Lecture 2: Strategic Management and Planning, Competitive Advantage and Sustainability, IS strategy implications Strategic Management of Information Systems

Roadmap Strategic management and planning Competitive Advantage and Sustainability IS/IT strategy implications

Strategic Management and Planning

Evolution of strategic management

Evolution of strategic management

Evolution of strategic management PHASE 1: Financial planning 1 year horizon Budgeting Internal Consolidated Carried out department by department Basic financial planning cash flow and annual financial planning Focus of planning Meet the budget

Evolution of strategic management PHASE 2: Forecast-based planning 3-5 year horizon Analyse and project historical performance into future using internal trends and external parameters (economics and market research data) Forecast sales, market growth Predict the effect on income and expenses and changes to the balance sheet Plans are quantitative, internally orientated Focus of planning Predict or forecast Analyse the gap between what is targeted and the resource available

Evolution of strategic management PHASE 3: Externally-oriented planning Considers the external environment To understand the nature of competition Assess and consider potential threats Position itself to gain advantage Dynamic allocation of resources Top-down strategy with no lower level involvement Focus of planning External Strategic

Evolution of strategic management PHASE 4: Strategic management Involves various departments and levels Focus of planning Continuing innovation Needs a well-defined strategic management framework

Evolution of strategic management

Strategic analysis Strategic choice Strategic Management Elements Strategy implementation Strategic choice Expectation, objectives & power: culture The environment Resources Generation of options Evaluation of options Selection of strategy Resource planning Organisational structure People & systems

Model of strategic planning process

Mission Goal Strategy Policy Decision Action Simplified example of planning stages Mission To be the industry cost leader Goal Achieve staff productivity gain of 3 per cent within three years Strategy Reduce time lost due to ill health (one of a set) Policy Maintain a healthy work place (one of a set) Decision Ban smoking (one of a set) Action Put up the signs and police the decisions (one of a set)

Components of the strategic plan Mission (statement) What business are we in? State the purpose of the organisation Goals (objectives, aims) Define desired future positions of the organisation Goals – broad, timeless statements of the end results Objectives – quantitative and qualitative, specific and tangible measures of the goals Strategy General direction in which organisation chooses to move to meet goals to achieve the mission Strategy plan should document which of the strategic opportunities are deemed most beneficial to pursue Policy Framework for implementation of any major changes needed to be made Provide key measurements and key ratios that summarise the expected benefits the strategy intended to yield

Brigham Young University Strategic Management in a nutshell A metaphorical explanation from David Kryscynski: What is strategic management? Brigham Young University

Competitive Advantage and Sustainability

Links among resources, capabilities and competitive advantage Industry key success factors Competitive advantage Strategy Organisational capabilities Resources Tangible Financial Physical Intangible Technology Reputation Culture Human Skills/know-how Capacity for communication and collaboration Motivation

Competitive Advantage A set of features and/or resources of the company which is rare and not imitable easily and gives a certain business advantage over competitors. Ability of the firm to outperform rivals on the primary performance goal – profitability The competitive advantage is not static, i.e. acquired/exists forever. It must be maintained and developed in order to provide its sustainability.

People, with knowledge, motivated, and with the capacity to: Sustainable Competitive Advantage People, with knowledge, motivated, and with the capacity to: Learn and to share their learning Respond to competitive threats Respond to customers Ability to innovate or adapt to changes in the environment Attain, retain, or improve viable position in industry Implies possession of: Strategic features that are difficult to copy

Based on unique routines: Sustainable Competitive Advantage Based on unique routines: Responses to past problems, challenges Doing things competitors can’t do –capabilities and competences Strategic resources: Reputation / brands Natural monopolies Internal and external linkages Architecture Culture

A “strategic” resource Rare in the industry (otherwise, it is only a threshold resource) Valuable -makes an appreciable difference to: cost and/or differentiation advantage capacity to adapt or innovate (otherwise, just represents wasted effort) Difficult to acquire, copy or substitute (otherwise firms will copy or use alternatives) Few resources satisfy ALL these criteria

Sustaining competitive advantage Depends on the existence of isolating mechanisms: barriers to rivals’ imitation of successful strategies The greater difficulty that rivals face in accessing the resources and capabilities needed to imitate or substitute the competitive advantage the greater the sustainability of that firm’s competitive advantage

Strategic Resources Physical assets –rarely Financial assets -in some industries Human resources –possibly Intellectual assets –frequently Reputational assets –often Capabilities and competences –usually Intangible, knowledge-based resources most likely sources of sustainable advantage

Sources of competitive advantage Cost advantage Similar product at a lower price Competitive advantage Price premium from unique product Differentiation advantage

Features of cost leadership and differentiation strategies Generic strategy Key strategy elements Resource and organisational requirements Cost leadership Scale-efficient plants Design for manufacture Control of overheads and R&D Avoidance of marginal customer accounts Access to capital Process engineering skills Frequent reports Tight cost control Specialisation of jobs and functions Incentives for quantitative targets Differentiation Emphasis on branding advertising, design, service, and quality Marketing abilities Product engineering skills Strong cross-functional coordination Creativity Research capability Qualitative performance targets and incentives

Examples: Generic strategy Key strategy elements Industry examples Cost leadership Scale-efficient plants Design for manufacture Control of overheads and R&D Avoidance of marginal customer accounts IKEA furniture McDonald’s hamburgers Differentiation Emphasis on branding advertising, design, service, and quality

Beware of being stuck in a middle Beware of DOG!  In most industries market leadership is held by a firm that maximizes customer appeal by reconciling effective differentiation with low cost HOWEVER beware of Not me! .. Beware of being stuck in a middle Cost leadership Differentiation

Brigham Young University Alternative competitive advantage A metaphorical explanation from David Kryscynski: Alternative competitive advantage Brigham Young University

IT/IS strategy implications

Evolution of IS

Trends in evolution of business IS/IT

IS management environment: The Internal Context

Relationship between business, IS and IT strategies

Future lectures roadmap Strategic Management of Information Systems Lec4. IS Strategy formulation Lec5. Integration with Business strategy Lec6. Organizational architecture Lec8. Organizing and resourcing Lec9. Managing investment Lec7. IS Strategic Management Lec10. Managing supply of IT/IS Lec11. IS security and risk management Lec3. Strategic Analysis tools

Recommended reading W. Robson, Chapter 1 J. Ward, Chapters 1 and 2 R. Grant, Contemporary strategy analysis, Chapter 5, 8, 9