CHAPTER 5 ISIT Strategic Analysis: Determining the Future Potential

1
CHAPTER 5IS/IT Strategic Analysis Determining
the Future Potential
2
Learning Objectives

• Criteria for effective planning
• Business strategic and IS/IT strategic analysis
  methods
• Market leadership
• Value Chain
• Strategic option generator
• Resource life cycle analysis

3
Determining the Future Potential

• Historically, IT used to optimize performance of
  main operational activity of the business
• Emphasis has been on
• Internal processes and operations.
• Key processes in the organization
• Internal critical success factors.
• Firm rather than the industry.
• Steps in Strategic planning
• Assessment of current systems and how well they
  support operational performance..IT audit
• Directing resources towards future business
  objectives and strategies (By using Balanced
  Scorecards and Critical Success factors).
• Potential of IS/IT to change industry dynamics

4
Criteria for Effective Planning

• Situation analysis and competitive assessment
• Evaluation of strategic options
• Dynamic allocation of resources

The purpose of strategic planning is to add value
to the firm by adding new customers, new products
or services, new markets, new locations, or new
breakthrough technology. If the plan does not
add value, it is worthless
5
Static Versus Dynamic Strategic Planning
Static planning processes usually answer the
question of fit. How does our firm fit with its
environment?
Dynamic strategic planning answers two questions
"Where do we want to go and how do we want to
get there?"
Increasing the Firm's Strategic IQDynamic versus
static strategic planning
http//gbr.pepperdine.edu/032/print_strategy.html
6
Market Leadership

• By Treacy and Wiersma
• Three paths to market leadership
• Operational excellence low costs and consistent
  quality (Wal-Mart)
• Customer Intimacy precisely and tailoring
  products and services to target market (Home
  Depot)
• Product leadership product innovation (Johnson
  and Johnson)

Determination of priority IS/IT investments
depends on the levels of relative competence of
the organization
7
(No Transcript)
8
Aligning IS/IT Investment ? Business

• Development of business strategies is best
  carried out if you consider the organization as a
  group of (strategic) business units.
• This enables the market/product relationship to
  determine strategic thinking and
  functional/organization aspects become secondary,
  ensuring that external strategy drives internal
  strategy.
• The portfolio of products and/or customers can be
  analyzed to identify how each grouping
  contributes to or makes demands on resources
  available.
• Provides the sharpest focus
• Generic strategy concepts can be best applied to
  business units (low cost, differentiation and
  niche).
• To achieve more effective strategic
  decision-making.

9
Strategic Perspective for Applications
The changing content of the application portfolio
should reflect the evolving strategic themes.
10
Value Chain Analysis

• The concept of Value Chain Analysis is described
  by Michael Porter who notes that Every firm is
  a collection of activities that are performed to
  design, produce, market, deliver and support its
  products or services. All these activities can be
  represented using a value chain. Value chains can
  only be understood in the context of the business
  unit.

11
What it doesHelps determine which specific
activities give organizations a competitive
advantage and build their value.
The basic model of Porters Value Chain is as
follows

• Inbound logistics Procuring, receiving and
  warehousing raw materials. Operations
  Machining, assembly and manufacturing products.
  Outbound logistics Getting the product to the
  customer. Marketing and sales Advertising,
  marketing and selling. Service Providing
  customer support and product repairs.

• Procurement The purchasing of materials used to
  create value for the firm Technology
  Development Any technology used to support the
  firms value chain activities. Human Resource
  The Activities surrounding the Recruiting,
  Hiring, Training and compensation of an
  organizations employees. Firm Infrastructure
  The activities and functions that support a
  firms ability to create value such legal,
  accounting, management, strategy, etc.

The term Margin implies that organizations
realize a profit margin that depends on their
ability to manage the linkages between all
activities in the value chain. In other words,
the organization is able to deliver a product /
service for which the customer is willing to pay
more than the sum of the costs of all activities
in the value chain.
12
Online learning value chain.
Source Adapted from Porter (2001).
http//cde.athabascau.ca/online_book/ch3.html
13
Industry (External) Value Chain

• The overall performance of the industry is
• primary dependent on how well demand
• supply information are matched at all
• stages.
• Focus on the value-adding activities producing
  goods services as efficiently as possible to
  the satisfaction of the customer

14
Porter's Industry Value-Chain(Porter 1980)
An enterprise's value chain for competing in a
particular industry is embedded in a larger
stream of activities that Porter terms its 'value
system', but which might be more usefully
referred to as the 'industry value-chain'. This
includes suppliers and distribution channels.
Competitive advantage is a function of how well
a company can manage the entire industry
value-chain. A corporation can create
competitive advantage by coordinating its links
in that chain.
15
Internal Value Chain

• The purpose of Internal Value Chain analysis is
  to divorce what the company does from how it does
  it.
• Two types of business activity
• Primary activities those that enable it to
  fulfill its role in the industry value chain and
  hence satisfy its customers. They must be linked
  together effectively.
• Support activities those which are necessary to
  control and develop the business over time and
  thereby add value indirectly.

16
Alternative Value configuration Models
The traditional value chain model was essentially
based on manufacturing/retail view of industry
and works well for physical goods. But does not
really represent what the business does or its
relationships with customers and suppliers in
many other businesses.

• Value Shops
• Businesses that essentially are problem solving
  delivering value by producing solutions for
  clients. Characterized by intense and extensive
  information exchanges both in setting up the
  business transaction and delivery of the
  solution.
• Each solution is unique and the client is
  normally involved in both the design and
  implementation of the solution.
• Figure 5.7 on page 266 shows an example.
• Objective satisfy the customer requirements, by
  bringing together the appropriate knowledge and
  resources from inside the firm or by using other
  external resources.
• Example, advertising agencies and professional
  services organizations

• Value Networks
• Businesses that provide exchanges and mediation
  between buyers and sellers, enabling
  relationships to be established.
• They earn revenue from either or both in their
  use of the firms network everyones a
  customer.
• Figure 5.8 on page 268 suggest how this model
  differs from the other two.
• Example, insurance companies, banks,
  telecommunications companies and airlines

17
The primary activities of a value network are
concerned with mediating exchanges between
customers and managing relationships with them
The primary activities of a value shop reflect
each of the key steps in a problem-solving
process.
18
The Use of Value Chain Analysis

• The main objective is to represent the main
  activities in the business and their
  relationships in terms of how they add value so
  as to satisfy the customer and obtain resources
  from suppliers.
• The information that flows throughout the
  industry and how critical that information is to
  the functioning of the industry and the success
  of the firms in it, by determining where and when
  that information is available, who has it and how
  it could be obtained and turned to advantage or
  used against the firm.
• The information that is or could be exchanged
  with customers and suppliers throughout the chain
  to improve the performance of the business or
  lead to mutually-improved performance by sharing
  the benefits.
• How effectively the information flows through the
  primary processes and is used by them
• Within each activity to optimize performance
• To link the activities together and avoid
  unnecessary costs and missed opportunities and
• To enable support activities to contribute to the
  value-adding processes, not hinder them.

19
IS and Value Chain

• Information systems are used to enable better
  information exchanges through the industry value
  chain, significant benefits can be obtained from
  the improved links. These benefits should enable
  a firm to spend more of its business energy in
  outperforming its real competitors rather than
  competing with its trading partners for profit.

20
Customer Relationship Management and the Value
Chain

• Technology made CRM a feasible option for
  organizations by providing the tools to
  operationalize the concepts of customer value
  analysis, relationship marketing and mass
  customization.

Customer Relationship Management Stages in
dealing with customers as a resource, and
respective information needs.
Customer Resource Life Cycle Analysis By
examining its customer relationships via the
model, companies can determine not only when
opportunities (or threats) exist for improved or
new information exchanges but also which specific
applications should be developed.
21
Table 5.2 Resource life-cycle analysis (source
after Ives and Learmonth) Requirements Establish
requirements To determine how much of a resource
is required Specify To determine a resources
attributes Acquisition Select source To
determine where customers will buy a
resource Order To order a quantity of a
resource from the supplier Authorize and pay for
To transfer funds or extend credit Acquire To
take possession of a resource Test and accept
To ensure that a resource meets
specifications Stewardship Integrate To add an
existing inventory Monitor To control access
and use of a resource Upgrade To upgrade a
resource if conditions change Maintain To
repair a resource, if necessary Retirement Transf
er or dispose To move, return or dispose of
inventory as necessary Account for To monitor
where and how much is spent on a resource
22
Strategic Option Generator
Technique for generating information systems
similar to that of CRM. It consider the impact of
IS/IT in relation to Suppliers anyone
supplying essential resources. Customers
segmented in terms of what they buy or how much
leverage they exert. Competitors who sell
similar products or services, substitutes and
potential new entrants. Also consider the threat
of new intermediaries or options for
disintermediation by others.
For each of them, alternative strategic thrusts
(offensive or defensive moves) can be made by the
firm Differentiation (superior quality, or being
a preferred customer) Cost Innovation Growth
(enable volume or expansion in geography or
increased flexibility of production and
distribution). Alliances.
23
'Natural' and 'Contrived' Value Chains.

• The natural chain describes the (unattainable)
  optimum structure for the industrys value-adding
  processes and information flows, based on what
  needs to be done.
• The contrived value chain shows how things are
  currently done. Look at table 5.4 on page 271.
• Analyzing the value chain in information terms to
  reduce the existing complexity either inherent in
  the current information relationships or caused
  by them.
• Identify new, often faster, options for
  information flow to where it enables the
  value-adding processes to be performed more
  effectively and at the ideal time.

24
Business Re-engineering and the Value Chain

• Most of the successful business re-engineering
  initiatives have also had an external drive or
  focus, ensuring that internal changes deliver
  perceived improvements to the customers. Almost
  by definition, the starting point for determining
  what to change, why and how to change, is an
  understanding of the value adding processes in
  the industry and/or the firm.
• Actions to improve business performance
• (by using business re-engineering)
• Eliminate unnecessary processes.
• Rationalize the rest to ensure the value adding
  processes are optimized
• Integrate to improve responsiveness and reduce
  unnecessary effort and error
• Automate where technology can deliver further
  improvements.
• It is important to adopt a value-chain driven
  approach to understanding how the business
  works and hence can be improved via a
  combination of business re-engineer and new IS.

25
The End of Lecture 5
http//www.anu.edu.au/people/Roger.Clarke/SOS/Stra
tISTh.html