MIS625 Session #2. What is Strategy? (Porter 1996) An organization’s primary goal is superior performance. Two key components of performance. –Operational.

MIS625

Session #2

What is Strategy? (Porter 1996)

• An organization’s primary goal is superior performance.

• Two key components of performance.– Operational effectiveness– Strategy

• The two are often confused

Operational Effectiveness

• Performing similar activities better than rivals

• TQM, benchmarking, and BPR aimed at operational effectiveness

• Operational effectiveness is not sustainable because improvements in activities can be copied

Effectiveness Frontier

Strategy

• Involves– Performing different activities than rivals

or– Performing similar activities in different

ways

• Aims at creating a sustainable competitive advantage

Competitive Forces Model

Strategic Positioning

• Strategy is about uniqueness – choosing a particular set of activities to provide a distinct value

• Three types of position– Variety based positioning– Needs based positioning– Access based positioning

Trade-offs to Achieve Strategic Positioning

• Trade-offs occur when activities are incompatible

• Incompatible activities require compromise if both activities are retained

• Choosing where to trade-off is a choice about fit

Strategic Fit

• First order fit – consistency between each activity and strategy

• Second order fit – a set of reinforcing activities

• Third order fit – optimization of effort (in support of strategic goals)

Strategic Fit and Sustainability

• Fit engenders operational effectiveness and a differentiation of product/service offerings

• Fit includes a bundle of related activities

• Copying a single activity is easy whereas copying a set of related activities is much more difficult

How does IS relate to this?

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The Information Economy (Shapiro and Varian)

• Definitions of information– In terms of decision-making– Anything that can be digitized

• Information based goods are expensive to produce but inexpensive to reproduce

• Information and intellectual ‘property’• Information as an experience good• Information and the economics of

attention

IT in the Information Economy

• Systems competition and integration – complex functions may require the use and integration of multiple products

• Potential for lock-in or switching costs to avoid lock-in

• Role of network effects• Importance of standards – de facto and de

jure• Government policies

– IBM, Microsoft, and antitrust– The EU

Strategic Information Systems

• Pervasiveness of IT in firms means:– Investment in IT is no assurance of benefit– Applications that provide strategic advantage are

often the result of serendipity– Specific applications can often be copied easily

and as a consequence sustainable competitive advantage is elusive

– Sustainable advantage may result from infrastructure capabilities, management, mature processes, and the ability to leverage IT capability for the development of unique offerings and capabilities

Resource Based Theory (RBT)

• Resources– Available factors owned or controlled by

the organization• For the IS function, this includes

infrastructure and knowledge and skills

– Central point is that resources per se do not create value. Value is created by an organization’s ability to utilize those resources.

RBT Competencies

• The ability within the firm to use resources to accomplish a given task

• This can include processes, procedures, systems, technology in the broad sense, and other means to carry out important tasks

RBT Capabilities

• The strategic application of competencies to accomplish organizational goals.– Note scale up from resources to

competencies to capabilities

• Future goals define future required capabilities and this should scale down to competencies and resources.

Resource-based Theory

Domains of IS Competence

• Formulate strategy – business strategy, technology use, IT investment criteria, Information governance

• Define IS contribution – prioritization, alignment, BP design and management

• Define IT capability – infrastructure, technology analysis, sourcing

• Exploitation – benefits planning and delivery, change management

• Supply – supplier relationships, standards, staff development

• Deliver solutions – management of IS processes, security

IS Capability = IS Competencies + Resources

IS Capability and Performance

Reality Check

• Is this fact or fiction?– If fact, give me an example– If fiction, where does it break down

• Strategy is dependent on leadership. What leadership actions are necessary for this sort of model to work?