Developing Business/IT Strategies Chapter 11 Developing Business/IT Strategies

Learning Objectives Discuss the role of planning in the business use of information technology, using the scenario approach and planning for competitive advantage as examples. Discuss the role of planning and business models in the development of business/IT strategies, architectures, and applications.

Learning Objectives Identify several change management solutions for end user resistance to the implementation of new IT-based business strategies and applications.

Why Study Planning Fundamentals? Information technology has created a seismic shift in the way companies do business. Just knowing the importance and structure of e-business is not enough. You need to create and implement an action plan that allows you to make the transition from an old business design to a new e-business design.

Case #1: ROI in Business/IT Planning The Rowe Companies’ ROI Process Use simple ROI calculations to help prioritize IT projects for planning purposes Also use economic value added (EVA) analysis which takes into consideration the cost of capital for a project, risk factors associated with the project, and a targeted value return percentage

Case #1: ROI in Business/IT Planning The Rowe Companies’ ROI Process Return on opportunity (ROO) is also used because it combines more than a dozen factors to assess the rate of change in the business environment, the rate of change in business processes and IT infrastructure, the competitive environment, and the value of intangible assets.

Case #1: ROI in Business/IT Planning Merrill Lynch ROI Process: Risk-and-payback analysis required for every costly technology initiative Single standard six-page template used that poses yes-or-no questions to evaluate project success factors coupled with a five-page financial report

Case #1: ROI in Business/IT Planning What are the benefits and limitations of Rowe Companies’ ROI methods for IT project planning? What is the business value of the ROI methodology required for project planning by Merrill Lynch?

Case #1: ROI in Business/IT Planning Do you agree with the IT investment decision being made by the Rowe Companies in response to changing economic conditions? Why or why not? How can a company identify, measure, and compare the business/IT innovation as well as the profitability of IT projects in their planning process?

IT as a Revenue-Producing Asset

Organizational Planning Process Team building, modeling and consensus Evaluating what an organization has accomplished and the resources they have acquired Analyzing their business, economic, political and societal environments

Organizational Planning Process Anticipating and evaluating the impact of future developments Building a shared vision and deciding on what goals they want to achieve Deciding what actions to take to achieve their goals

Organizational Planning Process

Strategic Planning Definition: Development of an organization’s mission, goals, strategies, and policies

Operational Planning Definition: Planning done on a short-term basis to implement and control day-to-day operations

Scenario Approach Definition: Teams of managers and other planners participate in what management author Peter Senge calls microworld, or virtual world, exercises Microworld - simulation exercise that is a microcosm of the real world

Trends Shaping Strategic Planning

Why Plan for Competitive Advantage? Betting on new IT innovations can mean betting the future of the company. Leading-edge firms are sometimes said to be on the “bleeding edge”. Almost any business executive is aware of disastrous projects that had to be written off, often after large cost overruns, because the promised new systems simply did not work.

Strategic Opportunities Matrix

What is SWOT Analysis? SWOT analysis is used to evaluate the impact that each possible strategic opportunity can have on a company and its use of information technology Strengths – core competencies Weaknesses – substandard business performance Opportunities – potential for new markets or innovative breakthroughs Threats – potential for losses posed by competitive forces

Business Model Definition: A conceptual framework that expresses the underlying economic logic and system that prove how a business can deliver value to customers at an appropriate cost and make money

Business Model Components Customer Value – Is the firm offering its customers something distinctive or at a lower cost than its competitors? Scope – To which customers is the firm offering this value? What is the range of products/services offered that embody this value? Pricing – How does the firm price the value? Revenue Source – Where do the dollars come from? Who pays for what value and when? What are the margins in each market and what drives them? What drives value in each source?

Business Model Components Connected Activities – What set of activities does the firm have to perform to offer this value and when? How connected are these activities? Implementation – What organizational structure, systems, people, and environment does the firm need to carry out these activities? What is the fit between them?

Business Model Components Capabilities – What are the firm’s capabilities and capabilities gaps that need to be filled? How does a firm fill these capabilities gaps? Is there something distinctive about these capabilities that allows the firm to offer the value better than other firms and that makes them difficult to imitate? What are the sources of these capabilities? Sustainability – What is it about the firm that makes it difficult for other firms to imitate it? How does the firm keep making money? How does the firm sustain its competitive advantage?

Business/IT Planning Process

Business/IT Planning Process Components Strategy Development – developing business strategies that support a company’s business vision Resource Management – developing strategic plans for managing or out-sourcing a company’s IT resources Technology Architecture – making strategic IT choices that reflect an information technology architecture designed to support a company’s e-business and other business/IT initiatives

What is IT Architecture? A conceptual design that includes: Technology Platform – networks, computer systems, system software and integrated enterprise application software Data Resources – databases Applications Architecture – business applications IT Organization – organizational structure of the IS function and distribution of IS specialists

Strategic Positioning Matrix

Business/IT Strategies Cost and Efficiency Improvements – use Internet as a fast, low-cost way to communicate and interact with customers, suppliers, and business partners Performance Improvement in Business Effectiveness – widespread internal use of Internet-based technologies to improve information sharing and collaboration within the business and with trading partners

Business/IT Strategies Global Market Penetration – build e-commerce websites with value-added information services and extensive online customer support Product and Service Transformation – use the Internet for electronic commerce transaction processing with customers at company websites, and e-commerce auctions and exchanges for suppliers

Business Application Planning Definition: Includes the evaluation of proposals made by the IT management of a company for using information technology to accomplish the strategic business priorities developed earlier in the planning process

Business Application Planning

E-business Architecture Planning Definition: Combines contemporary strategic planning methods like SWOT analysis and alternative planning scenarios with more recent business modeling and application development methodologies like component-based development

E-business Architecture Planning

Case #2: Global Application Integration “A great strategist can’t win a war unless he keeps his lines of communication clear.” -- George Patton One of the most persistent technological challenges of global business is getting communications networks to expand in lockstep with the demands of the myriad of business applications.

Case #2: Global Application Integration What business benefits resulted from the integration projects of Johnson Controls and Bank of New York? What challenges surfaced in each project? Were they handled properly? Why or why not?

Case #2: Global Application Integration What change management actions could these companies have taken to increase the acceptance of their IT integration challenges? Explain. Is global application integration simply a matter of providing enough bandwidth to meet the demand on the servers or is there more to it? Provide some examples of your position.

Implementation Definition: A process that carries out the plans for changes in business/IT strategies and applications that were developed in the planning process

Scope and Level of Business Change

Intranet Enterprise Portal Challenges Security Defining the scope and purpose of the portal Finding the time and money Ensuring consistent data quality Getting employees to use it Organizing the data Finding technical expertise Integrating the pieces Making it easy to use Providing all users with access

Enterprise Resource Planning Challenges Getting end user buy-in Scheduling/planning Integrating legacy systems/data Getting management buy-in Dealing with multiple/international sites and partners Changing culture/mind-sets IT training Getting, keeping IT staff Moving to a new platform Performance/system upgrades

End User Resistance Solutions Proper education and training End user involvement in organizational changes, and in the development of new information systems

Obstacles to Knowledge Mgmt Systems

Dimensions of Change Management

Change Management Tactics Involve as many people as possible in e-business planning and application development Make constant change an expected part of the culture Tell everyone as much as possible about everything as often as possible, preferably in person Make liberal use of financial incentives and recognition Work within the company culture, not around it

Change Management Process

Case #3: Business/IT Planning Strategies Corning Inc.’s Strategy: We want IT people to be talking with the business team about what we are doing to increase the value of the business and focus on projects that either make positive change in the business or help take costs out or improve asset performance.

Case #3: Business/IT Planning Strategies Benefit: This strategic thinking pays off in budgeting meetings because you’re not discussing the value of the project to the organization. They have already internalized why it’s important. Projects are less likely to be cut in an economic downturn.

Case #3: Business/IT Planning Strategies Putting Business Processes First: Listen to what operational people are saying Only then are opportunities defined followed by business benefits Finally define mechanisms to determine whether goals were met

Case #3: Business/IT Planning Strategies Do you agree with how CIO Richard Fishburn has defended Corning’s IT department from an economic downturn? Why or why not? Why is aligning IT projects with business objectives a good business/IT strategy in challenging economic times? And in good times?

Case #3: Business/IT Planning Strategies Does Corning’s business/IT planning process for its new supply chain system prove the value of aligning IT with business goals? Why or why not?

Case #4: Change Mgmt Challenges Cincinnati Bell’s Convergence: The company reorganized itself by starting with the needs of particular groups of customers and then worked backward to see what the company should look like. COO disbanded product and service units and established divisions serving businesses and residential customers.

Case #4: Change Mgmt Challenges Heads of business units were stripped of their titles and dropped levels Customer service reps had to learn to handle calls about any or all services and cross-sell Employees feared they would lose their jobs Computer systems had to be adapted to new approach

Case #4: Change Mgmt Challenges Was the reorganization of Cincinnati Bell as revealed in this case a good business strategy? Why or why not? Were the change management methods revealed in this case adequate for the changes being made? Why or why not? What further changes should be made in IT systems to better support Cincinnati Bell’s business convergence? Defend your proposals.

Summary Managing information technology requires planning for changes in business goals, processes, structures, and technologies. Planning is a vital organization process that uses methods like the scenario approach and planning for competitive advantage to evaluate an organization’s internal and external environments; forecast new developments; establish an organization’s vision, mission, goals, and objectives; develop strategies, tactics, and policies to implement its goals; and articulate plans for the organization to act upon.

Summary A good planning process helps organizations learn about themselves and promotes organizational change and renewal. Strategic business/IT planning involves aligning investment in information technology with a company’s business vision and strategic goals such as reengineering business processes or gaining competitive advantages.

Summary Implementation activities include managing the introduction and implementation of changes in business processes, organizational structures, job assignments, and work relationships resulting from business/IT strategies and applications such as e-business initiatives, reengineering projects, supply chain alliances, and the introduction of new technologies.

Summary Companies use change management tactics such as user involvement in business/IT planning and development to reduce end user resistance and maximize acceptance of business changes by all stakeholders.

Chapter 11 End of Chapter