Effective use of IS/IT (Continued) Strategic Role of Information Systems

1. Effective use of IS/IT (Continued)Strategic Role of Information Systems Dr. V.T. Raja Oregon State University

2. Outline • Value Chain and IS/IT • Internal/External linkages facilitated by IS/IT • Effect of IS/IT on Competition • Porter’s competitive forces model • Business value added when using IS/IT: • to automate existing business processes • for organizational learning and change in addition to automation • BPR; Competitive Advantage; Virtual Organization • Strategic Information Systems (SIS) and risks • Strategic Alignment Model • Henderson and Venkataraman

3. Strategic Information Systems (SIS) • What is SIS? • Why would some top executives hesitate to invest in SIS or IS/IT in general? • Examples of risks associated with SIS • Suggestions to convince top management to invest in SIS or IS/IT?

4. Strategic Fit • Assumptions: • Economic performance is directly related to: the ability of management to create a strategic fit • between the position of an organization in the competitive product-market arena and • the design of an appropriate administrative structure to support its execution • Strategic fit is inherently dynamic • Strategic Alignment is not an event – but a process of continuous adaptation and change

5. IT as a Critical Lever • A critical lever for attaining this dynamic capability is the organizational capabilities to: • Conceptualize and direct strategic role/management of IT • Leverage IT on a continuous basis to achieve sustainable competitive advantage • No single IT application – however sophisticated and state of the art it may be – could deliver a sustained competitive advantage • Need for a framework for conceptualizing and directing strategic role/management of IT • Strategic Alignment Model (Henderson and Venkatraman)

6. Strategic Alignment ModelFour Domains of Strategic Choice Need to recognize how decisions in one domain affects the other domains ScopeCompetenciesGovernance ScopeCompetenciesGovernance Strategy(External) StrategicFit StructureProcessesSkills InfrastructureProcessesSkills Infrastructure(Internal) Business Information Technology Functional Integration

7. Strategy Domains • Business • Scope: What business are you in? • Distinctive Competencies: What do you do well to distinguish yourself from your competitors? • Governance: What external business relationships do you depend on? • IT • Scope: What information technologies support or create strategic business opportunities? • IT Competencies: What characteristics of IT create business advantage? • IT Governance: What external relationships does IT depend on (outsourcing, vendors, etc.)

8. Infrastructure Domains • Business • Structure: Organizational structure • Processes: What are key business processes? • Skills: What HR needed to accomplish specific competencies? • IT • Infrastructure: Hardware, Software, Database, Networks • Processes: Development, Maintenance, Operations • Skills: What skills required to maintain architecture and execute the processes?

9. How to use the Strategic Alignment Model • Building Blocks: • Strategic Fit • Functional Integration and • Cross-Domain Relationship • Identify your strongest and weakest domain • Need to develop communication with and increase understanding of weaker domains • Understand relationship between domains when change in strategy occurs

10. Strategy Execution IT is an Expense • Business Strategy is the driver of both Business and IT Infrastructures • Priority is to improve business processes, which places focus on changing business infrastructure. IT focus is on application development, driven by need to support business infrastructure Business StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills

11. Technology TransformationBusiness Strategy Drives Need to Develop IT Strategy • Assume: Business strategy and infrastructure are aligned • IT strategy needs to define technologies integral to business strategy • Focus is aligning IT strategy and IT infrastructure Business StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills ?

12. Service LevelProviding IT services • Information is a core product or service • Business strategy and IT strategy may be aligned • Focus is to enable business infrastructure by fitting IT infrastructure to IT strategy Business StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? ? Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills

13. Competitive PotentialIT Enables Strategic Opportunities • Assume: IT strategy and infrastructure are aligned • IT strategy necessary to build distinctive core competency • Business infrastructure needs to evolve to fit new business opportunities enabled by IT Business StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills ?

14. How does Strategic Alignment model differ from Traditional Linkage? • Introduces IT external domain • Management challenge: Selection of appropriate alignment perspectives (not just ensuring IT is linked with business requirements) • Diverse roles of business and IT executives • Criteria for Performance Assessment

15. Management Implications • Link between Business Strategy and IT Infrastructure can only derive its logic within the context of: • the two alignment perspectives that have business strategy as the driver (Strategy Execution and Technology Transformation) • Direct link between IT Strategy and IT Infrastructure has no straightforward logic

16. Lessons from the Strategic Alignment Model • Need for IT external and internal domains • Understand strong/weak domains and cross-domain relationships • Different roles of business and IT executives • Re-conceptualize assessment of the performance of IT • Which alignment perspective is best? • If there is one universally superior perspective – would the strategic benefit be sustainable?

17. EnvironmentCompetitive Forces & Complementary Assets Business StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills

18. Principles for Internet Strategy (Porter)Strategic Positioning • Start with the right goal • Deliver a unique value proposition • Develop a distinctive value chain configuration • Make trade-offs for robust strategy • Fit all elements of company to the strategy • Maintain continuity of direction

19. Role of IT in Business Strategy • Jim Collins: “Good to Great: Why Some Companies Make the Leap … and Others Don’t” • Conducted 84 interviews across 11 companies that leaped from mediocrity to greatness (returns 3 times general stock market) • 80% of executives did not mention technology as one of top five factors in the companies transformation • Yet every company was considered a pioneer in the use of information technology to support their business

20. Role of IT in Business Strategy • Great companies: • First build a culture of discipline (values) • Create a business model based on: • What they can be great at • A viable economic engine • Their core values • Then, use information technology to enhance those variables – not to replace them

21. Observed characteristics of well-aligned companies (2004 Survey by Deloitte Consulting LLP ) • Executive agreement on the role of IT – where and how IT adds value • Executive agreement on the priorities and focus areas for IT • Follow through and delivery on IT expectations

22. 2004 Survey by Deloitte Consulting LLP (Advertising Supplement in CIO Magazine)

23. Deloitte Consulting measured alignment of: • IT operational goals to corporate business goals • IT spending with corporate priorities • IT operations to IT strategy • IT org/gov with corporate org/gov Business StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills