Effects of IT on Strategy and Competition

Strategic Management and Planning

Strategic Management and Planning

Strategic Management

Most significant form of management decision making

We are concerned about:a process: planninga product: strategy

The thinking about both is called strategic management

What is Strategy ?

It is not an exact science It cannot be calculated There are no cook-book approaches

Proposed definition:

Strategy is the pattern of resource allocation decisions made throughout an organization.

These encapsulate both desired goals and beliefs about what are acceptable and, most critically, unacceptable means for achieving them.

What is Strategic Management ?

Strategic management is concerned with deciding on strategy and planning how that strategy is to be put in effect via :Strategic analysisStrategic choiceStrategic Implementation

Several levelsCorporate strategyBusiness strategy: within business unitFunctional Strategy: e.g. IS strategy

Strategic Process

Process by which an organization establishes answers to questions such as: What business are we in exactly ?

Who is it competing with us?

How are we performing ?

How are the business and its markets changing ?

Where within the industry want we to be?

What must be done to achieve our objectives?

Requirements for a Relevant Strategy

The strategy needs to :

be used proactively;

recognize that there are severe limits to the predictability of the future;

take account of the organizational, political, and psychological dimensions of corporate life;

be accepted by the majority of those concerned with strategy to be a realistic relevant tool for more effectively coping with the future.

Model of Strategic Management Elements Model of Strategic Management Elements

StrategicAnalysis

StrategicImplemen-

tation

StrategicChoice

TheEnvironment

Expectationsobjectives andpower:culture

Resources

Generationof options

Evaluationof options

Selection of strategy

ResourcePlanning

Organizationstructure

Peopleand systems

Diversity of Strategic Problems and Decisions

Strategic decisions are :broad in their scope;enduring in their effects;difficult in their reversal;worth devoting time and resources

Factors that determine the nature of strategic problemsthe nature of the industry;the nature of the enterprise;the current circumstances;the organization’s environment.

History of Strategic Planning

Analytical Schoolassumes strategists can be trained to anticipate complexityassumes strategy can be designed using a range of models

based on normative principlesbut models are based upon somewhat dubious assumptionsassumes predictable environmentoffer a range of techniques

Pattern Schoolstrategy of the resource allocationevolves on a trial-and-error basissuccessful actions are pursued ( Japan )problem of understanding the relation between resource

allocation and result.

Model of Strategic Planning ProcessModel of Strategic Planning Process

Planning element Plan component Key question

Mission

Goals

Strategies

Policies

Decisions

Actions

{

{

Strategic Analysis

Strategic Choice

Strategic Implementation

What should we be doing?

Where are we going?

What routes have we selected?

How do we guide our collective decisions?

What choices do we have?

Shall we do it?

Societal Environment

Socio-Culturalforces

Economic forces

Political-legalforces Technological

forces

Taskenvironment

GovernmentDemand

TechnologyMarket

structure

InternalEnvironment

- Structure- Cultural web- Resources

Strategic Analysis: Environmental Analysis

Organizational Development

Key Dimensions of the Societal EnvironmentKey Dimensions of the Societal Environment

Socio-cultural Economic Technological Political-Legal

Life-style changes GNP trends Organizationalspending on R&D

Commercialregulations

Career expectations Interest rates Total industryspending on R&D

Environmentalprotection laws

Consumer activism Money supply Focus oftechnological efforts

Tax laws

Growth rate ofpopulation

Inflation rates Patent protection Special incentives

Age distribution Unemployment levels New products Foreign traderegulations

Regional shifts inpopulation

Wage/price control Technology transferfrom lab to market

Attitude towardsforeign companies

Life expectancies Devaluation Productivity improve-ment via automation

Laws on hiring andpromotion

Birth rates Energy availabilityand cost

Stability ofgovernment

The nature of strategic changeThe nature of strategic change

Continuity Incremental Flux Global

Established strategyremains unchanged

May make good sense but the worldmay change fasterthan the strategy

No clear direction to the change

Change of this scalehappens at times of crisis when the organisation is out ofstep with the world

Constructing step for scenariosSchoenmaker 1995

Constructing step for scenariosSchoenmaker 1995

Define the scope: time scale, products, area, technologies, …

Identify major involved parties

Identify basic trends

Identify uncertainties

Construct initial scenario themes

Check for consistency and plausibility (e.g. trend vs time scale )

Develop learning scenarios ( good name for each scenario )

Identify research needs

Develop quantitative models

Evolve towards decision scenarios

The significant skills required are diffused throughout the organization

Effects on Competition

Text book

Analysing Impact: Forces that shape strategy

variety of potential uses is as broad as the industry managers need a framework to facilitate planning

strategic view on use of computer and communications Michael Porter’s industry and competitive analysis

State of competition depends on five forcesbargaining power of suppliersbargaining power of buyers threat of new entrants into the industry segment threat of substitute products or servicespositioning of traditional intra-industry rivals

very useful to consider impact of IT

Model1: Porter’s five forces modelModel1: Porter’s five forces model

Impact of competitive forces

Thread of new

entrants

Rivalty amongstexisting

competitors

Bargainingpower ofsuppliers

Bargainingpower of

buyers

Thread ofsubstitute products

or services

Analysing Impact: Impact of competitive Forces

Force Implication Potential uses of IT

Threat of new entrants New capacity Provide entry barriers:Substantial resources - economies of scaleReduced prices or inflation - switching costs of incumbents’ costs - access to distribution channels

Buyers’ bargaining power Prices forced down Buyer selectionHigh quality Switching costsMore services DifferentiationCompetition encouraged Entry barriers

Suppliers’ bargaining power Prices raised SelectionReduced quality and services Threat of backward integration

Threat of substitute products Potential returns limited Improve price/performance or services Ceiling on prices Redfine products and services

Intra-industry rivals Competition: Cost-effectivenessPrice/Product/ Market access differentiation: distribution and services Product/Services/Firm

Analysing Impact: Specific actions

Specific actions to implement generic strategy vary widely competitive advantage is the goal of any strategy

define type of required competitive advantage

Competitive advantage

Lower Cost Differentiation

BroadTarget

Narrow Target

Competitive Scope

Cost Leadership Differentiation

Cost Focus Differentiation focus

Strategic Analysis: Values and ObjectivesStrategic Analysis: Values and Objectives

Porters value chain model

Administration and infrastructure

Human resource management

Product/technology/development

Procurement

Support activities

Primary activities

Inbound logistics

Operations Outboundlogistics

Sales andmarketing

Services

Valueadded -cost = MARGIN

Inbound Logistics

Inbound logistics:materials receiving, storing, distribution – to manufacturing premises

just-in-time on-line ordering in major distribution company• cut-down on warehousing needs for incoming materials

• reduced disruption on inventory shortfalls

• safetystocks are passed to supplier

• scan supplier databases for lowest price

• changing vendors has become more difficult

large department store linked to textile suppliers• improved delivery

• inventory reduction

• flexibility to meet changing demands

• easier to deal with domestic suppliers

Outbound Logistics Outbound Logistics : storing and distributing products

IT has great impact on the way products are delivered to customers.

reservation-systems links to travel agents

automatic teller machines

theatre-ticket machines , gaz stations

Outbound for one company is inbound for another

Marketing and Sales

Marketing and sales: promotion and sales force

on-line order-entry for pharmacies

industrial air-conditioning company has build a computer-based modeling system prefered by architects

competitor made a similar on-line system also providing cost information

farmers information system by agricultural chemical company with build-in decision support system

Marketing systems became important with the laptop

After-Sale Service , Infrastructure

After sale service reduction of repair costs and increased customer satisfaction

by installing flight-recording devices in elevatorson-line maintenance expert systems reduced service visits

Corporate infrastructureon-line link for outlying travel agents to deliver documents• 27 % growth in sales

financial service company used information in database to refine commission sytem• less comission for first sale• more for service extension

Enhanced management control and coordination via voice mail, e-mail , videotext

location of airplanes improved connections for delayed fligths

Other applications

Human resourceshead-hunters information on skills and experience

Technology developmentaccess to large computing facilities (generation gap )CAD/CAMseed company : computer support is most important

technology expenditure for genetic planning ( data on thousands of plants , molecular simulatiom models )

Procurementon-line electronic bulletin boardsaccess to production scedules of suppliers

Value chain of Porter: ICT Influence

MIS, DSS, EIS, ES multimedia, VR

ES, DSS, MIS

DSS, ES, GSS, CASE

EDI, DSS, Voice technology

EDIE-mail

RobotsCAD/CAMSimulation

MRPVRCIM

Scheduling

EDIDSS

EDICD/ROM

MultimediaDSSGIS

Internet

LaptopsWirelessTracking

Primary activities

Supportingactivities

MA

RG

inP

rofit

Inbound Operations Outbound Marketing Services

Infrastructure

HRM

Technology

Procurement

The risks of information systems success

Key problem: - success in narrow technical sense- disastrous organisational and

competitive consequencesNine topics focus on strategic vulnerabilities

Systems that : change the basis of competition negativelySystems that : lower entry barriersSystems that : bring on litigation or regulationSystems that : increase customers’ or suppliers’ power to the

detriment of the innovatorBad timing Indefensible investments that fail to bring lasting advantagesSystems that pose a threat to large, established competitors Inadequate understanding of buying dynamics across marketCultural lag and perceived transfer of power

Assessing competitor risk

Two phase process:describe in detail the industry-level changes invokeddetermine potential impact on the company

increasing use of IT not always inevitablesome technological advances remain embryonic for reasons of

cost, IT capability , user acceptance , lack of support from established industry (e.g. home banking )

consider motivation for the new system software from nonexclusive source gives no lasting advantage mobility between IT personnel results in rapid proliferation of

ideas long-term commitment of top management required before start clear view on long range strategy is absolute must resources and capabilities of competitors must be examined

The Challenge

broad IT-management - user dialog plus imagination

potential benefits are subjective and not easily verified

ROI focus may turn attention towards a narrow focus

most companies are in support or factory quadrant of strategic grid and organisation is set up accordingly

playing cath-up can be difficult and expensive

Life cycle analysisLife cycle analysis

Four stages in life cycle of a product or industry: Introduction

early adoptersdemand unknown

Growthentry of competitors fight for share, undifferentiated products and services

Maturitysaturation of users fight to maintain share, emphasis on efficiency and cost

Declinedemand < supply

SWOT analysisSWOT analysis

A SWOT analysis defines the relationship between internal and external appraisal in strategic analysis

Internal factors

Externalfactors

Strengths

Strengths

Weaknesses

Weaknesses

Opportunities Opportunities

Threats Threats