IT Strategy Development and Alignment

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IT Strategy Development and Alignment
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IT Strategy Development
(Definition)
The development of one or more
plannedinformation sharing strategies designed
tofully leverage the capabilities of a
portfolioof various information systems
technologiesand applications to support the
organizationsestablished business goals and
objectives
ITSTRATEGY
BUSINESSSTRATEGY
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IT Strategy Development
Why are some businesses successful whileother
businesses fail?
Describe characteristics or factors that
arepresent in successful businesses.
Describe characteristics or factors that
arepresent in failed businesses.
What process is employed by organizationsto
establish a road map for success?
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STRATEGY CYCLE
STRATEGY PYRAMID
(BI-DIRECTIONAL)
(TOP DOWN)
Strategic
Intent
VISION
MISSION
CHALLENGES
GOALS
STRATEGIES
Business
Tactical
Strategic
Opportunities
DYNAMIC ENVIRONMENT
STABLE KNOWN ENVIRONMENT
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Porters Five Forces Model
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Porters Five Forces Model
Michael Porter identified FIVE forces that impact
howfirms compete in their selected marketplace
4) Threat of New Entrants 5) Rivalry Among
ExistingCompetitors

• Buyer Power
• Supplier Power
• 3) Threat of SubstituteProducts or Services

Describe or define each force (in order).
Describe a program or initiative implemented by
organizations to try and manage the force
impact.
Describe a program or initiative implemented by
organizations to try and manage the force
impact byleveraging the capabilities of either
technology orinformation systems .
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Buyer Power
Description
? high when buyers have many choices of whom to
buy from and low when their choices are few.
Business Initiatives
? Loyalty Programs reward customers based on the
amount of business (e.g., money they spend)
with the business.
? Heavy Product Marketing firms spend
significant financial resources marketing
their product or service to develop customer
loyalty through marketing perception.
Technology / IS Initiatives
? Mobil and Speedpass customer retention due
to quick and easy method to purchase gas.
? Microsoft Market Dominance a lack of
software marketplace competitors limits
customer choices.
? Federal Express Software Lock-In FDX
Powership mc software system provides firms
with logistics shipping advantages.
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Supplier Power
Description
? high when buyers have few choices of whom to
buy from and low when their choices are many.
Business Initiatives
? Wal-Mart Effect the firm buys in such great
quantity in typically markets with many supply
options price is low.
? OPEC Control oil producing countries create a
financial demand for their product by limiting
production.
Technology / IS Initiatives
? Sprint/Motorola Partnership Sprint limits
what cell phones they will support on their
network thus controlling Motorola?
? Ace Hardware Lights B2B Reverse Auction
firm accept bids at an increasingly lower
price - for Christmas lights.
? Automobile Industry Parts Buying B2B
Private Auction the industry posts its parts
needs and solicits bids from suppliers.
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Threat of Substitute Products or Services
Description
? high when there are many alternatives to a
product or service and low when there are few
alternatives of which to choose from.
Business Initiatives
? Cell Phone Market customer is reluctant to
switch due to contract cancellation costs.
? Heavy Customer Service Product Marketing
firms spend financial resources to discourage
substitutes through perception.
Technology / IS Initiatives
? Amazon.Com Valued Customer System was a
customer has registered (logged-in) the
system will make recommendations and provide
incentives specific to the customer.
? Harrahs Individualized Customer Marketing
firm tracks specific customer needs based on
their business with the firm by using a
sophisticated customer rewards level approach.
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Threat of New Entrants
Description
? high when it is easy for competitors to enter a
market and low when there are significant entry
barriers to a market.
Business Initiatives
? Harley-Davidson Government Tariffs U.S.
government restricted import of motorcycles
that compete with Harley-Davidson.
? Cable TV Source Contracts cities and states
established exclusive agreements with cable
companies to provide services.
Technology / IS Initiatives
? Dell Computer Economies of Scale hard to
compete with Dell in the PC marketplace because
they buy components in bulk driving down
their total product cost.
? Cisco Expertise Monopoly firm virtually
invented network component design and
operations hard to compete without possessing
requite marketplace knowledge.
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Rivalry Among Competitors
Description
? high when competition is fierce and low when
competition is more complacent.
? in todays dynamic global marketplace for
products and services, there are VERY FEW
industries in which competition is fierce!
? global entrepreneurship has resulted in a
staggering increase in global competition for
products and services.
Why is it so hard to establish and maintain a
competitiveadvantage within a given marketplace?
What factors are changing the types of products
and services that the U.S. economy can
successfully offerbuyers in todays cost
conscious economy?
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Porters Three Generic Startegies
Michael Porter identified THREE generic
strategiesfor competing within a given
marketplace

• Cost Leadership
• Differentiation
• 3) Focused

Describe or define characteristics of firms
thatcompete using the strategy (in order).
Describe capabilities or internal strengths
must bepossessed by the firm to successfully
implement thespecific strategy.
Describe what risks or challenges the firm will
have tocontinually address in order to complete
using the strategyin a given marketplace.
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Cost Leadership
Strategy Characteristics

• Firm is the low cost producer in an industry for
  a given level of product or service quality.
• Firm sells its products at average industry
  prices to earn a profit higher than that of
  rivals, OR below the average industry price to
  gain market share.

Internal Strengths (Possessed By Firm)

• High level of expertise in manufacturing process
  engineering.
• Efficient distribution channels.

Strategy Risks
- Firms in marketplace offer their products at a
lower price. - Firms use technology to leapfrog
production capabilities.
1) What firms employ this business strategy?
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Differentiation
Firm Characteristics

• Strategy calls for the development of a product
  or service that offers unique attributes that
  are valued by customers AND are perceived to
  be better than the products offered by the
  competition.- The value added by the
  uniqueness of the product may allow the firm
  to charge a premium price for their product.

Internal Strengths (Possessed By Firm)

• - Highly skilled and creative product and team.
• Strong sales and marketing team that is able to
  communicate the perceived value of the
  product to the consumer.
• Corporate reputation for quality and innovation.

Strategy Risks
- Imitation of the product by competitors -
Changes in consumer tastes and perceptions
1) What firms employ this business strategy?
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Focused
Firm Characteristics

• Firm concentrates on a narrow segment and within
  that segment attempts to achieve a cost
  advantage or differentiation.- The premise is
  that the needs of the selected segment can be
  better served by focusing entirely on it.- Firm
  hopes to gain a high level of loyalty from
  customers
• Firm may be able to pass on higher product costs
  to their valued customers since substitute
  products do not exist.

Internal Strengths (Possessed By Firm)

• Ability to tailor a broad range of product
  development strengths to a relatively narrow
  market segment that they know very well.

Strategy Risks
- Attempt at imitation from competitors. - Other
focusers may try to carve out sub-segments.
1) What firms employ this business strategy?
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Strategies and Forces
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Value Chain
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Goal of the IT StrategyDevelopment Process
Ensure that an organization fully utilizes
thepowerful information sharing
capabilitiesof each information technology to
support theunique business needs of the
organization.
IT Strategy Technology Business Strategy
1) Will all companies have the same IT
strategy?2) Which organizational and marketplace
factors may playa role in how an organization
develops its strategy?
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How is the IT Strategy Developed Within Various
Organizations?

• There is no set formula for developing the
  perfect IT strategy because there are a
  myriad of factors that must be considered by
  the individual or group responsible for
  strategy development.
• Generally, the IT strategy development process
  tends to follows the same general approach used
  to develop the firms business strategy.
• The major challenge is to ensure that there is
  an alignment between the goals and objectives
  of the firm and the allocation of scarce IT
  resources!

1) Does organizational strategy drive the use of
information technologies or does the
emergence of a new technology require an
organization to develop new organizational
strategies to leverage that technology?
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Why Are Various IT Strategies Developed?

• Obtain/Eliminate a Competitive Advantage
• Firm sees an opportunity to redefine how the
  business operates within their marketplace.
• The firm chooses to implement a new IT strategy
  that will provide the firm with a competitive
  advantage by altering information sharing
  mechanisms within the firms value chain.
• Firm MUST establish an unplanned strategy to
• eliminate (or reduce) the competitive
  advantageestablished by a competing
  organization.
• 2) Enhance Organizational Information Sharing
• Firm may adopt various IT strategies to resolve
  existing business challenges.
• Firm may look to leverage IT technology to remove
  process costs (streamline operations)

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IT Strategy Development(Key Challenge)
The daunting challenge facing firms is to
identify theappropriate portfolio of IT
projects (IT Strategy) thatwill support the
firms information sharing needs bothnow and in
the future. This can be an arduous process since
there are a varietyof information sharing needs
that must continue to bemet by the organization
if they are going to be a viablebusiness
operation. Thus, most IT strategies consist ofa
series of trade-offs between organizational need
andIT necessity.
Since Each Firm Has Unique Business Strengths and
WeaknessesEach Firm MUST Develop a Customized
IT Strategy
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Who is Responsible For Developing the Firms IT
Strategy?

• Although the CIO is technically the individual
  that will be held accountable for ultimately
  developing and formalizing the firms current
  and future IT strategy (same as the CEO on the
  firms business strategy) it is really the
  firms top management team that must approve
  the firms allocation of IT resources to
  specific IT initiatives and projects
  (high-level approval)
• The CIO must work closely with the firms
  management team to ensure that the firm
  allocates proper resources to meet the
  competitive needs of the firm (new systems) while
  successfully supporting the firms existing
  infrastructure (older legacy systems
  maintenance and integration projects)
• It is then the responsibility of the functional
  department managers to work closely with the
  IS department to ensure that the approved
  projects comprising the IT strategy are
  successfully completed in a timely manner
  (functional application)

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IT Strategy Development(Key Characteristics)
There are a variety of organizational (internal)
and marketplace (external) factors that must be
consideredwhen determining which information
sharing projectsreceive support as part of the
firms IT strategy. These factors must be
considered when determiningwhich information
sharing strategies to support bothnow and in the
future.
1) What are possible organizational and
marketplace factors that may impact an
organizations decision to adopt a specific
information systems technology? 2) Why would
organizations operating in the same competitive
marketplace adopt information technologies at
different times?
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Organizational Factors Impacting IT Strategy
Development
Cost Factors

• The firms IT budget what resources are
  available?
• The Total Cost of Ownership (TCO) to complete and
  implement a specific IT strategy (technology
  cost, maintenance cost).
• The cost to fully integrate any new systems
  technologies into the organizations existing
  technical architecture.
• The cost of retraining IS employees to
  successfully operate install, operate and
  maintain any new technologies.
• The cost associated with modifying existing
  business processes to effectively utilize the new
  technology.
• Other Costs?

Complexity and Compatibility Factors

• Strategy may be too complex to use based on the
  organizations current technological
  sophistication
• Strategy may require technology that may not be
  compatible with the organizations current
  technical infrastructure

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Organizational Factors Impacting IT Strategy
Development
Operational and Cultural Factors

• Top management may not fully understand the
  real impact of the technology on business
  operations.
• Adoption of a new IT strategy may require the
  organization to greatly alter their established
  business processes and policies.
• Adoption of a new IT strategy may adversely
  impact the established organizational culture.
• Adoption of a new IT strategy may threaten
  employee job security by streamlining business
  operations .
• Adoption of a new IT strategy may require
  employees to learn new IT skills and abilities.
• Adoption of the IT strategy may alter the
  established communication channels (formal and
  informal) within the organizational hierarchy.
• Other factors?

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Organizational Factors Impacting IT Strategy
Development
Perceived Benefits

• The direct (financial) and indirect (hard to
  measure) benefits that can be derived from
  implementing a specific IT strategy.
• (How important is ROI?)
• 2) Balancing the risk associated with front
  runner in the adoption of new IT innovations
  with the risk associated with being a laggard
  on IT adoption.
• 3) Balancing long-term strategic projects (more
  than one year) with short term tactical projects
  (less than one year) in a highly fluid and
  evolving IT environment.
• 4) Other factors?

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Marketplace Factors Impacting IT Strategy
Development
Competitive Factors

• How competitors in the firms marketplace are
  leveraging IT technology to support their
  business goals and objectives AND possibly gain a
  competitive advantage.
• Whether the firm can leverage a particular IT
  business strategy to gain a competitive advantage
  in their established marketplace.
• Other Factors?

Trading Partner Factors

• Acceptance of the technology by firms within your
  value chain (firms your business MUST share
  information with)
• Pressure from key trading partners within the
  value chain to adopt emerging business methods
  requiring the support of specific IT technologies
  (e.g. EDI)
• Other factors?

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Strategic Grid

• This framework was developed as a method in which
  organizations could connect the current and
  future strategic position of the enterprise with
  the current and future strategic use of the
  information systems function (McFarlan 1984)
• The grid was based on two factors
• The importance the firm places on its portfolio
  of existing IS applications
• 2. The importance the firm places on its
  portfolio of future IS applications
• There are four strategy categories
• Support
• Turnaround
• Factory
• Strategic

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Strategic Impact of Application Systems
Importance Firm Places on TheirFuture Portfolio
of IS Applications
High
Strategic
Factory
Importance FirmPlaces on TheirExisting
Portfolioof IS Applications
Support
Turnaround
Low
High
Low
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Strategic Grid
Support (Low Existing / Low Future)

• IT is not considered an essential function in
  supporting the operation of the business or
  providing the business with a competitive
  advantage in their marketplace.
• Firms in this category use IT to handle routine
  business operations (e.g., accounting, inventory,
  etc.).
• The firm is typically a laggard when it comes to
  IT adoption. The firm will only adopt an IT
  technology long after it has been adopted by most
  business sectors.
• The firm focuses on how it can better use IT to
  save costs on the firms business operations
  internally and externally.
• The information enabled management team is weak
  or may be non-existent within the firm.

What industries do you think would follow this
approach?
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Strategic Grid
Turnaround (Low Existing / High Future)

• The firm has moved from Support to Turnaround as
  a result of some combination of internal and
  external pressures
• The firm has decided to increase the strategic
  importance of IT in order to successfully address
  changes in their business strategy (Ripple
  Effect)
• The firm seeks out new cost-effective computer
  products and services to support their emerging
  business goals
• The managers in the firm must become
  information-enabled to cope with the acquisition
  of new IT systems
• Without continued support from top management
  firm will slide back to the Support approach
• With continued support of top management the
  firm can move to the Strategic approach

What industries do you think would follow this
approach?
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Strategic Grid
Factory (High Existing / Low Future)

• The firm has developed IT systems with definite
  strategic importance but they are not
  considered highly critical to the on-going and
  future success of the firm (e.g. will bring the
  firm competitive advantage).
• The IS applications do play a vital role in the
  on-going operation and success of the firm. The
  firm is willing to adopt technologies if other
  firms have proven they can benefit the firms
  operations (wait and see).
• In many firms the focus is on IT push instead
  of business pull. IT must convince top management
  of the operational business benefits of
  adopting an IT application.
• There are information-enabled managers in the
  firm especially in the firms operational areas.

What industries do you think would follow this
approach?
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Strategic Grid
Strategic (High Existing / High Future)

• IS is in a true partnership with senior managers
  to ensure the IS applications align with the
  firms strategic business needs now and in the
  future.
• The applications in the IS portfolio are
  considered critical to the current and future
  success of the firm.
• The firm is continually searching for ways to
  leverage IS applications to obtain a competitive
  advantage.
• The IS department is expected to identify,
  recommend, and implement systems that will affect
  the strategic direction of the organization.
• Managers within the firm are information-enabled
  and rely on firm IS systems to give them a
  competitive edge in their highly competitive
  marketplace.

What industries do you think would follow this
approach?
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Final Thoughts

• IT Strategy is a difficult process due to the
  myriad of factors that must be considered in the
  development process.
• Strategy development is a balancing act
• Long-term vs short-term
• New initiatives vs on-going projects
• Business projects vs internal IS projects
• Benefits vs cost
• The firm that is successful in the process
  focuses their efforts toward implementing IS
  planning methods that ensure the IT strategy can
  align with the firms current and future
  information sharing goals and objectives.

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You Make the Call
(Small Group Discussion)

• Break up into groups of 3 to 5 people
• Each group will be assigned one of the following
  business or organizations

5. Wells Fargo Bank 6. Sprint 7.
Mercedes Benz

• Kohls Department Store
• State Farm Insurance
• Barnes and Noble Booksellers
• Southwest Airlines

• Each team will have 3 to 4 minutes to place their
  assigned firm on the Strategic Grid
• An individual from each group will then present
  to the class 1) where they placed their assigned
  firm on the Strategic Grid AND 2) justify their
  placement on the grid
• The class will then have the opportunity to
  concur or arguethe placement of the assigned
  firm on the grid.

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You Make the Call.
Importance Firm Places on TheirFuture Portfolio
of IS Applications
High
Strategic
Factory
Importance FirmPlaces on TheirExisting
Portfolioof IS Applications
Low
Turnaround
Support
High
Low
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QUESTIONS??