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IT Strategy Development and Alignment


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Title: IT Strategy Development and Alignment

IT Strategy Development and Alignment
IT Strategy Development
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
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?
Porters Five Forces Model
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
  • 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
Describe a program or initiative implemented by
organizations to try and manage the force
impact byleveraging the capabilities of either
technology orinformation systems .
Buyer Power
? 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.
Supplier Power
? 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
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.
Threat of Substitute Products or Services
? 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.
Threat of New Entrants
? 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.
Rivalry Among Competitors
? 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?
Porters Three Generic Startegies
Michael Porter identified THREE generic
strategiesfor competing within a given
  • 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.
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
  • 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?
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?
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
  • 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?
Strategies and Forces
Value Chain
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
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?
How is the IT Strategy Developed Within Various
  • 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

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?
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
  • 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)

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
Who is Responsible For Developing the Firms IT
  • 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)

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
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?
Organizational Factors Impacting IT Strategy
Cost Factors
  • The firms IT budget what resources are
  • 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
  • Other Costs?

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

Organizational Factors Impacting IT Strategy
Operational and Cultural Factors
  • Top management may not fully understand the
    real impact of the technology on business
  • 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?

Organizational Factors Impacting IT Strategy
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?

Marketplace Factors Impacting IT Strategy
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?

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

Strategic Impact of Application Systems
Importance Firm Places on TheirFuture Portfolio
of IS Applications
Importance FirmPlaces on TheirExisting
Portfolioof IS Applications
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,
  • 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
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
  • 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
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
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
  • 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
  • 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

What industries do you think would follow this
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.

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.

You Make the Call.
Importance Firm Places on TheirFuture Portfolio
of IS Applications
Importance FirmPlaces on TheirExisting
Portfolioof IS Applications