August 9, 2023

Define approaches for integrating IS strategy with business strategy

LEARNING OUTCOMES

After reading this chapter, you will be able to:

■ define approaches for integrating IS strategy with business strategy;

■ apply simple strategic analysis tools to determine IS strategy.

MANAGEMENT ISSUES

Annual investment in BIS is signifi cant for many companies. But what return do organisations receive for this investment? To achieve more eff ective investment, a well-planned BIS strategy is required that supports the corporate goals. In this chapter we aim to answer the questions a newly installed manager seeking to develop an IS strategy would ask:

■ Which process can we follow to develop an IS strategy?

■ How can we ensure the IS strategy supports the business strategy?

■ What analysis tools are available to assess current use of IS within the organisation and its environment and formulate IS strategy?

■ Where should we locate the IS function and to what extent should some services be outsourced?

CHAPTER AT A GLANCE

MAIN TOPICS

■ The strategic context 478

■ Introduction to BIS strategy 479

■ Tools for strategic analysis and definition 485

■ IS and business strategy integration 495

FOCUS ON . . .

■ IS/IT and SMEs 499

CASE STUDY

13.1 Which cloud model will prevail? 484

132 Next generation of clients forces pace of IT change 501

CHAPTER

13 Information systems strategy

M13_BOCI6455_05_SE_C13.indd 477 30/09/14 7:24 A

Part 3 BUSINESS INFORMATION SYSTEMS MANAGEMENT478

Organisations that make the most effective use of business information systems (BIS) are those that make BIS strategy an integral part of their overall business strategy. The development of the e-business concept is intended to further support the integration of BIS with business strategy. This chapter looks at the approaches an organisation can use to develop a strategy for putting information systems in place which will support and enhance its overall business strategy.

INTRODUCTION

THE STRATEGIC CONTEXT

In its original sense, ‘strategy’ referred to the development of plans for deceiving or outwitting an enemy. Today, corporate strategy is developed not to conquer a single competitor, but rather to compete within a chosen market. Johnson et al. (2011) use a definition that places strategy in the context of the marketplace environment and stresses its role in utilising internal resources to be best able to compete in this environment. The elements of this environment are summarised in Figure 1.2. These authors define strategy as:

the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a changing environment to meet the needs of markets and to fulfil stakeholder expectations.

Strategy Definition of the future direction and actions of a company defined as approaches to achieving specific objectives.

BIS is one of the resources deployed to help meet the needs of the market by developing and promoting new, innovative products and services that increase customer value. Most companies use a hierarchy of strategies to support the business strategy. For example, a marketing strategy is developed to assist in implementing the business strategy and this in turn will inform a marketing communications strategy. Similarly an information strategy will support the business strategy and this will be achieved by implementing separate IS and IT strategies as explained in the next section.

Effective use of BIS can also result in increased efficiency of internal processes and outward-facing processes which are part of supply chain management. This can help reduce costs and lead to increased profitability.

Any organisation’s strategy can be rooted in four areas:

■ vision – an image of a future direction that everyone can remember and follow; ■ mission – a statement of what a business intends to achieve and what differentiates it

from other businesses; ■ strategies – a conditional sequence of consistent resource allocations that defines an organisation’s relationships with its environment over time; ■ policies – guidelines and procedures used in carrying out a strategy.

These areas in turn can be applied at a number of levels within an organisation:

■ corporate strategy – view of the lines of business in which the company will participate and the allocation of resources to each line;

■ strategic business units (SBU) – subsidiaries, divisions, product lines;

Hierarchy of strategies

A collection of sub- strategies developed to help achieve corporate objectives.

M13_BOCI6455_05_SE_C13.indd 478 30/09/14 7:24 AM

479ChaPter 13 INFORMATION SYSTEMS STRATEGY

■ functional strategy – each functional area within a business unit must develop a course of action to support the SBU strategy. Examples include marketing strategy and logistics strategy.

This straightforward definition masks an underlying complexity of strategy. Indeed, the way in which an organisation can formulate its strategy is the subject of some debate. Claudio Ciborra (Ciborra and Jelassi, 1994) contrasts the mechanistic or prescriptive approach to business strategy with more flexible and eclectic approaches. The former is characterised by such elements as:

■ Conscious and analytical thought, where strategies emerge from a structured process of human thought and rigorous analysis; it is suggested that implementation can only follow when the strategy has been analytically formulated.

■ Top-down and control orientation, where strategy is formulated at the peak of the managerial pyramid and responsibility for strategy lies with the organisation’s chief executive officer.

■ Simple and structured models of strategy formulation, where data analysis and internal and external scanning are undertaken so that the resulting model is clear and simple.

■ Separation between the formulation of strategy and its implementation; diagnosis is followed by prescription and then by action; an organisation structure must therefore follow the formulation of the strategy rather than the other way around.

Flexible, eclectic or emergent approaches, on the other hand, are characterised by responsiveness to gradual changes through evolutionary decision-making processes that often prevail in organisations that profess to adhere to formal and mechanistic approaches to strategy formulation. Mintzberg (1990), as cited by Ciborra and Jelassi (1994), questions the mechanistic, prescriptive school of thought on three counts:

1. During strategy implementation, surprises occur that question previously developed plans. To be successful, the strategic plan needs to be modified to reflect the new situation and this contradicts the previously stated rationality and rigidity that characterise the mechanistic approach. Organisational learning is also hampered by an unduly inflexible approach.

2. While the mechanistic approach to strategy features the strategist as an impartial and independent observer and participant in the strategy development process, the reality in organisations is that organisational structure, culture, inertia and politics themselves influence the strategy development process. Strategy formulation is therefore profoundly influenced by the environment it is seeking to affect.

3. The mechanistic approach to strategy formulation is an intentional process of design. However, the reality is that organisations acquire knowledge on a continual basis and this knowledge can have a profound influence on the contents of strategy and, therefore, its formulation process.

Since both corporate and IS strategy formulation will always involve the need to react to unforeseen circumstances, resulting in sudden changes to overall corporate objectives, an effective strategy formulation process must embrace adaptation, organisational learning and incremental development that reflect a constantly changing business environment.

INTRODUCTION TO BIS STRATEGY

We have seen that all business strategies must be responsive to the external environment, but what are the elements of a strategy for managing BIS and how do they relate? Ward and Peppard (2002) identify three different elements of IS strategy:

M13_BOCI6455_05_SE_C13.indd 479 30/09/14 7:24 AM

Part 3 BUSINESS INFORMATION SYSTEMS MANAGEMENT480

1. Business information strategy. This defines how information, knowledge and the applications portfolio will be used to support business objectives. Increasingly, a chief information officer (CIO) or chief knowledge officer (CKO) who is part of, or reports to the senior management team is appointed to be responsible for defining and implementing this strategy.

2. IS functionality strategy. This defines, in more detail, the requirements for e-business services delivered by the range of business applications (the applications portfolio).

3. IT strategy (IS/IT strategy). This defines the software and hardware standards and suppliers which make up the e-business infrastructure.

These strategies are part of the organisation’s hierarchy of strategies discussed in the previous section.

IT strategy determines the technological infrastructure of the organisation. It ensures the most appropriate technologies and best standards are used in terms of cost, efficiency and supporting the needs of the business users and integration with customers and other partners. A recent strategic decision taken by many companies is to use the Internet protocol (IP) to support deployment of business applications via an intranet. The hardware and software elements of the IT infrastructure were described earlier (in Chapters 3 to 6). Approaches for controlling the total cost of ownership (TCO) of the IT infrastructure are described earlier (in Chapter 16).

IS strategy determines how IT is applied within an organisation. It should ensure that the IT deployed supports business strategies and that the appropriate resources and processes are in place for the deployment to be effective.

Note that, in reality, there is some overlap between elements of IS and IT strategy. For example, it can be argued that the selection of the optimal portfolio of software applications is an aspect of both IS and IT strategy. For this reason a convention preferred by many authors such as Ward and Peppard (2002) refers to both elements together (IS/IT strategy). This convention is used in this chapter.

The relationship between these elements is indicated in Figure 13.1. It is evident that these three elements can be considered to be hierarchical. Here, business information strategy should be driven by the objectives of the business strategy – by its information needs. IS functionality, delivered by BIS applications, should in turn be driven by the

Applications portfolio

The range of different types of business information systems deployed within an organisation.

IT strategy

Determination of the most appropriate technological infrastructure comprising hardware, networks and software applications.

IS strategy

Determination of the most appropriate processes and resources to ensure that information provision supports business strategy.

Figure 13.1 Relationship between business strategy and IS/IT strategies

Information Strategy

Corporate objectives

Business Strategy

Internal resource analysis

IS strategy objectives

IS Strategy

IT Strategy

Information requirements

Micro environment

Macro environment

M13_BOCI6455_05_SE_C13.indd 480 30/09/14 7:24 AM

481ChaPter 13 INFORMATION SYSTEMS STRATEGY

Micro-environment

Immediate environment includes customers, competitors, suppliers and distributors.

Macro-environment

Wider environment of social, legal, economic, political and technological influences.

Purpose To emphasise the importance of monitoring and responding to a range of environment influences.

Activity For each of the environment influences shown in Figure 1.3, give examples of why it is import-ant as part of IS/IT strategy to monitor and respond in an information systems strategy context. Environmental influences are clearest for a company operating an e-commerce service.

Why are environment influences important?Activity 13.1

information requirements of the organisation, and finally IT strategy is the implementation of IS strategy through the delivery of IT infrastructure. Such a model is useful for debate. For example, does this model represent reality in most organisations? Do organisations have separate information, IS and IT strategies? What are the benefits and disadvantages of this approach? Although the top-down approach implies strong control of IS and alignment with business strategy, it may have limited responsiveness in taking advantage of opportunities provided by IS. If IS strategy development identifies a business opportunity it is difficult to feed this back up the hierarchy to be incorporated into the business strategy. We return to this issue in a later section where we review the merits of business-impacting and business-aligning techniques.

The importance of a coherent strategy to manage information is highlighted by Willcocks and Plant (2000) who found in a study of 58 major corporations in the USA, Europe and Australasia that the leading companies were astute at ‘distinguishing the contributions of information and technology, and considering them separately’. They make the point that competitive advantage ‘comes not from technology, but how information is collected stored, analysed and applied’.

All organisations operate within an environment that influences the way in which they conduct business. Strategy development is strongly influenced by considering the environment the business operates in. Environmental influences can be broken down into:

■ the immediate competitive environment (micro-environment) which includes customer demand and behaviour, competitor activity, marketplace structure and relationships with suppliers and partners;

■ the wider environment (macro-environment) in which a company operates includes economic development and regulation by governments in the forms of law and taxes together with social and ethical constraints such as the demand for privacy.

For IS/IT strategy, the most significant environmental influences are those of the immediate marketplace which is shaped by the needs of customers and how services are provided to them through competitors and intermediaries and via upstream suppliers. We concentrate on managing these influences here (and in Chapter 14). Wider influences are provided by local and international economic conditions and legislation together with what business practices are acceptable to society. Finally, technological innovations are vital in providing opportunities to provide superior services to competitors or through changing the shape of the marketplace. Later (in Chapters 15 to 17) we look at issues involved in managing some of the external factors related to information systems.

IS/IT strategy and an organisation’s environment

M13_BOCI6455_05_SE_C13.indd 481 30/09/14 7:24 AM

Prt 3 BUSINESS INFORMATION SYSTEMS MANAGEMENT482

Paul Licker refers to seven ‘modern management imperatives’ (Licker, 1997) summarised as the ‘seven Rs of strategy’. These highlight how an organisation must compete by using information systems strategy to respond to its external environment. Each of the seven Rs is described below together with how IS can be used to respond to the influence.

■ Reach – this recognises that businesses increasingly compete globally rather than locally or within national boundaries. As a result organisations need the ability to compete with everyone else, regardless of geographic constraints.

IS/IT both allows global competition and is required to compete; organisations need information and the tools to process it to allow quick, accurate response, any time and anywhere; global competition implies information networks and inter-organisational systems.

■ Reaction – customers are becoming ever more demanding and customers will make their views known and wish to have them respected. This means that organisations need quick customer feedback on products and services in order to offer what customers are demanding.

IS/IT is needed to access and interpret customer feedback. It can be used to keep track of customers, products and projects – it is particularly important to bring order to the data to facilitate fast and accurate response so that managers will be able to anticipate customer needs because they understand the customer. A consequence of this is that software needs to be flexible and quickly developed.

■ Responsiveness – the process of turning an idea into a product or service that can be marketed is shortening – global reach means that there will be a greater probability that a competitor will be able to offer a good or service that more closely meets customers’ requirements. The response to this situation is to shorten the concept-to-customer cycle time so that the organisation can tailor goods and services to meet customers’ specific needs.

There needs to be a rapid movement of product ideas to the market. Organisations need IS/IT to help manage this process: efficiency and speed as well as accuracy and reliability are required and information needs to be relevant and well formatted.

■ Refinement – greater customer sophistication and specificity means that customers are more able than ever to distinguish fine differences between products and compare them with their needs and desires.

Moe customer sophistication means increased turbulence in the market, so more information and the tools to manage and manipulate it are needed. Customers are better at communicating precise requirements which means that niche markets appear, grow and disappear rapidly. As a result increased breadth of information is required to create and market products. Also, customers respond well to systems that respond well to them.

■ Reconfiguration – as a consequence of changing customer needs and preferences, it may be necessary to re-engineer work patterns and organisational structures to change the structure of work and workflow from idea to product or service.

As business processes need to evolve and adapt to market needs, there is a big impact on information resource requirements needed for organisational learning (crossing functional boundaries). Complex work structures generate complex data, and management support systems are needed to help manage continually evolving work patterns and structures. Also, new architectures (e.g. client/server) allow decentralisation of IS/IT and greater customer responsiveness.

The environment and the modern management imperatives

■ Redeployment – changing an organisation’s configuration may require the reorganisation and redesign of the financial, physical, human and information resources that are required to create and market a product or service.

Rapid redeployment of resources is required to meet customer needs. An organisation needs to be able to visualise complex arrangements for resources and models to manage them. Therefore, it is necessary to maintain detailed, relevant information on resources at all times and be able to redeploy them. Information itself has become a competitive resource, as well as allowing more control over other resources.

■ Reputation – an organisation’s reputation will be determined, at least in part, by the satisfaction that a customer experiences. This will be enhanced when the product or service meets or exceeds expectations and requirements. Therefore, an organisation needs to pay attention to the quality and reliability of its products or services and processes by which they are produced.

IS/IT can be used to support product development, testing, marketing and customer post-sales service. It can also help to reduce the gap between expectation and performance. Organisations need to enhance the quality and reliability of the product, and information systems can help in such areas as quality benchmarks, measurement and group-based control techniques.

Figure 13.2 illustrates how an organisation’s IS/IT strategy increasingly forms the bridge between the external business environment and internal business processes and activities. Consider an airline: the quality of all customer interactions, often referred to as ‘moments of truth’ by marketers, whether by phone, Internet or in person, require the support of IS. Similarly most supplier services will also be arranged and delivered through IS support.

An organisation’s IS/IT capability will determine, at least in part, how well it can respond to demands placed on it by the external business environment and how it can manage and revise its internal business processes to meet those external demands.

Figure 13.2 IS/IT capability positioning model showing IS/IT capability as the bridge between internally and externally focused business strategies

Internal Process

Competitiors

Suppliers

Customers

IS/I capability

Enthusiasm for the cloud continues to grow. Companies from banking groups with thousands of branches to five-person start-ups are embracing it to obtain the benefits of its pay-as-you-go pricing and on-demand flexibility.

‘Cloud computing is one of the biggest game-changers in computing since e-business emerged 15 years ago,’ says Steve Caniano, who is in charge of AT&T’s hosting, cloud and application services businesses.

‘It helps companies directly align business needs to IT consumption, tie revenues to expenses, and control costs,’ he adds. ‘Using the cloud, businesses can scale their infrastructure at will and create opportunities to [take advantage] of services previously unavailable or unthinkable.

‘Based on our work with thousands of businesses, we estimate that approximately 70 per cent of corporate information technology infrastructure runs on customer premises with less than 20 per cent utilisation. The cloud helps companies avoid wasted investment on idle resources.’

Two AT&T customers illustrate the point. One an engineering group, the other a regional energy company. The engineering group uses AT&T’s network- based cloud to increase or decrease its computing capability in line with its business cycles and project execution, both of which tend to be ‘spiky’. This allows it to avoid investing in infrastructure that would sit idle between projects.

The regional energy company had to cope with millions of web requests for information about energy outages and repairs during a big storm. This threatened the site’s ability to work.

‘It moved the site’s infrastructure to our cloud in four hours, enabling it continuously to communicate real-time outage information to residents and media throughout the service area, greatly improving customer service,’ Mr Caniano says.

Mark Brown, IT risk and assurance director at Ernst& Young, a consultancy, agrees that cloud computing will change the operating landscape, but believes it is likely to complement, rather than replace, client server computing.

He believes that traditional large-scale IT programmes will retain their place in the chief information officer’s arsenal, but will be supplemented with cloud computing.

While some companies are comfortable with a public cloud computing model using on-demand resources such as Amazon’s Web Services, others are building

private clouds using their own virtualised servers, or adopting hybrid public-private models.

But the basic drivers are often the same and, perhaps surprisingly, cost savings are not at the top of the list.

As a recent report by Gartner, the IT research company, noted: ‘The cloud promises to deliver a range of benefits, including a shift from capital-intensive to operational cost models, lower overall cost, greater agility and reduced complexity. It can also be used to shift the focus of IT resources to higher-value-added activities for the business, or to support innovation and, potentially, lower risks.’

When asked about the main customer benefits of cloud computing, 67 per cent of Europe-based respondents to a survey published this month by CA Technologies, a software company, pinpointed scalability. Businesses using the cloud have more flexibility to expand or contract IT services as required.

A further 54 per cent highlighted the significance of ‘agility’, again emphasising the importance of being able to deliver services in a shorter time.

The survey investigated the cost benefits from cloud services and found users making savings of about 11.5 per cent on their annual IT budgets, up from 9.7 per cent reported in last year’s study.

The research also highlighted the maturation of the market. Although private clouds dominate the industry, with 55 per cent of CA’s partners saying their customers use them, compared with 33 per cent for public and 22 per cent for hybrid clouds, it is the hybrid model that is expected to take off.

When asked what type of cloud will be predominantly used in five years’ time, almost half (47 per cent) answered hybrid, compared with 37 per cent for private and just 16 per cent for public.

‘The hybrid cloud model combines the best of both worlds by allowing customers to maximise their existing infrastructure and keep it under internal control, but with the ability to use public cloud resources as needed,’ the report’s authors noted.

The reality is that, while most companies are looking at moving to the cloud, many are cautious about the public model, perhaps because of concerns about security and reliability.

For example, at Wells Fargo, the banking group, Scott Dillon, executive vice-president and head of technology infrastructure services, has used what he calls ‘cloud like’ technologies to help steer the company through a three-year integration project following the $15bn acquisition of Wachovia.

Which cloud model will prevail? By Paul Taylor

CASE STUDY 13.1

In this section we present six tools commonly used in BIS strategic analysis and definition. We start by considering tools that are mainly used to assess the external environmental constraints and options for strategy and then move on to tools that assess the existing internal situation and are used to generate options about future strategy. The tools selected form only a small proportion of those available, but those covered provide a firm foundation for further analysis. In addition, each tool will be examined in the context of the way in which it can be used to help derive an IS strategy that is an integral part of an organisation’s business strategy. We will review the application of these six tools:

1. Porter and Millar’s five forces model – analyses the different external competitive forces that affect an organisation and how information can be used to counter them.

2. Porter’s competitive strategies – assesses how external competitive forces can be harnessed. 3. Nolan’s stage model – an evolutionary maturity model for assessing the current development of information systems within an organisation. 4. McFarlan’s strategic grid – a model for assessing the current and future applications portfolio within an organisation.

TOOLS FOR STRATEGIC ANALYSIS AND DEFINITION

‘We think the cloud is here to stay, but not a public cloud The attributes of the cloud or what we refer to as ‘cloudlike computing’ are something we have been embracing for about three years. We have been working on a road map to move towards that and evolve,’ he says.

‘We started by commoditising the hardware itself, moving into virtualisation and standardising software,’ he explains.

In the process, Wells Fargo reduced its number of top ‘tier 4’ data centres from seven to three, cut its regional data centres from 13 to 10, reduced the number of applications by 25 per cent to 3,000 and accelerated server provisioning (starting up a new application server) from months to 10 days.

By the end of last year, almost two-thirds of the bank’s servers were virtualised and 80 per cent were standardised. As a result, Wells Fargo achieved $1bn in savings with a significant portion attributed to its infrastructure efficiency efforts.

But like other IT professionals, Mr Dillon notes that making this type of change is not just about the technology. ‘You really have to start [focusing on] your operational readiness and capabilities,’ he says.

‘Moving to the cloud is not just another IT project, it represents a transformation of the business,’ says Mr Brown.

Daryl Plummer, a Gartner fellow and expert on web services and the cloud, strongly agrees. ‘There is a stronger recognition today that this is more than just a shift of technology,’ he says.

Unlike the move from mainframe to client-server, which was a switch from one technology architecture to another, ‘this shift moves out of the realm of technology architecture change and into the realm of behavioural relationship and business change, so it’s more akin to the change from on-premises systems with client-server mainframe to the web and e-business.’

Mr Plummer adds: ‘I use Amazon as a great example of the shift that happened then, the kind of dynamic change that can happen to markets, and now we’re seeing the same thing happening because of the cloud phenomenon.’

But he cautions that, although most companies recognise they need a cloud strategy, ‘the problem is that a lot of them are deluding themselves. Some of them are being fooled by marketing strategy, and others are just not educated enough about what cloud computing is to be able to come up with a credible strategy’.

He adds: ‘The gulf between knowing you need a strategy, and having a credible one, is a big one. We have to point out that, because companies are still just educating themselves about what it means to be doing cloud computing’

QUESTION

Discuss the cloud model in terms of IS strategy.

5. Value chain analysis – a tool for analysing the value-adding of information within an organisation. Note that value chain or value stream analysis can also be used to assess value-adding activities outside an organisation.

6. Critical success factors (CSFs) analysis – a model for assessing those factors within an organisation that are required to achieve strategic objectives.

1. Porter and Millar’s five forces model

Porter and Millar’s five forces model is a model for analysing the different external competitive forces that affect an organisation and how information can be used to counter them. The five forces are rivalry between existing competitors, threat of new entrants, threat of substitutes, the power of buyers and the power of suppliers.

This model originated in 1985 and has remained one of the classic tools by which an organisation can assess its current competitive position in relation to a number of external factors:

■ Rivalry between existing competitors. This will determine the immediate competitive position of the business and will depend principally on the number of firms already in the industry and the maturity of the industry itself. For example, a mature or declining industry will probably experience a high degree of rivalry, since survival is the key issue at stake.

■ Threat of new entrants. A new entrant to an industry will cause the existing competitive situation to be disrupted. This has been evident in many countries over the last few years, where many of the formerly nationalised industries which were then privatised are now facing competition that they have never faced before.

■ Threat of substitutes. The substitutes in question already exist within the industry, but because of differentiation they are not quite perfect substitutes for each other. The danger here, therefore, is that a company may lose market share if a rival can supply a substitute that more closely matches the needs of certain customers.

■ Power of buyers. The phrase ‘the customer is king’ is never more true than here where buyers, especially in a business area where there are relatively few of them, can exert power by threatening to switch their purchasing to an alternative supplier. This is also true for businesses where the items being purchased are particularly high-value items (e.g. aero engines).

■ Power of suppliers. This may appear a little odd given the previous point, since a business is going to be the customer to its suppliers. However, there are still competitive pressures to be addressed. For example, in a situation where a material is in short supply, a business is going to be at risk from its competitors bidding up material prices and suppliers selling to the highest bidder. An illustration of this is the worldwide shortage of PC memory chips in the early 1990s, where computer manufacturers effectively had to endure a large hike in prices if they were still to manufacture and sell personal computers.

Figure 13.3 illustrates how the five forces outlined above provide the main external pressure on the successful operation of a typical business.

These five forces can exert a profound influence on how business is conducted. If the model is to be used successfully, it will require a thorough analysis of the industry under consideration. Of itself, the resulting information will not automatic-ally generate a business strategy for the organisation. However, it will create a vivid picture of the market environments within which the organisation is operating and provide some pointers towards avenues of further investigation.

From an information systems strategy perspective, the tool provides further pointers towards how IS can be used to affect one or more of the five forces. Each one of the five forces will be taken and an illustration of how IS can be used to benefit the business will be given:

Porter and Millar’s five forces model

Porter and Millar’s five forces model analyses the following competitive forces which impact on an organisation: rivalry between existing competitors, threat of new entrants, threat of substitutes, the power of buyers and the power of suppliers.

■ Rivalry between existing competitors. The greater the extent of rivalry within the industry, the higher the costs that will be incurred by a business as it seeks to compete with its rivals. In addition, industry rivalry will be profoundly influenced by the positioning of its products in both the industry and product lifecycles. In a declining industry, for example, collaborative efforts between industry rivals may help reduce costs or raise the profile of the industry.

■ Threat of new entrants. Businesses such as the financial services industry are competing increasingly on the basis of quality and service, and information systems are one enabler in this process. Investment in systems that support these two aspects of competition can deter potential entrants if they themselves have to make a significant investment in such systems before they can hope to compete successfully.

■ Threat of substitutes. The threat here is greater if the substitute products are a close alternative. In the shape of CAD/CAM and computer-integrated manufacturing, IS can be used to speed up development of new products and therefore reduce the ability of competitors to provide products that are acceptable substitutes.

■ Power of buyers. IS can be used to lock customers into a company’s products and so reduce the risk of the customer switching to a rival. For example, a business specialising in organising corporate travel may locate terminals at its main corporate customers so that they will be more likely to book flights, hotels and car hire with that company rather than a competitor.

■ Power of suppliers. If a supplier believes that its customers will always buy from it because there are few perceived alternatives, it is in a position to exert upward pressure on prices and to dictate trading terms to the customer rather than the other way around. Through external databases and now the Internet, IS can help businesses identify equipment and raw material suppliers much more efficiently than before and so reduce the bargaining power of suppliers.

Figure 13.3 Porter and Millar’s five forces model

Source: Adapted from excerpt in ‘How information gives you the competitive advantage’ by M.E. Porter and V.E Millar, July/August 1985, pp. 149–60. Copyright © 1985 by the Harvard Business School Publishing Corporation; all rights reserved.

Bargaining power of customers The business and its external threats Threat of substitutes Power of suppliers Threat of new entrants Extent of rivalry between existing competitors

The value of this model is that it encourages an organisation to look at itself in the context of its external environment. It is not a methodology that a company can follow to transform itself. It is now appropriate to switch from an externally oriented view to an internal one, again courtesy of Michael Porter.

2. Porter’s competitive strategies

Related to his work on the five forces, Porter proposed three different competitive strategies that could be used to counter these forces, of which the organisation may be able to adopt one (Porter, 2004). Once a competitive strategy has been identified, all marketing efforts can be applied to achieving this and IS can help support the aim. The three competitive strategies, which are covered in more detail in Chapter 1, are:

■ Overall cost leadership – the firm aims to become the lowest-cost producer in the industry. The strategy here is that, by reducing costs, one is more likely to retain customers and reduce the threat posed by substitute products. An example of how this might be achieved is to invest in systems that support accurate sales forecasting and therefore projected materials requirements so that good, long-term deals can be struck with suppliers, thus reducing materials costs.

■ Differentiation creates a product perceived industry-wide as being unique. By being able to tailor products to specific customers’ requirements or by offering an exceptional quality of service, the risk of customers’ switching is reduced.

■ Focus or niche involves identifying and serving a target segment very well (e.g. buyer group, product range, geographic market). The firm seeks to achieve either or both of ‘cost leadership’ and ‘differentiation’.

There is also a possible undesirable outcome: ■ ‘Stuck in the middle’ – the firm is unable to adopt any of the above approaches and,

therefore, is ultimately at the mercy of competitors that are able to offer these approaches.

3. Nolan’s stage model

Nolan’s stage model is a six-stage maturity model for the application of information systems to a business.

It must be stressed at the outset that this model dates back to the mainframe era and, therefore, provides a way of looking at an organisation’s response to ongoing IS investment and management that is fundamentally influenced by this. However, the model does have value since it is simple to understand, provides an evolutionary view of business use of IS and demonstrates that an organisation’s approach to the management of IS will change over time. The model demonstrates that, over time and with experience, an organisation’s approach to computer applications, specialist IS personnel and methods of management will evolve to a level of maturity where the planning and development of information systems are embedded into the strategic planning process for the business as a whole.

Using the Internet as an example of a new information technology, examine how a business could apply information technology to counter each of Porter and Millar’s competitive forces. Applications that you may wish to consider are: sales of existing products by electronic commerce to customers across the Internet; introducing new products available over the Internet; marketing of products across the Internet; reducing the cost and increasing the efficiency of dealing with suppliers through an extranet; and changes in the ease of switching and switching costs through using the Internet. Note that the new technologies may actually improve the power of the company you are dealing with in some instances. State where you feel this is the case.

Using Porter and Millar’s model to devise strategies for exploiting the InternetActivity 13.2

Nolan’s stage model

This model is a six- stage evolutionary model of how IS can be applied within a business.

The six-stage 1979 version of the model is the one on which we will focus here:

1. Initiation. The first cautious use of a strange technology, characterised by: ■ low expenditures for data processing; ■ small user involvement; ■ lax management control; ■ emphasis on functional applications to reduce costs.

2. Contagion. The enthusiastic adoption of computers in a range of areas:

■ proliferation of applications; ■ users superficially enthusiastic about using data processing systems; ■ management control even more lax; ■ rapid growth of budgets; ■ treatment of the computer by management as just a machine; ■ rapid growth of computer use throughout the organisation’s functional areas; ■ computer use is plagued by crisis after crisis.

3. Control. A reaction against excessive and uncontrolled expenditures of time and money on computer systems:

■ IS raised higher in the organisation; ■ centralised controls placed on the systems; ■ applications often incompatible or inadequate; ■ use of database and communications, often with negative general managementreaction; ■ end-user frustration.

4. Integration. Using new technology to bring about the integration of previously unintegrated systems:

■ rise of control by the users; ■ large DP (data processing) budget growth; ■ demand for database and online facilities; ■ DP department operates like a computer utility; ■ formal planning and control within DP; ■ users more accountable for their applications; ■ use of steering committees, applications financial planning; ■ DP has better management controls, standards, project management.

5. Data administration. There is a new emphasis on managing corporate data rather than information technology:

■ identification of data similarities, their usage and meanings within the whole organisation;

■ the applications portfolio is integrated into the organisation; ■ DP (MIS – management information systems) department serves more as an administrator of data resources than of machines; ■ the emphasis changes to IS rather than DP.

6. Maturity. Information systems are put in place that reflect the real information needs of the organisation:

■ use of data resources to develop competitive and opportunistic applications; ■ MIS organisation viewed solely as a data resource function; ■ MIS emphasis on data resource strategic planning; ■ ultimately users and MIS department jointly responsible for the use of data resources

within the organisation.

Data processing (DP) department is a term commonly used in the 1970s and 1980s to describe the functional area responsible for management of what is now referred to as information

Data processing (DP) department

Commonly used in the 1970s and 1980s to describe the functional area responsible for management and implementation of information systems.

systems and applications development. It is interesting to note that the term focuses on the processing of data rather than the application of information. The head of this department was referred to as DP manager rather than chief information officer or IS manager.

There are a number of implications of Nolan’s model which, if taken into account, may help provide a clearer path towards the maturity stage. Both general and IS management must:

■ verify the state of IS development in order to plan for the future; ■ recognise the fundamental organisational transition from computer management to

information resource management; ■ recognise the importance of and the future trends in information technology; ■ introduce and maintain the appropriate planning and control devices for the IS function

(steering committees etc.).

While it is clear that the model has value, there are clearly a number of shortcomings, particularly in respect of the lack of a human dimension. Galliers and Sutherland (1991) extended the model so that it is a socio-technical one rather than merely a technical one. They did this by including reference to the organisation’s goals, culture, skills and structure. Nevertheless, we should not dismiss Nolan’s model, despite its age, since it can still provide a useful framework for information systems planning. Indeed, the maturity stage implies what all organisations should aspire to: true integration between IS and business planning!

4. McFarlan’s strategic grid

McFarlan’s strategic grid model is used to indicate the strategic importance of information systems to a company now and in the future. It is sometimes referred to as an applications portfolio model since it assesses the current mix of business information systems within an organisation.

This matrix model was developed by Cash et al. (1992) to consider the contribution made currently by information systems and the possible impact of future IS investments. It is suggested in the original model that any business will occupy one of the segments in the matrix (Figure 13.4):

■ The strategic segment indicates that the business depends on both its existing IS and its continued investment in new IS to sustain continued competitive advantage.

McFarlan’s strategic grid

This model is used to indicate the strategic importance of information systems to a company now and in the future.

Applications portfolio

The range of different types of business information systems deployed within an organisation.

Source: After Cash et al. (1992) Corporate Information Systems Management, 3rd edition. © The McGraw-Hill Companies, Inc.

Figure 13.4 McFarlan’s strategic grid

Turnaround Strategic

Support Factory

Low High Low

High

Strategic importance of current IS

Strategic importance of planned IS

■ The turnaround segment suggests that, while a business in this position does not currently derive significant competitive benefits from its current IS, future investment in this area has the potential to positively affect the business’s competitive position.

■ On the other hand, a business operating in the factory segment, while depending on its current IS to operate competitively, does not envisage further IS investment having a positive impact on its competitive position.

■ Finally, a business in the support segment does not, and believes it will not, derive significant competitive advantage from information systems.

Note that it is not likely to be the aim for every company to move to a high strategic importance for IS. In some industries such as manufacturing, it is unlikely that IS will ever attain high importance. In others, such as retailing, it may become more important. Given the varying significance of IS in different industries, there are a number of ways in which this model can be applied:

■ across industries for analysing the strategic importance that particular industries attach to IS;

■ within an industry, different competitors can be plotted according to the relative significance they attach to IS;

■ within a company, different departments within an organisation can be classified and goals set in relation to the future planned importance of IS.

Ward and Peppard’s (2002) modified matrix provides a useful variation on this model by categorising information systems and their business contribution in terms of an applications portfolio. This model recognises that the information systems used by a single company will not fit into a single quadrant on such a matrix, but rather there will be a portfolio of IS, some of which may lie in different quadrants.

The four sectors, which are shown in Figure 13.5, are:

■ Support. These applications are valuable to the organisation but not critical to its success.

Figure 13.5 Ward and Peppard’s modified strategic grid

High potential (Turnaround)

Aim: often uncertain

Approach: competitive proactive focus Strategic

Aim: competitive advantage

Approach: competitive/ e�ectiveness focus Support

Aim: reduce costs

Approach: reactive with e�ectiveness focus

Key operational (Factory)

Aim: improve performance

Approach: reactive with technology and e�ciency focus

Low High

Low

High

Degree of dependence of the business on IS/IT application in achieving business

performance objectives

Potential contribution of IS /IT application to achieving future business goal s

■ Key operational. The organisation currently depends on these applications for success (mission-critical).

■ High potential. These applications may be important to the future success of the organisation.

■ Strategic. Applications that are critical to sustaining future business strategy.

Each of an organisation’s applications will fall into one of these categories. It is quite feasible that applications will move from one sector to another over time (e.g. today’s strategic application may become tomorrow’s key operational one). It is quite possible, for example, that a current key operational system needs to be developed to replace an old legacy system that no longer meets all the organisation’s requirements (e.g. in respect of year 2000 compliance).

The McFarlan matrix and its variant do not of themselves provide a methodology to assist an organisation with its information systems planning. However, especially in its Ward and Peppard guise, the matrix can be effective in providing a framework through which an organisation can explore current and planned IS, both from an IS perspective and from that of functional business managers.

5. Value chain analysis

This is an analytical framework for decomposing an organisation into its individual activities and determining the value added at each stage. In this way, the organisation can assess how effectively resources are being used at the various points on the value chain. Michael Porter’s value chain is a framework for considering key activities within an organisation and how well they add value as products and services move from conception to delivery to the customer. The relevance for information systems is that for each element in the value chain, it may be possible to use IS to increase the efficiency of resource usage in that area. In addition, IS may be used between value chain activities to increase organisational efficiency.

Value chain analysis makes a distinction between primary activities, which contribute directly to getting goods and services closer to the customer (physical creation of a product, marketing and delivery to buyers, support and servicing after sale), and support activities, which provide the inputs and infrastructure that allow the primary activities to take place. Figure 13.6 shows the distinction between these activities.

Primary activities can be broken down into five areas:

■ Inbound logistics. Receiving, storing and expediting materials to the point of manufacture of the good or service being produced.

Value chain

Michael Porter’s value chain is a framework for considering key activities within an organisation and how well they add value as products and services move from conception to delivery to the customer.

Figure 13.6 Michael Porter’s internal value chain model, showing the relationship between primary activities and support activities to the value chain within a company

ServicesSales and marketing Outbound logisticsOperationsInbound logistics Procurement Product technology/development Human resource management Administration and infrastructure Value added cost 5 margin

■ Operations. Transforming the inputs into finished products or services. ■ Outbound logistics. Storing finished products and distributing goods and services to the

customer. ■ Marketing and sales. Promotion and sales activities that allow the potential customer to

buy the product or service. ■ Service. After-sales service to maintain or enhance product value for the customer.

Secondary activities fall into four categories:

■ Corporate administration and infrastructure. This supports the entire value chain and includes general management, legal services, finance, quality management and public relations.

■ Human resource management. Activities here include staff recruitment, training, development, appraisal, promotion and rewarding employees.

■ Technology development. This includes development of the technology of the pro-duct or service, the processes that produce it and the processes that ensure the successful management of the organisation. It also includes traditional research and development activities.

■ Procurement. This supports the process of purchasing inputs for all the activities of the value chain. Such inputs might include raw materials, office equipment, production equipment and information systems.

It is probably easier to see how IS can be applied within this model than in the five forces model that we looked at earlier. For example, sales order processing and warehousing and distribution systems can be seen to be very relevant to the inbound and outbound logistics activities. Similarly, accounting systems have an obvious relevance to administration and infrastructure tasks. What is perhaps less clear is how IS can be used between value chain elements. The case study on ‘Applying the value chain to a manufacturing organisation’ helps illustrate the use of IS to provide linkages between some of the value chain elements.

How can an organisation have a positive impact on its value chain by investing in new or upgraded information systems? Porter and Millar (1985) propose the following five-step process:

1. Step 1. Assess the information intensity of the value chain (i.e. the level and usage of information within each value chain activity and between the levels of activity). The higher the level of intensity and/or the higher the degree of reliance on good-quality information, the greater the potential impact of new information systems.

2. Step 2. Determine the role of IS in the industry structure (for example, banking will be very different from mining). It is also important to understand the information linkages between buyers and suppliers within the industry and how they and competitors might be affected by and react to new information technology.

3. Step 3. Identify and rank the ways in which IS might create competitive advantage (by affecting one of the value chain activities or improving linkages between them). High-cost or critical activity areas present good targets for cost reduction and performance improvement.

4. Step 4. Investigate how IS might spawn new businesses (for example, the Sabre computerised reservation system spawned a multi-billion-dollar software company which now has higher earnings than the original core airline business).

5. Step 5. Develop a plan for taking advantage of IS. A plan must be developed that is business-driven rather than technology-driven. The plan should assign priorities to the IS investments (which, of course, should be subjected to an appropriate cost–benefit analysis).

6. Critical success factors (CSFs) analysis

Critical success factors (CSFs) are measures that indicate the performance or efficiency of different parts of an organisation. Good performance of processes measured by these factors is vital to the business unit or organisation.

This technique is one of the most useful for an organisation in pinpointing what are its precise information needs. The essence of CSF analysis is summarised in Figure 13.7.

Critical success factors will exist in every functional area of the business and they indicate those things which must be done right if that functional area in particular and the organisation as a whole are to flourish. CSFs will also relate to the level within each functional area. For example, in the sales function, a CSF for an account handler may be the accurate and speedy recording and retrieval of sales data. On the other hand, for a senior manager, a CSF may involve achieving the right mix of products.

Once CSFs have been determined across process and hierarchical levels, it is possible to consider the key decisions that have to be made if those CSFs are to be achieved.

Figure 13.7 Critical success factors and deriving information needs

Information needs

Key decisions

CSF

Information needs

Key decisions

CSF

Information needs

CSF

Business activities

Key decisions

Critical success factors (CSFs)

Measures that indicate the performance or efficiency of different parts of an organisation and its processes.

An example of the application of CSFS in sales order processing When a customer places an order, a number of decisions need to be made, the results of which will determine the processing actions for the order and the effectiveness of the process. The critical success factor for this process will be to achieve a high conversion rate of orders received to orders fulfilled while minimising the risk of bad debts.

One of the fist decisions will be whether to accept the customer order at all. Such a decision will hinge on the creditworthiness of the customer. Second, a decision will have to be made about when the customer can receive his or her order. This may be a complex process, depending on the size and importance of the customer, the size and complexity of the order and finally existing stock levels for the ordered items and planned manufacturing or purchasing lead times. If the order is delayed, the customer may seek an alternative supplier.

This section examines how strategic models can be applied to ensure that there is good congruence between business and IS strategies. The aim is to apply tools that enable us either to align the IS strategies with the business needs or use IT/IS to have a favourable impact on the business. Aligning techniques are top-down in nature, beginning with the organisation’s generic business strategy and from this deriving information systems strategies that support business activities. Before these tools can be applied, it is necessary to consider the organisational strategy and the environment in which the business operates.

It is useful to consider tools for strategy definition in the context of whether they are intended to support an existing business strategy directly (business alignment), or whether they are intended to indicate new opportunities which may have a positive impact on a business strategy (business-impacting).

In a business-alignment IS strategy the IS strategy will be generated from the business strategy through techniques such as CSF analysis. In a business-impacting IS strategy the IS strategy will have a favourable impact on the business strategy through the use of innovative techniques and technologies, often as part of business process re-engineering. CSF analysis is fundamentally a business-aligning technique rather than an impacting one.

Business impacting could be achieved through the use of value chain analysis where an organisation, through an analysis of the potential for the use of IS within and between value chain elements, may seek to identify strategic IS opportunities. Perhaps the ultimate expression of using IS to impact business performance is through business process re-engineering.

Having identified the range of key decisions that need to be supported, consideration must turn to the information needed to support the decision-making processes for each relevant functional business area or operational level. To pursue the sales example to its logical conclusion, one of the first information needs is, therefore, the creditworthiness of the customer as expressed by his or her credit line or limit and the current outstanding amount. Both of these items of information would normally be drawn from a mixture of existing sales and accounts receivable data. The sales account handler needs this information before a decision can be made to continue with the customer order. Second, information relating to order item availability needs to be known before a delivery date commitment can be made to the customer. This information will probably be drawn from:

1. Customer data (for example, is the customer an important one who needs to be looked after?).

2. Stock control data (is there sufficient stock in the warehouse to fulfil this customer’s requirements?).

3. Production planning data (if there is currently insufficient stock on hand, will there be sufficient stock in time to meet the customer’s requirements?).

Through improving the quality of information available to support decision making, it should be possible o improve the efficiency of sales order processing and achieve the CSF.

IS AND BUSINESS STRATEGY INTEGRATION

Business-aligning IS strategy

The IS srategy is derived directly from the business strategy in order to support it.

Business-impacting IS strategy

The IS strategy is used to favourably impact the business strategy, perhaps by introducing new technologies.

Figure 13.8 attempts to illustrate one of the key problems in strategic information systems planning. T1 represents the point in time when it is recognised that the current IS/IT capability (C1) is insufficient to meet the needs of the organisation (represented by the IS/IT capability gap G1). Plans are therefore developed to acquire the applications and/ or infrastructure which will meet the needs of the business. At time T1 it is anticipated that a level of IS/IT capability represented by C2 will be sufficient when implemented at

The importance of strategic alignment

time T3 (thus making up the anticipated IS/IT capability gap G2). However, developments in an organisation’s business strategy may mean that, by T3, IS/IT requirements are greater than those envisaged earlier on, thus resulting in a new IS/IT capability gap, G3. The response to this can be a shortening of the cycle time between new software releases so that the cap-ability gap is smaller and for a shorter period. However, the implication of this is that IS/IT and business strategies run the risk of never being fully and consistently aligned.

It is possible to take the misalignment argument further (Figure 13.9). At time T1, an organisation may anticipate significant demands for additional IS/IT development and construct an IS plan that will deliver capability C2 by time T2. However, it is possible that the organisation may only need part of that capability by T2 and will only be capable of using the IS/IT resource C2 by time T3. Therefore, the time from T2 to T3 may represent wasted resources. Furthermore, it may also represent a period of organisational change and upheaval

Figure 13.8 IS/IT capability/requirement model showing a strategic mismatch between IS/IT capability and business requirements

Time

IS/IT strategy

Business strategy

T3T2T1

Figure 13.9 IS/IT capability/requirement scenario 2 showing a strategic mismatch between IS/IT capability nd business requirements

Tim

IS/IT strategy

Business strategy

T3T2T1

while there is a misalignment of this type. In an extreme case, the resulting mismatch could result in business failure since the organisation’s business strategy has been neglected at the expense of an over-emphasis on the perceived benefits of IS/IT investments alone.

These misalignment problems lie at the heart of IS planning and mean that there is a risk of ever-moving goalposts when attempting to specify, acquire and implement new computer-based information systems.

Weill and Broadbent (1998) summarise the alignment of business strategy and in-formation technology in Figure 13.10. The elements to be aligned include:

■ Environment – the external business environment provides opportunities through the availability of technology, threats from competitors and constraints from external regulations.

■ Information technology portfolio – this comprises the IT infrastructure and the informational, transactional and strategic information systems part of the portfolio.

■ IT strategy – here, three aspects need to be balanced: the role of information techno-logy in the firm (for example whether it is perceived to be a core or support function); the way information services are delivered (e.g. the degree or centralisation or decentralisation and the extent to which services are insourced or outsourced); technology policies and standards as they relate to the acquisition and operation of hardware and software solutions.

■ Strategic context – the two aspects here include the strategic intent of the organisation as it drives long-term investments in the IT (infrastructure) portfolio and the current strategy which drives the acquisition of strategic, informational and transactional information systems in response to changing internal and external needs.

Strategic alignment barriers

Figure 13.10 Barriers to business and IS/IT alignment

Impacts

Strategic context

Products Market Investment Customers

Expression barrier

Strategic intent

impacts

Aligns

Current strategy

IT StrategySpecification barrier

Environment

Opportunities: Technology Threats: Competitors Constraints: Regulations

Role of IT

Delivery of services

Policy and standards

IT Portfolio Implementation barrier

Information enablesDrives

Informational

Transactional

Infrastructure

Strategic

The barriers identified by Weill and Broadbent in aligning business strategy, technology strategy and the information technology portfolio fall into three categories: expression barriers, specification barriers and implementation barriers.

Expression barriers include lack of direction in the business strategy which can result in an information technology strategy being set in isolation from the business strategy, changing strategic intents where the long-term goals of the firm are unstable and lead to difficulties in articulating a technology infrastructure, and insufficient awareness of information technology whereby the vision for how technology will be used can restrict business opportunities.

Specification barriers can include lack of information technology involvement where the impact of IT industry developments is not seriously considered in an organisation’s strategy-setting process, the communications gap that can exist between IT professionals and business managers which can lead to misunderstandings and inappropriate decisions, and uncoordinated information technology where investment in IT takes place without an overview of the organisation’s total IT portfolio and its relationship to strategic objectives.

Implementation barriers occur when one or more parts of the organisation perceive themselves as being somehow different from the other functional areas or business units and, therefore, they opt out of the shared infrastructure because they believe that it will not meet their needs.

A consequence of the barriers discussed above is that organisations can make significant investments in their IT portfolio which do not necessarily lead to any real business benefits, thus leading to the notion of the ‘productivity paradox’ (discussed in Chapter 14).

Integrated metrics such as the balanced scorecard have become widely used as a means of translating organisational strategies into objectives and then providing metrics to monitor the execution of the strategy. The balanced scorecard, popularised in a 1993 Harvard Business Review article by Kaplan and Norton, can be used to translate vision and strategy into objectives. In part, it was a response to over-reliance on financial metrics such as turnover and profitability and a tendency for these measures to be retrospective rather than looking at future potential as indicated by innovation, customer satisfaction and employee development. In addition to financial data the balanced scorecard uses operational measures such as customer satisfaction, efficiency of internal processes and also the organisation’s innovation and improvement activities including staff development.

We will now consider each of four main areas of the balanced scorecard (Figure 13.11). Consider the influence of IS in contributing to each area:

1. Customer concerns. These include time (lead time, time to quote, etc.), quality, performance, service and cost. A measure for Halifax Bank from Olve et al. (2000) considers satisfaction of mystery shoppers visiting branches and from branch customer surveys. Customer satisfaction will be partly determined by the performance of customer-facing IS in branches and directly determined by the quality of online banking.

2. Internal measures. Internal measures should be based on the business processes that have the greatest impact on customer satisfaction: cycle time, quality, employee skills, productivity. Companies should also identify critical core competencies and try to guarantee market leadership. Example measures from Halifax: ATM availability (%), conversion rates on mortgage applications (%), arrears on mortgage (%). IS can be directly applied to improve these performance measures.

3. Financial measures. Traditional measures such as turnover, costs, profitability and return on capital employed. For publicly quoted companies this measure is key to shareholder value. Example measures from Halifax: gross receipts (£), mortgage offers (£), loans (£).

Balanced scorecards and strategic alignment

Balanced scorecard

A framework for setting and monitoring business performance. Metrics are structured according to customer issues, internal efficiency measures, financial measures and innovation.

ning and growth: innovation and staff development. Innovation can be measured by change in value through time (employee value, shareholder value, percentage and value of sales from new products). Examples: management performance, training performance, new product development. Some companies such as Skandia Life use measures such as staff IT skills or access to the IT to assess performance in this area.

For each of these four areas management teams will define objectives, specific measures, targets and initiatives to achieve these targets. For some companies, such as Skandia Life, the balanced scorecard becomes much more than a performance measurement system but provides a framework for the entire business strategy process. Olve et al. (2000) make the point that a further benefit of the scorecard is that it does not solely focus on outcomes, but also considers measures that are performance drivers that should positively affect the outcomes. Examples of performance drivers are investment in technology and employee training.

Figure 13.11 The balanced scorecard process

Vision & Strategy

Internal process perspective

What business processes must we excel at to satisfy customers and shareholders?

Customer perspective To achieve our vision how should we appear to our customers?

Financial perspective To succeed financially, how should we appear to shareholders?

Learning and growth perspective To achieve our vision, how will we sustain our ability to change and improve?

Systems and IT Development Strategy Development Management Control Systems Learning Organisation

IS/IT AND SMEsFOCUS ON…

James Thong (1999) whilst lamenting the lack of empirical research on the determinants of IS/IT adoption in small businesses nevertheless identifies a number of factors that can apply in SMEs. These include:

■ Highly centralised management structures with CEOs making most of the critical decisions including IS/IT policies and strategy – hence IS/IT adoption will depend largely on the skills and orientation of the CEO.

■ The tendency to employ generalists rather than specialists – meaning that there is potentially less to be gained for the business as a whole and limited career progression for IS/IT specialists (even if they can be attracted in the first place).

■ A generally lower level of awareness of potential IS/IT benefits and a general lack of IS knowledge and technical skills.

■ The lack of financial resources and susceptibility to short-term planning as a consequence of a highly competitive business environment – this leads to less funds for IS/IT investment and/or the acquisition of lowest-cost IS/IT that may in itself prove inadequate for the organisation’s needs; furthermore, an SME typically has fewer slack resources with which to absorb a possibly unsuccessful adoption of IS/IT.

■ A tendency to adopt a short-term management perspective and the consequent underestimation of the amount of time and effort needed for IS/IT implementation – which in turn increases the risk of implementation failure.

Thong goes on to suggest that since the skills, time and resource constraints identified above are not as significant for larger organisations, then theories and practices in relation to IS/IT strategy implementation may not fit SMEs. Thong concludes that if SMEs are to be successful in terms of their orientation towards, and successful implementation and use of IS/IT, then four factors play a significant role in achieving this:

■ CEOs need to be both knowledgeable and innovative and show a willingness to invest scarce resources to take advantages of the improved organisational efficiency and effectiveness that successful IS/IT can offer.

■ IS/IT implementation in SMEs must offer a better alternative than the existing practices that exist within the SME. So, for example, if the opportunity cost of an IS/IT implementation is the upgrade in manufacturing equipment that is forgone, then the IS/IT investment may not be the wisest course of action. Similarly, the IS/IT must be consistent with the existing norms and values of the organisation as well as being easy to use and understand – failure in either of these will lead to non-use of the systems and thus represent a waste of scarce resources.

■ Despite the acknowledged lack of financial resources and IS/IT-knowledgeable employees in many SMEs, sufficient financial and human resources still need to be devoted to an IS/IT implementation if it is to be successful.

■ Where there is a greater need for information processing within an SME (one dealing with financial services, rather than a small builder for example), there is likely to be a greater adoption of IS/IT. This still means, however, that sufficient financial and IS/IT-knowledgeable human resources will be needed, and that these are more likely, the larger the organisation.

Thoburn et al. (1999) point out that traditionally, SMEs have concentrated on the ‘4 Ms’ – money, materials, machine and manpower, whilst neglecting the effective management of information, resulting in fragmented information systems that do not meet the operational or strategic needs of the organisation. Indeed, they suggest that appropriate management of information lies at the heart of an agile organisation. However, in their 15-month analysis of three manufacturing companies in the SME sector, they found such factors as:

■ poor strategic awareness with a lack of internal and external intelligence; ■ limited, uncoordinated and unplanned technology where computers were seen as an

answer by simply being present; ■ lack of direct integration of IT systems and connectedness of IT and people-centred systems;

■ people that were highly trained, valued and rewarded but where there was a failure in communications in people-centred systems.

In response to some of the difficulties encountered by SMEs as they seek to make better use of IS/IT, Pavic et al. (2007) propose a four-stage model whereby it may be possible for some SMEs to integrate new IS technology into an overall strategy and that this new technology could lead to a competitive advantage:

■ Implementation of appropriate IT infrastructure. IT infrastructure integration is seen as a starting element of an e-business implementation strategy and investment is needed in the hardware and software required for the business to work. Their study shows that companies that are highly IT-capable and employ more skilled staff outperformed others in terms of profit.

■ Changed organisational structure and business strategies. Structural change within organisations is seen as essential and a company must accept that the Internet technology will become an integral part. They see structural change as an import-ant element of sustaining value creation by firms in the future, and point out that organisations need an integrated and coordinated approach towards knowledge, technology and relationship management.

■ Integration within an organisation. This refers to complete internal integration where all aspects of organisational operations must be synchronised and co-aligned with the business goal of focusing on cost reduction and internal efficiency. It is suggested that SMEs that are able to integrate internally are more successful and employ skilled and knowledgeable staff.

■ Full integration with free information flow between suppliers, the organisation and customers. Final and full integration with free information flows enables the business goal of creating market value and competitive advantage by using the Internet technology to be achieved. It also enables supply chain integration and more effective insourcing and outsourcing. It is suggested that this stage is seen as an essential part of implementing an e-business strategy for an SME.

Pavic et al. summarise by saying that if SMEs are to create competitive advantage and e-customers, it is absolutely essential for them to have a sound and well-resourced integration plan of new technologies. However, as they also point out, the literature in this field consistently argues that effective adoption and implementation of IS may rely quite a lot on individual factors such as organisational size and structure, and the mix of available human and financial resources and capabilities. They also suggest that although SMEs are more flexible and more adaptable to change, they lack the human and financial resources and capabilities of large firms and, therefore, they face limitations in purchasing and implementing new systems. The challenge then for SMEs is to embed IS/IT technologies (including web-based systems) as soon as possible into their business model.

Any retail high street bank chief will tell you that IT investment and development is critical in maintaining loyalty in a fast-changing market. For example, it allows customers to check balances on mobile phones before making a purchase.

The picture in private banking, whose members compete on the strength of their brand and the personal services they provide, is more fragmented.

‘A big chunk of their offering is in the ‘white glove’ service,’ says Matthew Thomas, partner in investment

Next generation of clients forces pace of IT change By Jennifer Thompson

CASE STUDY 13.2

management at KPMG, referring to the face-to-face advice offered by wealth managers that private banking customers know and trust, and typically work with for many years. ‘However, that’s not necessarily tracking what customers want.’

Doing nothing about this latest technological revolu- tion is not an option. Where they once primarily catered to long-established ‘old money’ clients, many private banks have started to note the number of Generation Y clients in their 20s and 30s among the customers they have attracted over the past couple of years. These are young and digitally savvy individuals, some of them technology entrepreneurs.

‘The new generation of private banking customers has grown in a different way,’ says Nicolas Debaig, head of strategy and business development at ABN Amro private banking. ‘They have different expectations.’

The sector has mainly regarded technology as a cost and a support function, not as a means of competing. Such attitudes are changing.

‘People are the mainstay but IT is now playing a more and more important role,’ adds Mr Thomas.

Technology investment offers an opportunity for individual banks to shine in customer service as well as risk management.

‘For a while, technology has been a big deal for private bankers and potentially a key differentiator,’ says Ralf Dreischmeier, global leader of the information technology practice at Boston Consulting Group.

Better technology can assist wealth managers with risk and compliance by recording how they interact with clients and documenting agreements or discussions about risk appetite or investment exposure. Investing in platforms and software could help smaller banks scale up quickly if they add a significant number of clients.

The costs of investment are typically in the range of at least tens of millions of pounds or dollars, unproblematic sums for big private banks. Barclays, for instance, has dedicated about two-thirds of Project Gamma, a £350m investment programme in its wealth and investment management business, to IT. One innovation was

the launch last year of voice recognition technology in its telephone banking services, a move aimed at personalising the service and reducing call times that have been lengthened by standard security checks.

‘We’re trying to use technology to get some of the awkward modern realities out of the way,’ says Matt Smallman, vice-president in charge of the client experience at Barclays.

Meanwhile, ABN Amro has concentrated on developing technology around its core systems relating to customer relationship and portfolio management, developing an online tool that allows clients to see the

Can smaller banks compete? Some insiders wryly note that at least they are not burdened by legacy IT systems that can wreak havoc in the event of glitches.

Many analysts regard outsourcing, or small groups sharing an IT platform with other businesses or alongside a bigger bank, as the only economically feasible route for such organisations.

‘When it comes to efficiency in the back office, that is almost the only way they can compete,’ argues Mr Dreischmeier.

Others suggest they could make their online offering stand out with distinctive apps, which cost thousands of pounds to develop rather than millions, and can be used to tailor the customers’ experience to their individual needs.

One small business that has developed its own system is Weatherbys Bank, which grew out of a seventh- generation family-owned firm dedicated to horseracing services. It was granted a bank licence in 1994 and has had no trouble developing its own IT platform, thanks to its unusual heritage. This meant it had a pre-existing IT business to manage a database of the pedigree of foals born in the UK and Ireland.

Even for those who currently find themselves ahead in the technology stakes, continuing innovation and investment are essential. ‘You need to update,’ says Roger Weatherby, chief executive of the bank that bears his name. ‘There’s always something to add to.’

1. Business strategy will embrace business decisions, the broad objectives and direction of the organisation and how it might cope with change – in other words, where the business is going and why. IS has an impact on this and provides potential for competitive advantage.

SUMMARY

QUESTION

What does the case study show about the strategic role of IT?

2. A company needs an information systems strategy that is rooted in business needs, meets the demand for information to support business processes and provides applications for key functional areas of the business.

3. If an organisation does not have a clear picture of what its strategy is, it is difficult to see how the right information systems can be put in place. In turn, if the information needs are unclear, it is difficult to see how the right techno-logy can be put in place to satisfy those needs.

4. Since business strategies have the potential to be subjected to sudden and unpredictable change (or even evolutionary change), the IS and IT strategies that are needed to support changing business strategies must themselves be capable of adaptation and change if they are to continue to reflect the existing business strategy at any time. In reality, IS strategy must be embedded in an organisation’s business strategy and be a fundamental part of it. Separation between the two is likely to result in a suboptimal solution, with organisations failing to gain the full benefits that information systems and the technology associated with them can bring.

1. How do strategic systems differ from high-potential projects?

2. Why do information systems projects fail?

3. Explain the difference between project size and project complexity when evaluating information systems risk.

4. Why might the mechanistic approach to strategy formulation be considered inadequate?

5. How might Porter’s five forces model be helpful in determining information systems requirements?

6. Explain how a fast-food restaurant may use Porter’s value chain analysis to help determine its information system needs.

7. How might Nolan’s stage model be useful to an organisation that is struggling with spiralling IS costs?

8. Identify three critical success factors for the maternity department of a busy hospital. How do those CSFs translate into key decisions and then information requirements?

EXERCISES

Self-assessment exercises

Discussion questions

1. ‘The millennium bug has demonstrated that organisations, more often than not, take a short- term view in their approach to information systems rather than a strategic one.’ Discuss.

2. ‘The barriers relating to the relationship between business and IS/IT strategies mean that successful alignment is likely to be the exception rather than the rule.’ Discuss.

Essay questions

1. Top-down and bottom-up approaches to formulating information systems strategy are fine as far as they go. However, is there a case for a more eclectic or selective approach to the strategy formulation process?

Cash, J., cKenney, J. and McFarlan, F.W. (1992) Corporate Information Systems Management, 3rd edition, Irwin, Homewood, IL

Ciborra, C. and Jelassi, T. (1994) Strategic Information Systems: A European Perspective, John Wiley, Chichester

Galliers, R.D. and Sutherland, A.R. (1991) ‘Information systems management and strategy management and formulation: the stages of growth model revisited’, Journal of Information Systems, 1, 2, 89–114

Johnson, G., Scholes, K. and Whittington, R. (2011) Exploring Strategy, 9th edition, Prentice Hall Europe, Hemel Hempstead

Kaplan, R.S. and Norton, D.P. (1993) ‘Putting the balanced scorecard to work’, Harvard Business Review, Sep–Oct, 134–42

Licker, P.S. (1997) Management Information Systems: A Strategic Leadership Approach, Dryden Press, London

Mintzberg, H. (1990) ‘The design school: reconsidering the basic premises of strategic management’, Strategic Management Journal, 11, 171–95

Nolan, R. (1979) ‘Managing the crisis in data processing’, Harvard Business Review, Mar–Apr, 115–26

Olve, N., Roy, J. and Wetter, M. (2000) Performance Drivers. A Practical Guide to Using the Balanced Scorecard, John Wiley, Chichester

Pavic, S., Koh, S.C.L., Simpson M. and Padmore, J. (2007) ‘Could e-business create a competitive advantage in UK SMEs?’ Benchmarking: An International Journal, 14, 3, 320–51

Porter, M.E. (2004) Competitive Strategy, Free Press, New York

Porter, M.E. and Millar, V.E. (1985) ‘How information gives you competitive advantage’, Harvard Business Review, July/August, 149–60

Thong, J.Y.L. (1999) ‘An integrated model of information systems adoption in small businesses’, Journal of Management Information Systems, Spring, 15, 4, 187

Thoburn, J.G., Arunachalam, S. and Gunasekaran A. (1999) ‘Difficulties arising from dysfunctional information systems in manufacturing SMEs – case studies’, International Journal of Agile Management Systems 1, 2, 116–26

Ward, J. and Peppard, J. (2002) Strategic Planning for Information Systems, 3rd edition, John Wiley, Chichester

Examination questions

1. Explain the concept of Porter’s value chain and how it can be used to identify a company’s information needs.

2. How can McFarlan’s strategic grid be used to define an information systems strategy for a company?

3. Explain the difference between a business-impacting and a business-aligning approach to a company’s IS strategy. Give examples of strategy tools that can help support each method.

4. Using the potential business applications of the Internet, show how Porter’s five forces model can help identify opportunities for deploying information systems.

References

Part 3 BUSINESS INFORMATION SYSTEMS MANAGEMENT504

2. Evaluate the importance of information systems knowledge amongst senior business managers in achieving successful alignment of business and IS/IT strategies.

Define approaches for integrating IS strategy with business strategy

Related Posts

PUBH 3001: Fundamentals of Public Health

PUBH 3001: Fundamentals of Public Health

PUBH 3001: Fundamentals of Public Health