Chapter I & 1: The Information Systems Strategy Triangle

1. Chapter I & 1: The Information Systems Strategy Triangle Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson.gonzaga.edu

2. MIS • Management • Information • Systems Which component is mostly important?

3. INTRODUCTION • Shouldn’t managers rely on experts when it comes to making the decisions on IS for their organizations? • Managers today need to know about their organization’s capabilities and uses of information as much as they need to understand how to obtain and budget financial resources. • A manager who does not understand the basics of managing and using information cannot expect to be successful in today’s business environment.

4. Figure I.1 - Reasons why business managers should participate in information systems decisions Reasons: • IS must be managed as a critical resource • IS enables change in the way people work together • IS integrates with almost every aspect of business IS enables business opportunities and new strategies • IS can be used to combat business challenges from competitors

5. A Business View of Why Managers Need to Participate: • IT accounts for more than 50% of the capital-goods dollars spent in the US. • US companies spend $7,500 per employee on IT and use is growing exponentially. • As managers decide which activities receive funding, it is essential that they have a basic grounding in managing and using IS.

6. Information Ecology Data • ______ = simple observations • ___________ = data endowed with relevance and purpose. • ___________ = information that has been situationalized and contextualized to provide value. Information Knowledge

7. System’s Architecture Oversee Develop Requirements Strategies Design and Structure Infrastructure Information Figure I.9 System Hierarchy Management Information System Technology Process People

8. Essential Value Propositions for a Successful Company • Business Model • Core Competency • Outsourcing • Offshoring • Execution • Set corporate goals and get executive sponsorship for the initiative

9. WHY STRATEGY?(DBQ) • Why is it important for business strategy to drive organizational strategy and IT strategy? What might happen if business strategy were not the driver?

10. develop Mission guide Strategy create Tactic Planning is everything ...What are Two Major Outputs for an organization? Vision Customers, market, competition Products, Services N

11. Real World Example During an ice storm in 2007 many airlines were cancelling flights. Jet Blue waited to cancel flights and paid a heavy price. Had to cancel 1,000 flights over 5 days. Up to 9 planes full of passengers were stranded for up to 6 hours on the tarmac. An inadequate reservation system and shoestring communication system was blamed for the problems by Neelman. Changes had to be made. 11

12. Why is it important for business strategy to drive organizational strategy and IT strategy? What might happen if business strategy were not the driver? Typically, managers seem to think that changing or upgrading an information system (or even a component of an information system) will only positively impact a business. Quite the opposite, in fact, is true. By making changes in organizational strategy or IT strategy first, the triangle is "out of balance" and there will be consequences in the affected areas. For example, building a virtual organization, but not changing the business strategy to something like … "insuring our people are productive and have the widest possible work place opportunities" can lead to significant disconnects between workers, their managers, and their customers. And, worse, without supplying the virtual worker with the appropriate information system (a computer at home, a laptop, etc) will lead to a decrease in productivity by the virtual worker, and a major disruption of business operations.

13. Direction for business Supports business Needs and priorities Infrastructure and services Information System Strategy Triangle Strategy Triangle Business (Firm) Strategy Where is the business going and why? IT impact and potential Organizational Strategy IS/IT Strategy What is required? How it can be delivered? 1. Architecture/Infrastructure 2. MIS organization 3. Funding 4. Project Management N

14. Information System Strategy Triangle • A business strategy is a well-articulated vision of where the business seeks to go and how it expects to get there. • An organizational strategy is the organization’s design, as well as the choices it makes to define, set up, coordinate, and control its work processes. • IS strategy is the plan the organization uses in providing information systems and services.

15. The Information Systems Strategy Triangle • Successful firms’ business strategy drives both their organizational and IS strategies: • They must, therefore, seek to balance business, organizational, and IS strategies • IS Strategy is affected by the other strategies a firm uses. Changes in IS strategy must be accompanied by constant adjustments in the other two • IS strategy can have (sometimes unintentional) consequences on business and organizational strategies

16. Example • Give an example in which a company fails to perform well because it does not align its three strategies. • Any? • too much focus on IT • used to be considered as a “hardware” company (PC, DOS etc.) • new division established in early 1990: GLOBAL SERVICIE DIVISION • it now becomes a “Service” corp. – “TOTAL solution”

17. Louis V. Gerstner, Jr. IBM former CEO and president (1992-2002) Prior to joining IBM, Mr. Gerstner served for four years as chairman and chief executive officer of RJR Nabisco, Inc. This was preceded by an 11-year career at American Express Company, where he was president of the parent company and chairman and CEO of its largest subsidiary, American Express Travel Related Services Company. Prior to that, Mr. Gerstner was a director of the management consulting firm of McKinsey & Co., Inc., which he joined in 1965. In January 2003 he assumed the position of chairman of The Carlyle Group, a global private equity firm located in Washington, DC.

18. BRIEF OVERVIEW OF BUSINESS STRATEGY FRAMEWORKS

19. Striving for Competitive Advantage • Firm level: Industry & Competitive Analysis • Business level • Competitive Forces Model (discussed in chap.2) • Competitive Strategy • D’Aveni’s Hypercompetition Model (7s) • Value-Chain Analysis

20. NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES • Switching cost • Access to distribution channels • Economies of scale • Redefine products and services • Improve price/performance INDUSTRY COMPETITORS THE FIRM • Cost-effectiveness • Market access • Differentiation of product or service • Buyer selection • Switching costs • Differentiation • Selection of suppler • Threat of backward integration SUPPLIERS CUSTOMERS PORTER’S FIVE COMPETITIVE FORCES MODEL Threats Bargaining power N TM -20 Dr. Chen,The Trends of the Information Systems Technology

21. Business Strategy Frameworks • Porter’s Generic Strategies Framework (and its variants) • Hypercompetition and the New 7-Ss framework (D’Aveni) N

22. Figure 1.2: Porter’s Generic Strategy Framework – 3 Strategies for achieving Competitive Advantage Competitive Advantage Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Overall Cost Leadership Differentiation Competitive Scope Particular Segment only (Narrow Target) Focus Competitive Mechanism N Dr. Chen,The Trends of the Information Systems Technology TM -22

23. Porter’s Competitive Advantage Strategies • Cost leadership: be the cheapest • Differentiation: focus on making your product and/or service stand out for non-cost reasons • Focus: occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation.

24. Variants on Differentiation Strategy • Shareholder value model: create advantage through the use of knowledge and timing • Unlimited resources model: companies with a large resource can sustain losses more easily than ones with fewer resources (deep pocket advantage) N

25. Relationship between profits and time of market introduction 300 Profits relative to competitions (%) 250 200 150 100 50 0 Time of market introduction relative to competition (months)

26. Business Strategies and its Competitive Advantage Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Cost Leadership Differentiation Alliance Innovation Growth Competitive Scope Particular Segment only (Narrow Target) Cost Focus Differentiation Focus Knowledge-based economy Industrial economy Competitive Mechanism N Dr. Chen,The Trends of the Information Systems Technology TM -26

27. Competitive (Value) Advantage Figure I.6 (2.4) Business Level: The Value Chain N

28. Production and Manufacturing Sales and Distribution Engineering Marketing Service Manufacturing Industry Value Chain Product and Service Flow Support Activities Administrative and Other Indirect Value Added Research and Development Primary Activities N Dr. Chen,The Trends of the Information Systems Technology

29. Downstream value The Value System: Interconnecting relationships between organizations Firm value Upstream value N

30. Hypercompetition and the New 7-S’s framework (D’Aveni) Every advantage is eroded. • _______________________ • Sustaining an advantage uses too much time and resources that can be a deadly distraction. • The goal should be___________, not _______________ of advantage. • Initiatives are achieved with a series of small steps. • Hypercompetiton occurs when technologies or offerings are so new that standards and rules are influx, resulting in competitive advantages that cannot be sustained. It is characterized by intense and rapid competitive moves, in which competitors must move quickly to build new advantages and erode the advantages of their rivals. disruption sustainability

31. Vision for Disruption • Identifying and creating opportunities for • temporary advantage through understanding • Stakeholder satisfaction • Strategic Soothsaying • directed at identifying new ways to serve existing • customers better or new customers that are not • currently served by others Market Disruption • Tactics for Disruption • Seizing the initiative to gain advantage by • Shifting the rules • Signaling • Simultaneous and sequential strategic • thrusts • With actions that shape, mold, or influence • the direction or nature of the competitor’s • response • Capability for Disruption • Sustaining momentum by developing • flexible capacities for • Speed • Surprise • That can be applied across actions to • Build temporary advantage D’Aveni’s Disruption and 7-S’s Old 7Ss: structure, strategy, system, style, skills, staff, and super-ordinate goals. N By Richard D’Aveni, professor of business strategy at Dartmouth College

32. Hypercompetiton Strategies for Disruption 1.Stakeholdersatisfaction is key to winning each dynamic interaction with competitors 2. Strategic soothsaying is the process for seeking out new knowledge for predicting what customers will want in the future 3. Speed is crucial to take advantage of opportunities and respond to counterattacks by competitors 4. Surprise enhances a company’s ability to stun a competitor, to build up superior position before a competitor can counterattack. Hypercompetition Tactics for Disruption 1. Shifting rules of the market to create tremendous disruption for competitors. 2. Signals out to (a) make announcements of strategic intent to dominate a marketplace, or (b) manipulate the future moves of rivals. 3. Simultaneous or sequential strategic thrusts using several moves to mislead or confuse a competitor. D’Aveni’s Hypercompetition Model (cont.) Speed of the disruptive turbulence created by hypercometition is driven by globalization, more appealing substitute products, more fragmented customer tastes, deregulation, and the invention of new business models – all contributing to structural disequilibrium, falling barriers to market entry, and the dethronement of industry leaders

33. Example: • At General Electric, Jack Welch, implemented a DYB (“Destroy Your Business”) approach by placing employees in the shoes of competitors to highlight weaknesses and find fresh ways of meeting customer needs. • Similarly GE’s Medical Systems Division used DYB to respond to the challenges posed by the Internet. N

34. “Be fearful when others are greedy, and be greedy when others are fearful.” -- Warren E. Buffett, CEO, Berkshire Hathawy, Inc.

35. BRIEF OVERVIEW OF ORGANIZATIONAL STRATEGIES

36. Figure 1.6 Summary of Key Strategy Frameworks • Generic Strategies: Competitive Advantage (CA) through low cost, differentiation or focus • Hypercompetition: CA is temporary, created through speed and aggression in the market

37. Porter’s Model vs. Hypercompetition Model

38. Figure 1.6 The Business Diamond Business Process Tasks and Structure Values and Beliefs Management and Measurement Systems (control) (Source: Hammer et al, 1994) N

39. Decision rights Business processes Data Formal reporting relationships Strategy Organizational effectiveness People, Information, and Technology Planning Informal networks Performance measurement and evaluation Incentives and rewards Values Figure 1.7 Managerial Levers Execution Organization Control Culture Source: Cash, et al., 1994 N

40. Figure 1.8 Summary of Org. Strategy Frameworks Using IS in an organization will affect each of these components. Use this framework to identify where these impacts are likely to occur This is a more detailed model than the Business diamond and gives specific areas where IS can be used to manage the organization and to change it

41. Firms achieve competitive advantage through cost leadership, differentiation, or focus. Understanding which strategy is chosen by a firm is critical to choosing IS to complement that strategy. Speed and aggressive moves and counter- moves by a firm create competitive advantage. The 7-S’s give the manager suggestions on what moves and counter moves to make and IS are critical to achieve the speed needed for these moves. Companies cooperate and compete at the same time. Being cooperative and competitive at the same time requires IS that can manage these two roles. Summary of Key Strategy Frameworks Usefulness in Information Systems Discussions Framework Key Idea Porter’s generic strategies framework D’Aveni’s hypercompetition model Brandenberg and Nalebuff’s co-opetition model

42. Safety • Quality Care • Efficiency • Effectiveness • Innovation Management IT (tangible, strategic mechanism) Figure. Enhanced Model of “Built To Last”: Continuity and Change in Visionary Companies • Strategic Competitive Advantages and creating values Preserve • Core Values • Core Purpose Change • Culture & • Operating Practices • Specific Goals • and Strategies • Processes

43. What is Web 2.0? • "Web 2.0" refers to the second generation of web development and web design. • It is characterized as facilitating communication, information sharing, interoperability, user-centered design and collaboration on the World Wide Web. It has led to the development and evolution of web-based communities, hosted services, and web applications. • Examples include social-networking sites, video-sharing sites, wikis, blogs, mashups and folksonomies. • Web 2.0 is the business revolution in the computer industry caused by the move to the Internet as a platform, and an attempt to understand the rules for success on that new platform. Source: http://en.wikipedia.org/wiki/Web_2.0

44. Major Issues for the Next Society 1. Internationalization 4I + 1K 2. Technology Internationalization Integration Innovation Information and Knowledge 3. Population

45. Mini Case Study • Case Study 1-1: Roche’s new scientific method (p.41-43) • Form Groups • Group discussion and work on the case and answers to questions • Questions #1 thru #4

46. #1. IS/IT Strategy Triangle • Each group: • Complete the case using “Strategy Triangle” model

47. Information System Strategy Triangle Business (Firm) Strategy Organizational Strategy IS/IT Strategy N

48. Information System Strategy Triangle for Roche’s new scientific method 1. Genomics Revolution/ Breakthroughs 2. First to the Market with a new drug to cure cancer or other diseases (First Mover) Business (Firm) Strategy 1. Culture of failure is alright (Fail Fast Approach) 2. Hire people who can adapt to changing 3. Build Teams 4. Reward system Organizational Strategy IS/IT Strategy IT revolution (Process voluminous data fast) 1. To screen compounds 2. To run simulations or GeneChip experiments 3. To identify and locate genes that are associated with stroke using Decode N

49. Q#1: According to Case Study 1-1 (Pearlson’s text, pp. 41-42), howand what does the business strategy affect information systems and organizational decisions? • In order to take advantage of advances in the genomics revolution, Roche is rethinking the way it builds teams (organizational strategy), rewards teams (organizational strategy), hires people (organizational strategy), creates a culture (organizational strategy) and processes data (IS strategy). • In particular, it is shedding its ultracompetitive approach in favor of culture-changing collaborative approaches. It is now recruiting through advertisements run on the back pages of Science magazine. Its IS strategy incorporates the GeneChip and Fail Fast approach to speed the screening of compounds that are tested. IS must be designed to handle the large volume of data that must be analyzed.

50. Q#2: What “generic” strategy (by Porter) does Roche appear to be using based upon this case? Provide a rationale for your response. • Roche’s business strategy appears to be first to market with a new drug to cure cancer or other diseases whose genes are identified in through the genomics project. • Thus, they appear to be applying the differentiation strategy of having a drug that adds value in the cure of a disease. (It could be argued, though, that Roche is applying a focus/differentiation strategy by concentrating on cancer or strokes… it is not entirely clear what Roche’s overarching business strategy is from the case).