Information Systems

Strategy

Chapter Two

1
Chapter outline
• What is strategy?
• Business strategy
• Organization strategy
• IS strategy
• IS planning
• Seven Planning Techniques

2
 Strategy

• A strategy is the direction and scope of an organisation over the long

term which achieves advantage for the organisation through its
configuration of resources within a changing environment to meet
the needs of markets and to fulfil stakeholder expectations.
• Or may be defined as a coordinated set of actions to fulfill objectives,
purposes, and goals
• Strategy starts with a mission.
• A mission is a clear and compelling statement that unifies an
organization’s effort and describes what the firm is all about (i.e., its
purpose).

3
Example of mission statement
• At IBM,
• we strive to lead in the creation, development, and manufacture of the
industry’s most advanced information technologies, including computer
systems, software, networking systems, storage devices, and
microelectronics. We translate these advanced technologies into value
for our customers through our professional solutions and services
businesses worldwide.
• Dell
• Dell’s mission is to be the most successful computer company in the
world at delivering the best customer experience in markets we serve.

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 Cont…

• Purpose of strategy
• To position or set direction within environment
• To focus effort within the organization
• To define the IS organization, to give meaning
to the organization’s activities
• To provide consistency
• For efficiency & focus

5
Cont…

• Thinking Strategically: The Three Big Strategic

Questions
• Where are we now -- what is our situation?
• Where do we want to go? What will be our
destination?
• How will we get there? What activities should
be we do?

6
Three types of strategies

1. Business strategy
2. Organization strategy
3. Information system strategy

• Business strategy guides both organizational strategy and IS strategy

development
• Successful firms balance these three strategies—they purposely
design their organization and IS strategies to leverage their business
strategy.
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Business strategy

• A business strategy is a plan articulating where a business seeks to go

and how it expects to get there.
• It is the means to communicate business goals.
• It is developed in response to market forces, customer demands, and
organizational capabilities.
• Market forces create the competitive situation.
• Leads to create product differentiation
• Customer express wants and needs to companies
• Organizational capabilities include the skills and experience that can add
value in the marketplace
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2. Generic Strategies framework

1. Operational excellence
2. New products, services, and business models
3. Customer and supplier intimacy
4. Improved decision making
5. Competitive advantage
6. Survival
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 Chapter I – Introduction

Generic Strategies …
A) Operational Efficiency
• The capability of a firm to deliver products or services to its
customers in the most cost-effective manner while still
ensuring high quality.
• Wal-Mart’s Retail Link System–
• Digitally linked suppliers to each Wal-Mart’s stores for replenishment

• Once an item is sold, the system automatically informs the supplier

and the supplier packs and ships the item to the specific store

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 Chapter I – Introduction

Generic Strategies …

B) New products, services, and business

• New Products & Services

• E.g. Apple’s – iPhone, iPod, iMac, iPad, Apple

Watch, Apple TV,
• iPhone – the latest iPhone 8 and iPhone 8 Plus - faster
processor, improved display technology, upgraded
camera systems and wireless charging.

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 Chapter I – Introduction
• Virtual Firms
• Do not physically exit (IP address – dot com)
• Highest-quality product at the lowest possible cost
with high speed and responsiveness

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 Chapter I – Introduction

Generic Strategies …

C) Customer and supplier intimacy:

• Customer intimacy
• higher customer loyalty, customer returning and
purchasing more – increase revenues and profits
• Better understanding of customers’ needs

• greater adaptation of products to customer needs,

• stronger relationships with customers

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Generic Strategies …

D) Improved Decision Making

• IS improved decision – accurate & timely information
• real-time data on customer complaints, unmet demands of
customers
• analyze sales data, projecting revenues, and evaluating
scenarios
• allocating resources,

• comparing budget to actual results,

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 Chapter I – Introduction

Generic Strategies …

E) Competitive advantage
• This can be attained through:
• Cost leadership strategy

• Differentiation Strategy

• Growth Strategy

• Alliance Strategy

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 Chapter I – Introduction

Generic Strategies …

• Alliance Strategy
• Develop inter-organizational information systems
linked by the Internet and extranets that support
strategic business relationships with customers,
suppliers, competitors, consultants, subcontractors,
and others.
• E.g. Financial institutions – banks, insurance corporations & brokers

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Business strategy to IS planning
• Business managers should not leave IS decisions for IS
personnel
• Business strategy should drive IS decision making, and
• changes in business strategy should entail reassessments of
IS.
• Changes in IS potential should trigger reassessments of
business strategy
• Emergency of Internet requires changes in business strategy
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Business strategy to IS planning …

• Understanding business strategy means answering the following

questions:
1. What is the business goal or objective?
2. What is the plan for achieving it? What is the role of IS in this
plan?
3. Who are the crucial competitors and partners, and what is
required of a successful player in this value net?

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Information systems strategy

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Information systems strategy

• An information system strategy is about creating a fit among information system

activities.
• IS strategy creates a three way fit between business needs, current IT systems
and new opportunities offered by technology.
• The need for an information system strategy will depend upon an organisation's
size and line of business.
• The larger an organisation and the greater the information content of the
product or value chain
• then the greater the need for an enterprise-wide information
system strategy.
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M. Porter (IS Strategy and business Fit, 1998)
Why Planning is so difficult?
• Planning is usually defined in three forms—strategic, tactical, and
operational
• Strategic systems planning deals with planning for the use of IT for
strategic purposes.

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Why systems Planning is so difficult?
• Business Goals and IS Plans Need to Align
 Strategic systems plans need to align with business goals
• the CIO is often excluded in major strategic meetings
 Fortunately more and more CIOs are being made part of senior management
• Technologies Are Rapidly Changing
 How can you plan when IT is changing so rapidly
 Possible solutions are
• Continuous monitoring and planning.
• Old days of annual planning was left aside
• have an advanced technology group charged with watching and evaluating new
technologies

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Cont…

• Companies Need portfolios Rather Than Projects

• planning issue is shifted from project selection to portfolio development.
• Businesses need a set of integrated and seamless technologies
• Project developments have had a history of building “stove-pipe” systems
that results in applications not integrated
 A portfolio approach to planning requires to evaluate projects more than their
individual merit
• How they fit into other projects and how they balance the portfolio of
projects 4-23
Cont…

• Infrastructure Development Is Difficult to Fund

• Developing an infrastructure is crucial.
• However, difficult to estimate how much funding is needed
• No challenge for large application projects.
• The challenge is funding to develop and improve applications as well as infrastructure
over time
• Responsibility Needs to be Joint
• Systems planning has become business planning; it is no longer just a technology issue.
• Other planning issues
 Tension between top-down and bottom-up approaches
• Planning process must strike a balance between radical change and continuous improvement.
 Systems planning must fit with existing organization c culture
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The Changing World of Strategic Planning

• Strategic planning has evolved along with the rapid change of

Internet-driven technologies.
• Traditional Strategy-Making:
1. Business executives created a strategic business plan = where the business
wanted to go
2. IS executives created an IS strategic plan = how IT would support the
business plan
3. IT implementation plan = describe exactly how the IS strategic plan would be
implemented
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Cont…

• Traditional Planning assumptions are:

• The future can be predicted
• Time is available to do the above three plans
• IS supports and follows the business
• Top management knows best (broadest view of firm)
• Company = like an ‘Army’. Leaders issue the orders and the troops
follow

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Fig. Traditional Planning
process

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Traditional …

• Today, due to the Internet and other technological advances, these assumptions
no longer hold true:
• The future cannot be predicted
• Who predicted Internet, Amazon, eBay etc.?
• Time is not available for the sequence
• IS does not JUST support the business anymore, a strategic partner
• IS and the business need to strategize together, not follow the old model of business first, IS second.
• Top management may not know best
• Inside out (top management initiated) Vs. outside in approach (front line or customers do plan)
• An organization is not like an army
• Industrial era metaphor no longer always applies
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Today’s Sense-and-Respond Approach to IT
Planning
• If yesterday’s assumptions no longer hold true, it is ineffective for current strategy
development.
• The answer is a kind of sense-and-respond strategy making
1. Let Strategies Unfold Rather Than Plan Them:
• In times of fast paced change (like today!) predicting the future is risky
• When predictions are ‘risky’, the way to move into the future is step by step
using a sense-and-respond approach
• Sensing a new opportunity and quickly responding by testing it via an
experiment.
• Results of a myriad of small experiments going on in parallel, each testing
with its own hypothesis of the future 4-29
30
Cont…

2. Formulate strategy closest to the action:

• major change introduced by the Internet is faster communication, not only
within organizations but, more importantly, with others—customers,
suppliers, and partners.
• strategy development needs to take place at organizational edges, with the
people who interact daily with outsiders
• including younger employees who grown up in an era of the Internet, PDAS,
and cell phones – they wear technologies like clothes

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 Cont…

3. Guide Strategy-Making with a ‘Strategic Envelope’:

• Having a myriad of potential corporate strategies being tested in
parallel could lead to anarchy without a central guiding mechanism
• Top management set the parameters for the experiments (= a
‘strategic envelope’), and then continually manage that context
• Need to meet often to discuss:
• Shifts in the marketplace
• How well each of the experiments is proceeding
• Gaining ‘followership’ or showing wining interest?

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 Cont…

4. Be at the Table :
• IS executives have not always been involved in business
strategizing
• untenable today because IT is intrinsic to business
• To have a rightful place in the strategizing process, the IS
function needs to be strategy oriented
5. Test the Future
• contribute ideas about the future, IS departments need to
test potential futures before the business is ready for them
• Provide funding for experiments
• Work with research organizations and emerging
technologies group 4-33
 Cont…

6. Put the Infrastructure in Place:

• Internet commerce requires the right IT infrastructure in place.
• It also include to
 Create and maintain common, consistent data definitions
 Create and instil mobile commercial standards among handheld
devices
 Implement e-commerce security and privacy measures
 Determine operational platforms (ERP, Supply Chain Management
…)

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Questions

• What is strategy?
• What does it mean business and IS
strategy alignment?
• What benefits an organization can
achieve?

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 Planning

• What Is an Information Systems Plan?

• Information systems planning should be an integral part of
business planning
• Business planning – the process of identifying the firm’s
goals, objectives, and priorities + developing action plans for
accomplishing them.

• Information systems planning – the part of business

planning concerned with developing the firm’s information
systems resources
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 Principles for IS Planning

• Support the firm’s business strategy with appropriate

technical architecture
• Evaluate technology as a component of a larger system
• Recognize life cycle costs, not just acquisition costs
• Design information systems to be maintainable
• Recognize the human side of technology use
• Support and control the technical system
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Planning Role of the IS function and User
Departments

 TheIS department is responsible for producing the IS plan in

conjunction with the user departments/line business

 Chiefinformation officer (CIO)

 Leads the IS function, and is responsible for making sure

that the IS plan supports/leads the firm's business plan

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Planning Role of the IS function …

 IS planning – roles:
 Sponsors – senior managers who make sure

resources are allocated for building and maintaining

the system
 Champions – individuals that recognize the

importance of an IS, and exert effort to make sure

that others share that recognition
 IS steering committees – make sure that the IS

reflects business priorities

 Business line executives – collaborate on the

exploitation of the technology

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A comprehensive ISP process needs to adopt three
approaches to Information Systems Planning:

• Top-down (IS-led) approach:

• focusing on information needs and flows which support
decision making processes.
• Bottom-up (IT-led) approach:
• with the focus on searching for productivity improvements
based on IT utilization.
• Inside Out (Innovation-led) approach:
• identifying opportunities to use information systems to gain
competitive advantage.

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 Cont….

• This top-down, bottom-up, and inside-out approach tackles

three issues:
• The clarification of the business needs and strategy in
information systems terms.
• The evaluation of current information systems provision
and use.
• Innovation of new strategic opportunities afforded by IT.

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 A comprehensive Information Systems
Planning process needs to be both

Alignment based:
links with business planning in a unidirectional way (align IS
objectives with organizational goals and enabling managers
to identify IS to support current business strategies)
and
Impact based:
links with business planning in a bi-directional way
(attempting to influence organizational strategy and enabling
managers to identify IS for competitive advantage).

Thus it focuses on IS as a way to assist business goals as well as

identifying strategic opportunities enabled by IT.
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 The process emphasizes IT opportunities in
the process of generating IS strategies

• Firstly, the currently used IS is carefully assessed and the IT

environment is analyzed to identify IT opportunities.
• Secondly, the identified IT opportunities are integrated with the
business strategies to establish overall IS strategies.
• The overall strategies are used to determine the specific plans for
IS implementation.
• The planning process is continuous in nature, and should facilitate
a partnership between the business and IT staff

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Seven Planning Techniques (Approaches)

• These approaches take different views of IS planning, including looking at

the assimilation of IT in organizations, defining information needs,
understanding the competitive market, categorizing applications into a
portfolio, mapping relationships, and guesing about the future.
1. Stages of Growth
2. Critical Success Factors
3. Competitive Forces Model
4. Value Chain Analysis
5. E-business Value Matrix
6. Linkage Analysis Planning
7. Scenario Planning
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 Stages of Growth

• Recognize four stages of growth in the introduction and

assimilation of a new technology.
• Stage One: Early Successes: Increased interest and
experimentation
• Stage Two: Contagion:
• Based on previous success, Interest grows rapidly;
as new products and/or services based on the
technology come to the marketplace.
• Growth is uncontrolled and tried a variety of
applications
• This stage is the learning period for the field, both
for uses and for new products and services.
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Stages of Growth …
• Stage Three: Control:
• Proliferation must be controlled
• Management recognizes high costs of using the new technology and use of the variety of
approaches generates waste
• Integration of systems is attempted but proves difficult,
• Efforts begun toward standardization by suppliers

• Stage Four: Integration

• the use of the particular new technology might be considered mature.
• An organization can be in several stages simultaneously for different technologies
• Pattern is repeated
• Nolan has used the Stages of Growth theory to describe three eras/three organizational
learning curves

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4-47
 cont.

• The eras overlap each other slightly at points of “technology

discontinuity”
• Proponents of the proven old dominant design struggle with
proponents of the new and unproven designs
• ‘Inevitably’ the new (unproven) win out
• Importance of the theory is understanding where a technology or
company resides on the organizational learning curve
• For example, use of Web Services is in the trial-and-error Stage 2,
where experimentation and learning take place, then exerting too
much control too soon can kill off important new uses of the
technology.
• Management and planning principles differ from stage to stage
• Different technologies are in different stages at any point in time 4-48
 Critical Success Factors

• Popular planning approach that can be used to help companies identify information systems they
need to develop / improve
• For each executive, CSFs are the few key areas of the job where things must go right for the
organization to flourish
• Suggested fewer than 10 per executive
• Time dependent (must be re-examined)- why ?
• Four sources are identified for CSFs:
• industry the business is in,
• company itself and situation within industry,
• Actions by large companies provide one or more CSFs
• environment (consumer trends, economy and political factors), and
• temporal organizational factors (inventory)
• Inventory company activities reveal that currently unacceptable but need attention
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 Competitive Forces Model

Companies must contend with five competitive forces which you need to
analyse (Figure 4-6):
1 Threat of new entrants
2 Bargaining power of customers and buyers
3 Bargaining power of suppliers
4 Substitute products or services
5 The intensity of rivalry among competitors

• IS planning should then be guided by how to win in this

environment

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4-51
Competitive forces …

• Three strategies for dealing with these competitive forces:

1. Differentiate product and services - make them “better”
in the eyes of the consumer
 Probably the most popular of the 3 strategies
2. Be the lowest-cost producer (service Provider) - not just
a low-cost producer
3. Find a niche (place or position) - e.g.: geographical
market

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 Framework use Example
Five Forces Analysis of use of the Internet technology

• The Internet tends to dampen the profitability of industries and reduce

firms’ ability to create sustainable operational advantages because:
– It increases the bargaining power of buyers
– Decreases barriers to entry
– Increases the bargaining power of suppliers
– Increases the threat of substitute products and services, and
– Intensifies rivalry among competitors
• Recommendation= focus on your strategic position in an industry and
how you will maintain profitability/better service
– Through market share or revenue

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Value Chain Analysis

• Porter presented the value chain in Competitive Advantage in 1985

Five primary activities that form the sequence of the value chain:
1 Inbound logistics: receiving and handling inputs
2 Operations: converting inputs to the product/service
3 Outbound logistics: collect, store, and distribute the product/service to
buyers
4 Marketing and sales: the means/incentives for buyers to buy the
product/service
5 Service: enhancements/maintenance of the value of the product/service

4-54
cont.

Four supporting activities that underlie the entire value chain:

 Organizational infrastructure
 Human resources management
 Technology development
 Procurement

By studying how organizations perform primary and support activities

for product and services an IS function can explore how it might add
more value at every activity.
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4-56
Example – Auto Manufacturer
• They make the information visible on the auction website. As a car
comes up for bid, the dealers view it on a monitor at their premises.
They can see it from several directions, read its ratings (on
cleanliness and condition), and use a mouse to bid against the other
dealers online
• Another example is virtual worldwide teams, such as design teams in the
United States, Europe, and Asia that work on designs and prototypes in a
virtual information space. Time and space are no longer limitations. The teams
can be located anywhere, work can progress 24 hours a day, and many more
virtual designs can be created and tested in a shorter time and for less cost
than in the physical world
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E-Business Value Matrix

• It can be difficult for executives to prioritise projects, therefore a ‘portfolio’ management

approach is valuable.
• The portfolio management approach uses the e-business value matrix
• IT project are placed in one of four categories to assess its value to the company
• the value of each project is assessed as high or low in two categories: criticality to the
business and newness of the idea (newness not just to the company, but to the world).
• The result is four categories of projects are :
• New fundamentals: Low-Low=provide a fundamentally new way of working in
overhead areas, not business-critical areas
• E.g. they are low risk and focus on increasing productivity.
• Saves costs and improve operations.
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Cont…

• Operational excellence: High in criticality to business-Low in newness of idea

• medium risk because they may involve reengineering work processes
• intend to increase such areas as customer satisfaction and corporate agility.
• An example is an executive dashboard for quickly viewing operational metrics
• Rational experimentation: Low in criticality to business-High in newness of
idea=test new technologies and ideas
• Breakthrough strategy: High-High=potentially have a huge impact on the company
• An example of a breakthrough strategy is eBay. Its auction business model altered people’s
thinking about global buying and selling

• IS plans thus, should consider which technology should get attention right away
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4-60
Linkage Analysis Planning

• Examines the links organizations have with one another with the goal of creating
a strategy for utilizing electronic channels
• Methodology includes the following steps:
• Define power relationships among the various players and stakeholders:
– Identify who has the power to determine future threats and opportunities
for the company
• The analysis shows relationships the organization has with other entities.
• successful organizations will be those that control the electronic channels

4-61
cont.

• Map out your extended enterprise to include suppliers, buyers, and

strategic partners
– The enterprise’s success depends on the relationships among everyone
involved
– Managing information as a strategic tool is crucial because some 70% of
the final cost of goods and services is in their information content
• Plan your electronic channels to deliver the information component of
products and services
– Create, distribute, and present information and knowledge as part of a
product or service or as an ancillary good
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 Scenario Planning

• Scenarios are stories about the way the world might be in the
future
• The goal of scenario planning is not to predict the future (= hard
to do!), but to explore the forces that could cause different
futures to take place

• Then decide on actions to take if those forces begin to

materialize

4-63
cont.

• Long-term planning has traditionally extrapolated from the past and has
not factored in low-probability events that could significantly alter
trends
• Straight-line projections have provided little help!
• Four steps in Scenario Planning:
1. Define a decision problem and time frame to bound the analysis
2. Identify the major known trends that will affect the decision problem
3. Identify just a few driving uncertainties
4. Construct the scenarios
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CASE EXAMPLE
Scenarios on the Future of IS Management

• What will IS management look like in 10 years?

• Four potential futures are presented:
1. The Firewall scenario. Organizations maintain traditional arm’s-length
relationships with suppliers and customers, and they believe data is
proprietary
• After system failures, they put more concern main concerns are security and control,
• outsourcing highly regarded outsourcers
2. The Worknet Enterprise scenario. In this scenario, tough privacy legislation
is enacted following highly publicized information leaks.
• Most companies then outsource data management to specialist service providers
who comply with the new laws.
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Case example …

3. The Body Electric scenario. The cause for this scenario are availability of cheap,
integrated networking services, plug-and-play computing devices, and portable
health and pension plans (due to new legislation).
• new forms of organizations flower and data are more likely shared than guarded
4. The ‘Tecknowledgy’ scenario The growth of the Internet and the Web lead to an
open information society.
• People specialize in having (or knowing how to get) certain kinds of knowledge.
• Companies organize themselves to best develop and share knowledge.
• Those that learn fastest and share best are the most successful.
• The main job of IS could be facilitation of knowledge processes across organizations

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Conclusion

• Based on the successes and failures of past information systems planning

efforts, we see two necessary ingredients to a good IS strategic planning effort:
1. IS plans must look towards the future
 Future is not likely to be an extrapolation of the past
 Successful planning needs to support “peering into the future” – most
likely in a sense-and-respond fashion
2. IS planning must be intrinsic (basic) to business planning

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Conclusion…
• IS plans typically use a combination of planning techniques
presented
• No single technique is best and no single one is the most widely
used in business/organizations

• Sense-and-respond is the new strategy-making mode

• Creating an overall strategic envelope and conducting short
experiments within that envelope, moving quickly to broaden an
experiment that proves successful

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 Questions
If you are asked to develop an IS strategy document,
1. Is that justifiable to develop the document? What is the reason?
2. What are the assumptions you consider?
3. Which development framework you choose, why?

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