1. Copyright 2004 Monash University IMS5042 Information Systems Strategic Planning Week 6: Elements of IS planning Theory: 3. Using IT/IS for Competitive Advantage: Strategic Information Systems

2. Copyright 2004 Monash University Agenda 1. Context for IT for CA 2. McFarlan and IT for CA 3. Michael Porter and the ‘Information Revolution’ 4. The ‘IT for CA’ case studies 5. How do you do planning to achieve IT for CA? 6. Planning for Strategic Systems: Assumptions and implications

3. Copyright 2004 Monash University 1. Context: The ‘Information Revolution’ in the early ‘80s Costs and accessibility of IT/IS have now drastically reduced (PCs, minis, packaged software, communications, 4GLs, etc) IS/IT is no longer an expensive specialised ‘back-office’ function which only large organisations can afford It is now possible for almost any organisation to get into computing Some organisations are using IT to make dramatic improvements to their business (Compare with the dot.com revolution?)

4. Copyright 2004 Monash University Using IT for Competitive Advantage: Some Basic References McFarlan FW (1984), ‘Information Technology Changes the way you Compete’, HBR, May- June Porter M & Millar V (1985), 'How Information Can Give You Competitive Advantage', HBR, Jul-Aug Rackoff N, Wiseman C & Ullrich W (1985) ‘Information systems for competitive advantage: Implementation of a planning process’, MIS Quarterly, December

5. Copyright 2004 Monash University 2. McFarlan: An early influential (but relatively soft) version of IT for CA Remember McFarlan from the stages of growth lecture? Remember his concept of the strategic grid? This idea was developed further in this paper (McFarlan, 1984)

6. Copyright 2004 Monash University McFarlan: Understanding the role of IS/IT in your competitive position The potential for inter-organisational IS links (IOS) is particularly important for companies Opportunities for using them for competitive advantage Opportunities for opponents to use them to your competitive disadvantage

7. Copyright 2004 Monash University McFarlan: Five issues in assessing IS/IT impact Can IS technology build barriers to entry (by opposing companies without access to our technology)? Can IS technology build in switching costs (to discourage customers from leaving us)? Can technology change the basis of competition (cost, product differentiation, specialisation)? Can IS change the balance of power in supplier relationships? Can IS technology generate new products?

8. Copyright 2004 Monash University McFarlan: Deciding on your strategic position with IS/IT A company’s approach to strategic IS depends on where they belong in the strategic grid Changing circumstances may affect your place in the grid ‘… A number of companies and industry groups are and will remain appropriately in the support and factory boxes… however … a company’s IS function needs re-examination to ensure its placement is still appropriate’

9. Copyright 2004 Monash University McFarlan: A new approach to IS planning Using IS planning to specify IS resource allocation priorities (see Exhibit 2, p 102) Allocate resources to areas with greatest growth potential Don’t use simple measures (like IS as a % of sales!) to determine IS expenditure levels (remember Nolan’s benchmarks!) IOS have many hidden second-order effects; assess them carefully Don’t be too efficiency-oriented in IS expenditure; encourage creativity as appropriate

10. Copyright 2004 Monash University McFarlan’s view of the importance of development of Strategic IS ‘…opportunities vary widely from one company to another’ ‘…in different situations a company may appropriately attempt to be either a leader or an alert follower. The stakes can be so high, however, that this must be an explicit well- planned decision’ Also see quote on Slide 8 Contrast this with Porter (see slide 22)

11. Copyright 2004 Monash University 3. Michael Porter and The ‘Information Revolution’ Porter - Harvard business academic who became in the late 70s/early 80s the great guru of management theory Wrote best-selling business and management texts on competitive advantage and competitive strategy First really influential business writer to write extensively on IS in business

12. Copyright 2004 Monash University Basis of Porter’s views The Information technology revolution is now well underway and is having drastic effects on business. All companies are affected. Companies are thriving or dying as a result of their ability or inability to use IT more effectively than their competitors Business managers can no longer afford to leave IT to their MIS departments, but must become involved in it IT involves technologies, information and systems

13. Copyright 2004 Monash University How Does IT Affect the Nature of Competition? It changes industry structures It gives companies new ways to achieve competitive advantage It spawns new businesses (often within existing organisations)

14. Copyright 2004 Monash University Three Key Issues Why has IT achieved strategic significance? How does IT change the nature of competition? How can managers assess and use IT effectively?

15. Copyright 2004 Monash University The Value Chain Activities - 9 generic categories (5 primary and 4 support); (see Porter & Millar, Exhibit 1, p151) Linkages - internally to connect value activities within the business; externally to connect the company's activities to those of its suppliers, distributors, customers, etc Profitability is determined by the extent to which value added through the chain exceeds cost of doing the activities

16. Copyright 2004 Monash University CA Through The Value Chain: How to achieve competitive advantage Do activities in the value chain more cost effectively or in a way which distinguishes your product from the opposition Manage the trade-offs in optimising activities better Co-ordinate and manage linkages better Achieve a better competitive scope (geographical, industry, segment, vertical integration); can be done by either broadening or narrowing scope

17. Copyright 2004 Monash University IT Transforms the Value Chain Every value activity has a physical and an information processing component Technology has traditionally mainly affected the physical component. Now IT is affecting the information processing component IT is now affecting ALL categories of value activity, the linkages between them and the competitive scope of the business IT is also transforming business products by increasing their information content

18. Copyright 2004 Monash University Effects of IT on Competition: Changing Industry Structure Industry structure is determined by 5 forces: buyer power supplier power ease of entry ease of substitution competitive rivalry IT is profoundly changing all of these - case histories galore (see section 4)

19. Copyright 2004 Monash University Effects of IT on Competition: Creating CA Reduce costs in activities and linkages throughout the value chain Enhance product differentiation by use of information and by incorporation of information with the product Change competitive scope by expansion/linking with other industries/segmentation/etc

20. Copyright 2004 Monash University Effects of IT on Competition: Spawning New Businesses IT can create CA through the development of new lines of business. This may happen in several ways:- IT makes new businesses feasible IT helps create derived demand for new products IT creates spare capacity/new skills/new information which can be sold as new products

21. Copyright 2004 Monash University IT for CA: How To Take Advantage Assess information intensity within your company’s value chain and products Determine the role of IT within your industry structure Identify and rank ways in which IT might create CA Investigate how IT might spawn new businesses Prepare your plan for taking advantage of IT!

22. Copyright 2004 Monash University Using IT for CA: Porter’s Conclusion “The question is not whether IT will have a significant impact on a company’s competitive position; rather the question is when and how this impact will strike. Companies that anticipate the power of IT will be in control of events. Companies that do not respond will be forced to accept changes that others initiate and will find themselves at a competitive disadvantage.”

23. Copyright 2004 Monash University Some Features of Porter’s ‘IT for CA’ Strong external focus (contrast with Nolan & Rockart) IT leads business (contrast with Nolan and Rockart) You MUST do it (contrast with McFarlan) You must do it FIRST (contrast with McFarlan) You CAN do it NOW (and quickly) (contrast with Nolan)

24. Copyright 2004 Monash University 4. The case studies which ‘proved’ how ‘IT for CA’ works The business literature of the time spawned a string of famous case studies of companies which used IT for CA- American Airlines, Citibank, McKessons, Merrill Lynch, Mrs Fields, etc Note focus on successes, not failures Implication (if not direct statement) that if these companies can do it, so also must you Compare (again) with dot.com boom?

25. Copyright 2004 Monash University What happened to the companies who did it? See Kettinger et al See diagrams from Kettinger et al

26. Copyright 2004 Monash University 5. How do you do planning to achieve IT for CA? Textbooks and literature were strong on the need, but weak on the methods for doing it Many used CSFs, BSP, etc as the method, but with a different objective in mind One example of a so-called method can be found in the ‘theory of strategic thrusts’ described in detail in Wiseman (1985), but summarised in Rackoff et al (1985)

27. Copyright 2004 Monash University Basis of the ‘theory of strategic thrusts’ method Five basic thrusts are possible: Differentiation Cost Innovation Growth Alliance Three possible targets for these thrusts: Suppliers Customers Competitors Aim of method is to fill framework (see Rackoff et al, Fig 1, p287)

28. Copyright 2004 Monash University Process for the ‘theory of strategic thrusts’ method For overall process, see diagram (Rackoff, Table 1, p 289) For structure of idea generating meetings, see diagram (Rackoff, Table 2, p 290) Rackoff et al describe an exercise with a particular company which used this approach: Outcome = hundreds of SIS ideas; 11 selected as worthy of implementation

29. Copyright 2004 Monash University More methods for doing SISP Descriptions focussed mainly on ‘frameworks’ rather than detailed methods Earl (1993), Lederer and Sethi (1988) give examples of how to categorise some of these into ‘families’ of types of approach; overlap with Stages of Growth and Alignment approach ideas! All approaches are as broad as the Rackoff method described above ‘How to’ becomes a matter of planning judgement

30. Copyright 2004 Monash University SISP in practice See Galliers, Pattison & Reponen (1994) for an interesting case study of attempts to do SISP See Lederer and Sethi (1988) and (1991) for issues which arise when doing SISP O’Connor (1993) summarises some of the main research in the area Doyle (1991) gives a good critique of the frameworks

31. Copyright 2004 Monash University 6. Planning for Strategic Systems: Assumptions and Implications What planning philosophies drive the SIS approach? What does the SIS approach assume about IS and IS strategy? What does the SIS approach assume about planning? How does the SIS theory compare with Stages of Growth and CSFs?

32. Copyright 2004 Monash University Planning philosophy behind the CSF approach?? Formalised Unified Comprehensive Utopian Rational Deterministic Directed Dictatorial Democratic Emergent Political Contingent Pluralist Pragmatic Ad hoc Incrementalist

33. Copyright 2004 Monash University Planning for Strategic Systems: Some assumptions about IS strategy Strong concern with explicitly tying IS strategy to business planning, BUT...IS now leads business needs! IS strategy is now directed outwards towards industry and competition Strategic IS (and therefore strategic IS planning) are now absolutely vital to business survival Analysis of business environment and IT trends will provide a clear direction for IS development Development of IS to meet system needs is ‘non- problematic’ - not a strategic concern

34. Copyright 2004 Monash University Planning for Strategic Systems: Some assumptions about planning The basic objective of strategic planning is to identify the systems and IT infrastructure needed to create competitive advantage Planning is a creative activity based around analysis and understanding of business position, competitive environment and IT futures Planners can (and must!) predict business and IT futures On-going change means on-going planning

35. Copyright 2004 Monash University Planning for Strategic Systems: Contrasts with Stages of Growth & CSFs Organisational importance and role of planning Main outcome of planning - management processes for IT vs managers info needs vs systems Ability to understand and predict industry and organisational futures Ability to identify and define systems of strategic importance Ability to create specified IT and systems Level of importance for planning of current status with respect to IS/IT, organisational maturity, etc