into new products /
markets?
Do we have processes in place to
understand and manage risks?
 Challenges in Business IT
alignment
1. Well articulated business strategy
2. Uniform communication of strategy to all
levels
3. ITs ability to capture end-user
requirements with speed
 Inhibitors of Business IT
Strategy Alignment
1. Desire of business leadership to take IT
along in strategy formulation and
execution
2. ITs ability to understand business
3. Communication gap between business
and IT
4. ITs ability to deliver
5. Management support to IT in application
prioritization, development process and
budgetary requirements
 Business IT Alignment at
Three Levels
1. Knowledge of business needs
2. Application development process
3. Management of technology
achieved by
1. Planned development of infrastructure
2. Anticipating future needs
3. Driving for results
 Strategies for Achieving
Business IT Alignment
Recognition of strategic role of IT by
Management
Good communication between CEO and
CIO
CIOs involvement in strategic
management of business
Cross rotation of IT managers in business
functions
Hiring candidates with business
experience into IT function
Strategies for Achieving Business
IT Alignment (Contd.)
Create an IT architecture to suit the
business processes
Use IT innovations such as SOA to derive
better business advantage
Improve operational level performance of
IT through frameworks such as ITIL
Implementation of IT governance for better
management of IT resources to provide
service at acceptable levels and keep the
IT staff motivated and involved in business
 Business IT Alignment -
Techniques
1. Cross-functional Steering Committee to keep the
projects on track and deliver business benefit
2. Joint Application Development (JAD)
3. IT champion in user departments
4. User advocate / subject matter expert in IT
5. Sabbatical for IT staff in user function
6. Making IT staff part of strategy groups
7. Co-authoring of papers and presentations by user and
IT
8. Joint training for users and IT on non-technical topics
IT Strategy and Business
Maturity

Differ
Partne entiat
r with e
Solve
IT with
business
culture IT
Control IT problems
resources
Extending the Enterprise
Network Emerging Organizational
Form
In pre-Internet economy, sharp boundaries between organization and market
Network form of an organization blurs the boundary between the two
Typical organizational hierarchies have well-defined authority and control; markets do
not have enduring relationship
Network falls between the two cross-enterprise collaboration
No command and control mechanism; but relationships are more enduring than
typical markets
cross-enterprise collaboration emerges when two or more firms voluntarily agree to
integrate human, financial, or technical resources in an effort to create a new, more
efficient, effective, or relevant business model
The parties to a network agree to forego the right to pursue their own interests at the
expense of others
Trust is one of the defining elements of a network form of governance, and the
network form of governance is therefore not reducible to a hybridization of market
and hierarchical forms, which, in contrast, are premised on a more adversarial
posture
Traditional forms of organization do not have the adaptability and flexibility of network
organization
Successful collaboration requires the development of new skills, mindsets, and
corporate architectures.
Network Organization Imperatives
Each potential participant of a business network has its
own strategies, models, and processes for the present
and the future.
Therefore the network should create a joint business
logic that matches or complements each company's
strategic objectives
This means that each partner in the network should
reveal its true strategic goals concerning its cooperation,
after which the network may jointly make decisions over
the target for the network.
Often takes a considerable amount of time to build a
sufficient level of trust between the parties before
strategic intentions are articulated and communicated
and actions are taken accordingly
 Emerging Extended Enterprise
Models
Based on ownership and governance
Network within a corporation
Alliance
Community
 Trust Need of the Inter-firm
Networks
Process-based: emerging from transactions in
an interdependent environment
Affiliation-based: feeling of identity within a
group
Infrastructure-based: tied to organizational and
social structures
Trust is transferable from a trusted party to an
unknown party through provision of
endorsement / verifiable evidence
 Obstacles for Building Trust
different units of network members may not
share a common view of the benefits of joining
the network.
strategic advisability for partnering may be
marred by short-term needs to generate income
widespread adoption of short-term management
through increasing shareholder value may be a
major stumbling block in the road of many
networks
 Steps Towards Building a
Successful Network Organization
Choice of a leader / coordinator
Should be from the focal company that which
provides critical core competence in the new
service concept
Joint business model: both top-down and
bottom-up approaches
Top-down: alignment of corporate goals to suit the
new business model
Bottom-up: aligning the business processes to
business model
Business model and context (synthesis from Osterwalder & Pigneur, 2002 and e-factors,
2002)
 CSOFT Ontology

Ann Becker S., The Role of Business Models in Developing Business Networks,
Electronic Commerce: Concepts, Methodologies, Tools, and Applications, Volume 1 ,IGI
Global @ 2008 citation
 Potential Benefits from a Virtual
Community
Increase purchasing intention. A virtual community containing a wide range of
information and options for customers can reduce customers' risk perception involved
in making a purchase. Current customers sharing their positive opinions can also
influence potential customers to make purchases.
Access to customer opinions. A virtual community can provide valuable feedback
to the company about its products and services, and how these compare with rival
companies.
Greater ability to meet customers' demands. A virtual community can connect
companies to their customers in order to work together in developing products that
meet customers' needs.
Additional sources of revenue. A virtual community provides a means for the
company to gather detailed information on customer profiles. This information could
be used to attract advertisers or sold to marketing companies. Alternatively, if the
community is of substantial value to the customer, the company could charge
subscription or membership fees.
Lower customer service costs. A virtual community can help reduce the costs
associated with customer service personnel as community spirit could prompt
members to help each other with product advice and thus save on customer service
costs otherwise incurred by the company.
NASDAQ Case Study
 Have the Rules of Strategy
Changed with Internet?
It makes strategy more vital than ever Porter
In our quest to see how the Internet is different,
we have failed to see how the Internet is the
same Porter
Virtual value chain (as value chain for physical
flow of goods) - value-adding steps for
information (gathering, organizing, selecting,
synthesizing, and distributing)
Michael Hammers Prescription for
Customer Economy
make yourself easy to do business with
sell through, not to, your distribution
channels;
push past your boundaries in pursuit of
efficiency;
lose your identity in an extended
enterprise
These are directly facilitated by the Web
initiatives
 Things to Consider in an EC
Initiative
the source and target (business, consumer,
government)
the focus (internal or external or both)
whether the objective is efficiency or
effectiveness
go it alone versus partnership
proactive versus reactive approach
targeting one-time versus ongoing customers
physical versus virtual goods
single good/service versus package
 Strategic IT Planning (SITP)
Strategic planning is the systematic
examination of opportunities and threats in
the business environment so that you are
in a position to identify those opportunities
that should be exploited and those threats
that should be avoided
George Steiner
 Strategic Planning Process

You want to be here Best practices

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 SITP Explained
The core purpose of SITP lies in identifying
future directions of investments in information
technology and systems to assist the
organization realize its business goal (Tuebner
and Mocker)
Planning is a process by which deployment of
resources (people, money, hardware / software
etc.) is decided based on the strategic direction,
importance of current operation and the returns
each investment is going to produce in terms of
cost saving, customer satisfaction or competitive
advantage (3 Cs)
Strategic IT Planning Methods
Top down analytical approach
Identify and agree on business objective
Define critical success factors (CSF)
Arrive at information systems portfolio that
supports / enables these factors
Bottoms up evaluative approach:
Emphasis on current systems graded by
business value and technical quality and
options are exercised
 Bottoms-up Evaluative
Approach
Lo

P
e
r
c Divest Reassess
e
i
v
e
d
v
a
l
u Renew Maintain and Enhance
e

Hi
 Creative Approach
Explore external factors too for innovation
Challenges in Developing and
Executing SITP
Continuous improvement of applications
and infrastructure
Lack of joint ownership between business
and IT
SITP Approaches Business
Systems Planning Approach
Developed and promoted by IBM
Focus on data and processes; based on
these an information architecture is
proposed
Identify missing systems
Prioritize for development
 SITP Approaches Critical
Success Factor Approach
Focus on important managerial issues
Identify the information needs for the
CSFs
 SITP Approaches Stages of
Growth Approach
Six stages of IT adoption as identified by
Richard Nolan
Maturity IT as a resource: IT projects deliver expected results

Data Shared data and common systems. Users are made

Administration accountable for the success of systems
Integration Of processes and systems with support for innovation
Control Disjointed applications lead to sub optimization of resources,
cost over run and delayed delivery requiring management
intervention to discipline

Expansion Automation demands: multiple stand-alone applications

Initiation Computerization of routine processes like payroll, FA
 SITP Approaches Value
Chain Analysis
All the generic activities are examined to
determine how they can be improved to
lower cost / increase value and how this
can be achieved using IT
 SITP Approaches Value
Hi Matrix
B
u
s Operational excellence Breakthrough
i Resource optimization New market expansion
n Time to market Customer value creation
e
s
c
r
i
t
i Routine applications HR, Finance Experimentation led applications
c (eg) mobile commerce
a
l
i
t Lo Innovation Hi
y
Useful for application prioritization
 SITP Approaches Linkage
Analysis
Suitable for e-business
Identifies inter-organizational linkages, their
shortcomings and then plans for their reinforcement
Five steps
Innovate to focus on revenue generation than cost control
Invest in technology
Understand who wields power among the various players and
build electronic linkages
Manage across supply and distribution channels
Improve information across the network thro electronic channels
The method advocates use of information technology to
redefine network affiliation and restructure the industrial
space
SITP Approaches Scenario
Planning
Several possible scenarios are crafted for
the future
A team complies possible future events
that may have influence over outcome of
each scenario
Identify business strategy for the
shortlisted scenarios
Envisage IT applications needed for each
of these strategies
Integrated Planning Approach
Combines elements of different methods
Perform business analysis to understand
critical areas
Identify potential IT projects to serve these
areas
Rank projects on 3C principle
 Typical Content of SITP
a) Executive summary
b) Objectives of SITP
c) Basic structure
a) Data model
b) Process diagram
d) Identified application portfolio
e) Applications available off-the-shelf / to be developed
f) Recommended implementation plan
g) Budget
h) HR Plan skill requirement, recruitment and training plan
i) Organization plan
j) Change management plan for process changes
k) Technical architecture hardware, networks, software, data base, interfaces
l) Migration plan
m) Project calendar
n) Policies for project management, systems development and package selection
o) Security plan
p) Cost benefit analysis
q) Risk management
r) Projection of possible future requirements and comparison of past IS performance
 Why Does SITP Fail?
Inadequate resources (financial, technical, human) for
implementation
Lack of user involvement during implementation
Inadequate analysis of information needs
Failure to anticipate changes in external environment (architecture
should be made flexible enough to allow mid-course correction)
Resistance to change fear of loss of job, authority etc.
Poor choice of technology
No ownership of SITP
Lack of management support
Communication issues
ITs inability to understand business requirements
Poor IT leadership
Line managers fail to appreciate long term goals and do not support
SITP
 Implementation Best Practices
1. Strong implementation team
2. Clarity of expectations
3. Ownership by stakeholders
4. Process-driven approach
5. Proper monitoring / review
6. Addressing root causes of slippages
7. Proof-of-concept approach
8. Documentation of requirements
9. Change management
10.Involving users in implementation team
Enterprise IT Architecture
Establish alignment between business
strategy and IT strategy

Develop strategic IT plan

Enterprise IT Architecture

Application Development