IS/IT Roles in Organization and Their Relationship to Business Strategy

1. IS/IT Roles in Organization and Their Relationship to Business Strategy

2. Session Objectives • Understand the strategic context of IS/IT in organization • Understand the business strategy formulation • Understand the impact of business strategy to IS/IT strategy development. • Widening horizon on how IS/IT plays its role in an organization.

3. Agenda • Strategic Context of IS/IT in Organization • Evolution of IS in Organization • Success Factors of Strategic Information Systems • The Relationship of IS/IT Strategy and Business Strategy • IS/IT Strategy • Evolution of Business Planning • Framework of Business Planning • Competitive Forces in Industry • Competitive Strategy and Its Implication to IS/IT Strategy • SPIS in Indonesia: Local point of view

4. Strategic Context of IS in Organization • More products available in digital form – Hence e-delivery through an IS (give some examples e-products?) • More commerce takes place electronically (e-commerce-create new opportunities, online transaction) • More activities getting more complex, need various of data and information (data mining, enterprise information systems - ERP) • Interrelatedness of Business activities within and between companies (improve efficiency and productivity) • Technology advancement that can processes data in a large volume in a relatively short time (SPMB data).

5. The Evolution of Information Systems • Year 1960 – Data processing (DP) era • Year 1970 – Management IS (MIS) era • Year 1980 – Strategic IS (SIS-EIS) era • Year 1990 – E-business & e-commerce era • Year 2000 – Enterprise Resource Planning era • Each era has different characteristics of IS.

6. Characteristic of DP Era • Centralized processing • Using multi-purpose Mainframe computer • Batch processing • Data storage: magnetic disk, tape • Programming language: Cobol, Basic, etc. • Automating information-based processes Characterize the nature of business at DP era?

7. Characteristics of MIS Era • Introducing minicomputer • Using variety business applications • Still centralized • Used a hierarchical application portfolio model based on a stratification of management activity: • Strategic planning • Management control • Operational control • Increase management effectiveness by satisfying their information requirements for decision making – to help manager Characterize the nature of business at MIS era?

8. Characteristics of SIS Era • Introducing Personal Computer (PC) • Introducing office automation • Introducing new capabilities: flexible access and decision support • Improving competitiveness by changing the nature or conduct of business (i.e. IS/IT investments can be a source of competitive advantage) Characterize the nature of business at SIS era?

9. SIS MIS DP Sales forecasting operating plans capacity planning, profit/earnings forecasts, business mix analysis, manpower planning, financial modeling Planning systems examples Sales analysis budgetary control, management accounting, inventory management, quality analysis, expense reporting, market research/statistics, WIP control, requirements planning, supplier analysis, etc. Control systems example Order entry, processing, tracking shipping documents, vehicle scheduling/loading, invoicing, sales and purchase ledgers, cost accounting, stock control, shop-floor scheduling, bill of materials, purchase orders, receiving, employee records, payroll, word processing Operational systems examples Early Views and Models of IS/IT in Organizations (Anthony, 65)

10. Types of SIS • Those that link the organization to its customers or suppliers to share information • Those that effectively integrate the use of information in the organization value chain • Those that enable the organization to develop new or enhanced products or services based on information • Those that provide managers with better information for strategy development • Example: Tradenet, SABRE (American Airlines), Valuelink (Baxter Healthcare).

11. Success Factors of SIS • External in nature instead of internal focus: i.e image building • Adding value instead of cost reduction: i.e e-ticket • Sharing the benefits internally and externally: i.e ATM • Understanding customers and their needs: i.e customized product • Business instead of technology driven innovation: i.e covering a wider customers • Incremental instead of total development: i.e web-based application • Using information gained to develop business: i.e learning organization Exercise your critical thinking by giving more examples to those success factors !!

12. Trends in the evolution of business IS/IT (source: adapted from R.D. Galliers and E. Somogyi)

13. Different views of strategic information systems

14. The Relationship Between the Business, SIS, MIS, and DP Business Strategic Management Executive Management IS/IT Strategic Management Impact Analysis User Management IS Management User Operations Information Analysis Project and Computer Management Systems Design

15. The relationship between business, IS and IT strategies

16. An Applications Portfolio for the ‘Combined Era’ McFarlan ‘84

17. So… What’s an IS/IT Strategy? • IS/IT strategy is composed of two parts • IS component • IT component • IS strategy defines the organization’s requirement for information systems to support the overall strategy of the business • The IT strategy is outlining the vision of how the organization’s demand for information and systems will be supported by IT • It addresses the provision of ICT capabilities and resources and services such as IT operations, systems development and user support Start thinking about the example of IS/IT Strategy!!

22. The Context of IS/IT Strategy (Sullivan, 1985) Internal organization pressures: demanding further distribution of IS/IT control High Diffusion: degree of decentrali- zation of IS/IT control in the organization Opportunistic Complex External competitive pressures: increasing the criticality of IS/IT to the business Backbone Traditional Low Low High Infusion-degree of dependence of IS/IT of the business

23. Evolution of Business Planning (Welleck, dkk.,1980) Effectiveness of strategic decision making Well defined strategic framework Strategically focused organization Widespread strategic thinking capability Reinforcing management processes Supportive value system and climate Multi-year budgets Gap analysis Static allocation of resources Situation analysis and competitive assessments Evaluation of strategic options Dynamic allocation of resources Annual budgets Functional focus Stage 1 Stage 2 Stage 3 Stage 4 Financial Forecast-based Externally Strategic planning planning oriented management (meet budget) (predict the (think (create the future) strategically) future)

24. Framework for Business Planning External Environments Economic Political Ecological Technological Social Legal Pressure Groups Values Objectives Identify current Identify future Threats and strategies strategies opportunities Evaluate Analyze Evaluate feedback internal strategies resources Monitor Implement Select Strategies Strategies Strategies Customers Suppliers Shareholders Employees Unions Government Public Competitors Customers Suppliers Shareholders Employees Unions Public Media Financial Ins. Stake Holder

25. Input to Business Planning • External environments - sources of important signals to organizations • Pressure groups - demand recognition and rapid management response • Stakeholders - demand fair share of created wealth • Business planning is usually carried out for each strategic business unit • A unit that sells a distinct set of products or services, serve a specific set of customers, and competes with a well-defined set of competitors

26. Definition of Business Strategy • Definition of business strategy: • An integrated set of actions aimed at increasing the long-term well-being and strength of the organization relative to its competitors

27. Process of Business Planning Establish strategic direction Define strategies Achieve strategies feedback Strategic planning of options selected • Define mission and objectives • Assess situation and options • Select options Implement strategies Strategic thinking and opportunistic decision making

28. Technique to Develop Business Strategy: Competitive Forces in Industry (Porter, 1980) Threat of new entrants Rivalry among existing competitors Bargaining power of suppliers Bargaining power of buyers Threat of substitute product

29. Factors Affecting The Impact of Competitive Forces • New entrants • Capital requirements • Patents and specialists skill required • Distribution channels available • Achieved/required economies of scale and resultant cost advantages • Number and size of existing rivals and intensity of competition • Differentiation and brand establishment/loyalty • Access to raw materials/critical resources etc. Business strategy: “how to discourage new entrants to come into the business”

30. Strategic Choices: Factors Affecting The Impact of Competitive Forces • Substitute products/services • Customer awareness of needs and means of satisfaction • Customer sensitivity to value for money and ability to compare • Existing loyalty of customer—impact of “industry” promotion • Ability to differentiate products etc. Business strategy: “how to create a loyal customers?”

31. Strategic Choices: Factors Affecting The Impact of Competitive Forces • Competitive rivalry will be intensified by: • Market growth slow (or in decline) • Small number of similar sized competitors dominate • High fixed costs and/or high exit barriers for all rivals • Overcapacity and/or capacity increments are large units • Commodity-like, undifferentiated products. Business strategy: “how to differentiate your products?”

32. Strategic Choices: Factors Affecting The Impact of Competitive Forces • Buyers’ power will be increased by: • Concentrated/few buyers making high volume and/or high value of purchases • Low switching costs across suppliers • Price sensitive and many alternative sources of supply • Weak brand identities, products not differentiated • Buyers capable of backward integration due to low entry cost. Business strategy: “how to make the buyers depend on your business”

33. Strategic Choices: Factors Affecting The Impact of Competitive Forces • Suppliers’ power will be increased by: • Few suppliers—high switching costs for rivals and suppliers deal with many small customers • Potential substitute supplier/resources not easily available • Supplied goods make up large part of firm’s costs • Suppliers capable of forward integration or bypass to customers Business strategy: “how to make the suppliers depend on your business”

34. Generic Competitive Strategy Low Cost Competitive Advantage Differen- tiation

35. Characteristics of Generic Strategies

36. Implications of Competitive Business Strategy to IS/IT Strategy • How can IS/IT affect the nature and value of the product or service and its life cycle? • Generate a new product or a new line of business • Enable products to be designed or delivered more quickly • Be used to add additional features or services to increase the product’s value

37. Continued.. • How can IS/IT affect the demand for products and services, segments more effectively, extend them geographically, or provide new distribution channels to reach the market? • Enable to reach more appropriate customers • Enable to match our different products/services to customer appropriately • Enable the product/service to be distributed in new ways to the customers • Enable to get closer to the market-place rather than deal through intermediaries

38. Continued.. • How can IS/IT affect the cost base of the key processes in the industry or change the balance in the trade-off between flexibility and standardization? • Enable the product/service to be produced more economically • Enable production and associated logistics to be integrated to produce greater flexibility of resource use • Enable a higher quality of product or service to be offered at a much lower cost than traditionally

39. Examples of How IS/IT has affected the competitive forces in the airline industry

40. Impact of Competitive Forces and Potential IS/IT Opportunities

41. Why is IS/T Planning Important? • IT Strategy is the process of defining the strategic use of technology in an organization. • The IS/T Planning process ensures efficient and effective investment of IT to support the business • IT is More Critical to Corporate Success • The use of IT is increasingly pervasive • Enterprises are discovering that IT can influence the relative performance of most departments

42. Indonesia and IS Planning • There is a tendency not to pay attention for ‘planning’ • The attitude extends to IS/T planning • Part of the problem is that there is no ‘tangible’ or ‘less realizable’ outcome resulting from IS/T planning • We see more Indonesian organizations conduct IT projects – not preceded by formal IS/T Planning

43. Results of Lack of IS/T Planning • Failed of IS/T projects • We see IT projects which lacks direction, weak in scope, have little of no identification of Critical Success Factors. • Inefficient use of investment in IT • Bad name for IT professionals and due to failed IT implementations

44. IS/IT Planning for the Indonesian • Need processes which are more facilitator-driven, higher involvement of consultants who has psychological and cultural sensitivity • Need processes which are a combination between verbal (direct) and in-direct interactions – to ensure that ideas and opinions are fully expressed

45. IS/T Planning in Indonesian Organizations: Realities • Justification for auditing purposes • Idea often comes bottom up: hence the challenges • Do not believe in documentation: hence the approach is often less formal • Difficult to get buy-in from management who would rather see IT implementation projects • Who’s project is this: an IT department project?

46. Trends in IS/T Planning • We will see more ‘formal’ IS/T Planning activities with increase of IS/T dominance as an integral part of business • IS/T Planning will need to be done faster, with the faster trend of technology development • Clear definition between business plan, IS/T planning and IT implementation will become more and more blurred as technology will continue to drive businesses stronger

47. Exercise Your Thought • Explain the evolution roles of IT/IS in an organization? • What are Business and IS/IT strategies? • Explain the relationship of Business, IS/IT strategies? • How external forces influence business strategy and IS/IT strategies • What are the challenges of IS/IT Plan in Indonesia?