Developing Business/IT Strategies Chapter 11 Developing Business/IT Strategies McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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 Identify several change management solutions for end user resistance to the implementation of new IT-based business strategies and applications 11-2

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 must create and implement an action plan that allows you to make the transition from an old business design to a new e-business design 11-3

Case 1: Forrester, NMSU, Exante Financial Services, and Others The alignment between business and IT strategy is crucial to business success; sometimes it is IT that makes it happen. For most CIOs, putting together an IT strategic plan which helps to improve the business-IT relationship is very important. Businesses may not have a clear strategy or they may have some strategies, but they may not apply to all the business activities taking place. IT can help the business articulate how IT fits into business and influence overall business strategy. 11-4

Case Study Questions Consider statements made in the case about business often not having an overarching business strategy that can serve as guidance for the development of a strategy for IT. How is it possible that companies get by without some sort of stable and clear direction? What does this tell you about the business and industry environment in which they operate? Dave Aron of Gartner notes that in some cases the lack of clear business strategy provides an opportunity for IT leaders to step in and help articulate it and the role IT will play in the new strategy. This sounds like a good thing for IT people. What is the downside of being in this situation? Why do you think IT’s success is dependent on the overall business strategy of an organization? Why must they be tied together? Provide several reasons. 11-5

Components of Organizational Planning 11-6

Planning Strategic Planning Tactical Planning Operational Planning Deals with the development of an organization’s mission, goals, strategies, and policies Begins with strategic visioning questions Tactical Planning The setting of objectives and the development of procedures, rules, schedules, and budgets Operational Planning Done on a short-term basis to implement and control day-to-day operations 11-7

Strategic Visioning Questions 11-8

The Scenario Approach Gaining in popularity as a less formal, but more realistic, strategic planning methodology Teams of managers and planners participate in microworld or virtual world exercises Business scenarios are created and evaluated Alternative scenarios are then created 11-9

Trends that Affect Strategic Planning 11-10

Planning for Competitive Advantage Strategic business/IT planning Involves evaluating the potential benefits and risks of using IT-based strategies and technologies for competitive advantage The following models can help generate ideas for the strategic use of IT to support initiatives Competitive forces Competitive strategies Value chain 11-11

Strategic Opportunities Matrix 11-12

SWOT Analysis SWOT stands for Strengths: a company’s core competencies and resources Weaknesses: areas of substandard business performance compared to others Opportunities: potential for new business markets or innovative breakthroughs that might expand current markets Threats: anything that has the potential for business and market losses 11-13

Business Models and Planning Business model answers vital questions about the fundamental components of a business Who are our customers? What do our customers value? How much will it cost to deliver that value? How do we make money in this business? 11-14

Questions for all Business Models Customer value Are we offering something distinctive or at a lower cost than our competitors? Scope To which customers is this value being offered? What range of products/services offered embody this value? Pricing How do we price the value? 11-15

Questions for all Business Models 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? Connected activities What do we have to do to offer this value and when? How connected are these activities? 11-16

Questions for all Business Models Implementation What structure, systems, people, and environment do we need to carry out these activities? What is the fit between them? Sustainability What is it about the firm that makes it difficult for other to imitate it? How do we keep making money? How do we sustain our competitive advantage? 11-17

Questions for all Business Models Capabilities What are our capabilities and capabilities gaps? How do we fill these gaps? Is there something distinctive about these capabilities that lets us offer the value better than other firms? Is this capability hard to imitate? What are the sources of these capabilities? 11-18

Questions Specific to E-Business Models Customer Value What is it about Internet technologies that allows us to offer customers something distinctive? Can Internet technologies help us to solve a new set of problems for customers? Scope What is the scope of customers that Internet technologies enable us to reach? Does the Internet alter the product or service mix that embodies the firm’s products? 11-19

Questions Specific to E-Business Models Pricing How does the Internet make pricing different? Revenue source Are revenue sources different with the Internet? What is new? Connected activities How many new activities must be performed as a result of the Internet? How much better can Internet technologies help us perform existing activities? 11-20

Questions Specific to E-Business Models Implementation How do Internet technologies affect the strategy, structure, systems, people, and environment of the firm? Capabilities What new capabilities do we need? What is the impact of Internet technologies on existing capabilities? Sustainability Do Internet technologies make sustainability easier or more difficult? How can the firm take advantage of it? 11-21

Business Models as Planning Tools A business model forces rigorously and systematic thinking about the value and viability of business initiatives The strategic planning process is then used to develop unique business strategies that capitalize on a business model The goal is to gain a competitive advantage in an industry or marketplace 11-22

The Business/IT Planning Process 11-23

The Business/IT Planning Process The business/IT planning process has three major components Strategic development Resource management Technology architecture 11-24

Information Technology Architecture The IT architecture is a conceptual design that includes these major components Technology platform Data resources Application architecture IT organization 11-25

The system has four processes Balanced Scorecard The balanced scorecard measures a company’s activities in terms of vision and strategies The system has four processes Translating vision into operational goals Communicating the vision and linking it to individual performance Business planning Feedback/learning and strategy adjustment 11-26

Balanced Scorecard The business perspectives a scorecard measures Financial: reflects financial performance, such as cash flow or ROI Customer: measures having a direct impact on customers, such as time to process phone calls Business process: reflects the performance of key business processes, such as time spent prospecting or process costs Learning/growth: the company’s learning curve, such as how many hours are spent training staff 11-27

Identifying Business/IT Strategies The most valuable Internet applications allow companies to Transcend communication barriers Establish connections that enhance productivity Stimulate innovative development Improve customer relations 11-28

Strategic Positioning Matrix 11-29

Cost and Efficiency Improvements Strategic Matrix Cost and Efficiency Improvements Use the Internet as a fast, low-cost way to communicate and interact with others Use of e-mail, chat systems, discussion groups, and company websites Performance Improvement in Effectiveness Major improvements in business effectiveness recommended Increase use of Internet-based technologies, such as intranets and extranets 11-30

Global Market Penetration Strategic Strategies Global Market Penetration Capitalize on a high degree of customer and competitor connectivity and use of IT Use e-commerce websites with value-added information services and extensive online customer support Product and Service Transformation Develop and deploy new Internet-based products and services that strategically reposition it in the marketplace 11-31

E-Business Strategy Examples Market Creator: be among the first to market and remain ahead of the competition by continuously innovating Channel Reconfiguration: use the Internet as a new channel to directly access customers, make sales, and fulfill orders Transaction Intermediary: Use the Internet to process purchases 11-32

E-Business Strategy Examples Infomediary: use the Internet to reduce the search cost; offer a unified process for collecting the information needed to make a large purchase Self-Service Innovator: provide a comprehensive suite of services that the customer’s employees can use directly Supply Chain Innovator: use the Internet to streamline supply chain interactions Channel Mastery: use the Internet as a sales and service channel 11-33

Business Application Planning Process 11-34

Comparing Planning Approaches 11-35

E-Business Architecture Planning 11-36

Many companies plan changes very well Implementation Many companies plan changes very well Few manage to convert a plan into action This is true even if senior management consistently identifies e-business as an area of great opportunity 11-37

Case 2: Blue Cross and Blue Shield and Others Implementing changes needed by new information systems in an organization is very challenging as employees resist change . Understanding the science behind change and resistance to change can lead to more effective approaches to foster involvement and smooth out transitions to new systems. One of the biggest mistakes managers make is assuming that everyone is motivated by ambition. Many people are motivated as much or more by the work they do as they are by the opportunity to move up in the hierarchy. One way to manage change is through education and training. Employees accept change if they are provided proper education and training on the new system that is being implemented. 11-38

Case Study Questions Although a very detailed change proposal may prevent people from making their own connections, as discussed in the case, it may lead others to consider the proposal to be vague and unfinished. How do you balance these two concerns? What guidelines would you use to ensure that you are not veering too far off in either direction? Kevin Sparks of Blue Cross and Blue Shield of Kansas City had a difficult time convincing his people of the need for change. What would you have suggested that he should do before you read the case? What about afterwards? How did your recommendations change as a result? Organizational change goes beyond promotions and the threat of layoffs. What ways other than those discussed in the case would you use to entice people to embrace proposed changes? Provide several suggestions and justify their rationale. 11-39

Implementing Information Technology Many businesses have undergone multiple major reorganization since the early 1980s Business process reengineering Installation and upgrades of an ERP system Upgrading legacy systems to be Y2K compliant Creating shared service centers Just-in-time manufacturing Sales force automation Contract manufacturing The introduction of euro currency E-business is the latest organizational change 11-40

Impact and Scope of Implementing IT 11-41

Intranet Enterprise Portal Challenges Security, security, security Defining the scope and purpose of the portal Finding the time and the 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 11-42

Enterprise Resource Planning Challenges Getting end user buy-in Scheduling/planning Integrating legacy systems/data Getting management buy-in Multiple/international sites and partners Changing culture and mind-sets IT training Getting, keeping IT staff Moving to a new platform Performance/system upgrades 11-43

End User Resistance and Involvement Any way of doing things generates some resistance from the people affected CRM projects have a history of failure Up to 75 percent of CRM projects fail to meet their objectives This is often due to sales force automation problems and unaddressed cultural issues Sales staffs are often resistant to, or fearful of, using CRM systems 11-44

Keys to Solving End User Resistance Keys to solving end user resistance problems Education and training End-user involvement in organizational changes and system development Requiring involvement and commitment of top management and all stakeholders Systems that inconvenience or frustrate users cannot be effective, no matter how technically elegant or efficient 11-45

Obstacles to KM Systems 11-46

Change Management People factors have the highest level of difficulty and the longest time to resolve of any dimension of change management 11-47

Key Dimensions of Change Management 11-48

Implementing a new e-business application may involve Change Management Implementing a new e-business application may involve Developing an action plan Assigning managers as change sponsors Developing employee change teams Encouraging open communications and feedback about organizational changes 11-49

Change Management Key tactics recommended by change experts 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, in person Make liberal use of financial incentives and recognition Work within the company culture, not around it 11-50

A Change Management Process 11-51

Avnet Marshall’s Transformation 11-52

Case 3: 7-Eleven Japan, Eli Lilly, Mohegan Sun, UPS, Vanguard, Carlson Companies, and Raytheon 7-Eleven blends its IT investments with a range of assertive IT practices and capabilities Counselor visits to stores twice a week Delivers of stock three times a day A transparent information infrastructure that links 70,000 computers at stores, headquarters, and supplier sites 11-53

Case 3: 7-Eleven Japan, Eli Lilly, Mohegan Sun, UPS, Vanguard, Carlson Companies, and Raytheon MIT identified four broad classifications of IT investments that can be managed as a portfolio to minimize business risk and optimize return Transactional: used to cut costs or increase throughput for the same cost Informational: provide information for accounting, reporting, compliance, communication, or analysis 11-54

Case 3: 7-Eleven Japan, Eli Lilly, Mohegan Sun, UPS, Vanguard, Carlson Companies, and Raytheon Strategic: used to gain competitive advantage by supporting entry into new markets or by helping to develop new products, services, or business products Infrastructure: typically aimed at providing a flexible base for future business initiatives or reducing long-term IT costs via consolidation 11-55

Case Study Questions What is the portfolio management approach to IT planning? Use the four classifications of IT investments and examples of companies in this case to illustrate your answer. What are the keys to 7-Eleven Japan’s great success compared to other retailers in Japan? How does IT support such success? How could 7-Eleven Japan do even better? What role would IT play? Defend your proposal. Compare the IT portfolio investment approaches of Eli Lilly, Carlson Companies, and Raytheon. What differences in investment approaches and strategies do you find? Which approach do you prefer? Why? 11-56

Case 4: Infosys Technologies Infosys has a long history of trying to leverage knowledge created by its employees for corporate advantage. The incentive system they created to encourage employees to contribute their knowledge created more problem than the management anticipated. Eventually Infosys had to change their incentive system. Knowledge management requires much more than technology. 11-57

Case Study Questions Why do you think the knowledge management system at Infosys faced such serious implementation challenges? Defend your answer with examples from the case. What steps did the KM group at Infosys take to improve participation in the KM system? Why were some of these initiatives counterproductive? The KM group responded with corrective initiatives. Do you think these will succeed? Why or why not? 11-58

Case Study Questions What change management initiatives should the KM group have initiated at Infosys before attempting to develop and implement knowledge management at the company? Defend your proposals, paying particular attention to the final quote in the case by a long-time KM manager at Infosys. 11-59