Chapter 11 Strategic Analysis

1. Chapter 11Strategic Analysis The Strategic Management of Information Technology

2. Transaction Processing System Input Process Output Systems Development Communication Information

3. Six Key Messages For Managers And Analysts • Process innovation is a new and desirable approach to transforming organizations and improving their performance • An explicit approach to process innovation is important • Information and information technology are powerful tools for enabling and implementing process innovation • How a firm approaches organization and human resources is critical to enable and implement innovative processes • Process innovation must occur within a strategic context and be guided by a vision of the future process state • Innovation initiatives can benefit all manner of processes

4. Strategic and IS Planning Process IS Investment Plan Strategic Business Planning Strategic IS Planning CDS Critical Success Factors Strategic Goals SDM IS Products and Services Strategy VISION VBP CAS Competitive Social Political External Strategic Models

5. AGREEMENTS REACHED WORK COMPLETIONS REQUESTS COMPLETED AGREEMENTS REACHED

6. Traditional organizations Customer-driven organizations Product and service planning • Short-term focus • Reactionary management • Management by objectives • Long-term focus • Prevention-based management • Customer-driven strategic planning process Measure of performance • Bottom-line financial results • Quick returns on investment • Customer satisfaction • Market share • Long-term profitability • Quality orientation • Total productivity Attitudes toward customers • Customers are irrational and a pain. • Customers are a bottleneck to profitability. • Voice of the customer is important • Professional treatment and attention to customers are required. Quality of products and services • Provided according to organizational requirements • Provided according to customer requirements and needs Marketing focus • Seller’s market • Careless about lost customers • Increased market share and financial growth achieved through customer satisfaction. Process management approach • Focus on error and defect detection • Focus on error and defect prevention Product and service delivery attitude • It is OK for customers to wait for products and services. • It is best to provide fast-time-to-market products and services People orientation • People are the source of problems and are burdens on the organization. • People are an organization’s greatest resource. Basis for decision making • Product-driven • Management by opinion • Customer-driven • Management by data Attitudes toward customers • Hostile and careless • “Take it or leave it” attitude • Courteous and responsive • Empathic and respectful attitude Improvement strategy • Crisis management • Management by fear and intimidation • Continuous process improvement • Total process management Mode of operation • Career-driven and independent work • Customers, suppliers, and process owners have nothing in common • Management-supported improvement • Teamwork between suppliers, process owners, and customers practiced.

7. What the Competitor Is Doing and Can Do What Drives the Competitor CURRENT STRATEGY How the business is currently competing FUTURE GOALS At all levels of management and in multiple dimensions COMPETITORS RESPONSE PROFILE Is the competitor satisfied with its current position? What likely moves or strategy shifts will the competitor make? Where is the competitor vulnerable? What will provoke the greatest and most effective retaliation by the competitor? ASSUMPTIONS Held about itself and the industry CAPABILITIES Both strengths and weaknesses The Components of a Competitor Analysis

8. Information Technology Development Effort “Knowledge networks” Scope of electronic integration “Strategic alliances” “Standard business contracts” “EDI” Tightly coupled Expertise Collaborative advantage Business network redesign Process linkages Business governance Inventory triggers Electronic infrastructure Competitive advantage Loosely coupled Transactions Common role Unique role IT governance

9. Conventional and IT Design Variables Class of variable Conventional and design variables Source IT design variables Definition of organizational subunits Determining purpose, output of subunits Reporting mechanisms Linking mechanisms Control mechanisms Staffing Tasks Workflows Dependencies Output of processes Buffers Formal channels Informal communications/ collaboration Make versus buy decision Exchange of materials Communications mechanisms Nadler and Tushman; Galbraith; Thompson Nadler and Tushman; Galbraith; Thompson Nadler and Tushman; Mintzberg Galbraith; Nadler and Tushman Nadler and Tushman Mintzberg Nadler & Tushman Nadler & Tushman Thompson Galbraith Mintzberg Mintzberg Mintzberg Virtual components Electronic linking Technological leveling Production automation Virtual components Electronic communications Technological metrixing Electronic customer/ supplier relationships Electronic customer/supplier relationships Electronic linking Structural Work process Communications Interorganizational relations

10. IT Design Variables and Four Prototypical Organizations Vertically integrated conglomerates Negotiated organizations Virtual Traditional Virtual components Electronic linking and communications Technological matrixing Technological leveling Electronic workflows Production automation Electronic customer/ supplier links Substitute electronic for physical components Essential part Participate in matrixed group Use to supervise remote workers and groups Crucial part of strategy NA Used extensively Substitute electronic for physical components Essential part Use for coordination NA Crucial part of strategy Communicate designs Used extensively Use to replace isolated components Optional Use for various groups Use to reduce layers of management Use where applicable to restructure work Use where applicable Potentially important Force components into electronic subsidiary Essential part Use for coordination and task forces Use to reduce layers of management Key to coordinating work units Coordinate production among work units Key to operations

11. THREE GENERIC STRATEGIES STRATEGIC ADVANTAGE Uniqueness Perceived by the Customer Low Cost Position OVERALL COST LEADERSHIP Industrywide DIFFERENTIATION STRATEGIC TARGET Particular Segment Only FOCUS

12. Focus Elements of a Customer- and Market-Driven Enterprise Design and product quality Commitment to customer satisfaction Human resource development Total quality care Error prevention philosophy Total quality solution Competitive market-driven enterprise Market-driven quality and productivity technologies for continuous improvement Quality management and supervision Quality services Personal quality Productivity efficiency and effectiveness

13. 1 2 Convince top management of benefits of becoming market driven. Communicate and demonstrate management’s commitment. 10 Success factors Top management leadership and commitment Continuous improvement focus Continuous education and training Continuous recognition and reward Participative management and employee empowerment 3 Establish focal point and recruit other qualified individuals. Monitor progress toward objectives. 9 4 Develop customer commitment throughout enterprise. Increase amount of customer-oriented interdepartmental teamwork. 8 Develop new improvement programs with customer-oriented professionals. 5 Introduce market-driven strategic planning process. 7 6 Create and use market-based performance measures. Apply tools of market research, auditing, marketing training, and consulting. Steps to Becoming a Customer- and Market-Driven Enterprise

14. The Wheel of Competitive Strategy Target Markets Product Line GOALS Definition of how the business is going to compete Objectives for profitability growth, market share, social responsiveness, etc. Finance and Control Marketing Research & Development Sales Distribution Purchasing Labor Manufacturing

15. Context for Competitive Strategy Company Strengths/Weaknesses Industry Opportunities/ Threats External Factors Internal Factors Competitive Strategy Personal Values Societal Expectations

16. Value Chain Framework Margin Margin

17. Value Chain Firm Infrastructure Human Resource Management Margin Technology Development Procurement Inbound Logistics Outbound Logistics Marketing & Sales Operations Service Margin

18. Value Chain Framework Extension Margin Margin

19. Value Chain Firm Infrastructure Human Resource Management Technology Development Margin Procurement Inbound Logistics Outbound Logistics Marketing & Sales Margin Service Operations Sales Force Admin. Marketing Management Sales Force Oper. Technical Literature Advertising Promotion

20. Barriers and Profitability Exit Barriers Low High Low Entry Barriers High

21. Competitive Strategy Competitive Advantage Lower Cost Differentiation Broad Target Competitive Scope Narrow Target

22. Barriers and Profitability Exit Barriers Low High Low, stable returns Low, risky returns Low Entry Barriers High, risky returns High, stable returns High

23. Competitive Strategy Competitive Advantage Lower Cost Differentiation Broad Target 1. Cost Leadership 2. Differentiation Competitive Scope Narrow Target 3A. Cost Focus 3B. Differentiation Focus

24. Five Forces Model Potential Entrants Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Industry Competitors Suppliers Buyers Rivalry Among Existing Firms Threat of substitute products or services Substitutes

25. Five Forces Model Linkages Potential Entrants Industry Competitors Suppliers Buyers Substitutes

26. Value Chain Business Unit Value Chain Supplier Value Chains Business Unit Value Chain Channel Value Chains Buyer Value Chains Business Unit Value Chain

27. Customer Value Chain Framework CLIENT

28. Customer Value Chain What is Produced/ Provided To Me (inputs) What I Do (process) What I Produce (Outputs) Who I Produce It For (Customers) CLIENT Computer Hardware and Software Local Area Network Installations Implement Technology to Accomplish Strategic Goals Information Working Models Practice Area

29. Value Chain Applied Response Center Technology Leveraged Staffing of Telephones with Series -7 Licensed Associates Margin OS/2 Dell 486 Platform Morningstar/IPR/Style Advisor Service Response Requirements/Standards Staffing Coverage Marketing Response Time Measurements Technical Infrastructure and Installation Margin

30. Services Value Chain Service Value Chain (Business Unit) Distribution Channel Value Chain (Eliminated) Services Value Chain Fortune 500 Companies (Buyers) Dell, IBM, Lotus Value Chain (Suppliers) Information Systems Value Chain

31. Five Forces Model Potential Entrants Morningstar Wyatt Fidelity Threat of new entrants Bargaining power of suppliers Industry Competitors/ Fidelity Bargaining power of buyers Suppliers Dell 486 PC’s IBM OS/2 Lotus Notes Buyers Fortune 500 Firms Rivalry Among Existing Firms Threat of substitute products or services Substitutes 1. Less Expensive, Paper-Based Approach 2. In Sourcing

32. Two Concepts of the Corporation: SBU or Core Competence

33. Cost leadership • Differentiation • Innovation • Linkage Corporate Strategy Development • expectations • goals • rivalry Business Strategies and Priorities monitor rivals • strengths • weaknesses • opportunities • critical success factors • Re-engineering • Organization • Decentralization Process Changes Data Needs IS Changes • Performance Measures • ROA • EPS • Subjective • ROI • Growth System Development & Implementation • Market Measures • Market share • Concentration • Growth • Profitability Business Operations & Rules Existing Data and IS Developing Strategies. Market measures and firm performance are used to highlight problems and opportunities. Corporate straightedges are developed from process improvements and innovations. Potential strategies are evaluated and prioritized. Processes are re-engineered and new systems are designed and implemented.

34. Formulation (Deciding what to do.) Implementation (Achieving results.) 1. Organization structure and relationships. Division of work. Coordination of divided responsibility. Information systems. 1. Identification of opportunity and risk. Corporate Strategy Pattern of purposes and policies defining the company and its business 2. Determining the company’s material, technical, financial, and human resources. 2. Organizational processes and behavior. Standards and management. Motivation and incentive systems. Control systems. Recruitment and development of managers. 3. Personal values and aspirations. 3. Top leadership. Strategic. 4. Acknowledgment of noneconomic responsibility to society. Organizational. Personal. Strategy analysis. Strategy determines the identity of a firm. Formulating strategies is only the first step. As an effective manager, you must also be able to implement strategies.