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ICS 462 Information Systems Strategy & Implementation

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1 ICS 462 Information Systems Strategy & Implementation
3/31/2017 ICS 462 Information Systems Strategy & Implementation 2.1 Analytical Tools in Strategic Management: Strategic Analysis

2 Framework for SM Framework for strategic management - Johnson & Scholes, 1993: Strategic analysis (environment, culture and stakeholder analysis, and resources and strategic capability) – to understand the strategic situation Strategic choice (generation of strategic options, evaluation of options and selection of strategy) – to form the strategies Strategy implementation (planning & allocating resource, organizational structure and design, managing strategic change) – to implement the strategies (tactical)

3 Notes: Above elements not done sequentially Analysis + choice = strategic planning – implies that SM is more about SP Above design school of strategy (strategy as a planning activity) is not necessarily right (cf pattern school) – but provides a framework for discussion of SM Role of tools is not necessarily to help develop strategy but also to provide a basis for communication, discussion and sense-making

4 2.1 Strategic Analysis Tools

5 1. Introduction SA aims to form a picture of the influences playing upon the organization in order to be informed of the strategic choice elements of the overall strategic management process It is concerned with the following: Organizational strategic position Environmental conditions Organization strengths and weaknesses Effects of all the above on organization stakeholders

6 SA involves understanding factors: External environment
the world in which the organization exists need to understand the impact of the environment upon the organization Internal environment, e.g. Values and objectives these influence the perceived acceptability (to each stakeholder group) of candidate strategies it is through these perceptions that other influences are interpreted especially power differentials Resources they provide the internal influences upon strategy choice

7 2. External Environmental Analysis Tools

8 External Env. Analysis Purpose
to increase the quality of the strategic decision making by considering a range of relevant features well before the need to make an irrevocable decision Threats and opportunities the strategy is directed at exploiting the environmental opportunities and to blocking environmental threats in a way that is consistent with internal capabilities (Porter’s concept of “environmental fit” that allows the organization to maximise its competitive position)

9 Success of environmental analysis largely depends on the complexity of the environment
A possible process of environmental analysis and tools to use: Audit the environmental influences Assess the nature of the environment to judge whether it is simple or complex Identify the key environmental factors using porter’s five forces model Identify the competitive position using a life cycle analysis Identify the threats, opportunities, strengths and weaknesses using the SWOT analysis

10 Nature of the Environment
An organization’s environment comprises all the events, issues and facts which will influence it’s performance but over which it has little influence Societal environment conditions that have a broad rather than direct impact upon the organization conditions represent the world within which the organization operates e.g. demographic factors Task environment that which has major and direct impact upon the organization and it’s strategic planning process

11 Types of environments Political-Legal forces Technological forces
Economic forces Societal environment Socio-cultural forces Internal Environment Structure, Culture, Resources, Processes, People, Strategies, Leadership, Systems Demand Task environment Govt Market Structure Technology

12 2.1 PESTEL analysis Political
Government policies and strategies, e.g. sessional paper no. 1 of 2005, V2030, Education MTP, University strategy, … National coalition government – stability, governance Development partner support to Kenya Economic Global economic changes GDP growth Inflation rates Taxation rates Exchange rates Employment level Poverty level Socio-cultural Population growth Lifestyle changes Customer preferences

13 Legal framework governing the organization
Labour mobility Education levels Income distribution Governance Technological Enterprise applications Mobile applications Internet Undersea bandwidth National optic fibre backbone infrastructure (NOFBI) project Energy use and cost Environmental Any environmental requirements? Legal Legal framework governing the organization One can also consider the regulatory framework, as it has regulations and licenses which are legally binding

14 Strategic analysis involves assessing the effects of possible changes in the environment. It involves: Considering how the external (societal & task) and internal environment factors may change Assessing the strategic implications of such change for the organization 14

15 Strategic analysis framework
Ext. environment Likely change Strategic implications Political Economic Socio-cultural Technological Ecological Legal Int. environment Structure & culture People & skills Processes Systems Leadership, etc. 15

16 2.2 Stakeholder analysis One of the steps in environmental analysis or enabling to make strategic forecasts Step 1: identify stakeholders people who are affected by your work, who have influence or power over it, or have an interest in its success or failure Step 2: Prioritize your stakeholders Map them on a power/interest grid shown - next slide Step 3: Understand your key stakeholders What are their interests? What are their strengths/weaknesses? What edge do they have over your company? You can use the power/interest grid to map your understanding – position on the grid implies strategy

17 Power/Interest grid Keep satisfied Manage closely Monitor (minimum
H POWER Keep satisfied Manage closely H L Monitor (minimum effort)‏ Keep informed INTEREST 17

18 2.3 SWOT Analysis Defines the relationship between the internal and external appraisals Applied to self, competitors, supplies and customers as in order to assess the full position within the industry and to direct the firm towards the appropriate direction SWOT analysis offers a fast ‘pocket sized’ method of conceptualizing complex reality Strategy: Is a result of combined and realistic assessment of market attractiveness and business strength Based on use of the existing business strengths to exploit opportunities, to create new opportunities, to counteract threats and repair the weaknesses Also referred to as TOWS matrix or WOTS-UP

19 Key Questions/Strategies
Strengths What do we control - resources, people, knowledge - that gives us an advantage. These strengths are your core competencies. What are our major internal or present strengths? Internal strengths are resources or capabilities that help an organization accomplish its mandates or mission. Weaknesses What do we need to fix? What are our major internal or present weaknesses? Internal weaknesses are deficiencies in resources and capabilities that hinder an organization’s ability to accomplish its mandate or mission. Opportunities What opportunities exist that we can take advantage of? What major external or future opportunities do we have? Challenges/Threats What major external or future threats do we face? External threats are outside factors or situations that can affect your organization in a negative way.

20 Key Questions/Strategies
How can organization use its strengths to take advantage of the available opportunities? Strategy - Exploit How can organization use its strengths to overcome the threats identified? Strategy - Confront W What does organization need to do to overcome the identified weaknesses in order to take advantage of the opportunities? Strategy - Search How will organization minimize its weaknesses to overcome the identified threats? Strategy - Avoid

21 Strategies Indicated by SWOT Analysis
Maxi-Maxi (SO) Organization is playing from its strengths to an opportunity and hence the business objectives are generally to reduce internal weaknesses and overcome external threats in order to focus upon this segment. Rowe, Mason, et al. (1994) call this segment exploit Mini-Maxi (WO) Strategy appropriate minimizes weaknesses and maximizes the opportunities. The opportunity exists but requires strength where the Organization currently has a weakness. Without strategic action to remove this weakness the opportunity must go to competitors. Rowe et al. (1994) call this segment search

22 Mini-Mini (TW) The strategy for this segment is one that will reduce both the weakness and the threat. This is the precarious segment and so organisations should adopt strategies that avoid it. Rowe et al. (1994) call this segment avoid Maxi-Mini (ST) The indicated strategy for this segment is one that uses the strength of the organization in order to deflect the threat. Care must be taken to avoid unnecessary competitive battles, and strategic options that circumvent the threat are to be preferred. Rowe et al. (1994) call this segment confront

23 Another View of Strategies Implied by SWOT
Strengths Weaknesses Opportunities Threats Attack ‘go for it’ Beware ‘don’t do it’ External Factors Explore ‘if have time’ Project ‘watch yourself’ Internal Factors

24 Strengths of SWOT can be used to generate strategic options, so it also forms part of the Strategic Choice element offers warning of the need for avoidance may cause the objectives, and hence also the performance measures, to be reviewed Weaknesses of SWOT it does not build in any mechanisms for handling the uncertainty of the future does not give any holistic model of the organization tendency when doing a SWOT analysis to be less honest in appraisals. People cover up organization’s feared weaknesses by proclaiming perceived strengths Is not aimed at option evaluation and, hence, nor selection

25 2.4 Porter’s 5 forces framework
Threat of new entrants Rivalry amongst existing competitors Bargaining power of suppliers buyers Threat of substitute products or services

26 It models the competitive world of an organization and the forces that play upon it
The current competitive position of the organization will be the aggregate of the 5 forces The net power of the 5 forces needs to be judged Strategy is to concentrate attention upon those most significant - either to exploit a powerful position or to protect from a weak one Forces and their key factors are outlined below (a – e)

27 a. Rivalry of existing competitors
The structure of competition How many competitors? Is there a clear market leader? Where are you vis-à-vis the leader? The structure of industry costs Are there high fixed costs? Can competitors cut these costs? Degree of product differentiation. How do you distinguish your services? Switching costs Are there high/low switching costs? Strategic objectives Are competitors pursuing aggressive growth strategies? Exit barriers Are exit barriers high or low? How does that affect the competition?

28 b. Threat of new entrants
Economies of scale. Capital / investment requirements. Customer switching costs. Access to industry distribution channels. Access to technology. Brand loyalty. Are customers loyal? The likelihood of retaliation from existing industry players. Government regulations. Can new entrants get subsidies?

29 c. Threat of substitute products/services
Quality. Is a substitute better? Buyers' willingness to substitute. The relative price and performance of substitutes. The costs of switching to substitutes. Is it easy to change to another product?

30 d. Bargaining power of suppliers
Concentration of suppliers Are there many buyers and few dominant suppliers? Branding Is the brand of the supplier strong? Profitability of suppliers Are suppliers forced to raise prices? Suppliers threaten to integrate forward into the industry (for example: brand manufacturers threatening to set up their own retail outlets). Buyers do not threaten to integrate backwards into supply. Role of quality and service. Switching costs Is it easy for suppliers to find new customers?

31 e. Bargaining power of buyers
Concentration of buyers Are there a few dominant buyers and many sellers in the industry? Differentiation Are products standardized? Profitability of buyers Are buyers forced to be tough? Role of quality and service. Threat of backward and forward integration into the industry. Switching costs Is it easy for buyers to switch their supplier?

32 2.5 Life Cycle Analysis The aim of this model is to relate the competitive position of an organization to the maturity of the industry or its products It assumes there is a basic S-shaped curve description to the growth phenomenon of the organization and its products

33 Life Cycle Analysis Activity or product is new Rapid growth
Introduction Growth Maturity Decline Activity or product is new Rapid growth Decline in sales or activity No further increase Experimentation

34 Life Cycle Analysis Model
Development Demand Unknown Product/Service is new Experimentation & gradual acceptance Growth Demand > Supply Rapid growth in sales. Maturity Demand  Supply Sales remain high but there is no further increase Decline Demand < Supply Competition & product displacement cause decline in sales

35 Life Cycle Model Example in HE
Development Growth Maturity ICT use & impact declines Decline 4 5 1 2 3 Integration Ubiquitous impacts (quality, governance, etc. ICT use is new Laying infrastructure Experimentation & gradual acceptance No budgets Employ some ICT operations staff Complacency sets in Shift in focus Technology has changed Cannot sustain ICT (cost, staff, etc.) Demand by students & staff grows Internet connection Key MIS implemented e-learning growth Top mgnt championship Budgets and controls ICT is strategic resource & Impacts all aspects Introduction of ICT with limited use & impacts ICT use & impacts grows 35

36 3. Analysis of Internal Environment (Values and Objectives)

37 Internal environment analysis
Physical facilities Culture ICT (infrastructure, skills) HR capacities Leadership Structure Strategy Objectives Processes Systems Other resources

38 3.1 Strategy and Culture Definition of corporate culture:
“the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration and that worked well enough to be considered valid and, therefore taught to new members as the correct way to perceive, think and feel in relation to those problems”. Culture is sometimes described in terms of levels distinguishing between: Visible aspects of culture (rules, procedures, technology); and Underlying aspects of culture (the unseen, unarticulated, untested values & assumptions)

39 Strong Vs. Weak culture Strong - when the visible and underlying levels are consistent with each other Weak - if the cultural levels are inconsistent with each other and/or in pockets Elements of culture: power, history, language, dress code, status symbols, reward structures, logos, organizational charts, etc. what Deal and Kennedy(1982) call “the way we do things around here” Note: Groups within any organization may have clashing cultures E.g., a sales team may have a results driven culture while the accountancy group may have a culture focused on accuracy

40 Conservative organizations
Value low risk strategies, secure markets and well tested potential solutions Also called defenders Innovative organizations Value ground breaking, risk and pay-off Also called prospectors Strategy – culture relationship. The 2 types of organizations will behave differently under the same circumstances: Defenders value low-risk strategies (risk averse) Prospectors go for higher-risk strategies and new opportunities (risk taker)

41 How is culture related to strategy?
Analysis of culture will enable interpretations of its meaning to inform the selection of feasible and acceptable strategy options Culture determines how an organization measures success. The common perception can have a dampening effect upon the influence of environmental factors upon strategy because the organization creates its own model of reality and every decision is seen in the light of that model Culture influences strategy implementation

42 3.2 Strategy & Objectives Objectives in an organization serve three important functions: They provide a statement of the financial objectives compared with the current performance of the organization indicating the extent and scope of the strategic decisions to be made By providing a statement of the broad mission of the organization, they provide a product-market focus for the business strategy of the organization Having a set of corporate goals provide objectives for individual functions or lower areas of responsibility within the organization

43 Closed Vs open objectives Closed objectives that can be achieved
usually measurable and definable in terms of their in-built measures of success or performance indicators Open objectives that can be striven for, but can never be achieved, so they persist throughout the life of the organization The organization-wide mission is always an open objective E.g. UoN Mission To provide quality university education and training and to embody the aspirations of the Kenyan people and the global community through creation, preservation, integration, transmission and utilization of knowledge

44 E.g. Conflicting Objectives of Stakeholders
Objectives or interests Shareholder Market value of the investment Stability of dividends Size of dividend Management Sales growth Asset growth Profitability Labor force Wage increase Numbers employed Job security Society Production gains Exports Social welfare

45 Stakeholders in organization usually have conflicting interests, and hence objectives. Therefore stakeholder analysis is important in strategic analysis Stakeholder goals change as the coalition membership changes and as the goals of those individuals change Corporate objectives or goals therefore: emerge as a result of the process of internal negotiation amongst individuals and groups represent the current position of compromise between different interests represent satisfactory rather than optimal solution

46 E.g. UoN Corporate Objectives
To manage the University efficiently To produce quality and holistic graduates To contribute to scientific and technological innovations To enhance the competitiveness of the University At lower level unit, e.g. ICT objective To maximize student and staff productivity and service delivery, enhance teaching and learning and improve quality of research through ICT Power structure determines where the balance point for the compromise lies Power is the ability of individuals or groups to obtain and use the human and material resources available Power is not evenly distributed, some units, groups and individuals are more powerful than others

47 3.3 Analysis of Resources

48 Introduction The aim is to understand the organization’s strategic capability It establishes what strengths & weaknesses the organization has i.e. what it does best and what it does not do well Fig. suggests process of analyzing resources Table (next 3 slides) show the key dimensions of the various business resources to be assessed In the 1980’s, it was felt “out of fashion” to base competitive strategy on internal capability – less chances of innovation (focus on ext. environment) However, with the rise of TQM and BPR, there has been a corresponding growth in interest in understanding the organization’s strategic capability

49 Resource Analysis Process
Value chain analysis Drawing Comparisons Assessing balance Identification of key issues Understanding strategic capability

50 Key areas of business resources & competence
Product/market Share of existing market Range of products Position in product life cycle Dependence upon key product for sale/profits/cash flow Distribution network Marketing and market research Production resources Number, size, location, age and capacity of plants Specialization/versatility of equipment Production and cost levels Cost/availability of raw materials Production control system

51 Financial resources Present asset structure Present capital structure Access to additional equity and debt finance Pattern of cash flow Procedures for financial management Technology Currency of production methods and products R&D spending and effectiveness

52 Organizational and human resources
Organization structure Management style and succession Staff development policies Management/labour force relationship Reward structures

53 Value Chain Analysis Competitive possibilities open to an organization can be discerned from a resource audit Porter’s value chain is the commonest model and portrays an organization as a connected chain of activities, each of which relates the organization’s products to its customers (see fig) Model can be used to assess the degree of effectiveness and efficiency of resource use in the activities in the value chain Efficiency - measure of how well the resources are being used, e.g. profitability, capacity use and the yield gained from that capacity Effectiveness - assessment of how well the resources are allocated to those activities which are the most competitively significant within the value chain

54 Porter’s Value Chain Model
Primary activities Contribute to getting the goods or service one step closer to the customers Secondary activities Support the primary activities Support/secondary Activities Administration & Infrastructure Human resource management Value Added - Cost = MARGIN Product/ Technology/ Development Procurement Inbound logistics Operations Outbound logistics Sales & marketing Services Primary Activities

55 (a) Primary activities
Inbound logistics All processes associated with receiving, storing and disseminating inputs to the production process for the product or service Operations All processes associated with transforming i/ps into o/ps Outbound logistics All activities concerned with distributing the products or services to the customers Sales & marketing Activities which provide opportunities for the potential customer to buy the product or service and offer inducements to do so, e.g. advertising, pricing, tendering, Services All processes concerned with the provision of service as part of the deal struck with the customers, e.g. repairs, maintenance, spare parts supply, training, installation, etc.

56 (b) Secondary activities
Admin. & infrastructure The tasks that comprise general management, e.g. financial management, planning, legal services, quality management, office administration, etc. HR management Activities associated with the recruiting, training, developing, appraising, promoting, and rewarding of personnel Product/technology development Activities that relate to developing the technology of the product or service and the processes that produce it and the processes that ensure the management of the org., e.g. IS, development of new product/service designs Procurement Activities that support the procurement of inputs for all of the activities of the value chain e.g. procurement of IS, raw materials, etc.

57 3.3.3 Product Portfolio Analysis
An example tool is the Boston consulting Group (BCG) tool matrix, which is a 2x2 matrix The BCG tool models the relationship between a division’s (or product) current or future revenue potential and the appropriate management stance It classifies businesses, products or divisions according to the present market share and the future growth of the market The intention of the matrix is to distinguish between the cash generators and the cash consumers The model uses the analogy in fig. below

58 BCG model L H Wild cat Star (quickly Future market growth (Exploit now
nurture into stars) Star (Exploit now & in future) H L Dog (Divest) Cash cow (Exploit now) Existing Market share

59 The Interpretation of the BCG Model
Cash Cows Products or segments that are the current high earners for the organization They are relatively short term The organization should seek to adopt measures to increase profit and extend their lifetime Stars Products or segments providing significant revenue now & expected to do so in future

60 Dead dogs Products or segments providing little or no contribution currently and not expected to change in the future They should be divested Wild cats Products or segments providing little or no contribution currently but expected to change in the future The organization should ensure that they quickly mature into profitable stars

61 3.3.4 Analysis of Core Competences
Core competencies are the capabilities that are vital for the competitive well-being of the organization. Significant resources must be put into acquiring them Core competencies support all business aspects Tests to identify core competences: provides potential access to a wide variety of markets makes a significant contribution to the perceived customer benefits of the end product makes it difficult for a competitor to copy

62 Guidelines for core competences: Should be few, about 5-6
To produce a list of core competencies, an organization must consider it’s capabilities and any gaps that need to be plugged Guidelines for core competences: Should be few, about 5-6 The embedded skills that breed the next generation of competitive products should not be bought or rented on outsourcing deals. Any outsourcing for core competencies must be treated with care. Deliver core products Core products embody the core competencies and are the components that add to the value of the end products used to seek maximum world manufacturing share in core products

63 The organization needs to create a strategic road map (architecture) of the desired core competencies and how to get them as part of SP The organization can pose the following questions so as to judge the extent of the architecture: how long it can preserve its competitiveness in the business if it doesn’t control the core competence how central the core competence is to the perceived customer benefits what future opportunities would be foreclosed if it lost the particular competence The architecture gives a way to assess possible diversification, provides a template for the allocation of resources, etc.

64 Diversified organizations:
Core competencies are a corporate resource and the more a core competence is used, the stronger it gets Diversified organizations: hold portfolio of core competencies (just like portfolio of many business) must assess their core competencies, core products and end products core competencies should be used to widen the domain of innovation so as to overcome the SBU constraints. This ensures hybrid opportunities that combine across SBUs are exploited. Unless this is done, only the ideas that lie close at hand (within one SBU) may be exploited The organization should alter its patterns of communication, career paths, strategy formulation and managerial rewards away from the SBU constraints Belonging together must be considered to add something that would not be present if each SBU were an independent operator

65 The mission core competence (MCC) decision matrix
Poor Good Fit with mission Dilution (Define framework) Drive (Cherish) Good Poor Drain (Discard) Distraction (Develop) Fit with core competencies

66 It is a tool based upon the analogy of an organization as a tree :
The mission and the vision provide the nutrients that feed the tree The core competencies serve as the roots, which through core processes produce projects and products (the “fruits”) Use of matrix Resource allocation - assesses the relative merits of any competing claims on resources, not just those associated with product/market segments or SBUs OR Resource allocation - apply strategic logic to resource-allocation decisions or day-to-day activities throughout an organization, ensuring their optimal contribution to building competitive strength.

67 Product/service selection - offers a way of selecting which actual and potential project or product to support since each project and product can be judged in terms of its match to the mission and to core competencies of the organization The best quadrant is the G-G Notes: This tool is good in forcing the testing of assumptions about what the core competencies actually are and what the mission actually is It is also good in integrating issues to support making holistic decisions in an organization that has a definable mission and definable core competencies

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