Chapter 3 Developing the Organization’s IT Strategy

The Importance of Strategy to Organizations A strategy is a collection of statements that express or propose a means through which an organization can fulfill its primary purpose or mission –A chosen strategy must focus and coordinate the firm’s activity from the top down toward accomplishing its mission –Developing a strategy begins with a thoughtful understanding of the firm’s mission, analysis of the environment, and a detailed assessment of how various business units interact

Considerations in Strategy Development Managers must anticipate business opportunities and recognize threats or pitfalls They seek to capitalize on opportunities and minimize risk As circumstances change, they must re- evaluate their positions and reassess their course of action in light of new data

Elements of a Strategy Statement

Mission Statement The mission of an organization defines its purpose The IT mission statement must both be reactive and proactive in addressing its customer’s needs –IT must understand its internal as well as external markets

Environmental Assessment The process of visualizing and understanding opportunities and threats –Attempts to account for important trends impacting the firm and its functional organizations –Helps to develop the objectives they intend to achieve –Helps to formulate a course of action that guides the achievement of the objectives

Maintenance Processes Periodic reviews of the current operating environment and reassessment of the current course in light of updated information –The volatility of the operating environment drives the frequency of reassessment –E-commerce environments require constant reassessment, whereas established industries have lower requirements

The Relationship of Strategy and Planning Elements

Relationship of Strategies to Plans Strategy is a collection of statements that expresses or proposes a means through which an organization can fulfill its mission –Identifies the goal or objective Plan is a detailed description of how an organization can accomplish its mission –Lays out in detail the steps necessary for the organization to accomplish the goal

Strategic Management A process that uses appropriate strategic thrusts to maximize an organization’s performance in a given environment –In complex or uncertain environments IT offers opportunities to moderate complexities and deal quickly with external uncertainties Strategy focuses on the future. It must also focus on alternate scenarios and plan for strategic alternatives

Types of Strategies Functional – describe the operating unit’s broad goals and objectives Stand-alone – describe individual one-time goals or opportunities Business – describe broad goals of revenue and profit. Business strategies direct a firm’s functions towards business objectives

Elements of an IT Functional Strategy Support to business objectives Technical support Organizational considerations Budget and financial matters Personnel considerations

The Firm’s Business Strategy

The Business Strategy The purpose of functional strategies is to describe how functional units support a firm’s business goals and objectives IT goals and the firm’s overall goals must be congruent. IT strategies are most effective when IT and the firm’s goals are internally consistent Strategies contain sensitive information and must be kept confidential

Stand-alone Strategies A specific strategy to deal with a unique opportunity or threat –Generally ad hoc –If accepted, it is incorporated into the strategic plans of all the organizational units it effects –Generally temporary – as an activity matures, it becomes part of the routine strategies and plans

Integrating Business and Functional Strategies These two strategies form the backbone of a firm’s complete strategy –Business strategies have revenue and profit objectives for the firm –Functional strategy’s goals must support the business strategy’s objective If IT does not directly produce revenue, then its strategies are limited to the functional type If it does produce revenue, then its strategy becomes part of the business strategy

Assemblage of Strategies in a Firm

Requirements of a Strategy Statement A strategy statement is a vehicle for focusing managers’ attention on the strategic aspects of the firm’s business –Includes details about the firm’s environment –Basis for selecting the goals and objectives –Assumptions contained within the strategy –Perceived risks and available options

Strategy Outline 1.Nature of the business 2.Environment 3.Goals and objectives 4.Strategy ingredients

Nature of the Business The firm must clearly delineate its mission before proceeding further –Failure to understand the nature of the firm’s business can be fatal The individual units must define their place within the overall mission of the firm –Understanding where a business unit fits within the larger structure helps to align unit goals with organizational ones

Environment States what is known and what is assumed about the relevant, significant factors and trends acting on the firm Environmental assumptions must be tracked and reviewed to assure that they are credible, consistent, and unambiguous How can changes in the environment force a change in the firm’s goals?

Goals and Objectives What IT capabilities are we trying to achieve, and what long term objectives are we going to set for the organization? Goals to decentralize or outsource are also included in this section

Strategy Ingredients Course of action Assumptions Risks Options Dependencies Resource requirements Financial projections Alternatives

Strategy Development Process

Strategic Time Horizon Measured from the beginning of the current year, the strategic years extend from the beginning of year 3 to the end of the strategic horizon The pattern repeats annually, with the upcoming year becoming part of the operating or tactical plan

Steps in Strategy Development IT strategists must develop a broad, comprehensive understanding of the future environment’s influences on the area of interest Alternative strategies should also span the future environment –Selection criteria should be developed to guide selection of the appropriate alternative –Primary strategies should be created with greater detail than alternative strategies

E-business Strategy Considerations Web-based businesses include more than just trading in products and services, so models must take a broader, more strategic view of the sales process –They include market development, demand creation, customer support, customer retention, and order fulfillment –Web-based businesses require firms to exhibit much more responsive strategies

IT Strategy Statement Business aspects Technical issues Organizational concerns Financial matters Personnel considerations

Business Aspects The IT organization must maintain a keen awareness of the business goals and develop strategies to support them In e-business intensive firms, the IT strategy and the firm’s business strategy may be identical

Technical Issues IT managers must provide leadership in using technology to attain advantages for the firm IT strategy must demonstrate the practical utilization of advanced technology in supporting the firm’s goals and objectives Utilization must be consistent with reasonable risks and available resources

Organizational Concerns IT tends to cause organizational stresses in areas outside IT itself Not all in the organization look upon these changes favorably, and will need to be educated about the need and reasons for change –IT managers must anticipate and take the lead in satisfying these needs

Financial Matters Financial concerns limit the range of opportunities for an IT organization –Resource constraints must be recognized early on in the process and addressed formally, to limit the amount of energy wasted –Results must be optimized for the resources at hand

Personnel Considerations Functional strategies must include personnel action plans that address recruiting, training, and retention of skilled employees IT organizations are extremely dependent on the skills of their employees –A few high performing individuals can have a disproportional impact on the entire IT organization and the firm itself

E-Business and Knowledge Management Strategies As firms move to embrace online transactions, they must understand the standards required in this domain –Infrastructure adequate for internal use becomes unsuitable for e-commerce Developing strategies to support e- business requires the firm’s best effort –Innovations in products and services influence technical, administrative, and business processes favorably

Using and Maintaining Strategies Maintaining a strategy is an essential step in its continued usefulness –Must document where change is anticipated to occur and how that change can effect assumptions –Tracking identifies deviations early, allowing time to correct assumptions or to respond to new factors –When tracking identifies significant deviations, the entire strategy may need re-evaluation

Summary Strategy development is one of management’s fundamental responsibilities Because IT cuts across traditional enterprise structures, strategy development in IT can be more difficult IT strategy can unify other strategic thrusts and become the firm’s business strategy

Certo and Peter Strategic management is a continuous, iterative process aimed at keeping an organization as a whole, appropriately matched to its environment. The process itself involves performing an environmental analysis, establishing organizational direction, formulating organizational strategy, implementing that strategy, and exerting strategic control.

Certo and Peter In addition, international operations and social responsibility may profoundly affect the organizational strategic management process. It is important that the major business functions within an organization – operations, finance, and marketing – be integrated with the strategic management process.