STRATEGY PLANNING

MODELS
MODULE 02

Strategic Consideration
Perceive
potential
business
opportunities and possible threats
or pitfalls.
Attempt to redirect their efforts to
maximize their advantages.
Reevaluate
periodically

their

situations

Elements of a strategy
1.
2.
3.
4.
5.
6.

Mission statement
Environmental assessment
Statement of objectives
Expression of strategy
Maintenance processes
Performance assessment

 FORMULATE THE IT MISSION

Elements of a strategyMISSION
The first and most important step in
formulating a strategy is to state the
organizations mission and purpose.
It is an enduring statement that express
the purpose of an organization.
It is an unique fundamental statement that
differentiates one firm from the others of
its kind.

 The Mission of Information

Systems
Transaction Processing Systems
Productivity measure

Management Information Systems

Getting right information to the right
person at the right time

Information Systems
Improve performance of the people by
using IT.

Examples of mission
statements
"Provide society with superior products and
services by developing innovations and solutions
that improve the quality of life and satisfy
customer needs, and to provide employees with
meaningful work and advancement opportunities,
and investors with a superior rate of return."
Merck
"To enable people and businesses throughout the
world to realize their full potential."Microsoft
"Organize the world's information and make it
universally accessible and useful."Google

Elements of a
strategy-MISSION

The mission statement should describe

the organizations business and indicate
who its customers are.
The
customers
needs
and
the
organizations capabilities and resources
must be considered.
The IT mission should be stated in terms
of meeting the needs of the customer
and in terms of services the IT
organizations can provide.

PORTER AND MILLARS

Process

Access information intensity

Determine the role of IT in the
industry structure
Identify and rank the ways in which IT
can create competitive advantage
Investigate how IT might spawn new
business
Develop a plan for taking advantage of
IT

BENETTON SPA ITALIAN

FASHION RETAILER

Information intensity - Products have low

information content but its cloth design
production and marketing processes are
highly information intensive
Role of IT in the industry structure - 20
percent of new fashion ideas depend on
previous fashion ideas leverage by
recording its previous fashion. (laser disc
based computer database assessed by
personal computers via internet reduction in time spent in design , and
increased response time)

BENETTON SPA ITALIAN

FASHION
RETAILER
Identification of ways for use of IT

Innovative investment of IT in Production

and marketing processes led to :
1. Quick response to changes in fashion
trends
2. Ability to provide overnight adjustments
of production via highly computerized
manufacturing environment
3. Allows its worldwide licensees to
receive items two or three weeks after
ordering
4. This was three times faster than the
major competitor.


1.
2.
3.
4.

BENETTON SPA ITALIAN

FASHION RETAILER

Plans for taking advantage of IT :

Delay production of garments until the order is
placed thereby eliminating excess inventory.
Flexibility offered by computerized
manufacturing systems allows quick response
Delete slow selling items from its product lines
and expand the production to fast selling
clothes
E.g based on the information received from
each stores immediately after each sale the
company dye their sweaters to match demand

Elements of a strategyEnvironmental assessment

The process of visualizing and understanding
the opportunities and threats is called
analysis of environment.
Environmental analysis attempts to take into
account the important trends impacting or
likely to impact the organization.
These trends may be political, economic,
legal, technological, or organizational.

Focus of environmental
analysis
External strategic thrust area visualize the competitive
environment.
Internal strategic thrust areas
visualize the activities across the
value chain.

VISUALIZING COMPETITIVE
FORCES
Five force theory by Michael Porter (1979).
it views an industry as consisting of firms
jockeying for preferred positions while being
impacted by

the bargaining power of suppliers ,

the bargaining power of customers,
the threat of new entrants,
the threat of substitute products or services.
The rivalry among the firms

These forces, affecting all competitors, must be

contended with strategically by the firm if it is to
grow and prosper.

Threat of
Threat of
New
New
Entrants
Entrants

Y
S
R
S
T
E
S
N
U
E
D
V
I
IN C T
A
R
T
T
A

Bargaining
Power of
Suppliers

Rivalry Among
Competing Firms
in Industry

Threat of
Substitute
Products

Bargaining
Power of
Buyers

Threat of New Entrants

Barrier to entry is High When .

Barriers to
Entry

High Economies of Scale

High Prdt. Diffn./ Brand Equity
High Capital Requirements
High Switching Costs
High cost of accessing Distribution
Channels

High Absolute Cost Advantages

(Experience, Technology, IPR, RM)

High Expected Retaliation

High Level of Government Protection

Bargaining Power of Suppliers

Suppliers are likely to be powerful if:

Suppliers
exert power
by:
* Threatening
to raise prices
or to reduce
quality

Few Firms Dominate Supplier

Industry

Few Substitutes for Supplier Prdts.

(SP)

Buyer Not an Imp Customer for

Supplier

SP important (price/quality) to Buyer

SP is Highly Differentiated
SP Has High Switching Costs
High Threat of Forward Integration
by S

Bargaining Power of Buyer

Buyer groups are likely to be powerful if:
Buyer concentration is high
Purchase accounts for a significant fraction
of suppliers sales

Buyers exercise
power by

Products are undifferentiated

Buyers face few switching costs
Buyers industry earns low profits
Buyer presents a credible threat of
backward integration
Product unimportant to quality
Buyer has full information

* Bargaining down prices

* Forcing higher quality
Playing firms off
each other

Threat of Substitute Products

High When

Substitute
s limit the
prices
firms can
charge

Close Substitutes are Available

Low Switching Cost
High Price Value Performance of Substitutes
High Profitability of producers of substitutes

Rivalry Among Existing Competitors

Cutthroat competition is more likely when:
Large no. of competitors (Low Conctrn. Ratio)
Many equally balanced competitors
Slow growth industry
High fixed costs & High Storage Costs
Changing conditions of demand and supply
Lack of product differentiation
Capacity added in large increments
Low switching costs between rivals products
High strategic stakes
High exit barriers

How the Internet Influences

Industry Structure
Threat of substitute products or
services.
Bargaining power of suppliers.
Rivalry among existing
competitors.
Barriers to entry.
Buyers.
Bargaining power of channels.
Bargaining power of end users.

Barriers to entry
()

()
()

Reduces barriers to entry such as the

need for a sales force, access to
channels, and physical assets
anything that Internet technology
eliminates or makes easier to do
reduces barriers to entry.
Internet applications are difficult to
keep proprietary from new entrants.
A flood of new entrants has come into
many industries.

Buyers
Bargaining power of channels
(+) Eliminates powerful channels or
improves bargaining power over traditional
channels.
Bargaining power of end users
() Shifts bargaining power to end
consumers
() The proliferation of Internet approaches
creates new substitution threats.
() Reduces switching costs.

Bargaining power of
suppliers
(+/)
Procurement using the Internet tends to
()
()

()

raise bargaining power over suppliers,

though it can also give suppliers access to
more customers.
The Internet provides a channel for
suppliers to reach end users, reducing the
leverage of intervening companies.
Internet procurement and digital markets
tend to give all companies equal access to
suppliers, and gravitate procurement to
standardized products that reduce
differentiation.
Reduced barriers to entry and the
proliferation of competitors downstream
shifts power to suppliers.

Threat of substitute
products or services
(+)
()

By making the overall

industry more efficient.
The proliferation of Internet
approaches creates new
substitution threats.

Rivalry among existing

competitors
()
()
()
()

Reduces differences among

competitors as offerings are
difficult to keep proprietary.
Migrates competition to price.
Widens the geographic market,
increasing the number of
competitors.
Lowers variable cost relative to
fixed cost, increasing pressures
for price discounting.

External thrust areas

Identifying potential strategic
opportunities due to
1. Changing industry environment.
2. Recent actions of the competitors.
3. Changing relations among suppliers ,
potential business combinations and
many more.

Basic questions to be
answered by firms
What is happening external to the firm
that may influence our opportunities to
gain competitive advantage?
How can we capitalize on external
factors through the use of information
technology

Internal Thrust areas An inward

look

Process of looking at the firms internal

functions to capitalize on emerging technology
The basic issues are :
1. HOW can these systems be augmented or
enhanced to improve the firms posture in the
marketplace?
2. WHAT new technology can be employed in
these processes?
3. WHAT innovative actions will permit the firm to
utilize internal resources to maximize its
competitive position?

Prominent Applications of the

Internet in the Value Chain
Firm Infrastructure
(General management , accounting, finance, strategic planning)
Human Resource Management
(recruiting, training, development)
Technology Development
(R&D, product and process improvement)
Procurement
(purchasing of raw materials, machines and supplies)
Outbound
Inbound Operations
Marketing&
After-Sales
Logistics
Logistics
Sales
Service
(Warehousing
(advertising, ( installation
(raw
(machining,
and
promotion, repair,
Assembling,
material
distribution of
pricing,
parts)
handling testing)
finished
channel
and ware goods)
relations)

housing)

Web distributed supply chain management

Firm Infrastructure
Web-based, distributed financial
and ERP systems
On-line investor relations (e.g.,
information dissemination,
broadcast conference calls)

Human Resource
Management
Self-service personnel and benefits
administration.
Web-based training.
Internet-based sharing and
dissemination of company
information.
Electronic time and expense
reporting.

Technology
Development
Collaborative product design across
locations and among multiple valuesystem participants.
Knowledge directories accessible from
all parts of the organisation.
Real-time access by R&D to on-line
sales and service information.

Procurement
Internet-enabled demand planning; realtime available-to-promise / capable-topromise and fulfilment.
Other linkage of purchase, inventory,
and forecasting systems with suppliers.
Automated requisition to pay.
Direct and Indirect procurement via
marketplaces, exchanges, auctions, and
buyer-seller matching.

Inbound Logistics
Real-time Integrated scheduling,
shipping, warehouse management,
demand management and planning, and
advanced planning and scheduling
across the company and its suppliers.
Dissemination throughout the company
of real-time inbound and in-progress
inventory data.

Operations
Integrated information exchange,
scheduling, and decision making in inhouse plants, contract assemblers, and
component suppliers.
Real-time available-to-promise and
capable-to-promise information
available to the sales force and
channels.

Outbound Logistics
Real-time transaction of orders whether initiated
by an end consumer, a sales person, or a channel
partner.
Automated customer-specific agreements and
contract terms.
Customer and channel access to product
development and delivery status.
Collaborative integration with customer
forecasting systems.
Integrated channel management including
information exchange, warranty claims, and
contract management (versioning, process
control)

Marketing and Sales

On-line sales channels including web sites ad
marketplaces.
Real-time inside and outside access to customer
information, product logs, dynamic pricing,
inventory availability on-line submission of
quotes, and order entry.
On-line product configurations.
Customer-tailored making via customer profile.
Push advertising.
Tailored on-line access.
Real-time customer, feedback through web surf
opt-In / opt-out marketing and promotion
response tracking.

After-Sales Service
On-line support of customer service
representatives through e-mail, response
management, billing integration, co-browse,
chat, call me now, voice-over-IP, and other
uses of video streaming.
Customer self-service via web sites and
intelligent service request processing including
updates to billing and shipping profiles.
Real-time field service access to customer
account review, schematic review, parts
availability and ordering, work-order update, and
service parts management.

Strategic Thrusts
1.
2.
3.
4.
5.
6.
7.
8.

Differentiation
Cost
Innovation
Growth
Alliance
Time
Improved Internal efficiency
Customer oriented approach

 Formulation of statement of
Objectives and strategy

Elements of a
strategy- Statement of
objectives
The
information resulting from environmental scanning
permits strategists to accomplish two tasks:

Develop the objectives they intend to achieve,

and
formulate the course of action, or strategy
expression, to be used as a guide in the
attainment of the objectives.

Statement of strategy
Includes:
1. Overall long range strategy to
achieve the objectives
2. Detailed strategies for each
business or functional area

TYPES OF STRATEGY
1.

Functional Strategy
The purpose is to support the firms business
goals and objectives.

This is accomplished through development

of functional goals and objectives that are
congruent with those of the firm.

Each function in the firm develops a

functional strategy. The collection of all the
functional strategies and business strategies
describes the complete strategy for the firm.

Stand-Alone Strategies
develop a specific strategy for dealing with a
unique opportunity or threat.
Specific or stand-alone strategies are developed
outside the normal planning cycle in response
to competitive or industry developments.
Stand-alone strategies can be considered ad
hoc actions to deal with currently emerging
opportunity or threats.
An example of a stand-alone strategy for the
IT function would be the announcement of a
new technology product by a vendor.

Business strategy
Have revenue and profit objectives
How the organization hopes to
accomplish
Deals how the organizations hope
to achieve these goals
Coordinates the functions of a
business to the business
objectives

REQUIREMENTS OF A STRATEGY
STATEMENT
is primarily a vehicle for focusing
management attention on strategic
aspects of the firms business.
is also a means of communication to
those who must review and approve the
strategy and
those who use it as
guidance as their actions.
The document must be available to
those
responsible
for
initiating
adjustments to it. These adjustment take
into account more current inputs from
the environment or business.

REQUIREMENTS OF A
STRATEGY STATEMENTContd..

1.
2.
3.
4.
5.

Information must be added regarding

the environment,
the basis on which the goals and
objectives were selected,
the assumptions on which they depend,
the risks present,
and the options or flexibilities that are
available and responsible

Strategy Ingredients
1.
2.
3.
4.
5.
6.
7.
8.

Course of action
Assumptions
Risks
Options
Dependencies
Resources
Financial projections
Alternatives

Strategy IngredientsCourse of actions

The Actions should :
Lead to realize the objectives.
Be consistent with other long range interests of the firm
Be preferred over alternative
possible strategies.

Strategy IngredientsAssumptions

look for options that are available

within this strategy.
ascertain how long the options are
valid and upon what considerations
the selections should be made.
consider whether any of the options
add some cost or expenses and if so,
how much is added.

Strategy IngredientsAssumptions
Assumptions that exercises
influence over the strategy are :

significant

1. technical capabilities,
2. functional support activities, and
3. potential competitive reactions.
The test of the assumption is their credibility.
The maintenance of the strategy requires the
tracking of these assumptions.

Strategy IngredientsRisk
Risk will always be present, and in fact should be
one of the major parts of the IT functional
strategy.
Questions such as
1. What is the nature of the risk in the
strategy? and
2. What is their potential impact?
should be answered.

Strategy
One technical
strategy may depend on another
Ingredientstechnical strategy to produce capability or a
process
for use by the former.
Dependencies
1. What are the key dependencies of the
strategy?
2. What is their nature? and
3. How and in what ways are they significant to
the strategy?
are some questions IT managers must answer.

Strategy IngredientsResources &

Alternatives
must identify resources required to carry out
the actions, and
must present financial projections of
revenue, cost, expenses, profit, and capital
required to implement the strategy.
Alternatives that were rejected in the
selection of the strategy, and the reasons
for rejecting them, should be retained for
the future reference.

Steps in Strategy
Development
Well-developed strategy statements take time.
The strategist must take time to understand
the environment and the area of opportunity
or concern.

The written statements of the environmental

analysis should be concise and sharply
focused.
The statement of the opportunity or threat
should highlight its relevance to the firms
future.

Steps in Strategy
Development.
Environment analysis might include an
estimate of
future computing costs,
anticipated computing loads,
technical advancement expected in
telecommunication
or
processing
capability, special feature conditions
and other features that are relevant.

Steps in Strategy
Development
Objectives are set and modified, if
necessary, during the iterative
strategy
development
process.
Stand alone strategies may need to
identify several possible objective.

Steps in Strategy
Development.
To exercise a reasonable choice among the
alternative strategies, selection criteria should
measure the basic, long range effects on the
firm or on the IT function.
The effects may be viewed in terms of profit and
revenue, Investment resources required, degree
of risk, technological capability exploited,
competitive reactions, and other factors that are
involved in each individual case.

Steps in Strategy
Development.
The best strategy should be selected
by using the criteria to measure the
effect that could be expected from
each position.
Upon approval from senior executives
these strategy statements will be
incorporated into the strategic and
tactical plans of the firm.

Steps in Strategy
Development.
The process of incorporation
may require minor changes
because this process may be
iterative as well.

Strategic control

STRATEGY MAINTENANCE
PERFORMANCE ASSESMENT

THE RELATIONSHIP OF
STRATEGY AND
PLANNING ELEMENTS
THE ENVIRONMENT
NATURE OF THE
BUSINESS

GOALS AND
OBJECTIVES

STRATEGY
STATEMENT

STRATEGIC
PLAN

OPERATING
PLAN

STRATEGY MAINTENANCE

PERFORMANCE ASSESMENT

Elements of a strategySTRATEGY
MAINTENANCE

Strategy maintenance is the process of reviewing

the environment and reassessing the course of
action in light of changing events.
The extent to which strategy maintenance
proceeds is a direct result of the volatility
experienced in the environment.

Strategic maintenance process

Document the areas where change
may take place.
Track actual developments against
assumptions, dependencies, and
risks in the strategy.
Identify deviations from the the
strategy
Carefully reexamine and update the
entire strategy

IT Strategy Issues

Business aspects
Technical issues
Organizational concern
Financial matters
Personnel considerations

The Business Aspects

Business goals may include increased market
share, improved customer service, lower
production costs, or many other objectives of
central importance to the corporation.
To the extent that IT organization is involved in
attaining the firms objectives, the IT
managers must include this involvement in the
functions strategy statement.
They must ensure that the functions actions
are in line with the long-term goals and
objectives of the firm. This involvement must
be tested through an interactive review
between the IT managers and their
superiors.

Technical issues
The IT manager is responsible for
providing
leadership
in
attaining
advantage for the firm through the use of
the technology.
The strategy should reveal the practical
utilization of advanced technology in
support of the firms goals and objectives.
This utilization must be consistent with
reasonable
risks
and
available
or
attainable resources

Organizational Concerns
Many changes, while important to senior
executives, are resisted by nearly everyone else for
a variety of reasons.
The firm needs training and education in the
subtitles associated with technology introduction.

Not everyone appreciates the IT role, and many

managers in the firm do not fully understanding the
contribution, or potential contribution, of the IT
function.

Wise IT managers will take specific actions to

remedy, these deficiencies.

Financial Matters
Financial constraints bound the range of
opportunities for the IT organization as
they do for most other functions.
These
resources
constraints
force
iteration in the process of developing
the business strategy for the firm.
These constraints also cause successive
revisions in the functional strategy for
the IT organization

Personnel
Considerations
No functional strategy is complete without
action plans that relate to the management
task of recruiting, training, and retaining a
base of skilled people.

These
personnel
considerations
are
intimately related to technical issues,
because strong technical people develop
solid technical strategies and advanced
technical strategies attract strong people.

Skilled people and advanced technical

resources
provide
some
necessary
conditions for making major productivity
improvements.