Effects of IT on Strategy and Competition

1. Effects of IT on Strategy and Competition

3. Strategic Management and Planning

4. Strategic Management • Most significant form of management decision making • We are concerned about: • a process: planning • a product: strategy • The thinking about both is called strategic management

5. What is Strategy ? • It is not an exact science • It cannot be calculated • There are no cook-book approaches • Proposed definition: • Strategy is the pattern of resource allocation decisions made throughout an organization. • These encapsulate both desired goals and beliefs about what are acceptable and, most critically, unacceptable means for achieving them.

6. What is Strategic Management ? • Strategic management is concerned with deciding on strategy and planning how that strategy is to be put in effect via : • Strategic analysis • Strategic choice • Strategic Implementation • Several levels • Corporate strategy • Business strategy: within business unit • Functional Strategy: e.g. IS strategy

7. Strategic Process • Process by which an organization establishes answers to questions such as: • What business are we in exactly ? • Who is it competing with us? • How are we performing ? • How are the business and its markets changing ? • Where within the industry want we to be? • What must be done to achieve our objectives?

8. Requirements for a Relevant Strategy • The strategy needs to : • be used proactively; • recognize that there are severe limits to the predictability of the future; • take account of the organizational, political, and psychological dimensions of corporate life; • be accepted by the majority of those concerned with strategy to be a realistic relevant tool for more effectively coping with the future.

9. Model of Strategic Management Elements Expectations objectives and power:culture The Environment Resources Strategic Analysis Generation of options Resource Planning Strategic Choice Strategic Implemen- tation Evaluation of options Organization structure Selection of strategy People and systems

10. Diversity of Strategic Problems and Decisions • Strategic decisions are : • broad in their scope; • enduring in their effects; • difficult in their reversal; • worth devoting time and resources • Factors that determine the nature of strategic problems • the nature of the industry; • the nature of the enterprise; • the current circumstances; • the organization’s environment.

11. History of Strategic Planning • Analytical School • assumes strategists can be trained to anticipate complexity • assumes strategy can be designed using a range of models based on normative principles • but models are based upon somewhat dubious assumptions • assumes predictable environment • offer a range of techniques • Pattern School • strategy of the resource allocation • evolves on a trial-and-error basis • successful actions are pursued ( Japan ) • problem of understanding the relation between resource allocation and result.

12. Model of Strategic Planning Process Planning element Plan component Key question { Mission What should we be doing? Where are we going? What routes have we selected? How do we guide our collective decisions? What choices do we have? Shall we do it? Strategic Analysis Goals Strategic Choice Strategies { Policies Strategic Implementation Decisions Actions

13. Strategic Analysis: Environmental Analysis • Organizational Development Societal Environment Socio-Cultural forces Task environment Economic forces Demand Internal Environment Government - Structure - Cultural web - Resources Market structure Technology Political-legal forces Technological forces

14. Key Dimensions of the Societal Environment

15. The nature of strategic change Continuity Incremental Flux Global Established strategy remains unchanged May make good sense but the world may change faster than the strategy No clear direction to the change Change of this scale happens at times of crisis when the organisation is out of step with the world

16. Constructing step for scenarios Schoenmaker 1995 • Define the scope: time scale, products, area, technologies, … • Identify major involved parties • Identify basic trends • Identify uncertainties • Construct initial scenario themes • Check for consistency and plausibility (e.g. trend vs time scale ) • Develop learning scenarios ( good name for each scenario ) • Identify research needs • Develop quantitative models • Evolve towards decision scenarios The significant skills required are diffused throughout the organization

17. Effects on Competition Text book

18. Analysing Impact: Forces that shape strategy • variety of potential uses is as broad as the industry • managers need a framework to facilitate planning strategic view on use of computer and communications • Michael Porter’s industry and competitive analysis  State of competition depends on five forces • bargaining power of suppliers • bargaining power of buyers • threat of new entrants into the industry segment • threat of substitute products or services • positioning of traditional intra-industry rivals • very useful to consider impact of IT

19. Model1: Porter’s five forces model Impact of competitive forces Thread of new entrants Rivalty amongst existing competitors Bargaining power of suppliers Bargaining power of buyers Thread of substitute products or services

20. Analysing Impact: Impact of competitive Forces Force Implication Potential uses of IT Threat of new entrants New capacity Provide entry barriers: Substantial resources - economies of scale Reduced prices or inflation - switching costs of incumbents’ costs - access to distribution channels Buyers’ bargaining power Prices forced down Buyer selection High quality Switching costs More services Differentiation Competition encouraged Entry barriers Suppliers’ bargaining power Prices raised Selection Reduced quality and services Threat of backward integration Threat of substitute products Potential returns limited Improve price/performance or services Ceiling on prices Redfine products and services Intra-industry rivals Competition: Cost-effectiveness Price/Product/ Market access differentiation: distribution and services Product/Services/Firm

21. Analysing Impact: Specific actions Specific actions to implement generic strategy vary widely • competitive advantage is the goal of any strategy  define type of required competitive advantage  Competitive advantage Lower Cost Differentiation Broad Target Narrow Target Cost Leadership Differentiation Cost Focus Differentiation focus Competitive Scope

22. Strategic Analysis: Values and Objectives Porters value chain model Administration and infrastructure Human resource management Product/technology/development Procurement Support activities Value added - cost = MARGIN Inbound logistics Operations Outbound logistics Sales and marketing Services Primary activities

23. Inbound Logistics • Inbound logistics:materials receiving, storing, distribution • to manufacturing premises • just-in-time on-line ordering in major distribution company • cut-down on warehousing needs for incoming materials • reduced disruption on inventory shortfalls • safetystocks are passed to supplier • scan supplier databases for lowest price • changing vendors has become more difficult • large department store linked to textile suppliers • improved delivery • inventory reduction • flexibility to meet changing demands • easier to deal with domestic suppliers

24. Outbound Logistics • Outbound Logistics : storing and distributing products • IT has great impact on the way products are delivered to customers. • reservation-systems links to travel agents • automatic teller machines • theatre-ticket machines , gaz stations • Outbound for one company is inbound for another

25. Marketing and Sales • Marketing and sales: promotion and sales force • on-line order-entry for pharmacies • industrial air-conditioning company has build a computer-based modeling system prefered by architects • competitor made a similar on-line system also providing cost information • farmers information system by agricultural chemical company with build-in decision support system • Marketing systems became important with the laptop

26. After-Sale Service , Infrastructure • After sale service • reduction of repair costs and increased customer satisfaction by installing flight-recording devices in elevators • on-line maintenance expert systems reduced service visits • Corporate infrastructure • on-line link for outlying travel agents to deliver documents • 27 % growth in sales • financial service company used information in database to refine commission sytem • less comission for first sale • more for service extension • Enhanced management control and coordination via voice mail, e-mail , videotext • location of airplanes improved connections for delayed fligths

27. Other applications • Human resources • head-hunters • information on skills and experience • Technology development • access to large computing facilities (generation gap ) • CAD/CAM • seed company : computer support is most important technology expenditure for genetic planning • ( data on thousands of plants , molecular simulatiom models ) • Procurement • on-line electronic bulletin boards • access to production scedules of suppliers

28. Value chain of Porter: ICT Influence Supporting activities MIS, DSS, EIS, ES multimedia, VR ES, DSS, MIS DSS, ES, GSS, CASE EDI, DSS, Voice technology Infrastructure HRM Technology Procurement MARGin Laptops Wireless Tracking Robots CAD/CAM Simulation MRP VR CIM Scheduling EDI CD/ROM Multimedia DSS GIS Internet EDI E-mail EDI DSS Profit Inbound Operations Outbound Marketing Services Primary activities

29. The risks of information systems success Key problem: - success in narrow technical sense - disastrous organisational and competitive consequences Nine topics focus on strategic vulnerabilities • Systems that : change the basis of competition negatively • Systems that : lower entry barriers • Systems that : bring on litigation or regulation • Systems that : increase customers’ or suppliers’ power to the detriment of the innovator • Bad timing • Indefensible investments that fail to bring lasting advantages • Systems that pose a threat to large, established competitors • Inadequate understanding of buying dynamics across market • Cultural lag and perceived transfer of power

30. Assessing competitor risk Two phase process: • describe in detail the industry-level changes invoked • determine potential impact on the company • increasing use of IT not always inevitable • some technological advances remain embryonic for reasons of cost, IT capability , user acceptance , lack of support from established industry (e.g. home banking ) • consider motivation for the new system • software from nonexclusive source gives no lasting advantage • mobility between IT personnel results in rapid proliferation of ideas • long-term commitment of top management required before start • clear view on long range strategy is absolute must • resources and capabilities of competitors must be examined

31. The Challenge • broad IT-management - user dialog plus imagination • potential benefits are subjective and not easily verified • ROI focus may turn attention towards a narrow focus • most companies are in support or factory quadrant of strategic grid and organisation is set up accordingly • playing cath-up can be difficult and expensive

32. Life cycle analysis Four stages in life cycle of a product or industry: • Introduction • early adopters • demand unknown • Growth • entry of competitors • fight for share, undifferentiated products and services • Maturity • saturation of users • fight to maintain share, emphasis on efficiency and cost • Decline • demand < supply

33. SWOT analysis • A SWOT analysis defines the relationship between internal and external appraisal in strategic analysis Internal factors Strengths Weaknesses Opportunities Opportunities External factors Strengths Weaknesses Threats Threats