Information Systems Planning

IS Planning The Changing World of Planning Seven Planning Techniques Why planning is so difficult Traditional vs Sense-and-Respond Approach Seven Planning Techniques Stages of Growth Critical Success Factors Competitive Forces Model Five Forces Analysis of the Internet Value Chain Analysis E-Business Value Matrix Linkage Analysis Planning Scenario Planning

Paradox IS planning is becoming more difficult and more important at the same time: Technology changing so fast: “Why bother?” YET Most organizations’ survival is dependant on technology Good News = variety of approaches, tools and mechanisms available Bad News = no ‘best’ way to go about it

What is IS Planning? Some managers believe = “determining what decisions to make in the future” Turbulent environment = developing a view of the future that guides decision making today Subtle difference = ‘strategy making’ Strategy = stating the direction in which you want to go and how you intend to get there The result of strategy-making is a plan

What is IS Planning? Types of Planning: Planning is usually defined in three forms, which correspond to the three planning ‘horizons’. Strategic = 3-5 years Tactical = 1-2 years Operational 6 months – 1 year Emphasis on strategy has undergone a definite shift in recent years Basic trend = move from a tactical midrange focus to a truly strategic effort

Types of Planning

Planning Shift

Why IS planning is so difficult? Business Goals and Systems Plans Need to Align Some believe = “too sensitive” = PROBLEMS Fortunately = trend for CIOs to be part of senior management Technologies Are Rapidly Changing Continuous planning? Old days of planning at ‘start of year’ = gone Advanced technology groups to monitor changes; adjustments in current decisions

Why IS planning is so difficult? Companies Need Portfolios Rather Than Projects Evaluation on more than their individual merit How they fit into other projects and how they balance the portfolio of projects (Internet Value matrix) Responsibility Needs to be Joint IS planning by CIO no longer effective Partnership among CEO, CIO, CFO, COO IS Planning=Business planning, no longer just a technology issue

Why IS planning is so difficult? Infrastructure Development is Difficult to Fund Everyone “knows infrastructure development is crucial”, BUT difficult to get funding just to develop or improve infrastructure Often done under the auspices of a large application project Challenge = develop improved applications over time, so that infrastructure improves over time Mainframe-client server: to share corporate and desktop computing ERP: to centralize and standardize data Web presence: to give users access to back-end systems Web services architecture: to work intercompany

Why IS planning is so difficult? Other planning issues Top-down Vs. bottom-up; radical change Vs. continuous improvement Most organizations have a planning ‘culture’ into which the systems plan must fit

The Changing World of Planning Technology (Internet etc.) ‘introduced’ speed into the business environment and transformed how people think about time, how much time they have to plan, react to competitors etc.

The Changing World of Planning Traditional Strategy-Making: Business executives created a strategic business plan = where the business wanted to go IS executives created an IS strategic plan = how IT would support the business plan IT implementation plan created to describe exactly how the IS strategic plan would be implemented Assumptions: The future can be predicted Time is available to do these 3 parts in sequence IS supports and follows the business Top management knows best (broadest view of firm) Company = like an ‘Army’

The Changing World of Planning The future cannot be predicted – discontinuous change Who predicted Internet, Amazon, eBay etc.? New models will appear Time is not available for the sequence IT implementation plan means IS Dept. already ‘late’ to support business plan; it needs to be ahead of business strategizing IS does not JUST support the business anymore; it shows IT-based opportunities No longer business first, IS second At the very least together

The Changing World of Planning Top management may not know best ‘Front-line’ people (closest to customers, partners, suppliers) identify opportunities Inside out Vs. outside in approach An organization is not like an army Industrial era metaphor (top-down) no longer always applies (e.g. failure of BPR) Organizations are living entities; do not command, but nurture and tender; different type of leadership required (Semco)

Today’s Sense-and-Respond Approach Let Strategies Unfold Rather Than Plan Them: In times of fast change long term enterprisewide strategy (predictions) are risky the way to move into the future is step by step using a sense-and-respond approach Sense a new opportunity and immediately respond via testing it Myriad of small experiments in parallel Formulate strategy closest to the action: IT (Internet) enabler of communication (inside as well as with customers, suppliers and partners) So, corporate strategy must be aligned with marketplace. Strategy development must take place at the organizational ‘edges’, with employees who interact with customers, suppliers and partners Employees who are closest to the future (young) should become prime strategists. In the ‘Internet Age’ = younger employees

The Changing World of Planning Figure 4-6

Today’s Sense-and-Response Approach Guide Strategy-Making with a ‘Strategic Envelope’: Having a myriad of potential corporate strategies being tested in parallel could lead to anarchy without a central guiding mechanism That mechanism is the ‘Strategic Envelope’ Top management doesn’t set strategies (as in traditional way), it defines the parameters for the experiments (= a ‘strategic envelope’), and then continually manage that context Need to meet often to discuss: Shifts in the marketplace How well each of the experiments is proceeding Gaining ‘followership’ or showing waning interest?

Today’s Sense-and-Response Approach Manage the strategic envelope by: Defining a territory Holding ‘strategic conversations’ Regular meeting by executives to monitor environment and respond COO reports on ‘today’ (size of mobile workforce) CIO reports on ’tomorrow’ (developments in Web Services) VP of HR reports on ‘people’ issues Helps to spot trends, launch new projects, add or cut funding to existing projects Regular meetings with experimenters

Today’s Sense-and-Response Approach Be at the Table : IS executives must be involved in business strategising, NOT react to business strategies (which is tactical and operational) Note: first = need to make department credible Second= need to outsource operational work to free IS staff for planning Test the Future IS Dept. needs to test potential futures before the business is ready for them (thinking ahead of the business), by: Providing funding for experiments Working with research organizations Having an emerging technologies group

Today’s Sense-and-Response Approach Put the Infrastructure in Place: Today, moving quickly means having the right IT infrastructure in place. The most critical IT decisions are infrastructure. IT ‘experiments’ must include those that test ‘painful’ infrastructure issues such as how to: Create and maintain common, consistent data definitions Create and instil mobile commercial standards among handheld devices Implement e-commerce security and privacy measures Determine operational platforms (ERP, Supply Chain Management …)

Seven Planning Techniques Stages of Growth Critical Success Factors Competitive Forces Model Value Chain Analysis E-business Value Matrix Linkage Analysis Planning Scenario Planning

Stages of Growth (Nolan and Gibson) Stage One: Initiation: Early successes increase interest and experimentation Stage Two: Contagion: Rapid proliferation, little planning, much spending; learning period Stage Three: Control: Management concerned about benefits, so introduces control; IS Dept and users become accountable; Efforts towards standardization Stage Four: Integration:take advantage of new technology to integrate existing systems. (Stage Five: Data Administration: DP function created to plan and control use of organization’s data) (Stage Six: Maturity: IS part of managerial processes; alignment with business plan.)

1. Stages of Growth The eras overlap each other slightly at points of “technology discontinuity” Discontinuity happens when proponents of the proven struggle with proponents of the new and unproven designs ‘Inevitably’ the new win out Importance of this conceptual framework is understanding at which stage the org. is a precursor of IS planning e.g. if use of Web services is in Stage II, too much control can kill of new uses of technology Management principles differ from stage to stage Organization may be in different stages at any point in time (i.e. Stage II in terms of planning and control, but Stage III in terms of IS function organization)

Critical Success Factors (Rockart) Used to identify the information systems that a company needs to develop / improve Fewer than 10 CSF per executive to monitor CSF are time dependent (must be re-examined) Four sources: industry the business is in, company itself and situation within industry, environment (consumer trends, leveraging the Internet), temporal organizational factors (too much/little inventory)

2. Critical Success Factors Two types of CSFs Monitoring CSFs: to keep abreast of ongoing operations Building CSFs: to track progress of programs of change Steps to determine CSFs Goals and objectives Factors to accomplish these objectives 2-3 measures for each factor (most difficult part) Plan systems to support monitoring of these measures

3. Competitive Forces Model (Porter) Threat of new entrants Bargaining power of customers and buyers Bargaining power of suppliers Substitute products or services The intensity of rivalry among competitors Today, 5 forces and 3 strategies enabled/supported by IS. Analysis of forces shows which systems to include in IS plan. HOW DOES THE INTERNET CHANGE THIS?

Value Chain Analysis (Porter) Five primary activities, 4 support activities Analyzing the value chain shows how a firm can add value to each activity determine where an other company can add more value and team up with that firm, outsourcing that activity to this partner

4. Value Chain Analysis Virtual Value Chains? Marketplaces VS Marketspaces Marketspaces where information substitutes for physical product and location How can companies create value in a marketspace? How can companies create value in a marketplace and marketspace concurrently leveraging off each other? (Delta) Use Porter’s Value chain to find the answer

4. Virtual Value Chains In traditional value chains, information is a support element, not a source of value in itself To compete in the marketspace use information to create value for customers (UPS tracking system opened up for customers) Creating value in the marketspace also involves a value chain but here activities are performed with information and through information.

4. Virtual Value Chains At every step in the virtual chain value through information can be added by: Gathering information Organizing information Selecting information Synthesising information Distributing information

Virtual Value Chains Evolution in virtual value chains Making operations visible: create ways to see physical operations through information. Usually visibility of production systems allowing employees to coordinate activities in the physical value chain, sometimes leading to competitive advantage Frito-Lays’ store by store input of sales and competitor data to schedule production, local promotions. Fast reaction to marketplace changes. Foundation for a virtual value chain

4. Virtual Value Chains Evolution in virtual value chains 2. Mirroring capabilities: substitute virtual activities for physical ones (e.g. Purchasing through Web-based supply chains) Vitual world-wide teams, no time and space limitations (e.g. Texas Instruments)

Virtual Value Chains Evolution in virtual value chains 3. Space-based customer relationships: deliver value to the customer in new ways Insurance company example: customer data collected by company made available to employees to give advice and quick answers (visibility stage) Create customer risk profiles and customize policies New product lines like insurance for boat owners (mirroring capabilities) Expand to new areas like offering financing for boat purchases

Virtual Value Chains RULES Digital assets are not used up in consumption; information can be reused in many forms at a low cost. New economies of scale: small companies can compete against large ones due to lower overhead costs even in large geographic areas New economies of scope allow companies to offer financing and discount programs Transaction costs are lower in the marketspace, so companies can capture information they were not able to capture in the past (Frito-Lay)

4. Virtual Value Chains Mindshift from So, Supply-driven thinking to demand-driven thinking So, ‘Sense and respond’ rather than ‘make and sell’ Significant strategic opportunity for companies: IS should play a role in identifying it and help the company to take advantage of it.

5. E-Business Value Matrix (Alexander) A ‘portfolio’ planning technique to prioritize projects. Tool used by Cisco Every IT project is assessed in two categories: Criticality to the business Newness of idea Each project is placed into one of four categories to assess its value to the company: New fundamentals: Low-Low=provide a fundamentally new way of working in overhead areas, not business-critical areas (3-6 months) Operational excellence: High-Low=medium risk because they may involve reengineering work processes (no immediate returns rather increase corporate agility, customer satisfaction; 12 months) Rational experimentation: Low-High=test new technologies and ideas (short time frame; if successful become one of the other 3 types) Breakthrough strategy: High-High=potentially have a huge impact on the company (eBay, extranets shared by partners)

Linkage Analysis Planning (Primozic and Leben) Examines the links organizations have with one another to create a strategy for utilizing electronic channels Steps in the Methodology: Define power relationships among the various players and stakeholders: Identify who has the power Determine future threats and opportunities for the company

6. Linkage Analysis Planning Map out your extended enterprise to include suppliers, buyers, and strategic partners The enterprise’s success depends on the relationships among everyone involved Some 70% of the final cost of goods and services is in their information content Win-win: a supplier keeps buyer’s inventory and delivers just-in-time, but gets paid electronically upon delivery Plan your electronic channels to deliver the information component of products and services Create, distribute, and present information and knowledge as part of a product or service or as an ancillary good Those who control the electronic channels will be the winners

7. Scenario Planning (Schwartz) Scenarios are stories about the way the world might be in the future The goal of scenario planning is not to predict the future, but to explore the forces that could cause different futures to take place, and then decide on actions to take if those forces begin to materialize

7. Scenario Planning Four steps in Scenario Planning: Define a decision problem and time frame to bound the analysis ‘How will IS be managed 10 years from now?’ Identify the major known trends that will affect the decision problem. Categories are: Environment, government, regulations, society, technology, financial considerations... Each trend is judged: ‘What impact will it have on the decsion problem?’ What are the directions of each impact?’ Trends with unknown or contradictory impacts are judged as uncertain

7. Scenario Planning Identify just a few driving uncertainties Most uncertainties cluster around a few driving uncertainties. Choose two drivers, with two possible states for each = 4 scenarios Construct the scenarios Each scenario is based on a driving uncertainty Each scenario must be plausible To make it plausible include a ‘triggering event’ (9/11, Enron scandal, major court decision) Scenarios show the end state and how we arrived at it.

7. Scenario Planning When the scenarios are developed, planners decide how their current strategies would fit in each case Then they ask ‘Is there a better strategy?’ They also identify the factors they should monitor closely to spot changes in trends

CASE EXAMPLE Scenarios on the Future of IS Management Four potential futures are presented: The Firewall scenario could occur if companies use traditional forms of management and see their data as proprietary The Worknet Enterprise scenario could occur if companies outsource management of their data and share it extensively with specific partners The Body Electric scenario could occur if new organizational forms flower (such as people owning parts of work cells in which they work) and obtain all their IT from interconnected service providers The ‘Tecknowledgy’ scenario could occur if there is an open information society where any kind of information is available for a price. The main job of IS could be facilitation of knowledge processes across organizations

Scenario Planning Ch04 Slide 50 Just re-sized border on heading

Conclusion Based on the successes and failures of past information systems planning efforts, we see two necessary ingredients to a good strategic planning effort: IS plans must look towards the future Future is not likely to be an extrapolation of the past Successful planning needs to support “peering into the future” – most likely in a sense-and-respond fashion IS planning must be intrinsic to business planning

Conclusion Sense-and-respond is the new strategy-making mode Creating an overall strategic envelope and conducting short experiments within that envelope, moving quickly to broaden an experiment that proves successful IS plans typically use a combination of planning techniques presented No single technique is best and no single one is the most widely used in business

“Peering into an unknown future” Conclusion “Peering into an unknown future”

Royal Dutch/Shell Group PART I Discussion Case IT Strategy for Royal Dutch/Shell Group PART I DISCUSSION CASE: What IT Strategy Would You Recommend Based on Royal Dutch/Shell Group’s Scenarios? This case presents brief synopses of the eight real-life scenarios Shell has made public since 1992 – especially the two published in 2001 (the next two will be in early 2004). Based on these scenarios (which can be found in their entirety on Shell’s Web site), students are asked which of the two 2001 scenarios they believe is an accurate prediction of how the world will develop. From that, present an IT strategy they would advise their company to follow to succeed in this world and why, and list examples of its implementation.

MICROSOFT Case example: Sense and Respond Strategy-Making Abandoned proprietary network despite big $ when it did not capture enough customers Moved on to buying Internet Companies as well as aligning with Sun to promote Java Over time = moved into a variety of technologies: Web, Cable news, Digital movies, Cable modems, Handheld OS, Video server, Music, Multiplayer gaming Not all came from ‘top management’ e.g. first server came from a ‘rebel’ project Getting its fingers into every pie that might become important Missed some – paid $$$ later

SKANDIA FUTURE CENTERS Case example: Formulate Strategy Closest to the Action Incubator for testing ideas on IT, social relationships, and networking for Skandia, the large Swedish insurance company Different generations (3G: 25+, 35+, 45+) collaborate on ‘on-the-edge’ projects In order to talk = focus on questions (= dialog) rather than answers (= debate) Presented as ‘plays’ (Vs. Report) “Garden” = some of the projects are growing; others = not Combining senior wisdom with young people’s entrepreneurship leads to a real powerhouse

SHELL OIL Case example: Guide Strategy-Making with a ‘Strategic Envelope’ New GM believed change would only occur if he went directly to his ‘front lines’ (gas station employees). Set aside 50% of his time Goal = not to drive strategy from ‘Corporate’ (tried and failed dismally) but to interact directly with the grass roots and support their initiatives Technique = use of action labs (6 to 8 people): Week long retailing ‘boot camp’, peer challenges, ‘hot seats’, 60 day plan implementations, report back etc. Projects spawned many more projects Guidance and nurturing came from the top, so that there was not complete chaos

Framework Example Five Forces Analysis of the Internet The Internet tends to dampen the profitability of industries and reduce firms’ ability to create sustainable operational advantages because: It increases the bargaining power of buyers Decreases barriers to entry Increases the bargaining power of suppliers Increases the threat of substitute products and services, and Intensifies rivalry among competitors Recommend = focus on your strategic position in an industry and how you will maintain profitability Not growth, market share or revenue

AN AUTOMOBILE MANUFACTURER Case Example – Virtual Value Chain The rental car subsidiary turned to auctioning off clean used cars to dealers to sell, via marketspace Dealers can view the cars (and their stats) to be auctioned from a screen in their dealership, and then place bids during the online auction, held once or twice a month The auction saves them time and effort, and the cars are guaranteed

CISCO SYSTEMS Case Example – E-Business Value Matrix Cisco’s expense reporting system fits in its new fundamentals category Its executive dashboards are an example of operational excellence projects Multicast streaming video used for company meetings is a rational experiment, and Its development of a virtual supply chain is seen as a breakthrough strategy

Electric Power Research Institute Case example: Linkage Analysis Planning EPRI’s challenge - compress “information float” - elapsed time from availability research findings to the use of those results in industry Answer: EPRINET - a natural language front end for accessing online information, expert system-based products, e-mail facilities, and video conferencing