Week 1Friday, July 21 Introduction Strategic grid, business model Opportunities and Threats: Porter’s Five Forces Model Strategy and strategic planning IT Doesn’t Matter Article
What This Class is About… • Information technology (IT) has become a major driving force of today’s businesses. As an enabler (facilitator) and integrator, IT has opened many strategic opportunities and provided the means to seize competitive advantages in marketplaces. The topics covered throughout this course will emphasize IT’s prominent role in business strategy.
Introductions • What is your view on IT in business?
Which is the Most Versatile Hand Tool? Vise Saw Tape measure Pipe wrench Pliers Flat bladed screwdriver Hammer Bubble level
Flat Bladed Screwdriver • Screw • Hammer • Chisel • Pry bar • Punch holes • Set nails • Stir liquids • Putty knife • Score and cut • And the list goes on…
IT is Similar to a Flat Bladed Screwdriver • IT provides the means for businesses to do something better! • Leverages other resources • Enables and enhances business processes – Facilitates efficiency and effectiveness • Seizes competitive advantages • Levels the playing field – Small businesses can look and behave like big businesses • Extends the business beyond its boundaries – Strategic alliances, strategic outsourcing, supply chain management • And the list goes on…
What You Should Take Away from This Class • Place IT solutions in the strategic grid – Match the solution to the business • Businesses do not adopt technology for technology’s sake • Focus on the business and not the technology • IT leverages other resources and processes • IT introduces organizational change • IT integrates the enterprise • Knowledge is an organizational resource
IT Leverages Other Resources CRM leverages Relationship Marketing
IT Leverages Other Resources Business Intelligence
IT, the Great Integrator Enables and enhances business process
IT Allows a Business to Seize Competitive Advantages Price Competition
IT Allows a Business to Seize Competitive Advantages Customization
IT the Great Equalizer: IT Evens the Playing Field Which of these businesses is larger?
Extends the Business Beyond Its Boundaries Horizontal integration
Extends the Business Beyond Its Boundaries Vertical integration
Supply Chain ManagementInter-Organizational IT • Coordinating suppliers • From EDI (electronic data interchange) to the Internet • Establishing close and tight relationships • Loose integration – ad hoc and occasional • Close integration – formal exchange of information between businesses • Tight integration – sharing a business processes (e.g., UPS) • Becoming a customer-centric value chain (virtual enterprise) • Risk sharing • Supply chain (suppliers) vs. demand chain (distributors and retailers)
IT and Business: Two Golden Rules • IT does not (directly) increase productivity • Businesses do not adopt new technology for technology’s sake • What value does it add to the business? • How does it support the business’ strategy, goals and objectives? • Can it be linked to competitive advantage? • What’s the bottom line?
IT and Business Briefly… • IT enables fundamental changes in the way work is done • IT enables the integration of business functions at all levels within and between organizations • IT causes shifts in the competitive climate of many industries (i.e., breakthrough technology) • IT presents new strategic opportunities for organizations that reassess their mission and goals • Successful application of IT requires changes in management and organization structure
IT and Business (cont.) • A major challenge exists for management to lead their organizations through the transformation necessary to prosper in the globally competitive environment
Processes Outputs Inputs Business Model • Defines how an enterprise interacts with its environment to define a unique strategy, attract the resources and build the capabilities to execute it • Creates values for all stakeholders Simply put, the business model defines how inputs are converted to outputs
IT and the Business • Adoption of IT must be within the capabilities of the business • There must be a clear vision of how technology will be used for a clear profitable gain • A proposed IT solution must take into account organizational factors • Strategic grid
Business Models and IT Adoption For example… Two successful grocers taking two different approaches to business
Peapod Virtual store
Select by flavor Select by brand
Running total Shopping basket
Peapod Due to the nature of the merchandise (i.e., highly perishable, low profit margin), customer expectations and the high cost of fuel, logistics becomes an major concern
Suppliers maintain Peapod’s inventory Peapod Peapod receives the order Peapod assembles the order Customer sends order via Web Peapod delivers the order Peapod bills the customer’s credit card Customer receives order
Raley's Foods "Bricks and mortar" retailer
Raley's Foods Limited web shopping
Business Model Discussion… • Define the business model • Identify the market segments, opportunities and threats • What role does IT play in the business model? • What is the effect of IT in the business model? • How does IT impact the business?
Opportunities and Threats “Crisis” (weiji) “Opportunity” (jihui) Opportunities grow out of crises (Necessity is the mother of invention -- Plato) How does the business capitalize on its threats?
Strategy and Four Models and Frameworks • Strategic Grid • Porter’s Five Forces Model • Richard Nolan’s Stages Theory • Strategic Alignment
Strategic Grid Management of IT depends on how the business views IT High Factory Operational IT Strategic Strategic IT plan, initiatives Impact on Existing Business Operations Current IT important but future IT developments are unlikely to improve competitive advantage Existing and future IT developments critical to success Support Basic elements Turnaround Gradual adoption IT has little relevance to existing or future success Existing IT is unimportant but future developments are crucial to survival Low Low High Impact on Strategy (future competitive environment) McFarlan and McKinney (1983)
Placing a Business in a Quadrant • How important does management feel the current IT systems are to the business? • How important does the business think future developments in IT will be for the business? Planning a future for IT
Strategic Grid Quadrants: • Support – goals target local improvements and incremental cost savings (e.g., office automation) • Factory – designed to reduce costs and improve performance of the core operations • Automation and computerize functions • Turnaround – designed to exploit emerging strategic opportunities • Integration of the organization • Strategic – commitment to use IT to enable both core operations and core strategy • IT an integral part of strategy
Porter’s Five Forces ModelForces that Shape Strategy How will the business react to threats (and opportunities)? Potential Entrants Threat of new entrants Industry Competitors Bargaining power of suppliers Bargaining power of buyers Customers and Buyers Suppliers Rivalry among existing firms Threat of substitute products or services Substitutes
Contending Forces • The state of competition depends on the five forces • The collective strength of these forces determines the ultimate profit potential of an industry • Strongest force or forces determine the profitability of an industry and are of greatest importance in strategy formulation
1. Threat of Entry • New entrants bring new capacity, desire to gain market share, and often substantial resources • Barriers: • Economies of scale • Product differentiation • Capital requirements • Cost disadvantages independent of size • Access to distribution channels • Government policy Seriousness of the threat depends on the barriers and the reaction of the incumbents
Power of Buyers and Sellers • Suppliers – Can exert bargaining power on participants by raising prices or reducing the quality of the goods and services • Buyers – Can force down prices, demand higher quality or more service, and play competitors against each other
2. Suppliers are powerful if… • Dominated by a few companies • Products is unique or well differentiated, or has built-up switching costs • Not obligated to content with other products for sale to the industry • Poses a credible threat of integrating forward into the industry’s business • Industry is not an important customer (of the supplier group)