CHAPTER 2 AN OVERVIEW OF BUSINESS STRATEGY CONCEPTS & THE IS/IT STRATEGY IMPLICATIONS

1. CHAPTER 2AN OVERVIEW OF BUSINESS STRATEGY CONCEPTS & THE IS/IT STRATEGY IMPLICATIONS Strategic Planning for Information Systems Third Edition John Ward and Joe Peppard

2. Learning Objectives:- • Evolution of strategic planning in organizations • Strategic framework • Business planning process • Business planning tools & techniques

3. CHAPTER 1 – Evolution of IS/IT. • IS strategies MUST BE developed within the context of corporate and business strategic planning processes. Achievement of business objectives/goals Maximize ROI Enabling strategic use of information $$$ IS/IT Gain competitive advantage Repel competitive Threat

4. PLANNING INVOLVEMENT IS managers should understand the corporate perspective of the world IS Managers Business Managers • Formal approaches to business planning – 1950s • Evolved to cater for changes of the dynamic business environment

5. Strategic Planning in Organization • The formal approaches to business planning started in 1950s. • They have evolved since in order to take account of technological, economics, social and political changes. • They will continue to evolve in response to the dynamics of the business environment.

6. Evolution of Strategic Planning

7. Evolution of Strategic Management Maturity

8. The Evolving Nature of Strategic Planning in Organisations • In 1980, a model was developed to describe the increasing maturity of strategic planning in organisations. The model consists of 4 phases. • In phase 1, the focus is on cash flow and annual financial planning. It involves simple techniques to develop medium term budgets. The focus of the management is to reduce everything to a single financial issue – meeting the budget.

9. Cont… • In phase 2, the focus is on trying to predict, or forecast, what is likely to happen within a 5 years horizon. Historical performance analysed and projected into the future using internal trends and external parameters such as economic and market research data. It forecasts sales and market growth and predicts the effects on income and expenses and changes to the balance sheet. Plans are still quantitative and internally oriented, focusing on what is targeted and the resources available.

10. Cont… • In phase 3, the organisation starts to look outside itself an concentrate on understanding the nature of competition in its industry, and positions itself to gain advantage. Managers try to shift company’s product portfolio to more attractivemarket sectors. • In phase 4, the organization is driven by innovation and becomes capable of creating its own business environment. Thus, the organisation gains a leading role in the industry. Obviously, the leadership will require continuing innovation.

11. Strategic Planning in Organizations

12. What is Strategy? • A strategy is a collection of statements that express or propose a means through which an organization can fulfill its primary purpose or mission • A chosen strategy must focus and coordinate the firm’s activity from the top down toward accomplishing its mission • Developing a strategy begins with: • a thoughtful understanding of the firm’s mission • analysis of the environment • a detailed assessment of how various business units interact • Strategy (text book) “An integrated set of actions aimed at increasing long-term well-being and strength of enterprise relative to competitors”

13. Why Are Strategies Needed? To proactively shape how a company’s business will be conducted To mold the independent actions and decisions of managers and employees into a coordinated, company-widegame plan

14. Relationship of Strategies to Plans • Strategy is a collection of statements that expresses or proposes a means through which an organization can fulfill its mission • Identifies the goal or objective • Insights • Plan is a detailed description of how an organization can accomplish its mission • Lays out in detail the steps necessary for the organization to accomplish the goal • Plans turn insights into actions

15. Missions vs. Strategic Visions • A missionstatement focuses on current business activities -- “who we are and what we do” • Current product and service offerings • Customer needs being served • Technological and business capabilities • Astrategic visionconcerns a firm’sfuturebusiness path -- “where we are going” • Markets to be pursued • Future technology-product-customer focus • Kind of company that management is trying to create

16. What is a Strategic Plan? Where firm is headed --Strategic vision and business mission Short and long term performance targets --Strategic and financial objectives Action approaches to achieve targeted results -- A comprehensivestrategy

17. Establishment of Strategy There are essentially three processes that can contribute to the establishment of a strategy: • Strategic thinking – creative, entrepreneurial insight into the ways the enterprise could develop. • Strategic planning – systematic, comprehensive analysis to develop a plan of action. • Opportunistic decision-making – effective reaction to unexpected threats and opportunities.

18. Thinking Strategically : The Three Big Strategic Questions 1.Where are we now? 2.Where do we want to go? • Business(es) to be in and market positions to stake out? • Buyer needs and groups to serve? • Outcomes to achieve? 3.How do we get there?

19. A Company’s Strategy is Partly Planned andPartly Reactive Abandoned strategy features Company Experiences, Know-how, Resource Strengths and Weaknesses, and Competitive Capabilities Planned Strategy New initiatives plus ongoing strategy features continued from prior periods Actual Company Strategy Adaptive reactions to changing circumstances Reactive Strategy

20. The Strategic Framework • Any organization in stages 3 and 4 of the model will need to consider most aspects of the FW (see page 71) to succeed. • Three layers factors:- • The external environment • Pressure groups and stakeholders • Internal business planning

21. A Strategic FW • The external environment • Economic/ Social / Political / Legal / Ecological / Technological • Pressure groups and stakeholders • Shareholders / Competitors / Customers/Suppliers / Government / Unions / Employees / “The public” / Media / Financial Institutions • Internal business strategizing and planning • “SBU” / Objectives / Situation analysis / Future strategies Page 71 - Text

22. A Strategic Framework

23. The External Environment • PEST (Political, Economic, Social and Technological )Analysis Political: Government type and stability Freedom of press, rule of law and levels of bureaucracy and corruption Regulation and de-regulation trends Social and employment legislation Tax policy, and trade and tariff controls Environmental and consumer-protection legislation Likely changes in the political environment Economic: Stage of business cycle Current and project economic growth, inflation and interest rates Unemployment and labor supply Labor costs Levels of disposable income and income distribution Impact of globalization Likely impact of technological or other change on the economy Likely changes in the economic environment

24. Technological Environment: Impact of emerging technologies Impact of Internet, reduction in communications costs and increased remote working Research & Development activity Impact of technology transfer Socio-Cultural: Population growth rate and age profile Population health, education and social mobility, and attitudes to these Population employment patterns, job market freedom and attitudes to work Press attitudes, public opinion, social attitudes and social taboos Lifestyle choices and attitudes to these Socio-Cultural changes PEST Analysis is a useful tool for understanding the “big picture” of the environment in which firms are operating, and the opportunities and threats that lie within it. By understanding the environment, firms can take advantage of the opportunities and minimize the threats. Firms can draw conclusions as to the significant forces of change operating within the environment.

25. Pressure Groups & Stakeholders • Pressure Groups: • Make demands of the organization; • Demand their existence and effects be acknowledged; • Expect appropriate responses from mgmt to satisfy their particular interest; • Stakeholders: • Have a direct financial interest in the organization and demand a fair share of the wealth created; • Expect some form of material and financial benefit;

26. Pressure Groups: Media Shareholders Competitors Suppliers Government Unions Customers Public Financial Institution Employees Stakeholders: Shareholders Customers Public Suppliers Unions Employees Government

27. Internal Business Strategy Formulation and Planning Market analysis Competitive analysis PEST analysis Industry analysis Threats and Opportunities Value System Objectives Where are we now? Strengths & Weaknesses Identify future strategies Evaluate Feedback Select Analysis of Internal resources and competencies Monitor And Control Implement

28. Business Strategy Formulation • Identify, evaluate, and decide strategies to be pursued; • Establish how to achieve the strategies by planning for the required actions and by effective development and use of resources; • Determine scope: • Whole organization versus • Strategic Business Unit (SBUs): a unit that sells a distinct set of products & services, serves a specific set of customers and competes with a well-defined set of competitors; • Can be reconciled by considering the enterprise strategy as combination of achievement of corporate objectives via SBU contributions; • Reflect Corporate/SBU relationship and possible inter-SBU relationships

29. Objectives Situation Analysis Future Strategies Described by reference to profitability, growth, market share, customer satisfaction, new product development, employment, social responsibility, etc. Changes from year to year, evolve quite significantly over a period of time; Reflect values of organization, management, and major stakeholders; Values are expressed in terms of MISSION or VISION statement Long term aims and purpose; Business Planning Process Elements

30. $ Types of Objectives Required Strategic Objectives Financial Objectives Outcomes focused on improving long-term,competitivebusiness position Outcomes focused on improving financialperformance

31. Situation Analysis Where are we now ? Consists of two essential elements: looking inside the organization; looking outside the organization. INTERNAL Resources available in the organization; Financial health of the organization; Employees, skills, training, experience, motivation, resulting business competencies; Physical assets, age, technology, usefulness; R & D The organization, its structure and relationships, attitudes and culture, and effectiveness of operational and management processes, and its ability to change the circumstances; EXTERNAL • Market segments, and within them, identifying competitors (current & potential); • Market shares within segments – increase share or increase the total size of market; • The organization’s position in the product life cycles • An examination of all current and potential competitors to understand their current and potential strategies, Strengths & Weaknesses; • Future competitive actions – concerning potential substitute products and thrusts into new markets;

32. S.W.O.T Analysis • Strengths: attributes of the organization that are helpful to achieving the objective. • Weaknesses: attributes of the organization that are harmful to achieving the objective. • Opportunities: external conditions that are helpful to achieving the objective. • Threats: external conditions that are harmful to achieving the objective.

33. Creative Use of SWOTs: Generating Strategies • How can we Use each Strength? • How can we Stop each Weakness? • How can we Exploit each Opportunity? • How can we Defend against each Threat?

34. TOWS analysis • Strengths and Opportunities (SO) – How can you use your strengths to take advantage of the opportunities? • Strengths and Threats (ST) – How can you take advantage of your strengths to avoid real and potential threats? • Weaknesses and Opportunities (WO) – How can you use your opportunities to overcome the weaknesses you are experiencing? • Weaknesses and Threats (WT) – How can you minimize your weaknesses and avoid threats?

35. Business SWOT

36. IS SWOT • Business application • Technical infrastructure • People, organization, culture • Processes

37. Application Strengths and Weaknesses

38. Technical Infrastructure Analysis

39. IT Organization, Culture

40. IS Process Analysis

41. Future Strategies • This can provide both defensive mechanism against possible future threat and capability to exploit the opportunities by identifying the pressure groups and the stakeholders; • Future options can be discovered by undertaking scenario planning to identify ‘discontinuities’ and predict the potential implications or bring in outside experts to facilitate ‘breakthrough thinking’;

42. Future Strategies • Future possible strategies are evaluated against criteria, such as the following : • The risks – financial and managerial; and likely responses of main competitors; • The degree to which the organization needs to create new capabilities to be offensive or improve control to be defensive; • Appropriateness of current organization structure to achieve intended strategies; • The ability of the organization to implement the strategy in terms of ability, resources, processes and culture; • The implications for customers and trading partners; • Requirement for alliances or joint ventures to enable or secure strategies;

43. Strategy Implementation

44. Imposed changes New opportunities plans REALISED STRATEGY INTENDED STRATEGY EMERGENT STRATEGY Unrealized Strategies Failed implementation Unexpected constraints or options Realities of Strategy Development

45. Strategy Tools and Techniques

46. Business Planning Tools & Techniques • The Boston Consulting Group Business Matrix (Product Portfolio) • Policy/portfolio matrices • Competitive Forces and Competitive Strategies • Industry Analysis

47. Product Life Cycles &Product Portfolios High Wild Cat or ? or Problem Child Star Market Growth & Cash Use FUNDS $’000 Cash Cow Dog Low Low High Market Share & Cash Generation Boston Consulting Group

48. IS/IT Support for Wildcat Products • Low market share, high growth market • Focus on: • Product and/or process development or • Customer identification, segmentation

49. IS/IT Support for Star Products • High market share, high growth market • Focus on: • Identifying customers & requirements and/or • Business innovation to meet market • requirements & differentiate

50. IS/IT Support for Cash Cow Products • High market share, low growth market • Focus on: • Keeping costs low and • Control of business relationships & activities $ $ $