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Strategic grid, business development model.ppt

The document outlines the objectives and frameworks of an EMBA course related to the strategic role of information technology in business. Key concepts include Porter’s Five Forces model, the strategic grid for technology solutions, and the importance of aligning IT with business strategy to seize competitive advantages. The course emphasizes the transformative impact of IT on business processes, organizational structure, and competitive positioning.

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1 EMBA 226 • College of Business Administration • California State University, Sacramento Week 1 Week 1 Friday, July 21 Friday, July 21 • Introduction Introduction • Strategic grid, business model Strategic grid, business model • Opportunities and Threats: Porter’s Five Forces Model Opportunities and Threats: Porter’s Five Forces Model • Strategy and strategic planning Strategy and strategic planning • IT Doesn’t Matter Article IT Doesn’t Matter Article
2 EMBA 226 • College of Business Administration • California State University, Sacramento What This Class is About… What This Class is About… • Information technology (IT) has become a major driving Information technology (IT) has become a major driving force of today’s businesses. As an enabler (facilitator) and force of today’s businesses. As an enabler (facilitator) and integrator, IT has opened many strategic opportunities and integrator, IT has opened many strategic opportunities and provided the means to seize competitive advantages in provided the means to seize competitive advantages in marketplaces. The topics covered throughout this course marketplaces. The topics covered throughout this course will emphasize IT’s prominent role in business strategy. will emphasize IT’s prominent role in business strategy.
3 EMBA 226 • College of Business Administration • California State University, Sacramento Introductions Introductions • What is your view on IT in business? What is your view on IT in business?
4 EMBA 226 • College of Business Administration • California State University, Sacramento Which is the Most Versatile Hand Tool? Which is the Most Versatile Hand Tool? Vise Vise Hammer Hammer Pliers Pliers Saw Saw Pipe wrench Pipe wrench Flat bladed screwdriver Flat bladed screwdriver Bubble level Bubble level Tape measure Tape measure
5 EMBA 226 • College of Business Administration • California State University, Sacramento Flat Bladed Screwdriver Flat Bladed Screwdriver • Screw Screw • Hammer Hammer • Chisel Chisel • Pry bar Pry bar • Punch holes Punch holes • Set nails Set nails • Stir liquids Stir liquids • Putty knife Putty knife • Score and cut Score and cut • And the list goes on… And the list goes on…
6 EMBA 226 • College of Business Administration • California State University, Sacramento IT is Similar to a Flat Bladed Screwdriver IT is Similar to a Flat Bladed Screwdriver • IT provides the means for businesses to do something better! IT provides the means for businesses to do something better! – Leverages other resources Leverages other resources – Enables and enhances business processes – Enables and enhances business processes – Facilitates Facilitates efficiency and effectiveness efficiency and effectiveness – Seizes competitive advantages Seizes competitive advantages – Levels the playing field – Levels the playing field – Small businesses can look and Small businesses can look and behave like big businesses behave like big businesses – Extends the business beyond its boundaries – Extends the business beyond its boundaries – Strategic Strategic alliances, strategic outsourcing, supply chain management alliances, strategic outsourcing, supply chain management – And the list goes on… And the list goes on…
7 EMBA 226 • College of Business Administration • California State University, Sacramento What You Should Take Away from This Class What You Should Take Away from This Class 1. 1. Place IT solutions in the strategic grid – Match the Place IT solutions in the strategic grid – Match the solution to the business solution to the business 2. 2. Businesses do not adopt technology for technology’s sake Businesses do not adopt technology for technology’s sake 3. 3. Focus on the business and not the technology Focus on the business and not the technology 4. 4. IT leverages other resources and processes IT leverages other resources and processes 5. 5. IT introduces organizational change IT introduces organizational change 6. 6. IT integrates the enterprise IT integrates the enterprise 7. 7. Knowledge is an organizational resource Knowledge is an organizational resource
8 EMBA 226 • College of Business Administration • California State University, Sacramento IT Leverages Other Resources IT Leverages Other Resources CRM CRM leverages leverages Relationship Relationship Marketing Marketing
9 EMBA 226 • College of Business Administration • California State University, Sacramento IT Leverages Other Resources IT Leverages Other Resources Business Intelligence Business Intelligence
10 EMBA 226 • College of Business Administration • California State University, Sacramento IT, the Great Integrator IT, the Great Integrator Enables and enhances business process Enables and enhances business process
11 EMBA 226 • College of Business Administration • California State University, Sacramento IT Allows a Business to Seize Competitive IT Allows a Business to Seize Competitive Advantages Advantages Price Competition Price Competition
12 EMBA 226 • College of Business Administration • California State University, Sacramento IT Allows a Business to Seize Competitive IT Allows a Business to Seize Competitive Advantages Advantages Convenience Convenience
13 EMBA 226 • College of Business Administration • California State University, Sacramento IT Allows a Business to Seize Competitive IT Allows a Business to Seize Competitive Advantages Advantages Customization Customization
14 EMBA 226 • College of Business Administration • California State University, Sacramento Which of these Which of these businesses is larger? businesses is larger? IT the Great Equalizer: IT the Great Equalizer: IT Evens the Playing Field IT Evens the Playing Field
15 EMBA 226 • College of Business Administration • California State University, Sacramento Extends the Business Beyond Its Extends the Business Beyond Its Boundaries Boundaries Horizontal integration Horizontal integration
16 EMBA 226 • College of Business Administration • California State University, Sacramento Extends the Business Beyond Its Extends the Business Beyond Its Boundaries Boundaries Vertical integration Vertical integration
17 EMBA 226 • College of Business Administration • California State University, Sacramento Supply Chain Management Supply Chain Management Inter-Organizational IT Inter-Organizational IT • Coordinating suppliers Coordinating suppliers – From EDI (electronic data interchange) to the Internet From EDI (electronic data interchange) to the Internet • Establishing close and tight relationships Establishing close and tight relationships – Loose integration – ad hoc and occasional Loose integration – ad hoc and occasional – Close integration – formal exchange of information between Close integration – formal exchange of information between businesses businesses – Tight integration – sharing a business processes (e.g., UPS) Tight integration – sharing a business processes (e.g., UPS) • Becoming a customer-centric value chain (virtual enterprise) Becoming a customer-centric value chain (virtual enterprise) – Risk sharing Risk sharing – Supply chain ( Supply chain (suppliers suppliers) vs. demand chain ( ) vs. demand chain (distributors and retailers distributors and retailers) )
18 EMBA 226 • College of Business Administration • California State University, Sacramento Rules, Enabling, Business Models and Rules, Enabling, Business Models and IT Adoption… IT Adoption…
19 EMBA 226 • College of Business Administration • California State University, Sacramento IT and Business: Two Golden Rules IT and Business: Two Golden Rules • IT does not (directly) increase productivity IT does not (directly) increase productivity • Businesses do not adopt new technology for technology’s Businesses do not adopt new technology for technology’s sake sake – What value does it add to the business? What value does it add to the business? – How does it support the business’ strategy, goals and How does it support the business’ strategy, goals and objectives? objectives? – Can it be linked to competitive advantage? Can it be linked to competitive advantage? – What’s the bottom line? What’s the bottom line?
20 EMBA 226 • College of Business Administration • California State University, Sacramento IT and Business IT and Business Briefly… Briefly… • IT enables fundamental changes in the way work is done IT enables fundamental changes in the way work is done • IT enables the integration of business functions at all levels IT enables the integration of business functions at all levels within and between organizations within and between organizations • IT causes shifts in the competitive climate of many IT causes shifts in the competitive climate of many industries (i.e., industries (i.e., breakthrough technology breakthrough technology) ) • IT presents new strategic opportunities for organizations IT presents new strategic opportunities for organizations that reassess their mission and goals that reassess their mission and goals • Successful application of IT requires changes in Successful application of IT requires changes in management and organization structure management and organization structure
21 EMBA 226 • College of Business Administration • California State University, Sacramento IT and Business IT and Business (cont.) (cont.) • A major challenge exists for management to lead their A major challenge exists for management to lead their organizations through the transformation necessary to organizations through the transformation necessary to prosper in the globally competitive environment prosper in the globally competitive environment
22 EMBA 226 • College of Business Administration • California State University, Sacramento Business Model Business Model • Defines how an enterprise interacts with its environment to Defines how an enterprise interacts with its environment to define a unique strategy, attract the resources and build the define a unique strategy, attract the resources and build the capabilities to execute it capabilities to execute it • Creates values for all stakeholders Creates values for all stakeholders Inputs Processes Outputs Simply put, the business model defines how inputs are converted to outputs
23 EMBA 226 • College of Business Administration • California State University, Sacramento IT and the Business IT and the Business • Adoption of IT must be within the capabilities of the Adoption of IT must be within the capabilities of the business business • There must be a clear vision of how technology will be There must be a clear vision of how technology will be used for a clear used for a clear profitable profitable gain gain • A proposed IT solution must take into account A proposed IT solution must take into account organizational factors organizational factors – Strategic grid Strategic grid
24 EMBA 226 • College of Business Administration • California State University, Sacramento Business Models and IT Adoption Business Models and IT Adoption For example… For example… Two successful grocers taking two Two successful grocers taking two different approaches to business different approaches to business
25 EMBA 226 • College of Business Administration • California State University, Sacramento Peapod Peapod
26 EMBA 226 • College of Business Administration • California State University, Sacramento Peapod Peapod
27 EMBA 226 • College of Business Administration • California State University, Sacramento Virtual store Virtual store Peapod Peapod
28 EMBA 226 • College of Business Administration • California State University, Sacramento
29 EMBA 226 • College of Business Administration • California State University, Sacramento Select by flavor Select by flavor Select by brand Select by brand
30 EMBA 226 • College of Business Administration • California State University, Sacramento
31 EMBA 226 • College of Business Administration • California State University, Sacramento Shopping basket Shopping basket Running total Running total
32 EMBA 226 • College of Business Administration • California State University, Sacramento Check Out: Pick a Delivery Date Check Out: Pick a Delivery Date
33 EMBA 226 • College of Business Administration • California State University, Sacramento Enter Account Enter Account
34 EMBA 226 • College of Business Administration • California State University, Sacramento Due to the nature Due to the nature of the merchandise of the merchandise (i.e., highly (i.e., highly perishable, low perishable, low profit margin), profit margin), customer customer expectations and expectations and the high cost of the high cost of fuel, logistics fuel, logistics becomes an major becomes an major concern concern Peapod Peapod
35 EMBA 226 • College of Business Administration • California State University, Sacramento Peapod Peapod Customer sends order via Web Customer sends order via Web Peapod receives the order Peapod receives the order Peapod Peapod assembles assembles the order the order Peapod delivers Peapod delivers the order the order Customer receives order Customer receives order Suppliers maintain Peapod’s inventory Suppliers maintain Peapod’s inventory Peapod bills the Peapod bills the customer’s credit customer’s credit card card
36 EMBA 226 • College of Business Administration • California State University, Sacramento "Bricks and mortar" "Bricks and mortar" retailer retailer Raley's Foods Raley's Foods
37 EMBA 226 • College of Business Administration • California State University, Sacramento Limited web shopping Limited web shopping Raley's Foods Raley's Foods
38 EMBA 226 • College of Business Administration • California State University, Sacramento Business Model Business Model Discussion… Discussion… • Define the business model Define the business model • Identify the market segments, opportunities and threats Identify the market segments, opportunities and threats • What role does IT play in the business model? What role does IT play in the business model? • What is the effect of IT in the business model? What is the effect of IT in the business model? • How does IT impact the business? How does IT impact the business?
39 EMBA 226 • College of Business Administration • California State University, Sacramento Opportunities and Threats Opportunities and Threats “ “Crisis” (weiji) Crisis” (weiji) “ “Opportunity” (jihui) Opportunity” (jihui) Opportunities grow out of crises Opportunities grow out of crises (Necessity is the mother of invention -- Plato) (Necessity is the mother of invention -- Plato) How does the business capitalize on its threats? How does the business capitalize on its threats?
40 EMBA 226 • College of Business Administration • California State University, Sacramento Strategy and Strategy and Four Models and Frameworks Four Models and Frameworks • Strategic Grid Strategic Grid • Porter’s Five Forces Model Porter’s Five Forces Model • Richard Nolan’s Stages Theory Richard Nolan’s Stages Theory • Strategic Alignment Strategic Alignment
41 EMBA 226 • College of Business Administration • California State University, Sacramento 1. Strategic Grid 1. Strategic Grid
42 EMBA 226 • College of Business Administration • California State University, Sacramento Strategic Grid Strategic Grid High High Low Low High High Low Low Impact on Impact on Existing Existing Business Business Operations Operations Impact on Strategy (future Impact on Strategy (future competitive environment) competitive environment) Factory Factory Operational IT Operational IT Support Support Basic elements Basic elements Turnaround Turnaround Gradual adoption Gradual adoption Strategic Strategic Strategic IT plan, Strategic IT plan, initiatives initiatives Management of IT depends on how the business views IT Management of IT depends on how the business views IT IT has little relevance to existing or IT has little relevance to existing or future success future success Current IT important but future IT Current IT important but future IT developments are unlikely to developments are unlikely to improve competitive advantage improve competitive advantage Existing and future IT developments Existing and future IT developments critical to success critical to success Existing IT is unimportant but future Existing IT is unimportant but future developments are crucial to survival developments are crucial to survival McFarlan and McKinney (1983) McFarlan and McKinney (1983)
43 EMBA 226 • College of Business Administration • California State University, Sacramento Placing a Business in a Quadrant Placing a Business in a Quadrant • How important does management feel the How important does management feel the current current IT IT systems are to the business? systems are to the business? • How important does the business think How important does the business think future future developments in IT will be for the business? developments in IT will be for the business? Planning a future for IT Planning a future for IT
44 EMBA 226 • College of Business Administration • California State University, Sacramento Strategic Grid Strategic Grid Quadrants: Quadrants: • Support – goals target local improvements and incremental Support – goals target local improvements and incremental cost savings (e.g., office automation) cost savings (e.g., office automation) • Factory – designed to reduce costs and improve performance Factory – designed to reduce costs and improve performance of the core operations of the core operations – Automation and computerize functions Automation and computerize functions • Turnaround – designed to exploit emerging strategic Turnaround – designed to exploit emerging strategic opportunities opportunities – Integration of the organization Integration of the organization • Strategic – commitment to use IT to enable both core Strategic – commitment to use IT to enable both core operations and core strategy operations and core strategy – IT an integral part of strategy IT an integral part of strategy
45 EMBA 226 • College of Business Administration • California State University, Sacramento 2. Porter’s Five Forces Model 2. Porter’s Five Forces Model
46 EMBA 226 • College of Business Administration • California State University, Sacramento Porter’s Five Forces Model Porter’s Five Forces Model Forces that Shape Strategy Forces that Shape Strategy Industry Industry Competitors Competitors Rivalry among Rivalry among existing firms existing firms Suppliers Suppliers Customers and Customers and Buyers Buyers Potential Potential Entrants Entrants Substitutes Substitutes Bargaining power of buyers Bargaining power of buyers Threat of substitute products or Threat of substitute products or services services Bargaining power of Bargaining power of suppliers suppliers Threat of new entrants Threat of new entrants           How will the business How will the business react to threats (and react to threats (and opportunities)? opportunities)?
47 EMBA 226 • College of Business Administration • California State University, Sacramento Contending Forces Contending Forces • The state of competition depends on the five forces The state of competition depends on the five forces • The collective strength of these forces determines the The collective strength of these forces determines the ultimate profit potential of an industry ultimate profit potential of an industry – Strongest force or forces determine the profitability of Strongest force or forces determine the profitability of an industry and are of greatest importance in strategy an industry and are of greatest importance in strategy formulation formulation
48 EMBA 226 • College of Business Administration • California State University, Sacramento 1. Threat of Entry 1. Threat of Entry • New entrants bring new capacity, desire to gain market New entrants bring new capacity, desire to gain market share, and often substantial resources share, and often substantial resources • Barriers: Barriers: – Economies of scale Economies of scale – Product differentiation Product differentiation – Capital requirements Capital requirements – Cost disadvantages independent Cost disadvantages independent of size of size – Access to distribution channels Access to distribution channels – Government policy Government policy Seriousness of the Seriousness of the threat depends on the threat depends on the barriers and the barriers and the reaction of the reaction of the incumbents incumbents
49 EMBA 226 • College of Business Administration • California State University, Sacramento Power of Buyers and Sellers Power of Buyers and Sellers • Suppliers – Can exert bargaining power on participants by Suppliers – Can exert bargaining power on participants by raising prices or reducing the quality of the goods and raising prices or reducing the quality of the goods and services services • Buyers – Can force down prices, demand higher quality or Buyers – Can force down prices, demand higher quality or more service, and play competitors against each other more service, and play competitors against each other
50 EMBA 226 • College of Business Administration • California State University, Sacramento 2. Suppliers are powerful if… 2. Suppliers are powerful if… • Dominated by a few companies Dominated by a few companies • Products is unique or well differentiated, or has built-up Products is unique or well differentiated, or has built-up switching costs switching costs • Not obligated to content with other products for sale to the Not obligated to content with other products for sale to the industry industry • Poses a credible threat of integrating forward into the Poses a credible threat of integrating forward into the industry’s business industry’s business • Industry is not an important customer (of the supplier Industry is not an important customer (of the supplier group) group)
51 EMBA 226 • College of Business Administration • California State University, Sacramento 3. Buyers are powerful if… 3. Buyers are powerful if… • Concentrated or purchases in large volumes Concentrated or purchases in large volumes • Products/services are standard or undifferentiated Products/services are standard or undifferentiated • Products form a component of its product and represent a Products form a component of its product and represent a significant fraction of its cost significant fraction of its cost • Earns low profits, which create great incentive to lower its Earns low profits, which create great incentive to lower its purchasing costs purchasing costs • Industry’s product is unimportant to the quality of the buyer’s Industry’s product is unimportant to the quality of the buyer’s products or services products or services • Industry’s product does not save the buyer money Industry’s product does not save the buyer money • Pose a credible threat of integrating backward to make the Pose a credible threat of integrating backward to make the industry’s product industry’s product
52 EMBA 226 • College of Business Administration • California State University, Sacramento 4. Threat of Substitutes 4. Threat of Substitutes • Substitutes limit the potential of an industry, particularly Substitutes limit the potential of an industry, particularly profits profits • Industry must upgrade the quality or differentiate the Industry must upgrade the quality or differentiate the product/service product/service • Substitutes that deserve the most attention are those that: Substitutes that deserve the most attention are those that: – Subject to trends improving their price-performance Subject to trends improving their price-performance trade-off trade-off – Produced by industries earning high profits Produced by industries earning high profits
53 EMBA 226 • College of Business Administration • California State University, Sacramento 5. Rivalry Among Competitors 5. Rivalry Among Competitors Jockeying for Position Jockeying for Position Intensity depends on… Intensity depends on… • Competitors are numerous or roughly equal in size and Competitors are numerous or roughly equal in size and power power • Industry growth is slow, precipitating fights for market Industry growth is slow, precipitating fights for market share share • Product/service lacks differentiation or switch costs Product/service lacks differentiation or switch costs • Fixed cost are high or the product is perishable Fixed cost are high or the product is perishable • Capacity normally augments in large increments Capacity normally augments in large increments • Exit barriers are high Exit barriers are high • Rivals are diverse in strategies, origins and “personalities” Rivals are diverse in strategies, origins and “personalities”
54 EMBA 226 • College of Business Administration • California State University, Sacramento Strategy Formulation Strategy Formulation • Strategy depends on the company’s strengths and Strategy depends on the company’s strengths and weakness relative to the threats weakness relative to the threats • Strategic plan may… Strategic plan may… – Position the company so its capabilities provide the Position the company so its capabilities provide the best defense against competitive forces best defense against competitive forces – Influence the balance of forces through strategic moves Influence the balance of forces through strategic moves – Anticipate and respond to shifts in factors underlying Anticipate and respond to shifts in factors underlying forces to exploit change forces to exploit change
55 EMBA 226 • College of Business Administration • California State University, Sacramento Approaches to Strategy Approaches to Strategy • Positioning the company so it is the least vulnerable to its Positioning the company so it is the least vulnerable to its competitive forces competitive forces • Taking the offensive and alter the market Taking the offensive and alter the market • Exploiting industry evolution (change) Exploiting industry evolution (change) How can IT make a difference? How can IT make a difference?
56 EMBA 226 • College of Business Administration • California State University, Sacramento • “ “How Competitive Forces Shape Strategy,” Michael E. How Competitive Forces Shape Strategy,” Michael E. Porter, Harvard Business Review, March-April 1979. Porter, Harvard Business Review, March-April 1979.
57 EMBA 226 • College of Business Administration • California State University, Sacramento 3. Nolan’s Stages Theory 3. Nolan’s Stages Theory
58 EMBA 226 • College of Business Administration • California State University, Sacramento Nolan's Stage Theory Nolan's Stage Theory • All organizations go through four stages for IT adoption All organizations go through four stages for IT adoption – Introduction Introduction – Contagion Contagion – Control Control – Integration Integration IT is recognized as a resource IT is recognized as a resource
59 EMBA 226 • College of Business Administration • California State University, Sacramento IT Resource IT Resource Nolan's Stages Theory Nolan's Stages Theory Introduction Introduction Contagion Contagion Control Control Integration Integration Time Time Investment Investment in IT in IT Stage 1 Stage 1 Stage 2 Stage 2 Stage 3 Stage 3 Stage 4 Stage 4 An organization’s experience with adopting IT An organization’s experience with adopting IT Diffusion Diffusion
60 EMBA 226 • College of Business Administration • California State University, Sacramento 4. Strategic Alignment 4. Strategic Alignment
61 EMBA 226 • College of Business Administration • California State University, Sacramento IT’s Role In Business: IT’s Role In Business: Strategic Alignment Model Strategic Alignment Model Strategic Information Strategic Information Functional Integration Functional Integration Business domain Business domain IT domain IT domain External External Internal Internal Business Business strategy strategy Organizational Organizational infrastructure infrastructure IT IT strategy strategy IS IS infrastructure infrastructure Administrative infrastructure, Administrative infrastructure, processes, skills processes, skills Applications infrastructure, Applications infrastructure, processes, skills processes, skills Coalignment Coalignment Business scope, competencies, Business scope, competencies, business governance business governance Technology scope, Technology scope, competencies, IT governance competencies, IT governance
62 EMBA 226 • College of Business Administration • California State University, Sacramento In a Nutshell… In a Nutshell… Business Business IT IT Strategy Strategy Strategy Strategy Capabilities Capabilities Capabilities Capabilities Alignment Alignment Alignment Alignment IT infrastructure IT infrastructure Process Reengineering Process Reengineering (Control, enhancing, leveraging) (Control, enhancing, leveraging) Business networks Business networks (Competitive Advantage) (Competitive Advantage) Value Value Vision Vision
63 EMBA 226 • College of Business Administration • California State University, Sacramento A Few More Factors to Consider A Few More Factors to Consider IT Planning Dilemma IT Planning Dilemma Investments in IT Investments in IT
64 EMBA 226 • College of Business Administration • California State University, Sacramento What Does It Take to Become Strategic? What Does It Take to Become Strategic? Basic IT for operations Basic IT for operations IT to compete IT to compete IT for competitive IT for competitive advantage advantage
65 EMBA 226 • College of Business Administration • California State University, Sacramento IT Planning Dilemma IT Planning Dilemma Organization Strategic Organization Strategic Plan Plan Information Technology Information Technology Strategic Plan Strategic Plan Should the strategic plan Should the strategic plan specify the technologies to specify the technologies to adopt? adopt? Should an IT strategic plan Should an IT strategic plan precede an organizational precede an organizational strategy? strategy? ? ? Direction Direction Enabling Enabling technologies technologies Which should come first? Which should come first?
66 EMBA 226 • College of Business Administration • California State University, Sacramento Introducing IT into the Organization Introducing IT into the Organization Operational Plan Operational Plan Tactical Plan Tactical Plan Strategic Plan Strategic Plan Mission Statement Mission Statement Strategy Strategy Policy Policy Implementation Implementation & Adoption & Adoption Top-Down Top-Down Bottom-Up Bottom-Up Mission Statement Mission Statement Context Context Initiatives Initiatives Inductive Change Inductive Change Deductive Change Deductive Change How does an organization introduce changes in IT? How does an organization introduce changes in IT?
67 EMBA 226 • College of Business Administration • California State University, Sacramento Strategy and Threats Strategy and Threats Threats Threats Opportunities Opportunities Strategy Strategy How does the business capitalize on its threats? How does the business capitalize on its threats?
68 EMBA 226 • College of Business Administration • California State University, Sacramento What are strategy and strategic planning? What are strategy and strategic planning?
69 EMBA 226 • College of Business Administration • California State University, Sacramento Strategy Strategy • “ “The essence of strategy formulation is coping with The essence of strategy formulation is coping with competition.” competition.” Michael Porter, 1979 Michael Porter, 1979
70 EMBA 226 • College of Business Administration • California State University, Sacramento What is Strategy? What is Strategy? • Strategy is the pattern of missions, objectives, policies, and Strategy is the pattern of missions, objectives, policies, and significant resource utilization plans stated in such a way significant resource utilization plans stated in such a way as to as to define what business the company is in define what business the company is in (or is to be in) (or is to be in) and and the kind of company it is or is to be the kind of company it is or is to be. It defines: . It defines: – The product line, markets and market segments for The product line, markets and market segments for which products are to be designed which products are to be designed – The channels through which these markets will be The channels through which these markets will be reached reached – The means by which the operation is to be financed The means by which the operation is to be financed – The profit objectives The profit objectives
71 EMBA 226 • College of Business Administration • California State University, Sacramento What is Strategy? What is Strategy? Cont. Cont. – The size of the organization The size of the organization – The image which it will project to employees, suppliers The image which it will project to employees, suppliers and customers and customers Bullen and Rockart, Bullen and Rockart, 1981 1981
72 EMBA 226 • College of Business Administration • California State University, Sacramento What is Strategy? What is Strategy? • Defines the revenue and growth potential of the Defines the revenue and growth potential of the organization organization • Focuses attention and resources on a specific set of goals Focuses attention and resources on a specific set of goals and the projects required to achieve them and the projects required to achieve them Applegate, Austin and McFarlan Applegate, Austin and McFarlan
73 EMBA 226 • College of Business Administration • California State University, Sacramento Strategy Strategy Strategy Strategy Mission Mission Vision Vision A strategy incorporates the vision and mission of the business A strategy incorporates the vision and mission of the business Purpose Purpose Introspect Introspect Achievement Achievement
74 EMBA 226 • College of Business Administration • California State University, Sacramento • Vision statement reflects the organization’s future aspirations Vision statement reflects the organization’s future aspirations and direction and direction • Mission statement represents the “intents” or “purpose” of the Mission statement represents the “intents” or “purpose” of the organization organization • Strategy embodies the “image,” customers (markets), business Strategy embodies the “image,” customers (markets), business model and measure of achievement model and measure of achievement – IT as an enabler to proactively implement change (i.e., IT as an enabler to proactively implement change (i.e., innovate innovate   competitive pull) or reactively adapt to change competitive pull) or reactively adapt to change (i.e., Porter’s 5 force model, (i.e., Porter’s 5 force model, technology technology   push) push) Strategy Strategy
75 EMBA 226 • College of Business Administration • California State University, Sacramento Strategic Management Strategic Management Management Management Control Control Operational Control Operational Control Strategic Planning Strategic Planning
76 EMBA 226 • College of Business Administration • California State University, Sacramento Strategic Planning Strategic Planning Should… Should… • Be forward looking Be forward looking • Focus on external factors and opportunities, and their Focus on external factors and opportunities, and their impact on the business impact on the business • Specify the direction the business should take Specify the direction the business should take – Markets to pursue, image to project, business model Markets to pursue, image to project, business model • Be long-term Be long-term – Depending on the industry, 2 to 5 years Depending on the industry, 2 to 5 years • Formal vs. informal Formal vs. informal – Extent to which is documented and the frequency of Extent to which is documented and the frequency of planning planning
77 EMBA 226 • College of Business Administration • California State University, Sacramento Levels of Management Levels of Management • Strategic Planning Strategic Planning – "Strategic planning is the process of deciding on objectives "Strategic planning is the process of deciding on objectives of the organization, on changes in these objectives, on the of the organization, on changes in these objectives, on the resources used to attain these objectives, and on the policies resources used to attain these objectives, and on the policies that are to govern the acquisition, use, and disposition of that are to govern the acquisition, use, and disposition of these resources." these resources." • Management control Management control – "Management control is the process by which managers "Management control is the process by which managers assure that resources are obtained and used effectively and assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization's efficiently in the accomplishment of the organization's objectives." objectives."
78 EMBA 226 • College of Business Administration • California State University, Sacramento Levels of Management (Cont.) Levels of Management (Cont.) • Operational control Operational control – "Operation control is the process of assuring that "Operation control is the process of assuring that specific tasks are carried out effectively and specific tasks are carried out effectively and efficiently." efficiently." Anthony, 1965 Anthony, 1965
79 EMBA 226 • College of Business Administration • California State University, Sacramento Gaining a Competitive Advantage with IT Gaining a Competitive Advantage with IT • IT alone is not a strategic differentiator IT alone is not a strategic differentiator – Enables the business to do things Enables the business to do things – Does not have a direct effect on productivity Does not have a direct effect on productivity • Must be coupled with other innovative processes Must be coupled with other innovative processes Lessons from IT practice… Lessons from IT practice… • Value from IT comes only when it is paired with concurrent Value from IT comes only when it is paired with concurrent innovations in business practice innovations in business practice • IT's economic impact comes from incremental IT's economic impact comes from incremental improvements improvements • Strategic differentiation emerges over time Strategic differentiation emerges over time – Short-term Short-term

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Strategic grid, business development model.ppt

  • 1.
    1 EMBA 226 •College of Business Administration • California State University, Sacramento Week 1 Week 1 Friday, July 21 Friday, July 21 • Introduction Introduction • Strategic grid, business model Strategic grid, business model • Opportunities and Threats: Porter’s Five Forces Model Opportunities and Threats: Porter’s Five Forces Model • Strategy and strategic planning Strategy and strategic planning • IT Doesn’t Matter Article IT Doesn’t Matter Article
  • 2.
    2 EMBA 226 •College of Business Administration • California State University, Sacramento What This Class is About… What This Class is About… • Information technology (IT) has become a major driving Information technology (IT) has become a major driving force of today’s businesses. As an enabler (facilitator) and force of today’s businesses. As an enabler (facilitator) and integrator, IT has opened many strategic opportunities and integrator, IT has opened many strategic opportunities and provided the means to seize competitive advantages in provided the means to seize competitive advantages in marketplaces. The topics covered throughout this course marketplaces. The topics covered throughout this course will emphasize IT’s prominent role in business strategy. will emphasize IT’s prominent role in business strategy.
  • 3.
    3 EMBA 226 •College of Business Administration • California State University, Sacramento Introductions Introductions • What is your view on IT in business? What is your view on IT in business?
  • 4.
    4 EMBA 226 •College of Business Administration • California State University, Sacramento Which is the Most Versatile Hand Tool? Which is the Most Versatile Hand Tool? Vise Vise Hammer Hammer Pliers Pliers Saw Saw Pipe wrench Pipe wrench Flat bladed screwdriver Flat bladed screwdriver Bubble level Bubble level Tape measure Tape measure
  • 5.
    5 EMBA 226 •College of Business Administration • California State University, Sacramento Flat Bladed Screwdriver Flat Bladed Screwdriver • Screw Screw • Hammer Hammer • Chisel Chisel • Pry bar Pry bar • Punch holes Punch holes • Set nails Set nails • Stir liquids Stir liquids • Putty knife Putty knife • Score and cut Score and cut • And the list goes on… And the list goes on…
  • 6.
    6 EMBA 226 •College of Business Administration • California State University, Sacramento IT is Similar to a Flat Bladed Screwdriver IT is Similar to a Flat Bladed Screwdriver • IT provides the means for businesses to do something better! IT provides the means for businesses to do something better! – Leverages other resources Leverages other resources – Enables and enhances business processes – Enables and enhances business processes – Facilitates Facilitates efficiency and effectiveness efficiency and effectiveness – Seizes competitive advantages Seizes competitive advantages – Levels the playing field – Levels the playing field – Small businesses can look and Small businesses can look and behave like big businesses behave like big businesses – Extends the business beyond its boundaries – Extends the business beyond its boundaries – Strategic Strategic alliances, strategic outsourcing, supply chain management alliances, strategic outsourcing, supply chain management – And the list goes on… And the list goes on…
  • 7.
    7 EMBA 226 •College of Business Administration • California State University, Sacramento What You Should Take Away from This Class What You Should Take Away from This Class 1. 1. Place IT solutions in the strategic grid – Match the Place IT solutions in the strategic grid – Match the solution to the business solution to the business 2. 2. Businesses do not adopt technology for technology’s sake Businesses do not adopt technology for technology’s sake 3. 3. Focus on the business and not the technology Focus on the business and not the technology 4. 4. IT leverages other resources and processes IT leverages other resources and processes 5. 5. IT introduces organizational change IT introduces organizational change 6. 6. IT integrates the enterprise IT integrates the enterprise 7. 7. Knowledge is an organizational resource Knowledge is an organizational resource
  • 8.
    8 EMBA 226 •College of Business Administration • California State University, Sacramento IT Leverages Other Resources IT Leverages Other Resources CRM CRM leverages leverages Relationship Relationship Marketing Marketing
  • 9.
    9 EMBA 226 •College of Business Administration • California State University, Sacramento IT Leverages Other Resources IT Leverages Other Resources Business Intelligence Business Intelligence
  • 10.
    10 EMBA 226 •College of Business Administration • California State University, Sacramento IT, the Great Integrator IT, the Great Integrator Enables and enhances business process Enables and enhances business process
  • 11.
    11 EMBA 226 •College of Business Administration • California State University, Sacramento IT Allows a Business to Seize Competitive IT Allows a Business to Seize Competitive Advantages Advantages Price Competition Price Competition
  • 12.
    12 EMBA 226 •College of Business Administration • California State University, Sacramento IT Allows a Business to Seize Competitive IT Allows a Business to Seize Competitive Advantages Advantages Convenience Convenience
  • 13.
    13 EMBA 226 •College of Business Administration • California State University, Sacramento IT Allows a Business to Seize Competitive IT Allows a Business to Seize Competitive Advantages Advantages Customization Customization
  • 14.
    14 EMBA 226 •College of Business Administration • California State University, Sacramento Which of these Which of these businesses is larger? businesses is larger? IT the Great Equalizer: IT the Great Equalizer: IT Evens the Playing Field IT Evens the Playing Field
  • 15.
    15 EMBA 226 •College of Business Administration • California State University, Sacramento Extends the Business Beyond Its Extends the Business Beyond Its Boundaries Boundaries Horizontal integration Horizontal integration
  • 16.
    16 EMBA 226 •College of Business Administration • California State University, Sacramento Extends the Business Beyond Its Extends the Business Beyond Its Boundaries Boundaries Vertical integration Vertical integration
  • 17.
    17 EMBA 226 •College of Business Administration • California State University, Sacramento Supply Chain Management Supply Chain Management Inter-Organizational IT Inter-Organizational IT • Coordinating suppliers Coordinating suppliers – From EDI (electronic data interchange) to the Internet From EDI (electronic data interchange) to the Internet • Establishing close and tight relationships Establishing close and tight relationships – Loose integration – ad hoc and occasional Loose integration – ad hoc and occasional – Close integration – formal exchange of information between Close integration – formal exchange of information between businesses businesses – Tight integration – sharing a business processes (e.g., UPS) Tight integration – sharing a business processes (e.g., UPS) • Becoming a customer-centric value chain (virtual enterprise) Becoming a customer-centric value chain (virtual enterprise) – Risk sharing Risk sharing – Supply chain ( Supply chain (suppliers suppliers) vs. demand chain ( ) vs. demand chain (distributors and retailers distributors and retailers) )
  • 18.
    18 EMBA 226 •College of Business Administration • California State University, Sacramento Rules, Enabling, Business Models and Rules, Enabling, Business Models and IT Adoption… IT Adoption…
  • 19.
    19 EMBA 226 •College of Business Administration • California State University, Sacramento IT and Business: Two Golden Rules IT and Business: Two Golden Rules • IT does not (directly) increase productivity IT does not (directly) increase productivity • Businesses do not adopt new technology for technology’s Businesses do not adopt new technology for technology’s sake sake – What value does it add to the business? What value does it add to the business? – How does it support the business’ strategy, goals and How does it support the business’ strategy, goals and objectives? objectives? – Can it be linked to competitive advantage? Can it be linked to competitive advantage? – What’s the bottom line? What’s the bottom line?
  • 20.
    20 EMBA 226 •College of Business Administration • California State University, Sacramento IT and Business IT and Business Briefly… Briefly… • IT enables fundamental changes in the way work is done IT enables fundamental changes in the way work is done • IT enables the integration of business functions at all levels IT enables the integration of business functions at all levels within and between organizations within and between organizations • IT causes shifts in the competitive climate of many IT causes shifts in the competitive climate of many industries (i.e., industries (i.e., breakthrough technology breakthrough technology) ) • IT presents new strategic opportunities for organizations IT presents new strategic opportunities for organizations that reassess their mission and goals that reassess their mission and goals • Successful application of IT requires changes in Successful application of IT requires changes in management and organization structure management and organization structure
  • 21.
    21 EMBA 226 •College of Business Administration • California State University, Sacramento IT and Business IT and Business (cont.) (cont.) • A major challenge exists for management to lead their A major challenge exists for management to lead their organizations through the transformation necessary to organizations through the transformation necessary to prosper in the globally competitive environment prosper in the globally competitive environment
  • 22.
    22 EMBA 226 •College of Business Administration • California State University, Sacramento Business Model Business Model • Defines how an enterprise interacts with its environment to Defines how an enterprise interacts with its environment to define a unique strategy, attract the resources and build the define a unique strategy, attract the resources and build the capabilities to execute it capabilities to execute it • Creates values for all stakeholders Creates values for all stakeholders Inputs Processes Outputs Simply put, the business model defines how inputs are converted to outputs
  • 23.
    23 EMBA 226 •College of Business Administration • California State University, Sacramento IT and the Business IT and the Business • Adoption of IT must be within the capabilities of the Adoption of IT must be within the capabilities of the business business • There must be a clear vision of how technology will be There must be a clear vision of how technology will be used for a clear used for a clear profitable profitable gain gain • A proposed IT solution must take into account A proposed IT solution must take into account organizational factors organizational factors – Strategic grid Strategic grid
  • 24.
    24 EMBA 226 •College of Business Administration • California State University, Sacramento Business Models and IT Adoption Business Models and IT Adoption For example… For example… Two successful grocers taking two Two successful grocers taking two different approaches to business different approaches to business
  • 25.
    25 EMBA 226 •College of Business Administration • California State University, Sacramento Peapod Peapod
  • 26.
    26 EMBA 226 •College of Business Administration • California State University, Sacramento Peapod Peapod
  • 27.
    27 EMBA 226 •College of Business Administration • California State University, Sacramento Virtual store Virtual store Peapod Peapod
  • 28.
    28 EMBA 226 •College of Business Administration • California State University, Sacramento
  • 29.
    29 EMBA 226 •College of Business Administration • California State University, Sacramento Select by flavor Select by flavor Select by brand Select by brand
  • 30.
    30 EMBA 226 •College of Business Administration • California State University, Sacramento
  • 31.
    31 EMBA 226 •College of Business Administration • California State University, Sacramento Shopping basket Shopping basket Running total Running total
  • 32.
    32 EMBA 226 •College of Business Administration • California State University, Sacramento Check Out: Pick a Delivery Date Check Out: Pick a Delivery Date
  • 33.
    33 EMBA 226 •College of Business Administration • California State University, Sacramento Enter Account Enter Account
  • 34.
    34 EMBA 226 •College of Business Administration • California State University, Sacramento Due to the nature Due to the nature of the merchandise of the merchandise (i.e., highly (i.e., highly perishable, low perishable, low profit margin), profit margin), customer customer expectations and expectations and the high cost of the high cost of fuel, logistics fuel, logistics becomes an major becomes an major concern concern Peapod Peapod
  • 35.
    35 EMBA 226 •College of Business Administration • California State University, Sacramento Peapod Peapod Customer sends order via Web Customer sends order via Web Peapod receives the order Peapod receives the order Peapod Peapod assembles assembles the order the order Peapod delivers Peapod delivers the order the order Customer receives order Customer receives order Suppliers maintain Peapod’s inventory Suppliers maintain Peapod’s inventory Peapod bills the Peapod bills the customer’s credit customer’s credit card card
  • 36.
    36 EMBA 226 •College of Business Administration • California State University, Sacramento "Bricks and mortar" "Bricks and mortar" retailer retailer Raley's Foods Raley's Foods
  • 37.
    37 EMBA 226 •College of Business Administration • California State University, Sacramento Limited web shopping Limited web shopping Raley's Foods Raley's Foods
  • 38.
    38 EMBA 226 •College of Business Administration • California State University, Sacramento Business Model Business Model Discussion… Discussion… • Define the business model Define the business model • Identify the market segments, opportunities and threats Identify the market segments, opportunities and threats • What role does IT play in the business model? What role does IT play in the business model? • What is the effect of IT in the business model? What is the effect of IT in the business model? • How does IT impact the business? How does IT impact the business?
  • 39.
    39 EMBA 226 •College of Business Administration • California State University, Sacramento Opportunities and Threats Opportunities and Threats “ “Crisis” (weiji) Crisis” (weiji) “ “Opportunity” (jihui) Opportunity” (jihui) Opportunities grow out of crises Opportunities grow out of crises (Necessity is the mother of invention -- Plato) (Necessity is the mother of invention -- Plato) How does the business capitalize on its threats? How does the business capitalize on its threats?
  • 40.
    40 EMBA 226 •College of Business Administration • California State University, Sacramento Strategy and Strategy and Four Models and Frameworks Four Models and Frameworks • Strategic Grid Strategic Grid • Porter’s Five Forces Model Porter’s Five Forces Model • Richard Nolan’s Stages Theory Richard Nolan’s Stages Theory • Strategic Alignment Strategic Alignment
  • 41.
    41 EMBA 226 •College of Business Administration • California State University, Sacramento 1. Strategic Grid 1. Strategic Grid
  • 42.
    42 EMBA 226 •College of Business Administration • California State University, Sacramento Strategic Grid Strategic Grid High High Low Low High High Low Low Impact on Impact on Existing Existing Business Business Operations Operations Impact on Strategy (future Impact on Strategy (future competitive environment) competitive environment) Factory Factory Operational IT Operational IT Support Support Basic elements Basic elements Turnaround Turnaround Gradual adoption Gradual adoption Strategic Strategic Strategic IT plan, Strategic IT plan, initiatives initiatives Management of IT depends on how the business views IT Management of IT depends on how the business views IT IT has little relevance to existing or IT has little relevance to existing or future success future success Current IT important but future IT Current IT important but future IT developments are unlikely to developments are unlikely to improve competitive advantage improve competitive advantage Existing and future IT developments Existing and future IT developments critical to success critical to success Existing IT is unimportant but future Existing IT is unimportant but future developments are crucial to survival developments are crucial to survival McFarlan and McKinney (1983) McFarlan and McKinney (1983)
  • 43.
    43 EMBA 226 •College of Business Administration • California State University, Sacramento Placing a Business in a Quadrant Placing a Business in a Quadrant • How important does management feel the How important does management feel the current current IT IT systems are to the business? systems are to the business? • How important does the business think How important does the business think future future developments in IT will be for the business? developments in IT will be for the business? Planning a future for IT Planning a future for IT
  • 44.
    44 EMBA 226 •College of Business Administration • California State University, Sacramento Strategic Grid Strategic Grid Quadrants: Quadrants: • Support – goals target local improvements and incremental Support – goals target local improvements and incremental cost savings (e.g., office automation) cost savings (e.g., office automation) • Factory – designed to reduce costs and improve performance Factory – designed to reduce costs and improve performance of the core operations of the core operations – Automation and computerize functions Automation and computerize functions • Turnaround – designed to exploit emerging strategic Turnaround – designed to exploit emerging strategic opportunities opportunities – Integration of the organization Integration of the organization • Strategic – commitment to use IT to enable both core Strategic – commitment to use IT to enable both core operations and core strategy operations and core strategy – IT an integral part of strategy IT an integral part of strategy
  • 45.
    45 EMBA 226 •College of Business Administration • California State University, Sacramento 2. Porter’s Five Forces Model 2. Porter’s Five Forces Model
  • 46.
    46 EMBA 226 •College of Business Administration • California State University, Sacramento Porter’s Five Forces Model Porter’s Five Forces Model Forces that Shape Strategy Forces that Shape Strategy Industry Industry Competitors Competitors Rivalry among Rivalry among existing firms existing firms Suppliers Suppliers Customers and Customers and Buyers Buyers Potential Potential Entrants Entrants Substitutes Substitutes Bargaining power of buyers Bargaining power of buyers Threat of substitute products or Threat of substitute products or services services Bargaining power of Bargaining power of suppliers suppliers Threat of new entrants Threat of new entrants           How will the business How will the business react to threats (and react to threats (and opportunities)? opportunities)?
  • 47.
    47 EMBA 226 •College of Business Administration • California State University, Sacramento Contending Forces Contending Forces • The state of competition depends on the five forces The state of competition depends on the five forces • The collective strength of these forces determines the The collective strength of these forces determines the ultimate profit potential of an industry ultimate profit potential of an industry – Strongest force or forces determine the profitability of Strongest force or forces determine the profitability of an industry and are of greatest importance in strategy an industry and are of greatest importance in strategy formulation formulation
  • 48.
    48 EMBA 226 •College of Business Administration • California State University, Sacramento 1. Threat of Entry 1. Threat of Entry • New entrants bring new capacity, desire to gain market New entrants bring new capacity, desire to gain market share, and often substantial resources share, and often substantial resources • Barriers: Barriers: – Economies of scale Economies of scale – Product differentiation Product differentiation – Capital requirements Capital requirements – Cost disadvantages independent Cost disadvantages independent of size of size – Access to distribution channels Access to distribution channels – Government policy Government policy Seriousness of the Seriousness of the threat depends on the threat depends on the barriers and the barriers and the reaction of the reaction of the incumbents incumbents
  • 49.
    49 EMBA 226 •College of Business Administration • California State University, Sacramento Power of Buyers and Sellers Power of Buyers and Sellers • Suppliers – Can exert bargaining power on participants by Suppliers – Can exert bargaining power on participants by raising prices or reducing the quality of the goods and raising prices or reducing the quality of the goods and services services • Buyers – Can force down prices, demand higher quality or Buyers – Can force down prices, demand higher quality or more service, and play competitors against each other more service, and play competitors against each other
  • 50.
    50 EMBA 226 •College of Business Administration • California State University, Sacramento 2. Suppliers are powerful if… 2. Suppliers are powerful if… • Dominated by a few companies Dominated by a few companies • Products is unique or well differentiated, or has built-up Products is unique or well differentiated, or has built-up switching costs switching costs • Not obligated to content with other products for sale to the Not obligated to content with other products for sale to the industry industry • Poses a credible threat of integrating forward into the Poses a credible threat of integrating forward into the industry’s business industry’s business • Industry is not an important customer (of the supplier Industry is not an important customer (of the supplier group) group)
  • 51.
    51 EMBA 226 •College of Business Administration • California State University, Sacramento 3. Buyers are powerful if… 3. Buyers are powerful if… • Concentrated or purchases in large volumes Concentrated or purchases in large volumes • Products/services are standard or undifferentiated Products/services are standard or undifferentiated • Products form a component of its product and represent a Products form a component of its product and represent a significant fraction of its cost significant fraction of its cost • Earns low profits, which create great incentive to lower its Earns low profits, which create great incentive to lower its purchasing costs purchasing costs • Industry’s product is unimportant to the quality of the buyer’s Industry’s product is unimportant to the quality of the buyer’s products or services products or services • Industry’s product does not save the buyer money Industry’s product does not save the buyer money • Pose a credible threat of integrating backward to make the Pose a credible threat of integrating backward to make the industry’s product industry’s product
  • 52.
    52 EMBA 226 •College of Business Administration • California State University, Sacramento 4. Threat of Substitutes 4. Threat of Substitutes • Substitutes limit the potential of an industry, particularly Substitutes limit the potential of an industry, particularly profits profits • Industry must upgrade the quality or differentiate the Industry must upgrade the quality or differentiate the product/service product/service • Substitutes that deserve the most attention are those that: Substitutes that deserve the most attention are those that: – Subject to trends improving their price-performance Subject to trends improving their price-performance trade-off trade-off – Produced by industries earning high profits Produced by industries earning high profits
  • 53.
    53 EMBA 226 •College of Business Administration • California State University, Sacramento 5. Rivalry Among Competitors 5. Rivalry Among Competitors Jockeying for Position Jockeying for Position Intensity depends on… Intensity depends on… • Competitors are numerous or roughly equal in size and Competitors are numerous or roughly equal in size and power power • Industry growth is slow, precipitating fights for market Industry growth is slow, precipitating fights for market share share • Product/service lacks differentiation or switch costs Product/service lacks differentiation or switch costs • Fixed cost are high or the product is perishable Fixed cost are high or the product is perishable • Capacity normally augments in large increments Capacity normally augments in large increments • Exit barriers are high Exit barriers are high • Rivals are diverse in strategies, origins and “personalities” Rivals are diverse in strategies, origins and “personalities”
  • 54.
    54 EMBA 226 •College of Business Administration • California State University, Sacramento Strategy Formulation Strategy Formulation • Strategy depends on the company’s strengths and Strategy depends on the company’s strengths and weakness relative to the threats weakness relative to the threats • Strategic plan may… Strategic plan may… – Position the company so its capabilities provide the Position the company so its capabilities provide the best defense against competitive forces best defense against competitive forces – Influence the balance of forces through strategic moves Influence the balance of forces through strategic moves – Anticipate and respond to shifts in factors underlying Anticipate and respond to shifts in factors underlying forces to exploit change forces to exploit change
  • 55.
    55 EMBA 226 •College of Business Administration • California State University, Sacramento Approaches to Strategy Approaches to Strategy • Positioning the company so it is the least vulnerable to its Positioning the company so it is the least vulnerable to its competitive forces competitive forces • Taking the offensive and alter the market Taking the offensive and alter the market • Exploiting industry evolution (change) Exploiting industry evolution (change) How can IT make a difference? How can IT make a difference?
  • 56.
    56 EMBA 226 •College of Business Administration • California State University, Sacramento • “ “How Competitive Forces Shape Strategy,” Michael E. How Competitive Forces Shape Strategy,” Michael E. Porter, Harvard Business Review, March-April 1979. Porter, Harvard Business Review, March-April 1979.
  • 57.
    57 EMBA 226 •College of Business Administration • California State University, Sacramento 3. Nolan’s Stages Theory 3. Nolan’s Stages Theory
  • 58.
    58 EMBA 226 •College of Business Administration • California State University, Sacramento Nolan's Stage Theory Nolan's Stage Theory • All organizations go through four stages for IT adoption All organizations go through four stages for IT adoption – Introduction Introduction – Contagion Contagion – Control Control – Integration Integration IT is recognized as a resource IT is recognized as a resource
  • 59.
    59 EMBA 226 •College of Business Administration • California State University, Sacramento IT Resource IT Resource Nolan's Stages Theory Nolan's Stages Theory Introduction Introduction Contagion Contagion Control Control Integration Integration Time Time Investment Investment in IT in IT Stage 1 Stage 1 Stage 2 Stage 2 Stage 3 Stage 3 Stage 4 Stage 4 An organization’s experience with adopting IT An organization’s experience with adopting IT Diffusion Diffusion
  • 60.
    60 EMBA 226 •College of Business Administration • California State University, Sacramento 4. Strategic Alignment 4. Strategic Alignment
  • 61.
    61 EMBA 226 •College of Business Administration • California State University, Sacramento IT’s Role In Business: IT’s Role In Business: Strategic Alignment Model Strategic Alignment Model Strategic Information Strategic Information Functional Integration Functional Integration Business domain Business domain IT domain IT domain External External Internal Internal Business Business strategy strategy Organizational Organizational infrastructure infrastructure IT IT strategy strategy IS IS infrastructure infrastructure Administrative infrastructure, Administrative infrastructure, processes, skills processes, skills Applications infrastructure, Applications infrastructure, processes, skills processes, skills Coalignment Coalignment Business scope, competencies, Business scope, competencies, business governance business governance Technology scope, Technology scope, competencies, IT governance competencies, IT governance
  • 62.
    62 EMBA 226 •College of Business Administration • California State University, Sacramento In a Nutshell… In a Nutshell… Business Business IT IT Strategy Strategy Strategy Strategy Capabilities Capabilities Capabilities Capabilities Alignment Alignment Alignment Alignment IT infrastructure IT infrastructure Process Reengineering Process Reengineering (Control, enhancing, leveraging) (Control, enhancing, leveraging) Business networks Business networks (Competitive Advantage) (Competitive Advantage) Value Value Vision Vision
  • 63.
    63 EMBA 226 •College of Business Administration • California State University, Sacramento A Few More Factors to Consider A Few More Factors to Consider IT Planning Dilemma IT Planning Dilemma Investments in IT Investments in IT
  • 64.
    64 EMBA 226 •College of Business Administration • California State University, Sacramento What Does It Take to Become Strategic? What Does It Take to Become Strategic? Basic IT for operations Basic IT for operations IT to compete IT to compete IT for competitive IT for competitive advantage advantage
  • 65.
    65 EMBA 226 •College of Business Administration • California State University, Sacramento IT Planning Dilemma IT Planning Dilemma Organization Strategic Organization Strategic Plan Plan Information Technology Information Technology Strategic Plan Strategic Plan Should the strategic plan Should the strategic plan specify the technologies to specify the technologies to adopt? adopt? Should an IT strategic plan Should an IT strategic plan precede an organizational precede an organizational strategy? strategy? ? ? Direction Direction Enabling Enabling technologies technologies Which should come first? Which should come first?
  • 66.
    66 EMBA 226 •College of Business Administration • California State University, Sacramento Introducing IT into the Organization Introducing IT into the Organization Operational Plan Operational Plan Tactical Plan Tactical Plan Strategic Plan Strategic Plan Mission Statement Mission Statement Strategy Strategy Policy Policy Implementation Implementation & Adoption & Adoption Top-Down Top-Down Bottom-Up Bottom-Up Mission Statement Mission Statement Context Context Initiatives Initiatives Inductive Change Inductive Change Deductive Change Deductive Change How does an organization introduce changes in IT? How does an organization introduce changes in IT?
  • 67.
    67 EMBA 226 •College of Business Administration • California State University, Sacramento Strategy and Threats Strategy and Threats Threats Threats Opportunities Opportunities Strategy Strategy How does the business capitalize on its threats? How does the business capitalize on its threats?
  • 68.
    68 EMBA 226 •College of Business Administration • California State University, Sacramento What are strategy and strategic planning? What are strategy and strategic planning?
  • 69.
    69 EMBA 226 •College of Business Administration • California State University, Sacramento Strategy Strategy • “ “The essence of strategy formulation is coping with The essence of strategy formulation is coping with competition.” competition.” Michael Porter, 1979 Michael Porter, 1979
  • 70.
    70 EMBA 226 •College of Business Administration • California State University, Sacramento What is Strategy? What is Strategy? • Strategy is the pattern of missions, objectives, policies, and Strategy is the pattern of missions, objectives, policies, and significant resource utilization plans stated in such a way significant resource utilization plans stated in such a way as to as to define what business the company is in define what business the company is in (or is to be in) (or is to be in) and and the kind of company it is or is to be the kind of company it is or is to be. It defines: . It defines: – The product line, markets and market segments for The product line, markets and market segments for which products are to be designed which products are to be designed – The channels through which these markets will be The channels through which these markets will be reached reached – The means by which the operation is to be financed The means by which the operation is to be financed – The profit objectives The profit objectives
  • 71.
    71 EMBA 226 •College of Business Administration • California State University, Sacramento What is Strategy? What is Strategy? Cont. Cont. – The size of the organization The size of the organization – The image which it will project to employees, suppliers The image which it will project to employees, suppliers and customers and customers Bullen and Rockart, Bullen and Rockart, 1981 1981
  • 72.
    72 EMBA 226 •College of Business Administration • California State University, Sacramento What is Strategy? What is Strategy? • Defines the revenue and growth potential of the Defines the revenue and growth potential of the organization organization • Focuses attention and resources on a specific set of goals Focuses attention and resources on a specific set of goals and the projects required to achieve them and the projects required to achieve them Applegate, Austin and McFarlan Applegate, Austin and McFarlan
  • 73.
    73 EMBA 226 •College of Business Administration • California State University, Sacramento Strategy Strategy Strategy Strategy Mission Mission Vision Vision A strategy incorporates the vision and mission of the business A strategy incorporates the vision and mission of the business Purpose Purpose Introspect Introspect Achievement Achievement
  • 74.
    74 EMBA 226 •College of Business Administration • California State University, Sacramento • Vision statement reflects the organization’s future aspirations Vision statement reflects the organization’s future aspirations and direction and direction • Mission statement represents the “intents” or “purpose” of the Mission statement represents the “intents” or “purpose” of the organization organization • Strategy embodies the “image,” customers (markets), business Strategy embodies the “image,” customers (markets), business model and measure of achievement model and measure of achievement – IT as an enabler to proactively implement change (i.e., IT as an enabler to proactively implement change (i.e., innovate innovate   competitive pull) or reactively adapt to change competitive pull) or reactively adapt to change (i.e., Porter’s 5 force model, (i.e., Porter’s 5 force model, technology technology   push) push) Strategy Strategy
  • 75.
    75 EMBA 226 •College of Business Administration • California State University, Sacramento Strategic Management Strategic Management Management Management Control Control Operational Control Operational Control Strategic Planning Strategic Planning
  • 76.
    76 EMBA 226 •College of Business Administration • California State University, Sacramento Strategic Planning Strategic Planning Should… Should… • Be forward looking Be forward looking • Focus on external factors and opportunities, and their Focus on external factors and opportunities, and their impact on the business impact on the business • Specify the direction the business should take Specify the direction the business should take – Markets to pursue, image to project, business model Markets to pursue, image to project, business model • Be long-term Be long-term – Depending on the industry, 2 to 5 years Depending on the industry, 2 to 5 years • Formal vs. informal Formal vs. informal – Extent to which is documented and the frequency of Extent to which is documented and the frequency of planning planning
  • 77.
    77 EMBA 226 •College of Business Administration • California State University, Sacramento Levels of Management Levels of Management • Strategic Planning Strategic Planning – "Strategic planning is the process of deciding on objectives "Strategic planning is the process of deciding on objectives of the organization, on changes in these objectives, on the of the organization, on changes in these objectives, on the resources used to attain these objectives, and on the policies resources used to attain these objectives, and on the policies that are to govern the acquisition, use, and disposition of that are to govern the acquisition, use, and disposition of these resources." these resources." • Management control Management control – "Management control is the process by which managers "Management control is the process by which managers assure that resources are obtained and used effectively and assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization's efficiently in the accomplishment of the organization's objectives." objectives."
  • 78.
    78 EMBA 226 •College of Business Administration • California State University, Sacramento Levels of Management (Cont.) Levels of Management (Cont.) • Operational control Operational control – "Operation control is the process of assuring that "Operation control is the process of assuring that specific tasks are carried out effectively and specific tasks are carried out effectively and efficiently." efficiently." Anthony, 1965 Anthony, 1965
  • 79.
    79 EMBA 226 •College of Business Administration • California State University, Sacramento Gaining a Competitive Advantage with IT Gaining a Competitive Advantage with IT • IT alone is not a strategic differentiator IT alone is not a strategic differentiator – Enables the business to do things Enables the business to do things – Does not have a direct effect on productivity Does not have a direct effect on productivity • Must be coupled with other innovative processes Must be coupled with other innovative processes Lessons from IT practice… Lessons from IT practice… • Value from IT comes only when it is paired with concurrent Value from IT comes only when it is paired with concurrent innovations in business practice innovations in business practice • IT's economic impact comes from incremental IT's economic impact comes from incremental improvements improvements • Strategic differentiation emerges over time Strategic differentiation emerges over time – Short-term Short-term