strategic role of it dr. merle p. martin
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Strategic Role of ITStrategic Role of IT
Dr. Merle P. MartinDr. Merle P. MartinMIS DepartmentMIS DepartmentCSU SacramentoCSU Sacramento
AgendaAgenda IT strategic rolesIT strategic roles IT as a competitive toolIT as a competitive tool ReengineeringReengineering Where are we going?Where are we going? Strategic IT PlanningStrategic IT Planning Foundation Health Corporation Foundation Health Corporation
Strategic IT Plan Strategic IT Plan
IT Strategic RolesIT Strategic Roles As competitive toolsAs competitive tools To reengineer business To reengineer business
processesprocesses For interorganizational linkingFor interorganizational linking
IT as Competitive ToolIT as Competitive Tool Watchwords for 90’s Watchwords for 90’s
((HammerHammer)) innovation (innovation (ITIT)) speed (speed (deliverydelivery)) service (tservice (tailoringailoring)) quality (quality (TQM)TQM)
IT Competitive Tools IT Competitive Tools Market Share StrategiesMarket Share Strategies
““Beat the other guys”Beat the other guys” ““Stay in the game”Stay in the game” Be acquired by othersBe acquired by others
IT roleIT role
To Stay in BusinessTo Stay in Business Catch up to innovatorsCatch up to innovators Galiler / AmodeusGaliler / Amodeus
European airlinesEuropean airlines global reservations systemglobal reservations system Keep up with American Keep up with American
and United Airlinesand United Airlines
To Gain Market ShareTo Gain Market Share Porter’s Competitive Porter’s Competitive
Threats ModelThreats Model Threats:Threats:
CustomersCustomers SuppliersSuppliers Substitute productsSubstitute products Potential entrantsPotential entrants
Use of IT to mitigate threatsUse of IT to mitigate threats
Porter ModelPorter ModelSu
pplie
rsSu
pplie
rsSu
pplie
rsSu
pplie
rs
BargainingBargainingPowerPower
BargainingBargainingPowerPower
SubstitutesSubstitutesSubstitutesSubstitutesThreatThreatThreatThreat
Buyers
Buyers
Buyers
Buyers
BargainingBargainingPowerPower
BargainingBargainingPowerPower
NewNewEntrantsEntrants
ThreatThreatThreatThreat
IndustryIndustry
Mitigating ThreatsMitigating Threats Suppliers - GM / ConrailSuppliers - GM / Conrail Buyers - Amer Hosp SupBuyers - Amer Hosp Sup New Entrants - New Entrants -
Supermarket scanningSupermarket scanning IT as market barrierIT as market barrier
SubstituesSubstitues Determine market strategyDetermine market strategy Use IT to enhance strategyUse IT to enhance strategy
Market StrategiesMarket Strategies Lowest costLowest cost - IT in - IT in
ProductionProduction DistributionDistribution
Market nicheMarket niche - IT in - IT in AdvertisingAdvertising Market ResearchMarket Research
Market barriersMarket barriers - IT pioneer - IT pioneer Product differentiationProduct differentiation - R&D, Mrkt - R&D, Mrkt
RsrchRsrch
Reengineering Reengineering “ “ . . . . . . fundamentalfundamental rethinking rethinking and and radicalradical redesign redesign of business of business processesprocesses to achieve to achieve dramaticdramatic improvements improvements in critical contemporaryin critical contemporary measures of performancemeasures of performance such as such as cost, quality, service, and speed” cost, quality, service, and speed”
Reject Industrial ModelReject Industrial Model Adam Smith’s PrinciplesAdam Smith’s Principles Industrial RevolutionIndustrial Revolution
division of labordivision of labor specialistsspecialists
economies of scaleeconomies of scale big is betterbig is better
hierarchical controlhierarchical control
Reengineering Isn’tReengineering Isn’t DownsizingDownsizing ReorganizationReorganization Software ReengineeringSoftware Reengineering Busting bureaucracyBusting bureaucracy TQMTQM
IssueIssue
Is your firm reengineering?Is your firm reengineering?Why don’t more firms reengineer?Why don’t more firms reengineer?What’s the “downside” to What’s the “downside” to
reengineeringreengineering
WHAT DO YOU THINK?WHAT DO YOU THINK?
Where Are We Going?Where Are We Going? Peter Keen’s 8 scenariosPeter Keen’s 8 scenarios
25-80% cashflow systems 25-80% cashflow systems on-line rather than batchon-line rather than batch
Point of Sale (Point of Sale (POSPOS)) electronic paymentselectronic payments
Image technologyImage technology Electronic Data Interface (Electronic Data Interface (EDIEDI))
Electronic Data Exchange (EDI)Electronic Data Exchange (EDI)Electronic Data Exchange (EDI)Electronic Data Exchange (EDI)
VendorsVendorsVendorsVendorsStoresStoresStoresStores
BentonvilleBentonvilleBentonvilleBentonville
Keen’s ScenariosKeen’s Scenarios Distributed workDistributed work Work location dependentWork location dependent Reorganization frequent, Reorganization frequent,
not exceptionalnot exceptional Electronic business partnershipsElectronic business partnerships
Electronic Business Electronic Business Partnerships Partnerships
Typical markets:Typical markets: firm’s products / services firm’s products / services
stand alonestand alone judged by comparison with rivaljudged by comparison with rival judgment determines market sharejudgment determines market share zero-sum gamezero-sum game first with innovation (IT) gains first with innovation (IT) gains
competitive edgecompetitive edge
InterrelatednessInterrelatedness Markets involving IT Markets involving IT
atypicalatypical Effect of IT is subtleEffect of IT is subtle
can accelerate competitioncan accelerate competition can soften competitioncan soften competition
Interrelatedness sources:Interrelatedness sources: networksnetworks concern for compatibilityconcern for compatibility
NetworksNetworks Value increases with sizeValue increases with size # transactions = N ( N - 1 )# transactions = N ( N - 1 ) Western Union exampleWestern Union example
2 cities (A and B)2 cities (A and B) Can send a dollar each wayCan send a dollar each way Value = 2 ( 2 - 1 ) * $1 = $2Value = 2 ( 2 - 1 ) * $1 = $2 Add 3rd cityAdd 3rd city Value = 3 ( 3 - 1 ) * $1 = $6Value = 3 ( 3 - 1 ) * $1 = $6
Sharing NetworksSharing Networks CIRRUS / ATM led to CIRRUS / ATM led to
larger networklarger network Increase network qualityIncrease network quality
different users with different users with different servicesdifferent services
Airline reservationsAirline reservations
Compatibility Compatibility InterconnectivityInterconnectivity
DEC connecting DEC connecting different vendorsdifferent vendors
Human skillsHuman skills QWERTY standardsQWERTY standards
Complementary productsComplementary products plug-in peripheralsplug-in peripherals IBM Repository CASE productIBM Repository CASE product
Strategic Planning
Strategic PlanStrategic PlanStrategic PlanStrategic Plan
Management Control
TacticalTacticalPlanPlan
TacticalTacticalPlanPlan
Operational Control
Operational PlanOperational PlanOperational PlanOperational Plan
IT Planning SequenceIT Planning Sequence
Level of ManagementLevel of Management
OperationalOperationalOperationalOperational TacticalTacticalTacticalTactical
Prog
ram
Prog
ram
Mai
nt.
Mai
nt.
Prog
ram
Prog
ram
Mai
nt.
Mai
nt.
Reen
gi-
Reen
gi-
neer
ing
neer
ing
Reen
gi-
Reen
gi-
neer
ing
neer
ing
Syst
ems
Syst
ems
Impo
rtatio
n
Impo
rtatio
n
Syst
ems
Syst
ems
Impo
rtatio
n
Impo
rtatio
nTa
ctic
al
Tact
ical
Prio
ritizi
ng
Prio
ritizi
ng
Tact
ical
Tact
ical
Prio
ritizi
ng
Prio
ritizi
ng
ShortShortRangeRangeShortShortRangeRange Planning HorizonPlanning HorizonPlanning HorizonPlanning Horizon
StrategicStrategic
LongLongRangeRangeLongLong
RangeRange
Stra
tegi
c
Stra
tegi
cPr
iorit
izing
Prio
ritizi
ng
Stra
tegi
c
Stra
tegi
cPr
iorit
izing
Prio
ritizi
ng
IT Planning CycleIT Planning Cycle Develop Mission Develop Mission
StatementStatement e.g, 15% market sharee.g, 15% market share increase sales volume by 10%increase sales volume by 10%
Identify strategic unitsIdentify strategic units Define Critical Success Factors (Define Critical Success Factors (CSFCSF))
Critical Success FactorsCritical Success Factors John Rockart, MITJohn Rockart, MIT Translation of firm’s Translation of firm’s
critical factors for strategic critical factors for strategic success down level by level success down level by level to measurable goals all to measurable goals all levelslevels
Example:Example: Key strategic factorKey strategic factor: :
Retain profit levelRetain profit level CSFCSF: Profit-to-sales ratio: Profit-to-sales ratio
IT Planning CycleIT Planning Cycle Identify IT enhancing CSFsIdentify IT enhancing CSFs Consider industry and Consider industry and
technological trendstechnological trends Categorize potential ITCategorize potential IT
new versus redesignnew versus redesign matches strategic goalsmatches strategic goals potential ROIpotential ROI potential risk potential risk
IT Planning CycleIT Planning Cycle Set IT portfolio strategySet IT portfolio strategy
eliminate non-strategic eliminate non-strategic contenders contenders
allocate resources to IT allocate resources to IT with high ROI or low level of riskwith high ROI or low level of risk
Leave 5 to 15% of technology Leave 5 to 15% of technology budget for Research and budget for Research and Development (Development (R&DR&D))
IssueIssueDoes your company do IT Does your company do IT
strategic planning?strategic planning? If not, why not?If not, why not? If so, do what steps do they follow?If so, do what steps do they follow?
Tell us your experiences!Tell us your experiences!
FHC ExampleFHC Example Foundation Health Foundation Health
CorporationCorporation Organizational goalsOrganizational goals IT visionIT vision IT goalsIT goals IT guiding principlesIT guiding principles IT tacticsIT tactics
Who is FHC?Who is FHC? Fortune 500 companyFortune 500 company Rancho Cordova, CARancho Cordova, CA Managed care servicesManaged care services
12 states12 states 3.1 million people3.1 million people
Specialty health servicesSpecialty health services 17.2 million people17.2 million people every state in unionevery state in union
Organization GoalsOrganization Goals Leader in U.S. managed Leader in U.S. managed
care marketcare market Cover over 6 million Cover over 6 million
medical risk livesmedical risk lives Over $2.5 billion annualized revenueOver $2.5 billion annualized revenue Upper quartile in market shareUpper quartile in market share
Organization GoalsOrganization Goals Satisfied, long-term Satisfied, long-term
customer relationshipscustomer relationships Top quartile ROE (public Top quartile ROE (public
companies)companies)
NOTE:NOTE: Goals are measurableGoals are measurable
1 1 3
System Development VisionSystem Development VisionID and Exploit Business Opportunities via Technology
All systems -networks 98% available
Problems resolved within 4 hours
Address business needswithin estimated time/cost
Address business needs within business dictated time and cost
Business Partner
Solution Provider
Application Provider
Service Provider
System Provider
Where Are We?Where Are We?
Business Partner
Solution Provider
Application Provider
Service Provider
System Provider
We are in the beginning stages, here
IT GoalsIT Goals IT contribute to IT contribute to
organization goalsorganization goals State-of-the-art State-of-the-art
administrative processadministrative process IT flexible to customer needs IT flexible to customer needs
(both anticipated and unanticipated)(both anticipated and unanticipated) Define “Define “TO BETO BE” IT environment” IT environment
manageable transition planmanageable transition plan
IT Guiding PrinciplesIT Guiding Principles Technology leader Technology leader
(health care)(health care) Use proven, reliable Use proven, reliable
technologytechnology Move to real-time settingsMove to real-time settings Leverage investment in current Leverage investment in current
systemssystems marketing toolsmarketing tools
IT PrinciplesIT Principles Common systems Common systems
for common functionsfor common functions Incrementally improve Incrementally improve
systemssystems Move towards “Enterprise Systems”Move towards “Enterprise Systems”
Development TacticsDevelopment Tactics Development costs Development costs
capitilizedcapitilized Cost / benefit for major projectsCost / benefit for major projects Major projects analyzedMajor projects analyzed
develop in-house?develop in-house? off-the-shelf package?off-the-shelf package? outsource?outsource?
IT pay benchmarkedIT pay benchmarked
Organization Structure Organization Structure TacticsTactics IT governed by steering IT governed by steering
committee (chief executives)committee (chief executives) ““Major Development” Major Development”
separate departmentseparate department CHAMPUS separate departmentCHAMPUS separate department Data responsibilities centralizedData responsibilities centralized Functional area support temsFunctional area support tems
Ops Mgmt TacticsOps Mgmt Tactics Mainframe relianceMainframe reliance 7-day, 24 hour availability7-day, 24 hour availability Centrally managed storageCentrally managed storage Data center automationData center automation Enterprise network architectureEnterprise network architecture Enhance data center Enhance data center
recovery processrecovery process End-user computing strategyEnd-user computing strategy
DiscussionDiscussion What does FHC’s strategic What does FHC’s strategic
IT planning tell us about IT planning tell us about the firm’s change culture?the firm’s change culture? (e.g., conservative, pioneer, etc)(e.g., conservative, pioneer, etc)
How could FHC’s IT strategic How could FHC’s IT strategic planning process be improved?planning process be improved?
WHAT DO YOU THINK?WHAT DO YOU THINK?
Points to RememberPoints to Remember IT strategic rolesIT strategic roles IT as competitive toolIT as competitive tool IT for reengineeringIT for reengineering Keen’s 8 scenariosKeen’s 8 scenarios IT Strategic PlanningIT Strategic Planning
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