CISB444 - Strategic Information Systems Planning Chapter 5 : IS/IT Strategic Analysis: Determining Future Potential

Chapter 5 : Overview Chapter 5 describe the tools and techniques that can be used in determining future potential of IT/IS in organizations Introduced concepts for the more creative dimension, by exploring external IS/IT opportunities, the competitive environment and the industry ‘value system’. 2 CISB414 - Strategic Information Systems Planning

Chapter 5 : Main Topics Dimensions of Competency Value Chain Analysis – Information Systems and the Value Chain – The Use of Value Chain Analysis – Business Re-engineering and the Value Chain CISB414 - Strategic Information Systems Planning 3

Introduction The analytical technique described in this chapter, offer a more creative analysis approach – have often been successfully adopted in assessing the potential future impact of IS/IT on many organizations. In terms of the application portfolio, the focus of this part of the assessment is primarily to identify strategic investments in relation to the competency levels and the influence from the external resources CISB414 - Strategic Information Systems Planning 4

Introduction The technique may – suggest high-potential possibilities that need further investigation, before their contribution can be decided. – establish whether existing operational systems either provide a good basis for exploitation or could be a constraint to future business options (provided through IS/IT) – assess the role of IS/IT in terms of its use in the industry, by competitors, suppliers and customers as well as the effectiveness of its use within the business unit. CISB414 - Strategic Information Systems Planning 5

Analysing Competency Level - Three Paths to market leadership Useful concepts in enabling the management to define business and IS/IT strategy Operational (Process) Excellence – enabling products and services to be obtained reliably, easily and cost-effectively by customers Customer Intimacy – targeting markets very precisely and tailoring products and services to suit the needs of particular individuals/groups Product Leadership – continuing product innovation meeting customers‘ needs CISB414 - Strategic Information Systems Planning 6

Dimensions of competency CISB414 - Strategic Information Systems Planning 7 Treacy and Wiersma (1995)

Dimensions of competency If the organisation is beyond the ‘success’ line in at least one competency and equal to competitors in the other(s), it should deliver above-average profits in the industry However, if any of the competencies are within the ‘success’ circle, any potential advantage is likely to be offset by poor performance elsewhere. CISB414 - Strategic Information Systems Planning 8 Where the organisation is outside the ‘success’ line (i.e. is outperforming most others in one dimension), more creative thinking is needed to identify how IS/IT can be used to develop the competency further and sustain the advantage

Dimensions of competency : Aligning the IS/IT Investment Strategy to the Business Competency analysis can help identify how IS investments are essential to avoid competitive disadvantages. For example, having established ‘operational excellence’ with its book-buying customers, Amazon.com is able to analyse purchase patterns and identify other books of potential interest to an individual customer, which will lead to increase of competency level for other dimension (customer intimacy) CISB414 - Strategic Information Systems Planning 9

Dimensions of competency : Aligning the IS/IT Investment Strategy to the Business Strategic applications should relate to the dimension in which the organisation seeks to excel in the next 1 to 3 years (through product leadership, customer intimacy or operational excellence) The objective is to gain advantage in the marketplace Key operational application improvements are essential in any dimension if the systems are causing performance levels to fall below those essential to success (i.e. are causing disadvantage). CISB414 - Strategic Information Systems Planning 10

Value Chain Concept “Every firm is a collection of activities that are performed to design, produce, market, deliver and support its products or services. All these activities can be represented using a value chain” The value chain model (Porter, 1985) is used to classify, analyse, and understand the translation of resources through processes into final products and services This is a generic model in which all enterprises are viewed as acquiring materials (which may be physical, financial or informational) and converting these into a desired product or service which will be sold and distributed to customers. CISB414 - Strategic Information Systems Planning 11

Value Chain Concept The Porter and Miller value chain model can be used – to assess the efficiency and effectiveness of the enterprise’s main processes. – to assess how IT and IS can be applied to a specific activity to make it more efficient and effective CISB414 - Strategic Information Systems Planning 12

Value Chain Concept Needs to be understood as part of the larger system of related value chains (belonging to suppliers, customers and competitors) An enterprise value chain should cooperate with the value chains of its upstream suppliers and downstream customers in order to improve operational efficiency and improve customer service The integration of value chains from raw materials to end- user is known as a value system CISB414 - Strategic Information Systems Planning 13 Business network processes provide the “glue” that links individual value chains

Example : Major Processes in a Manufacturing Company CISB414 - Strategic Information Systems Planning 14

Example : Major Processes in a Manufacturing Company Core Processes – Defining products and markets – Planning products – Engineering – Manufacturing – Selling – Distributing CISB414 - Strategic Information Systems Planning 15

Example : Major Processes in a Manufacturing Company Support Processes – Managing information resources – Managing human resources – Managing financial resources Management – Strategic planning CISB414 - Strategic Information Systems Planning 16

Example : Major Processes in a Manufacturing Company Business Network Processes – Concurrent engineering – Just-in-time ordering – Coordinating logistics – Building-to-order – Constant replenishment CISB414 - Strategic Information Systems Planning 17

Information Systems and the Value Chain Business performance is dependent on the processes that gather and disseminate information. Normal business transactions (invoices, orders, payments, etc,) could be addressed by a company with most of its customers and suppliers who have computers, simply by connection via the Internet. This basic use of e-Commerce is spreading through different industries at varying rates. It not only improves the economics of transaction processing but also enables the whole chain to respond more effectively to real-time demand and supply changes. CISB414 - Strategic Information Systems Planning 18

Reduction of Intercompany Costs Due To Better Information Exchange Along The Value Chain - Examples CISB414 - Strategic Information Systems Planning 19

Alternative Value Configuration Models The traditional Porter value chain model was based essentially on a manufacturing/retail view of industry and works well for ‘physical goods’. It can be applied quite successfully to some service businesses. But in many others it does not really represent what the business does or its relationships with customers and suppliers. CISB414 - Strategic Information Systems Planning 20

Alternative Value Configuration Models Stabell and Fjeldstad describe 2 alternative value configuration models to address these problems. The focus is on the primary value chain activities: – Value shops: Businesses that essentially are ‘problem solving’, delivering value by providing solutions for clients. E.g. management consultancies – Value networks: Businesses that provide exchanges and mediation between buyers and sellers, enabling relationships to be established. E.g. Telco companies CISB414 - Strategic Information Systems Planning 21

The Use of Value Chain Analysis It can enable further analysis of: – The information that flows throughout the industry and how critical that information is to the functioning of the industry and the success of the firms in it – The information that is or could be exchanged with customers and suppliers throughout the chain to improve the performance of the business or lead to mutually improved performance by sharing the benefits – Identify IS/IT CISB414 - Strategic Information Systems Planning 22

Business Re-engineering and the Value Chain Improving business performance by: – Eliminating unnecessary processes – Rationalise the rest to ensure the value-adding processes are optimised, integrate to improve responsiveness, and reduce unnecessary effort and error – Automate where technology can deliver further improvements In many organisations, the need for rapid, relatively radical change is now imperative and IT provides a wide range of capabilities to assist in implementation CISB414 - Strategic Information Systems Planning 23

Business Re-engineering and the Value Chain These solutions involve adopting a value-chain-driven approach to understanding ‘how the business works’ and hence can be improved via a combination of business reengineering and new IS. CISB414 - Strategic Information Systems Planning 24

Summary To establish a strategic information systems planning, it is important that some analysis is conducted to determine future potential of IT/IS in organizations In terms of the application portfolio, the focus of this part of the assessment is primarily to identify strategic investments in relation to the competency levels and the influence from the external resources Analysing dimension of competency Value Chain Analysis CISB414 - Strategic Information Systems Planning 25