Chapter 3

1. Chapter 3 Developing the Organization’s IT Strategy

2. The Importance of Strategy to Organizations • 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, and a detailed assessment of how various business units interact

3. Considerations in Strategy Development • Managers must anticipate business opportunities and recognize threats or pitfalls • They seek to capitalize on opportunities and minimize risk • As circumstances change, they must re-evaluate their positions and reassess their course of action in light of new data

4. Elements of a Strategy Statement

5. Mission Statement • The mission of an organization defines its purpose • The IT mission statement must both be reactive and proactive in addressing its customer’s needs • IT must understand its internal as well as external markets

6. Environmental Assessment • The process of visualizing and understanding opportunities and threats • Attempts to account for important trends impacting the firm and its functional organizations • Helps to develop the objectives they intend to achieve • Helps to formulate a course of action that guides the achievement of the objectives

7. Maintenance Processes • Periodic reviews of the current operating environment and reassessment of the current course in light of updated information • The volatility of the operating environment drives the frequency of reassessment • E-commerce environments require constant reassessment, whereas established industries have lower requirements

8. The Relationship of Strategy and Planning Elements

9. 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 • 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

10. Strategic Management • A process that uses appropriate strategic thrusts to maximize an organization’s performance in a given environment • In complex or uncertain environments IT offers opportunities to moderate complexities and deal quickly with external uncertainties • Strategy focuses on the future. It must also focus on alternate scenarios and plan for strategic alternatives

11. Types of Strategies • Functional – describe the operating unit’s broad goals and objectives • Stand-alone – describe individual one-time goals or opportunities • Business – describe broad goals of revenue and profit. Business strategies direct a firm’s functions towards business objectives

12. Elements of an IT Functional Strategy • Support to business objectives • Technical support • Organizational considerations • Budget and financial matters • Personnel considerations

13. The Firm’s Business Strategy

14. The Business Strategy • The purpose of functional strategies is to describe how functional units support a firm’s business goals and objectives • IT goals and the firm’s overall goals must be congruent. IT strategies are most effective when IT and the firm’s goals are internally consistent • Strategies contain sensitive information and must be kept confidential

15. Stand-alone Strategies • A specific strategy to deal with a unique opportunity or threat • Generally ad hoc • If accepted, it is incorporated into the strategic plans of all the organizational units it effects • Generally temporary – as an activity matures, it becomes part of the routine strategies and plans

16. Integrating Business and Functional Strategies • These two strategies form the backbone of a firm’s complete strategy • Business strategies have revenue and profit objectives for the firm • Functional strategy’s goals must support the business strategy’s objective • If IT does not directly produce revenue, then its strategies are limited to the functional type • If it does produce revenue, then its strategy becomes part of the business strategy

17. Assemblage of Strategies in a Firm

18. Requirements of a Strategy Statement • A strategy statement is a vehicle for focusing managers’ attention on the strategic aspects of the firm’s business • Includes details about the firm’s environment • Basis for selecting the goals and objectives • Assumptions contained within the strategy • Perceived risks and available options

19. Strategy Outline • Nature of the business • Environment • Goals and objectives • Strategy ingredients

20. Nature of the Business • The firm must clearly delineate its mission before proceeding further • Failure to understand the nature of the firm’s business can be fatal • The individual units must define their place within the overall mission of the firm • Understanding where a business unit fits within the larger structure helps to align unit goals with organizational ones

21. Environment • States what is known and what is assumed about the relevant, significant factors and trends acting on the firm • Environmental assumptions must be tracked and reviewed to assure that they are credible, consistent, and unambiguous • How can changes in the environment force a change in the firm’s goals?

22. Goals and Objectives • What IT capabilities are we trying to achieve, and what long term objectives are we going to set for the organization? • Goals to decentralize or outsource are also included in this section

23. Strategy Ingredients • Course of action • Assumptions • Risks • Options • Dependencies • Resource requirements • Financial projections • Alternatives

24. Strategy Development Process

25. Strategic Time Horizon • Measured from the beginning of the current year, the strategic years extend from the beginning of year 3 to the end of the strategic horizon • The pattern repeats annually, with the upcoming year becoming part of the operating or tactical plan

26. Steps in Strategy Development • IT strategists must develop a broad, comprehensive understanding of the future environment’s influences on the area of interest • Alternative strategies should also span the future environment • Selection criteria should be developed to guide selection of the appropriate alternative • Primary strategies should be created with greater detail than alternative strategies

27. E-business Strategy Considerations • Web-based businesses include more than just trading in products and services, so models must take a broader, more strategic view of the sales process • They include market development, demand creation, customer support, customer retention, and order fulfillment • Web-based businesses require firms to exhibit much more responsive strategies

28. IT Strategy Statement • Business aspects • Technical issues • Organizational concerns • Financial matters • Personnel considerations

29. Business Aspects • The IT organization must maintain a keen awareness of the business goals and develop strategies to support them • In e-business intensive firms, the IT strategy and the firm’s business strategy may be identical

30. Technical Issues • IT managers must provide leadership in using technology to attain advantages for the firm • IT strategy must demonstrate the practical utilization of advanced technology in supporting the firm’s goals and objectives • Utilization must be consistent with reasonable risks and available resources

31. Organizational Concerns • IT tends to cause organizational stresses in areas outside IT itself • Not all in the organization look upon these changes favorably, and will need to be educated about the need and reasons for change • IT managers must anticipate and take the lead in satisfying these needs

32. Financial Matters • Financial concerns limit the range of opportunities for an IT organization • Resource constraints must be recognized early on in the process and addressed formally, to limit the amount of energy wasted • Results must be optimized for the resources at hand

33. Personnel Considerations • Functional strategies must include personnel action plans that address recruiting, training, and retention of skilled employees • IT organizations are extremely dependent on the skills of their employees • A few high performing individuals can have a disproportional impact on the entire IT organization and the firm itself

34. E-Business and Knowledge Management Strategies • As firms move to embrace online transactions, they must understand the standards required in this domain • Infrastructure adequate for internal use becomes unsuitable for e-commerce • Developing strategies to support e-business requires the firm’s best effort • Innovations in products and services influence technical, administrative, and business processes favorably

35. Using and Maintaining Strategies • Maintaining a strategy is an essential step in its continued usefulness • Must document where change is anticipated to occur and how that change can effect assumptions • Tracking identifies deviations early, allowing time to correct assumptions or to respond to new factors • When tracking identifies significant deviations, the entire strategy may need re-evaluation

36. Summary • Strategy development is one of management’s fundamental responsibilities • Because IT cuts across traditional enterprise structures, strategy development in IT can be more difficult • IT strategy can unify other strategic thrusts and become the firm’s business strategy

37. Certo and Peter • Strategic management is a continuous, iterative process aimed at keeping an organization as a whole, appropriately matched to its environment. The process itself involves performing an environmental analysis, establishing organizational direction, formulating organizational strategy, implementing that strategy, and exerting strategic control.

38. Certo and Peter • In addition, international operations and social responsibility may profoundly affect the organizational strategic management process. It is important that the major business functions within an organization – operations, finance, and marketing – be integrated with the strategic management process.