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ICS 462

Information Systems Strategy & Implementation

2.1 Analytical Tools in Strategic Management: Strategic Analysis

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Framework for SM Framework for strategic management -

Johnson & Scholes, 1993: Strategic analysis (environment, culture and

stakeholder analysis, and resources and strategic capability) – to understand the strategic situation

Strategic choice (generation of strategic options, evaluation of options and selection of strategy) – to form the strategies

Strategy implementation (planning & allocating resource, organizational structure and design, managing strategic change) – to implement the strategies (tactical)

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Notes: Above elements not done sequentially Analysis + choice = strategic planning –

implies that SM is more about SP Above design school of strategy (strategy as

a planning activity) is not necessarily right (cf pattern school) – but provides a framework for discussion of SM

Role of tools is not necessarily to help develop strategy but also to provide a basis for communication, discussion and sense-making

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2.1 Strategic Analysis Tools

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1. Introduction SA aims to form a picture of the influences

playing upon the organization in order to be informed of the strategic choice elements of the overall strategic management process

It is concerned with the following: Organizational strategic position Environmental conditions Organization strengths and weaknesses Effects of all the above on organization

stakeholders

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SA involves understanding factors: External environment

the world in which the organization existsneed to understand the impact of the

environment upon the organization Internal environment, e.g.

Values and objectives• these influence the perceived acceptability (to

each stakeholder group) of candidate strategies

• it is through these perceptions that other influences are interpreted especially power differentials

Resources• they provide the internal influences upon

strategy choice

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2. External Environmental Analysis Tools

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External Env. Analysis Purpose

to increase the quality of the strategic decision making by considering a range of relevant features well before the need to make an irrevocable decision

Threats and opportunities the strategy is directed at exploiting the

environmental opportunities and to blocking environmental threats in a way that is consistent with internal capabilities (Porter’s concept of “environmental fit” that allows the organization to maximise its competitive position)

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Success of environmental analysis largely depends on the complexity of the environment

A possible process of environmental analysis and tools to use: Audit the environmental influences Assess the nature of the environment to judge

whether it is simple or complex Identify the key environmental factors using

porter’s five forces model Identify the competitive position using a life

cycle analysis Identify the threats, opportunities, strengths

and weaknesses using the SWOT analysis

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Nature of the Environment An organization’s environment comprises all the

events, issues and facts which will influence it’s performance but over which it has little influence

Societal environment conditions that have a broad rather than direct

impact upon the organization conditions represent the world within which the

organization operates e.g. demographic factors Task environment

that which has major and direct impact upon the organization and it’s strategic planning process

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Types of environments

Internal EnvironmentStructure, Culture,

Resources, Processes,People, Strategies,

Leadership, Systems

Demand

Task environment

Govt

Market Structure

Technology

Political-Legal forces

Technological forces

Economic forcesSocietal environment

Socio-cultural forces

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2.1 PESTEL analysis Political

Government policies and strategies, e.g. sessional paper no. 1 of 2005, V2030, Education MTP, University strategy, …

National coalition government – stability, governance Development partner support to Kenya

Economic Global economic changes GDP growth Inflation rates Taxation rates Exchange rates Employment level Poverty level

Socio-cultural Population growth Lifestyle changes Customer preferences

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Labour mobility Education levels Income distribution Governance

Technological Enterprise applications Mobile applications Internet Undersea bandwidth National optic fibre backbone infrastructure (NOFBI)

project Energy use and cost

Environmental Any environmental requirements?

Legal Legal framework governing the organization One can also consider the regulatory framework, as it

has regulations and licenses which are legally binding

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Strategic analysis involves assessing the effects of possible changes in the environment. It involves:

Considering how the external (societal & task) and internal environment factors may change

Assessing the strategic implications of such change for the organization

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Strategic analysis frameworkExt. environment Likely change Strategic implications

Political

Economic

Socio-cultural

Technological

Ecological

Legal

Int. environment

Structure & culture

People & skills

Processes

Systems

Leadership, etc.

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2.2 Stakeholder analysis One of the steps in environmental analysis or enabling

to make strategic forecasts Step 1: identify stakeholders

people who are affected by your work, who have influence or power over it, or have an interest in its success or failure

Step 2: Prioritize your stakeholders Map them on a power/interest grid shown - next slide

Step 3: Understand your key stakeholders What are their interests? What are their strengths/weaknesses? What edge do they have over your company? You can use the power/interest grid to map your

understanding – position on the grid implies strategy

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Power/Interest grid

Keep satisfied

Manage closely

Monitor(minimum

effort)

Keep informed

PO

WE

R

INTEREST

L HH

L

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2.3 SWOT Analysis Defines the relationship between the internal and

external appraisals Applied to self, competitors, supplies and

customers as in order to assess the full position within the industry and to direct the firm towards the appropriate direction

SWOT analysis offers a fast ‘pocket sized’ method of conceptualizing complex reality

Strategy: Is a result of combined and realistic assessment

of market attractiveness and business strength Based on use of the existing business strengths

to exploit opportunities, to create new opportunities, to counteract threats and repair the weaknesses

Also referred to as TOWS matrix or WOTS-UP

Key Questions/Strategies

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StrengthsWhat do we control - resources, people, knowledge - that gives us an advantage. These strengths are your core competencies.What are our major internal or present strengths?Internal strengths are resources or capabilities that help an organization accomplish its mandates or mission.

WeaknessesWhat do we need to fix?What are our major internal or present weaknesses?Internal weaknesses are deficiencies in resources and capabilities that hinder an organization’s ability to accomplish its mandate or mission.

OpportunitiesWhat opportunities exist that we can take advantage of?What major external or future opportunities do we have?

Challenges/ThreatsWhat major external or future threats do we face?External threats are outside factors or situations that can affect your organization in a negative way.

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Key Questions/StrategiesO T

S How can organization use its strengths to take advantage of the available opportunities?

Strategy - Exploit

How can organization use its strengths to overcome the threats identified?

Strategy - Confront

W What does organization need to do to overcome the identified weaknesses in order to take advantage of the opportunities?

Strategy - Search

How will organization minimize its weaknesses to overcome the identified threats?

Strategy - Avoid

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Strategies Indicated by SWOT Analysis Maxi-Maxi (SO)

Organization is playing from its strengths to an opportunity and hence the business objectives are generally to reduce internal weaknesses and overcome external threats in order to focus upon this segment. Rowe, Mason, et al. (1994) call this segment exploit

Mini-Maxi (WO) Strategy appropriate minimizes weaknesses and

maximizes the opportunities. The opportunity exists but requires strength where the Organization currently has a weakness. Without strategic action to remove this weakness the opportunity must go to competitors. Rowe et al. (1994) call this segment search

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Mini-Mini (TW) The strategy for this segment is one that will

reduce both the weakness and the threat. This is the precarious segment and so organisations should adopt strategies that avoid it. Rowe et al. (1994) call this segment avoid

Maxi-Mini (ST) The indicated strategy for this segment is one

that uses the strength of the organization in order to deflect the threat. Care must be taken to avoid unnecessary competitive battles, and strategic options that circumvent the threat are to be preferred. Rowe et al. (1994) call this segment confront

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Another View of Strategies Implied by SWOT

Attack‘go for it’

Beware‘don’t do it’

Explore‘if have time’

Project‘watch yourself’

Extern

al Factors

Internal Factors

Strengths WeaknessesO

pp

ortu

nit

ies

Th

reat

s

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Strengths of SWOT can be used to generate strategic options, so it

also forms part of the Strategic Choice element offers warning of the need for avoidance may cause the objectives, and hence also the

performance measures, to be reviewed

Weaknesses of SWOT it does not build in any mechanisms for handling

the uncertainty of the future does not give any holistic model of the

organization tendency when doing a SWOT analysis to be less

honest in appraisals. People cover up organization’s feared weaknesses by proclaiming perceived strengths

Is not aimed at option evaluation and, hence, nor selection

2.4 Porter’s 5 forces framework

Threat of new entrants

Rivalry amongst existing competitors

Bargaining power ofsuppliers

Bargaining power of

buyers

Threat of substitute products or services

It models the competitive world of an organization and the forces that play upon it

The current competitive position of the organization will be the aggregate of the 5 forces

The net power of the 5 forces needs to be judged

Strategy is to concentrate attention upon those most significant - either to exploit a powerful position or to protect from a weak one

Forces and their key factors are outlined below (a – e)

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a. Rivalry of existing competitors The structure of competition

How many competitors? Is there a clear market leader? Where are you vis-à-vis

the leader? The structure of industry costs

Are there high fixed costs? Can competitors cut these costs?

Degree of product differentiation. How do you distinguish your services?

Switching costs Are there high/low switching costs?

Strategic objectives Are competitors pursuing aggressive growth strategies?

Exit barriers Are exit barriers high or low? How does that affect the

competition?

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b. Threat of new entrants Economies of scale. Capital / investment requirements. Customer switching costs. Access to industry distribution channels. Access to technology. Brand loyalty. Are customers loyal? The likelihood of retaliation from existing

industry players. Government regulations. Can new entrants get

subsidies?

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c. Threat of substitute products/services

Quality. Is a substitute better? Buyers' willingness to substitute. The relative price and performance of

substitutes. The costs of switching to substitutes. Is it easy

to change to another product?

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d. Bargaining power of suppliers Concentration of suppliers

Are there many buyers and few dominant suppliers? Branding

Is the brand of the supplier strong? Profitability of suppliers

Are suppliers forced to raise prices? Suppliers threaten to integrate forward into the industry

(for example: brand manufacturers threatening to set up their own retail outlets).

Buyers do not threaten to integrate backwards into supply.

Role of quality and service. Switching costs

Is it easy for suppliers to find new customers?

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e. Bargaining power of buyers Concentration of buyers

Are there a few dominant buyers and many sellers in the industry?

Differentiation Are products standardized?

Profitability of buyers Are buyers forced to be tough?

Role of quality and service. Threat of backward and forward integration into

the industry. Switching costs

Is it easy for buyers to switch their supplier?

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The aim of this model is to relate the competitive position of an organization to the maturity of the industry or its products

It assumes there is a basic S-shaped curve description to the growth phenomenon of the organization and its products

2.5 Life Cycle Analysis

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Life Cycle Analysis

Introduction Introduction Growth Growth Maturity Maturity Decline Decline

Activity or product is new

Rapid growth

No further increase

Decline in sales or activity

Experimentation

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Life Cycle Analysis Model

Development

Demand Unknown

• Product/Service is new• Experimentation & gradual acceptance

Growth

Demand > Supply

Rapid growth in sales.

Maturity

Demand Supply

Sales remain high but there is no further increase

Decline

Demand < Supply

Competition & product displacementcause decline in sales

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Life Cycle Model Example in HE

Development

• ICT use is new• Laying infrastructure• Experimentation & gradual acceptance• No budgets • Employ some ICT operations staff

Growth

• Demand by students & staff grows• Internet connection • Key MIS implemented• e-learning growth• Top mgnt championship• Budgets and controls

Maturity

ICT is strategic resource & Impacts all aspects

• Integration• Ubiquitous impacts (quality, governance, etc.

Decline

ICT use & impactdeclines

• Complacency sets in• Shift in focus• Technology has changed• Cannot sustain ICT (cost, staff, etc.)

Introduction of ICT with limiteduse & impacts

ICT use & impacts grows

1 2 34 5

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3. Analysis of Internal Environment

(Values and Objectives)

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Internal environment analysis Physical facilities Culture ICT (infrastructure, skills) HR capacities Leadership Structure Strategy Objectives Processes Systems Other resources

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3.1 Strategy and Culture Definition of corporate culture:

“the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration and that worked well enough to be considered valid and, therefore taught to new members as the correct way to perceive, think and feel in relation to those problems”.

Culture is sometimes described in terms of levels distinguishing between: Visible aspects of culture (rules, procedures,

technology); and Underlying aspects of culture (the unseen,

unarticulated, untested values & assumptions)

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Strong Vs. Weak culture Strong - when the visible and underlying

levels are consistent with each other Weak - if the cultural levels are inconsistent

with each other and/or in pockets Elements of culture:

power, history, language, dress code, status symbols, reward structures, logos, organizational charts, etc. what Deal and Kennedy(1982) call “the way we do things around here”

Note: Groups within any organization may have

clashing cultures E.g., a sales team may have a results driven culture while the accountancy group may have a culture focused on accuracy

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Conservative organizations Value low risk strategies, secure markets and

well tested potential solutions Also called defenders

Innovative organizations Value ground breaking, risk and pay-off Also called prospectors

Strategy – culture relationship. The 2 types of organizations will behave differently under the same circumstances: Defenders value low-risk strategies (risk

averse) Prospectors go for higher-risk strategies and

new opportunities (risk taker)

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How is culture related to strategy? Analysis of culture will enable interpretations

of its meaning to inform the selection of feasible and acceptable strategy options

Culture determines how an organization measures success. The common perception can have a dampening effect upon the influence of environmental factors upon strategy because the organization creates its own model of reality and every decision is seen in the light of that model

Culture influences strategy implementation

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Objectives in an organization serve three important functions:

They provide a statement of the financial objectives compared with the current performance of the organization indicating the extent and scope of the strategic decisions to be made

By providing a statement of the broad mission of the organization, they provide a product-market focus for the business strategy of the organization

Having a set of corporate goals provide objectives for individual functions or lower areas of responsibility within the organization

3.2 Strategy & Objectives

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Closed Vs open objectives Closed

objectives that can be achieved usually measurable and definable in terms of their

in-built measures of success or performance indicators

Open objectives that can be striven for, but can never be

achieved, so they persist throughout the life of the organization

The organization-wide mission is always an open objective

E.g. UoN Mission To provide quality university education and training and to

embody the aspirations of the Kenyan people and the global community through creation, preservation, integration, transmission and utilization of knowledge

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E.g. Conflicting Objectives of StakeholdersStakeholder Objectives or interests

Shareholder Market value of the investment Stability of dividends Size of dividend

Management Sales growth Asset growth Profitability

Labor force Wage increase Numbers employed Job security

Society Production gains Exports Profitability Social welfare

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Stakeholders in organization usually have conflicting interests, and hence objectives. Therefore stakeholder analysis is important in strategic analysis

Stakeholder goals change as the coalition membership changes and as the goals of those individuals change

Corporate objectives or goals therefore: emerge as a result of the process of internal

negotiation amongst individuals and groups represent the current position of compromise

between different interests represent satisfactory rather than optimal solution

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E.g. UoN Corporate Objectives To manage the University efficiently To produce quality and holistic graduates To contribute to scientific and technological

innovations To enhance the competitiveness of the University

At lower level unit, e.g. ICT objective

To maximize student and staff productivity and service delivery, enhance teaching and learning and improve quality of research through ICT

Power structure determines where the balance point for the compromise lies Power is the ability of individuals or groups to

obtain and use the human and material resources available

Power is not evenly distributed, some units, groups and individuals are more powerful than others

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3.3 Analysis of Resources

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3.3.1 Introduction The aim is to understand the organization’s

strategic capability It establishes what strengths & weaknesses the

organization has i.e. what it does best and what it does not do well

Fig. suggests process of analyzing resources Table (next 3 slides) show the key dimensions of

the various business resources to be assessed In the 1980’s, it was felt “out of fashion” to base

competitive strategy on internal capability – less chances of innovation (focus on ext. environment)

However, with the rise of TQM and BPR, there has been a corresponding growth in interest in understanding the organization’s strategic capability

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Value chainanalysis

Resource Analysis Process

DrawingComparisons

Assessingbalance

Identificationof key issues

Understandingstrategiccapability

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Key areas of business resources & competence

Product/market Share of existing market Range of products Position in product life cycle Dependence upon key product for sale/profits/cash

flow Distribution network Marketing and market research

Production resources Number, size, location, age and capacity of plants Specialization/versatility of equipment Production and cost levels Cost/availability of raw materials Production control system

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Financial resources Present asset structure Present capital structure Access to additional equity and debt finance Pattern of cash flow Procedures for financial management

Technology Currency of production methods and

products R&D spending and effectiveness

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Organizational and human resources Organization structure Management style and succession Staff development policies Management/labour force relationship Reward structures

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3.3.2 Value Chain Analysis Competitive possibilities open to an organization

can be discerned from a resource audit Porter’s value chain is the commonest model and

portrays an organization as a connected chain of activities, each of which relates the organization’s products to its customers (see fig)

Model can be used to assess the degree of effectiveness and efficiency of resource use in the activities in the value chain Efficiency - measure of how well the resources are

being used, e.g. profitability, capacity use and the yield gained from that capacity

Effectiveness - assessment of how well the resources are allocated to those activities which are the most competitively significant within the value chain

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Primary activities Contribute to getting the goods or service one

step closer to the customers Secondary activities

Support the primary activities

Porter’s Value Chain Model

Administration & Infrastructure

Product/ Technology/ Development

Human resource management

Procurement

Inboundlogistics

OperationsOutboundlogistics

Sales &marketing

Services

Primary Activities

Support/secondary Activities

Value Added

-Cost

=MARGIN

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(a) Primary activities Inbound logistics

All processes associated with receiving, storing and disseminating inputs to the production process for the product or service

Operations All processes associated with transforming i/ps into o/ps

Outbound logistics All activities concerned with distributing the products or

services to the customers Sales & marketing

Activities which provide opportunities for the potential customer to buy the product or service and offer inducements to do so, e.g. advertising, pricing, tendering,

Services All processes concerned with the provision of service as

part of the deal struck with the customers, e.g. repairs, maintenance, spare parts supply, training, installation, etc.

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(b) Secondary activities Admin. & infrastructure

The tasks that comprise general management, e.g. financial management, planning, legal services, quality management, office administration, etc.

HR management Activities associated with the recruiting, training,

developing, appraising, promoting, and rewarding of personnel

Product/technology development Activities that relate to developing the technology of the

product or service and the processes that produce it and the processes that ensure the management of the org., e.g. IS, development of new product/service designs

Procurement Activities that support the procurement of inputs for all of

the activities of the value chain e.g. procurement of IS, raw materials, etc.

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3.3.3 Product Portfolio Analysis An example tool is the Boston consulting

Group (BCG) tool matrix, which is a 2x2 matrix The BCG tool models the relationship between

a division’s (or product) current or future revenue potential and

the appropriate management stance It classifies businesses, products or divisions

according to the present market share and the future growth of the market

The intention of the matrix is to distinguish between the cash generators and the cash consumers

The model uses the analogy in fig. below

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BCG model

Wild cat(quickly

nurture into stars)

Star(Exploit now & in future)

Dog(Divest)

Cash cow(Exploit now)

Fu

ture m

arket grow

th

Existing Market share

L HH

L

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The Interpretation of the BCG Model Cash Cows

Products or segments that are the current high earners for the organization

They are relatively short term The organization should seek to adopt

measures to increase profit and extend their lifetime

Stars Products or segments providing significant

revenue now & expected to do so in future The organization should seek to adopt

measures to increase profit and extend their lifetime

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Dead dogs Products or segments providing little or no

contribution currently and not expected to change in the future

They should be divested

Wild cats Products or segments providing little or no

contribution currently but expected to change in the future

The organization should ensure that they quickly mature into profitable stars

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3.3.4 Analysis of Core Competences Core competencies are the capabilities that are

vital for the competitive well-being of the organization. Significant resources must be put into acquiring them

Core competencies support all business aspects

Tests to identify core competences: provides potential access to a wide variety of

markets makes a significant contribution to the

perceived customer benefits of the end product

makes it difficult for a competitor to copy

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To produce a list of core competencies, an organization must consider it’s capabilities and any gaps that need to be plugged

Guidelines for core competences: Should be few, about 5-6 The embedded skills that breed the next

generation of competitive products should not be bought or rented on outsourcing deals. Any outsourcing for core competencies must be treated with care.

Deliver core products Core products embody the core competencies

and are the components that add to the value of the end products

used to seek maximum world manufacturing share in core products

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The organization needs to create a strategic road map (architecture) of the desired core competencies and how to get them as part of SP

The organization can pose the following questions so as to judge the extent of the architecture: how long it can preserve its competitiveness in

the business if it doesn’t control the core competence

how central the core competence is to the perceived customer benefits

what future opportunities would be foreclosed if it lost the particular competence

The architecture gives a way to assess possible diversification, provides a template for the allocation of resources, etc.

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Core competencies are a corporate resource and the more a core competence is used, the stronger it gets

Diversified organizations: hold portfolio of core competencies (just like portfolio of

many business) must assess their core competencies, core products and

end products core competencies should be used to widen the domain

of innovation so as to overcome the SBU constraints. This ensures hybrid opportunities that combine across SBUs are exploited. Unless this is done, only the ideas that lie close at hand (within one SBU) may be exploited

The organization should alter its patterns of communication, career paths, strategy formulation and managerial rewards away from the SBU constraints

Belonging together must be considered to add something that would not be present if each SBU were an independent operator

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The mission core competence (MCC)

decision matrix

Dilution(Define

framework)

Drive(Cherish)

Drain(Discard)

Distraction(Develop)

Fit w

ith m

ission

Fit with core competencies

Poor GoodG

ood

Poo

r

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It is a tool based upon the analogy of an organization as a tree : The mission and the vision provide the nutrients

that feed the tree The core competencies serve as the roots,

which through core processes produce projects and products (the “fruits”)

Use of matrix Resource allocation - assesses the relative

merits of any competing claims on resources, not just those associated with product/market segments or SBUs OR

Resource allocation - apply strategic logic to resource-allocation decisions or day-to-day activities throughout an organization, ensuring their optimal contribution to building competitive strength.

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Product/service selection - offers a way of selecting which actual and potential project or product to support since each project and product can be judged in terms of its match to the mission and to core competencies of the organization

The best quadrant is the G-G Notes:

This tool is good in forcing the testing of assumptions about what the core competencies actually are and what the mission actually is

It is also good in integrating issues to support making holistic decisions in an organization that has a definable mission and definable core competencies