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Ch 1. IT Strategy

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Ch 1. IT Strategy

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    1. Ch 1. IT & Strategy chapter1.ppt GBA 673-674 Winter 2009

    3. What a business model should do Define how org. interacts with environment to define a unique strategy Attract resources & build capabilities to execute the strategy Capability dimension defines the COST MODEL of org. OR, How do they intend to make money? Create value for shareholders Successful business model results in continuous improvement so profits are fed back into further improvements

    5. Conducting a Strategy Audit Strategic positions (Michael Porter) are the results of choices in 4 areas what does each focus on? Market/channel positioning? Product positioning? Value chain/Value network positioning? Boundary positioning? Goal: Sustainable Advantage What is a sustainable advantage? Examples of technology giving an org. a sustainable advantage? Market/Channel positioning determines choice of customers to serve Needs and expectations that will be met Channels to reach the customers Product Positioning determines Choice of products & services to offer Features of those offerings Price that will be charged Value chain/Value Network positioning determines Role an org plays & activities it performs within an extended network of suppliers, producers, distributors & partners. Boundary positioning determines Markets, products & businesses you will NOT pursue Market/Channel positioning determines choice of customers to serve Needs and expectations that will be met Channels to reach the customers Product Positioning determines Choice of products & services to offer Features of those offerings Price that will be charged Value chain/Value Network positioning determines Role an org plays & activities it performs within an extended network of suppliers, producers, distributors & partners. Boundary positioning determines Markets, products & businesses you will NOT pursue

    7. Customer Audit How can you know what your target customers want? What do you need to know about the customers? How can you get that information about the customers? How could you use that information in developing your strategy?

    8. Competitor Audit Who are your traditional rivals? Who are the potential new entrants? What are possible substitute products and services? Once customer & competitor analysis complete Develop unique product/market position (next slide) to Define position within a value chain or value network of suppliers & partners

    10. Product/Market Positioning Audit What markets will you serve? What products/services would you offer? What channels will help you reach those markets? What markets, products, channels & businesses will you NOT serve? How will you differentiate yourself? What messages will define & carry your brand?

    11. Value Network Audit Identify the activities, resources, & capabilities that are required to execute the product/market/channel strategy Determine what you will do yourself and what you will source How do most orgs. typically do that? Visit current & potential suppliers & partners Assess capabilities & infrastructure

    12. Strategic Audit of Business Context What do you have to look at? What period of time should you analyze Strategic shifts: Evolutionary? or Revolutionary? Think of strategy as a process not a product so you can continually adjust & take advantage of shifts Approaches to evolve org.s strategy (chart on next slide) Enhancement incremental changes Expansions - launch new products or services, enter new markets, launch new channels, expand network Extensions launch new business or business model Exits drop products, exit market, close channel or business

    14. Strategic Opportunities Implemented through initiatives & projects that signify a companys strategic intent Questions for assessment of project portfolio & determination of ability to implement strategy: Tightly aligned with org.s strategy & long-term goals? Are resources & support allocated sufficiently to support it Do you have the capability to execute your strategic intent? Risk portfolio frames risks involved in pursuing new projects & initiatives based on impact on core strategy & ability to execute (figure 1.5)

    16. Assessing IT Impact & Alignment IT investments only recently considered important in defining business strategies 40% fail to deliver as intended Frameworks to guide strategic decision making in aligning IT and strategy: Strategic Grid by Warren McFarlan Strategic Alignment Model by Henderson &Venkatramen

    17. Strategic Grid (McFarlan, Fig 1.6) Assess portfolio of IT initiatives & projects on 2 dimensions: Impact on business operations impact on strategy Four quadrants to guide IT project portfolio decisions companies may move from one to another over time: Support: low/low: Law firms invest in human capital, can live with IT down time Factory: low impact on strategy, high impact on business operations (reduce costs, improve performance: NASDAQ has zero tolerance for IT downtime Turnaround: low impact on business operations, high on strategy designed to exploit business opportunities Strategic: high/high Charles Schwab depends on IT innovations

    19. Strategic Alignment Model (p. 39) Henderson & Venkatramen (1993), modified Assess business & IT alignment across all components of business model assesses alignment of: Strategy domain: Context, Opportunities, Positioning, Boundaries Risk, Projects/Priorities Capabilities domain: Infrastructure, Leadership/Governance, People/Partners, Processes, Organizational culture Two types of alignment: Alignment between corresponding Business & IT (dotted arrows) Alignment between Capabilities & Strategy (solid arrows)

    21. Path of American Express Interactive Online travel service for business customers starts as IT & business execs want to exploit Internet To gain access to necessary IT capabilities, AMEX Express Interactive launched as partnership with Microsoft alignment between IT & business capabilities Execs realized needed to align on-line & traditional travel service businesses (2001) exited joint venture with Microsoft By 2004, new business model created value for AMEX stakeholders.

    22. Opportunities & Risks: Opportunities Search for opportunities requires careful evaluation Can IT change basis of competition? Not just automate but inform and transform: AA reservations system is the classic example Can IT change nature of relationships & balance of power among buyers & sellers? American Hospital Supply Corp (AHSC): electronic ordering, streamlined supply chain 2000 Global Healthcare Exchange (GHX) launched by 5 of largest healthcare suppliers, consolidated industry Can IT build or reduce barriers to entry?

    23. Opportunities & Risks: Opportunities Can IT build or reduce barriers to entry? Proprietary systems such as AA & AHSC gave initial advantage As technology matures & becomes cheaper (Internet), barriers decline & competition enters, so need to differentiate on: Responding more quickly & effectively than others Build proprietary capabilities that others cannot replicate Create a loyal community of customers/suppliers Example: Amazon.com automated transaction infrastructure, gave invaluable information about market trends, customer preferences, ability to market to individuals After dotcom bust: Amazon.com moved from retail to service model to handle transactions for other brick-and-mortar retailers

    24. Opportunities & Risks: Opportunities Can IT increase or decrease switching costs? Internet has reduced switching costs no proprietary network Quicken.com links desktop software with on-line financial services site locks customer in Can IT add value to existing products & services or create new products & services? Computer chips in autos make auto repair easier Customer preference cards track customer purchases; grocery stores print coupons on receipt based on past purchases.

    25. Opportunities & Risks: Risk Questions Strategic Risk from outside and inside org. Questions: Can emerging technologies disrupt current business models? Key features of disruptive technologies (Christensen, 2003) Technology evolves significantly faster than evolutionary path of dominant technology in industry (e.g. PCs vs. Mainframes) Technologies enables new opportunities for competitors in ways established players have difficulty matching (Schwab vs. Merrill-Lynch) Emerging technology coincides with regulatory changes or significant customer dissatisfaction (Microsoft; Linux) Entrepreneurs recognize disruptive technologies as opportunities: youTube Figure 1.8

    27. Opportunities & Risks: Risk Questions Are we too early or too late to exploit an IT opportunity? First mover risk What is that? Late mover risk What is that? Fig 1.9 examines cash flow curves of IBMs mainframe & PC businesses and the windows of opportunity for both Also applies to Leapfrog case Does IT lower entry barriers? Charles Schwab exploited low entry barriers on Internet Does IT trigger regulatory actions? Claims of unfair competition (e.g., Microsoft) Applies to Global Healthcare Exchange case

    29. Lesson Learned: Use of Frameworks This chapter provides lots of frameworks that you can use in your case analyses In fact, chapter tells you what frameworks to use with what cases in this module. Sign up for cases this week or next. Groups of 2 people List of cases

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