IS/IT Roles in Organization and Their Relationship to Business Strategy.

IS/IT Roles in Organization and Their Relationship to Business

Strategy

Session Objectives

Understand the strategic context of IS/IT in organization

Understand the business strategy formulation

Understand the impact of business strategy to IS/IT strategy development.

Widening horizon on how IS/IT plays its role in an organization.

Agenda Strategic Context of IS/IT in Organization Evolution of IS in Organization Success Factors of Strategic Information Systems The Relationship of IS/IT Strategy and Business

Strategy IS/IT Strategy Evolution of Business Planning Framework of Business Planning Competitive Forces in Industry Competitive Strategy and Its Implication to IS/IT

Strategy SPIS in Indonesia: Local point of view

Strategic Context of IS in Organization More products available in digital form – Hence e-

delivery through an IS (give some examples e-products?)

More commerce takes place electronically (e-commerce-create new opportunities, online transaction)

More activities getting more complex, need various of data and information (data mining, enterprise information systems - ERP)

Interrelatedness of Business activities within and between companies (improve efficiency and productivity)

Technology advancement that can processes data in a large volume in a relatively short time (SPMB data).

The Evolution of Information Systems

Year 1960 – Data processing (DP) era Year 1970 – Management IS (MIS) era Year 1980 – Strategic IS (SIS-EIS) era Year 1990 – E-business & e-commerce era Year 2000 – Enterprise Resource Planning

era Each era has different characteristics of IS.

Characteristic of DP Era

Centralized processing Using multi-purpose Mainframe computer Batch processing Data storage: magnetic disk, tape Programming language: Cobol, Basic, etc. Automating information-based processes

Characterize the nature of business at DP era?

Characteristics of MIS Era Introducing minicomputer Using variety business applications Still centralized Used a hierarchical application portfolio model

based on a stratification of management activity:– Strategic planning– Management control– Operational control

Increase management effectiveness by satisfying their information requirements for decision making – to help manager

Characterize the nature of business at MIS era?

Characteristics of SIS Era

Introducing Personal Computer (PC) Introducing office automation Introducing new capabilities: flexible

access and decision support Improving competitiveness by changing the

nature or conduct of business (i.e. IS/IT investments can be a source of competitive advantage)

Characterize the nature of business at SIS era?

Sales forecasting operating plans capacityplanning, profit/earnings forecasts,business mix analysis, manpowerplanning, financial modeling

Sales analysis budgetary control, managementaccounting, inventory management, quality analysis,expense reporting, market research/statistics, WIPcontrol, requirements planning, supplier analysis, etc.

Order entry, processing, tracking shipping documents, vehiclescheduling/loading, invoicing, sales and purchase ledgers, costaccounting, stock control, shop-floor scheduling, bill of materials,purchase orders, receiving, employee records, payroll, wordprocessing

Planningsystemsexamples

Controlsystemsexample

Operationalsystemsexamples

Early Views and Models of IS/IT in Organizations (Anthony, 65)

SIS

MIS

DP

Types of SIS Those that link the organization to its customers or

suppliers to share information Those that effectively integrate the use of

information in the organization value chain Those that enable the organization to develop new

or enhanced products or services based on information

Those that provide managers with better information for strategy development

Example: Tradenet, SABRE (American Airlines), Valuelink (Baxter Healthcare).

Success Factors of SIS External in nature instead of internal focus: i.e image

building Adding value instead of cost reduction: i.e e-ticket Sharing the benefits internally and externally: i.e ATM Understanding customers and their needs: i.e customized

product Business instead of technology driven innovation: i.e

covering a wider customers Incremental instead of total development: i.e web-based

application Using information gained to develop business: i.e learning

organizationExercise your critical thinking by giving more examples to those success factors !!

Trends in the evolution of business IS/IT (source: adapted from R.D. Galliers and E. Somogyi)

Different views of strategic information systems

The Relationship Between the Business, SIS, MIS, and DP

Business StrategicManagement

IS/IT StrategicManagement

ISManagement

Project andComputer Management

Executive Management

User Management

User Operations

Impact Analysis

Information Analysis

Systems Design

The relationship between business, IS and IT strategies

An Applications Portfolio for the ‘Combined Era’ McFarlan ‘84

So… What’s an IS/IT Strategy? IS/IT strategy is composed of two parts

– IS component– IT component

IS strategy defines the organization’s requirement for information systems to support the overall strategy of the business

The IT strategy is outlining the vision of how the organization’s demand for information and systems will be supported by IT

It addresses the provision of ICT capabilities and resources and services such as IT operations, systems development and user support

Start thinking about the example of IS/IT Strategy!!

The Context of IS/IT Strategy (Sullivan, 1985)

Opportunistic

Traditional

Complex

BackboneLow

Low

High

HighInfusion-degree of dependence of IS/IT of the business

External competitivepressures: increasingthe criticality ofIS/IT to the business

Diffusion:degree ofdecentrali-zation ofIS/IT controlin theorganization

Internal organization pressures:demanding further distribution of IS/IT control

Evolution of Business Planning (Welleck, dkk.,1980)

Stage 1 Stage 2 Stage 3 Stage 4Financial Forecast-based Externally Strategicplanning planning oriented management(meet budget) (predict the (think (create the

future) strategically) future)

Effectiveness of strategic decisionmaking

Annual budgetsFunctional focus

Multi-year budgetsGap analysisStatic allocation ofresources

Situation analysis andcompetitive assessmentsEvaluation of strategicoptionsDynamic allocation ofresources

Well defined strategicframeworkStrategically focusedorganizationWidespread strategicthinking capabilityReinforcing managementprocessesSupportive value systemand climate

Framework for Business Planning

External Environments Economic Political EcologicalTechnological Social Legal

CustomersSuppliersShareholdersEmployeesUnionsGovernmentPublic

StakeHolder

PressureGroupsCompetitorsCustomersSuppliersShareholdersEmployeesUnionsPublicMediaFinancial Ins.

Values

Objectives Identify current Identify future Threats and strategies strategies opportunities

Evaluate Analyze Evaluatefeedback internal strategies resourcesMonitor Implement SelectStrategies Strategies Strategies

Input to Business Planning

External environments - sources of important signals to organizations

Pressure groups - demand recognition and rapid management response

Stakeholders - demand fair share of created wealth Business planning is usually carried out for each

strategic business unit– A unit that sells a distinct set of products or services, serve

a specific set of customers, and competes with a well-defined set of competitors

Definition of Business Strategy

Definition of business strategy:– An integrated set of actions aimed at increasing the long-

term well-being and strength of the organization relative to its competitors

Process of Business Planning

•Define mission and objectives•Assess situation and options•Select options

Strategic planning ofoptions selected Implement strategies

Strategic thinking and opportunisticdecision making

Establishstrategic direction

Definestrategies

Achievestrategies

feedback

Technique to Develop Business Strategy: Competitive Forces in Industry (Porter, 1980)

Threat of newentrants

Bargaining power ofsuppliers

Rivalry amongexisting competitors

Threat of substituteproduct

Bargainingpower ofbuyers

Factors Affecting The Impact of Competitive Forces

New entrants– Capital requirements

– Patents and specialists skill required

– Distribution channels available

– Achieved/required economies of scale and resultant cost advantages

– Number and size of existing rivals and intensity of competition

– Differentiation and brand establishment/loyalty

– Access to raw materials/critical resources etc.

Business strategy: “how to discourage new entrants to comeinto the business”

Strategic Choices: Factors Affecting The Impact of Competitive Forces

Substitute products/services– Customer awareness of needs and means of

satisfaction– Customer sensitivity to value for money and

ability to compare– Existing loyalty of customer—impact of

“industry” promotion– Ability to differentiate products etc.

Business strategy: “how to create a loyal customers?”

Strategic Choices: Factors Affecting The Impact of Competitive Forces

Competitive rivalry will be intensified by:– Market growth slow (or in decline)– Small number of similar sized competitors

dominate– High fixed costs and/or high exit barriers for all

rivals– Overcapacity and/or capacity increments are

large units– Commodity-like, undifferentiated products.

Business strategy: “how to differentiate your products?”

Strategic Choices: Factors Affecting The Impact of Competitive Forces

Buyers’ power will be increased by:– Concentrated/few buyers making high volume and/or

high value of purchases

– Low switching costs across suppliers

– Price sensitive and many alternative sources of supply

– Weak brand identities, products not differentiated

– Buyers capable of backward integration due to low entry cost.

Business strategy: “how to make the buyers depend on your business”

Strategic Choices: Factors Affecting The Impact of Competitive Forces

Suppliers’ power will be increased by:– Few suppliers—high switching costs for rivals

and suppliers deal with many small customers– Potential substitute supplier/resources not

easily available– Supplied goods make up large part of firm’s

costs– Suppliers capable of forward integration or

bypass to customers

Business strategy: “how to make the suppliers depend on your business”

Generic Competitive Strategy

LowCost

Differen-tiation

CompetitiveAdvantage

Characteristics of Generic Strategies

Generic Strategies

Commonly Required Skills and Resources

Commonly Organizational Requirements

Overall cost leadership

Sustained capital investment and access to capital

Process engineering skills

Intense supervision of labor

Tight cost control, frequent, detailed control reports.

Structured organization and responsibilities.

Incentives based on meeting strict quantitative targets

Differentiation Strong marketing abilities and creative flair.

Product engineering skills.

Strong capability in basic research.

Corporate reputation for quality or technological leadership.

Strong cooperation from distribution channels.

Strong coordination among functions in R&D, product development, and marketing.

Subjective measurement and incentives instead of quantitative measures (market based incentives).

Amenities to attract highly skilled labor or creative people.

Looser, more trusting organizational relationships.

Focus Combination of the above policies directed at the particular strategic target.

Combination of the above policies directed at the particular strategic target.

Implications of Competitive Business Strategy to IS/IT Strategy

How can IS/IT affect the nature and value of the product or service and its life cycle?– Generate a new product or a new line of

business– Enable products to be designed or delivered

more quickly – Be used to add additional features or

services to increase the product’s value

How can IS/IT affect the demand for products and services, segments more effectively, extend them geographically, or provide new distribution channels to reach the market?– Enable to reach more appropriate customers– Enable to match our different products/services to

customer appropriately– Enable the product/service to be distributed in new

ways to the customers– Enable to get closer to the market-place rather than deal

through intermediaries

Continued..

How can IS/IT affect the cost base of the key processes in the industry or change the balance in the trade-off between flexibility and standardization?– Enable the product/service to be produced more

economically

– Enable production and associated logistics to be integrated to produce greater flexibility of resource use

– Enable a higher quality of product or service to be offered at a much lower cost than traditionally

Continued..

Examples of How IS/IT has affected the competitive forces in the airline industry

How can IS/IT build barriers to new entry?

By increasing IT entry cost for reservation systems.

By tying in distribution channels (travel agencies).

How can IS/IT build in switching costs for customer?

By linking purchasing and remittance systems to reduce overheads of customer.

Discount/volume packages to discourage piecemeal purchase.

How can IS/IT change the basis of competition?

Lower costs: optimize yield per aircraft.

Differentiate service:reconfiguring aircraft due to demand.

Niche/focus service into high yield sectors (business travel)

How can IS/IT change the balance of power in supplier/customer relationship?

Agent is constantly aware of seat availability of competing airlines.

Airline can readily promote unsold capacity via chosen agents.

How can IS/IT generate new products/services?

Integrated travel package to high mileage business customers—by passing agencies.

New routes/schedule to cater for demand.

Impact of Competitive Forces and Potential IS/IT Opportunities

Key force impacting the industry

Business implications Potential IS/IT effects

Threat of new entrants

Additional capacity

Reduced prices

New basis for competition

Provide entry barriers or reduce access by: exploiting existing economies of scale, differentiate products or services, control distribution channels, segment markets

Buyer power high

Forces prices down

Demand higher quality

Require service flexibility

Encourage competition

Differentiate products or services and improve price or performance

Increase switching costs of buyer

Facilitate buyer product selection

Supplier power high

Raises prices or costs

Reduced quality of supply

Reduced availability

Supplier sourcing systems

Extended quality control into suppliers

Forward planning with supplier

Substitute products threatened

Limits potential market and profit

Price ceilings

Improve price or performance

Redefine products and services to increase value

Redefine market segments

Intense competition from rivals

Price competition

Product development

Distribution and service critical

Customer loyalty required

Improve price or performance

Differentiate products and services in distribution channel and to consumer

Get closer to the end consumer—understand the requirements

Why is IS/T Planning Important?

IT Strategy is the process of defining the strategic use of technology in an organization.

The IS/T Planning process ensures efficient and effective investment of IT to support the business

IT is More Critical to Corporate Success• The use of IT is increasingly pervasive

• Enterprises are discovering that IT can influence the relative performance of most departments

Indonesia and IS Planning

There is a tendency not to pay attention for ‘planning’

The attitude extends to IS/T planning Part of the problem is that there is no ‘tangible’ or

‘less realizable’ outcome resulting from IS/T planning

We see more Indonesian organizations conduct IT projects – not preceded by formal IS/T Planning

Results of Lack of IS/T Planning

Failed of IS/T projects We see IT projects which lacks direction,

weak in scope, have little of no identification of Critical Success Factors.

Inefficient use of investment in IT Bad name for IT professionals and due to

failed IT implementations

IS/IT Planning for the Indonesian

Need processes which are more facilitator-driven, higher involvement of consultants who has psychological and cultural sensitivity

Need processes which are a combination between verbal (direct) and in-direct interactions – to ensure that ideas and opinions are fully expressed

IS/T Planning in Indonesian Organizations: Realities

Justification for auditing purposes Idea often comes bottom up: hence the challenges Do not believe in documentation: hence the

approach is often less formal Difficult to get buy-in from management who

would rather see IT implementation projects Who’s project is this: an IT department project?

Trends in IS/T Planning

We will see more ‘formal’ IS/T Planning activities with increase of IS/T dominance as an integral part of business

IS/T Planning will need to be done faster, with the faster trend of technology development

Clear definition between business plan, IS/T planning and IT implementation will become more and more blurred as technology will continue to drive businesses stronger

Exercise Your Thought

Explain the evolution roles of IT/IS in an organization?

What are Business and IS/IT strategies? Explain the relationship of Business, IS/IT

strategies? How external forces influence business

strategy and IS/IT strategies What are the challenges of IS/IT Plan in

Indonesia?