Chapter Business Strategy

ITS4223 Strategic Information Systems Planning

 Chapter Objectives

• 1.1 Understand key developments in the

digital economy.
• 1.2 Understand the development of
Strategic Management field.
• 1.3 Understand positioning approach
• 1.4 Understand competitive advantage
and resource- based view
• 1.5 Identify Strategic Information System.
 1.1 Understand key developments
in the digital economy
• Modern business environment is influenced
and shaped by three dominant drivers:
– Globalization
– Collaboration
– Knowledge (including Innovation)
• Each is enabled and enhanced by
development of ICT
• Internet, mobile and satellite communications
have contributed to the digital economy based
on global network of communications.
 1.1 Understand key developments
in the digital economy
• The digital economy is characterized by the
use of ICTs to
– Undertake business processes (e-business)
– Affect transactions along the supply chain (e-
commerce)
– Affect the coordination of entrepreneurial
activities based on knowledge, innovation and
creativity.
 1.1 Understand key developments
in the digital economy
• Competitive advantage was sought by exploiting
opportunities for extending market share, producing
new products and services, establishing new types of
relationship with customers and suppliers and creating
efficiencies in business functions. The use of internet
for these purposes was termed e-business.
• E-commerce is concerned • E-business extends to
with buy-side and sell-side incorporate electronic
transaction marketing, procurement,
customer service, distribution,
transaction fulfillment and the
automation of business
processes .
 1.1 Understand key developments
in the digital economy
• The internet and ICTs have played a key role
in transforming business by
a) providing the means to:
i. increase efficiency (buyer seller transaction, product
updated information, collaboration between partners),
ii. Increase speed (constant availability anytime,
automation of internal process, remove traditional
boundaries) and
iii. Increase quality (more in-depth and long lasting r/ship
with personalization and customization) of delivering
product and services.
1.1 Understand key developments
in the digital economy
• The internet and ICTs have played a key
role in transforming business by
b) Make firms more flexible, opportunistic,
quick to market, collaborative and specialize
in their niche.
c) Generation and sharing of knowledge that
drive innovation and creativity in the digital
economy
 1.1 Understand key developments
in the digital economy
• The difference between traditional and digital
economy are:
a) Organizational structure have evolved from being
hierarchical to network or virtual organization
b) Many employees work remotely from HQ and
use technology as a means of communication,
collaboration and coordination
c) Change from reliance to heavy machinery to
mass produced product and more towards
knowledge and creativity
 1.1 Understand key developments
in the digital economy
• The difference between traditional and digital
economy are:
d) Growth is highly dependence to innovation,
knowledge and creativity because firms
continually seek to add value to customers.
e) Now competitive advantage come from ability of
firm to link innovation, knowledge and creativity to
the speed and efficiency with which they can
produced and sell high quality, value added
products and services to customers,
 1.2 Development of Strategic
Management Field
• All organization have some forms of strategy. The
essence of business strategy lies in creating future
competitive advantages faster than competitors.
• The business strategy of firms have changed to take
advantage of the opportunities presented by the
digital economy.
• Strategy for competitive advantage in this new
economy are not based on mass production and
cost reduction, but have evolved to include firms’
ability to seek opportunities and adapt to changes in
market conditions, embrace change through
innovation, and embed learning in the organization.
 THINKING TIME

• What is strategy?
 Defining Strategy

• Strategy refers to a long term action plan for

achieving the stated aims of an organization.
• According to Porter, strategy can be defined as an
integrated set of actions aimed at increasing the long-
term well-being and strength of the organization
relative to competitors.
• Edwards et al describe ‘strategy concerns creating a
vision of the future and the means and policies which
will enable the organisation to reach that vision’. It
involves the interpretation of the environment. It
helps allocate an organisation’s resources.
 1.2 Development of Strategic
Management Field
• Due to strategic planning failure, researchers
suggest strategic management concept, which
strategic planning will be one component of much
more complex socio-dynamic process that bring
about strategic change in organization.
• It is expressed from a top-down perspective of the
decisions of managers in organization. Managers
involved in formulating a strategy undertake a series
of decisions and actions designed to achieve stated
aims based on analysis of their internal and external
environments.
 1.2 Development of Strategic
Management Field
• Strategic management involves:
– Setting the goals of organization
– Choosing the most appropriate actions for
achieving aims
– Fulfilling the aims over the set timeframe
• Strategic management can be describe as an
effective combination of coherent planning,
incisive(sharp) thinking, and astute(smart)
opportunism which includes not only setting of
the strategy but also how to implement and
adapting it.
 Evolution of Strategic Management Maturity

Effectiveness
of Strategic
Marketing
I N C R E A S I N G

• Well-defined Strategic
Framework
• Strategically Focused
Organisation
• Multi-year budgets • Situation analysis
and competitive • Widespread strategic
• Gap analysis thinking capabilities
assessment
• “Static” Allocation of • Reinforcing
• Evaluation of
resources management
strategic options
• Annual Budgets processes
• Dynamic allocation
• Functional focus of resources • Support value system
and climate
Phase I Phase II Phase III Phase 4
Financial Planning
Forecast-Based Externally Oriented Strategic
Planning Planning Management
MEET BUDGET PREDICT THE THINK CREATE THE FUTURE
FUTURE STRATEGICALLY
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A Strategic Framework
 Process to create strategy

• There are three interrelated processes that can

contribute to the establishment of strategy:
– Strategic thinking- creative, entrepreneurial insight into
the ways the enterprise could develop
– Strategic planning- systematic, comprehensive
analysis to develop a plan of action
– Opportunistic decision-making- effective reaction to
unexpected threats and opportunities
 Strategy Development

• Developing strategy involves:

– Understanding the nature of competitive forces and
how they change over time.
– Developing competencies to mobilize and manage
the resources necessary to respond to those forces.
– Strategy as it is planned often never happens due to:
• Imposed changes
• New opportunities
• Unexpected constraints or options
• Failed implementation
 1.2 Positioning Approach

• Positioning:
– Examine current position in market compared with
competitors, decide where you want to be and work out
how to get there.
– There are several tools available to examine organization
current position in market such as PEST analysis, Porter
Five Competitive Forces , Boston Consulting Group
Business Matrix, Ansoff Product Market Analysis
 Positioning Approach

• Positioning:
– After examine current position in market compared with
competitors, strategy will be derive to decide where you
want to be and work out how to get there.
– Examples of strategy for positioning approach are:
• To increase market share from existing customer or
• To expand growth by extending market for existing product
• To expand growth by extending product range
• Diversification
 1.3 Competitive and
Resource-Based View Strategy
• Until 1990s, the approach to define strategies was based on
establishing objectives and then defining how to achieve
them.
• In the 1990s, many strategy thinkers started to develop new
ways of considering strategies. “Is there value in the concept
of looking at means, then ways, then ends; that is defining
what can be achieved by the enterprise?”
• Or equally, consideration of the ways the organization does
thing uniquely or exceptionally well-its abilities or
competencies-may lead to defining more appropriate way ends
of procurement and development of improved or more valuable
resources.
 Competitive and
Resource-Based View Strategy
Based on the concept of resource-based strategies, Treacy and
Wiersma suggest three paths to market leadership, each of which
require different set of competencies:
• Operational Excellence- enabling products and services to be obtained
reliably, easily and cost effectively by customers. This implies a focus on
business processes to outperform others and can deliver both low costs
and consistent quality of customer satisfaction.
• Customer Intimacy- targeting market very precisely and tailoring
products and services to the needs of particular customer groups. The
purpose here is not just to ‘satisfy’ but to ‘please’ customers by
understanding their needs and meeting them on every occasion. This
can obviously be expensive but it can build long-term customer loyalty.
• Product Leadership- continuing product innovation meeting customer
needs. This imply not only creativity in developing new product and
enhancing existing ones, but also astute market knowledge to ensure
that they sell. The strategy involves delivering a continuous streams of
new product/services, where what is new is valued by the customers.
 Forces That Shape The 3 Path
Strategy
• Internally driven
– Resources
– Competencies
– Stakeholder demands
• Externally driven
– Economic environment
– Market requirements
– Competitors
 Organisational / Competitive
Advantage and Information
Systems
• The key goal of strategy is Creating
Organisational/Competitive Advantage.

• Key aspects of organisational/competitive

advantage:
– Operational effectiveness.-Performing similar
activities better than rivals.
– Strategic positioning-Performing different activities
from rivals OR performing similar activities
differently.
– These differences must be sustained.
 Red Queen Evolution:
Running to keep still
• But: competition on operational effectiveness simply
shifts the productivity barrier forward.
• If this is all that happens, gains are obtained by
customers and suppliers not by profitability of the
firm.

• Organisations exposed to competition learn as a result.

• As one organisation becomes stronger, rivals learn
from it and catch up.
• The process starts over again
 ‘Red Queen’
Evolution Examples
• FedEx and UPS chasing each other in providing
Internet tracking
• Successful use of IT can improve a company's
competitive position.
• BUT this may be short-lived because information
systems are easily duplicated.
• However, it can be argued that it is not effortless to
duplicate IT strategy: IT infrastructure takes 5-7 years
to emulate. Also note that competitive advantage from
IT is dependent on how the IT is managed more than
what the technology is.
 The Goal : Sustainable
competitive advantage

• Unique competitive position

• Activities tailored to strategy
• Clear trade-offs (losing something to gain
something) and choices
• Sustainability from whole activity system
• Operational effectiveness
• Innovation
 Focusing on core business and
core competencies

• Which of our products or services are the most

distinctive?
• Which of our products or services are most profitable?
• Which of our customers are most satisfied?
• Which customers or channels are most profitable?
• Which of our activities on the value chain are most
effective?
Strategy at the Edge of Chaos

• Markets and conditions are always changing.

• Organisation are adaptive organisations.
• We don’t know what the future environment will
be like
 THINKING TIME

• What are difference between

Information Systems (IS), Information
Technology (IT) and Information
Communication Technology (ICT)?
 Information Technology

• Information Technology (IT) refers

specifically to technology essentially:
– Hardware
– Software
– Telecommunication networks
• IT facilitates the acquisition, processing,
storing, delivery and sharing of
information and other digital content.
 Information Systems

• Information Systems (IS) is define by UK

Academy of Information Systems as the
means for people and organization utilizing
Information Technology, gather, process,
store, use and disseminate information.
• Checkland notes that Information Systems
exists to serve, help and support people
taking action in the real world.
• Component of IS-people, procedure,
software, data, hardware and
telecommunication.
 Information and Communication
Technologies (ICT)
• Information and communications technology (ICT) is often used as an
extended synonym for information technology(IT), to recognize the
convergence of traditional Information Technology and telecommunication.
• But actually it is a more specific term that stresses the role of unified
communications[1] and the integration of telecommunications(telephone lines
and wireless signals), computers as well as necessary enterprise
software, middleware, storage, and audio-visual systems, which enable
users to access, store, transmit, and manipulate information.[2]
• The term ICT is also used to refer to the convergence of audio-visual
and telephone networks with computer networks through a single cabling or
link system. There are large economic incentives (huge cost savings due to
elimination of the telephone network) to merge the telephone network with
the computer network system using a single unified system of cabling, signal
distribution and management.
• ICT also define as a diverse set of technological tools and resources used to
communicate, and to create, disseminate, store, and manage
information.”[4] These technologies include computers, the Internet,
broadcasting technologies (radio and television), and telephony.
 THINKING TIME

• What is strategic information

systems?
 1.4 Strategic information
systems
• Strategic information systems are information systems
that are developed in response to corporate business
initiative. They are intended to give competitive advantage to
the organization. They may deliver:
• a product or service that is at a lower cost,
• that is differentiated,
• that focuses on a particular market segment, or
• is innovative.
• Eg. of examples of earliest competitive advantage systems
are SABRE reservation systems of American Airlines and the
direct terminal-based ordering system of American Hospital
Supplies.
• Both putting technology directly into the customers’ sites,
provide competitive responses and cause fundamental
changes in the systems operating in their industries.
 Strategic information systems
• Four main types of strategic systems:
– Those that share information via technology-based
systems with customer/consumers and/or suppliers and
change the nature of the relationship.
– Those that produce more effective integration of the
use of information in the organization’s value-adding
process.
– Those that enable the organization to develop, produce,
market, and deliver new or enhanced products or
services based on information.
– Those that provide executive management with
information to support the development and
implementation of strategy (in particular, where relevant
external and internal information are integrated in
analysis.
 Strategic information systems
• Venkatraman describe three types of
‘revolutionary use of ICT’ :
– Business process redesign – using IS/IT to realign
business activities and their relationship to achieve
performance breakthroughs
– Business network redesign- changing the way information
is used by the organization and its trading partners, thereby
changing how the industry overall carries out the value-
adding processes.
– Business scope redefinition- extending the market or
product set, based on information or changing the role of the
organization in the industry.
 Uniqueness of strategic
information systems
INFORMATION SYSTEMS STRATEGIC
INFORMATION SYSTEMS
Most information systems are
looked on as support Strategic information systems,
activities to the business.
They mechanize operations on the other hand, become an
for better efficiency, control, integral and necessary part of
and effectiveness, but they do the business, and they affect
not, in themselves, increase the profitability and growth of
corporate profitability. They are
simply used to provide a company. They open up new
management with sufficient markets and new businesses.
dependable information to keep They directly affect the
the business running smoothly, competitive stance of the
and they are used for analysis to
plan new directions. organization, giving it an
advantage against the
competitors.
 Uniqueness of strategic
information systems
Aspects MIS SIS
Nature of the Distributer process----→ Networks
technology Interconnected-----→ Integrated
Software limitation--→ People/Vision limitation

Nature of operations Regulated by Available and supportive

management services to users

Issues in System Support business user Relate to business

Development needs(information strategy
management)

Reasons for using the Supporting the business Enabling the business
technology (manager) –user driven (business driven)

Characteristics of Accommodating / Control Flexible/Strategic

systems (external) Adapt from Galliers
and Somogyi
 Strategic information systems

• Strategic systems usually link business and computer

strategies. They are the systems where new business
strategies has been developed and they can be realized
using Information Technology.
• They may be systems where new computer technology
has been made available on the market, and planners with
an entrepreneurial spirit perceive how the new capabilities
can quickly gain competitive advantage.
• They may be systems where operational management
people and Information Services people have
brainstormed together over business problems, and have
realized that a new competitive thrust is possible when
computer methods are applied in a new way.
 Example of SABRE system
(American Airlines)
• American Airlines gained a lead over the competition as the
first US carrier to offer online reservation system to travel
agents.
• This system, SABRE, captured 10,000 of the 24,000 travel
agents in the USA.
• SABRE listed the flight schedules of over 400 airlines, but
when launched, it gave American a crucial edge by
displaying its own flight first. The strategy is so effective that
other US carriers persuade the Government to intervene.
• American Airlines still benefited, however by charging for
every booking made, bringing in significant revenues. In fact
SABRE was more profitable than the airline itself.
 Example of Order Entry Distribution
System (American Hospital Supply)

• American Hospital Supply competed in the wholesale health-

care industry.
• To gain an important edge over its rival, AHS pioneered an
order entry distribution systems that linked most of the
organization customer to its computer.
• AHS owned-terminals were placed directly in purchasing
departments of hospital, giving them the early mover
advantage.
• In addition to ordering merchandise, the systems allow the
customer to control their inventories by having direct access
to their AHS’s stock record.
 Success Factor in SIS

• External not internal focus

– Customers, competitors, suppliers, other
industries, business’s relationship and
similarities with the outside business world.
– Traditionally IS/IT has been focus on internal
processes and issues

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 Success Factor in SIS

• Adding value not cost reduction

– Cost reduction may accrue due to business
expansion at reduce marginal costs.
– Consistent with the requirements of
companies to differentiate themselves from
competitor; better service to succeed.

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 Success Factor in SIS

• Sharing the benefit

– Within the organisation, with suppliers,
customers, consumers, competitor.
– Leverage over each department functions

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 Success Factor in SIS

• Understanding customers
– What they do with the products or services
– How they obtain the value from it
– What are the problems they may encounter
gaining that value

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 Success Factor in SIS

• Business-driven innovation, not technology

driven
– Pressures of the market-place often interpreted by
IS/IT user
• Incremental development
– Not the total application vision turn into reality.
– Doing one thing and building on extending the
success by future development
– Prototyping of systems obviously has a key role to
play here.

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 Success Factor in SIS

• Using the information gained from the

system to develop the business
– Purchasing patterns show by transactions
– Providing different, focused, catalogues
– Product and market analyses
– External market research information

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