IS/IT Roles in Organiza2on and Their
Rela2onship to Business Strategy
By: Zainal A. Hasibuan
Session Objec2ves
•
Understand the strategic context of IS/IT in
organiza2on
•
Understand the business strategy formula2on
•
Understand the impact of business strategy to
IS/IT strategy development.
•
Widening horizon on how IS/IT plays its role in
Agenda
• Strategic Context of IS/IT in Organiza2on • Evolu2on of IS in Organiza2on
• Success Factors of Strategic Informa2on Systems • The Rela2onship of IS/IT Strategy and Business
Strategy
• IS/IT Strategy
• Evolu2on of Business Planning • Framework of Business Planning • Compe22ve Forces in Industry
• Compe22ve Strategy and Its Implica2on to IS/IT
Strategy
Strategic Context of IS in Organiza2on
• More products available in digital form – Hence e‐
delivery through an IS (give some examples e‐ products?)
• More commerce takes place electronically (e‐
commerce‐create new opportuni2es, online transac2on)
• More ac2vi2es geVng more complex, need various of
data and informa2on (data mining, enterprise informa2on systems ‐ ERP)
• Interrelatedness of Business ac2vi2es within and
between companies (improve efficiency and produc2vity)
• Technology advancement that can processes data in a
The Evolution of Information Systems
Year 1960 – Data processing (DP) era
Year 1970 – Management IS (MIS) era
Year 1980 – Strategic IS (SIS-EIS) era
Year 1990 – E-business & e-commerce era
Year 2000 – Enterprise Resource Planning
era
Characteris2c of DP Era
•
Centralized processing
•
Using mul2‐purpose Mainframe computer
•
Batch processing
•
Data storage: magne2c disk, tape
•
Programming language: Cobol, Basic, etc.
•
Automa2ng informa2on‐based processes
Characteris2cs of MIS Era
• Introducing minicomputer
• Using variety business applica2ons • S2ll centralized
• Used a hierarchical applica2on porYolio model
based on a stra2fica2on of management ac2vity:
– Strategic planning – Management control – Opera2onal control
• Increase management effec2veness by sa2sfying
their informa2on requirements for decision
making – to help manager
Characteris2cs of SIS Era
•
Introducing Personal Computer (PC)
•
Introducing office automa2on
•
Introducing new capabili2es: flexible access
and decision support
•
Improving compe22veness by changing the
nature or conduct of business (i.e. IS/IT
investments can be a source of compe22ve
advantage)
Sales forecasting operating plans capacity planning, profit/earnings forecasts,
business mix analysis, manpower planning, financial modeling
Sales analysis budgetary control, management
accounting, inventory management, quality analysis, expense reporting, market research/statistics, WIP control, requirements planning, supplier analysis, etc.
Order entry, processing, tracking shipping documents, vehicle scheduling/loading, invoicing, sales and purchase ledgers, cost accounting, stock control, shop-floor scheduling, bill of materials, purchase orders, receiving, employee records, payroll, word
processing
Planning systems examples
Control systems example
Operational systems
examples
Early Views and Models of IS/IT in Organizations (Anthony, 65) SIS
MIS
Types of SIS
• Those that link the organiza2on to its customers
or suppliers to share informa2on
• Those that effec2vely integrate the use of
informa2on in the organiza2on value chain
• Those that enable the organiza2on to develop
new or enhanced products or services based on informa2on
• Those that provide managers with be^er
informa2on for strategy development
• Example: Tradenet, SABRE (American Airlines),
Success Factors of SIS
• External in nature instead of internal focus: i.e image
building
• Adding value instead of cost reduc2on: i.e e‐2cket
• Sharing the benefits internally and externally: i.e ATM
• Understanding customers and their needs: i.e customized
product
• Business instead of technology driven innova2on: i.e
covering a wider customers
• Incremental instead of total development: i.e web‐based
applica2on
• Using informa2on gained to develop business: i.e learning
organiza2on
The Relationship Between the Business, SIS,
MIS, and DP
Business Strategic Management
IS/IT Strategic Management
IS
Management
Project and
Computer Management
Executive Management
User Management
User Operations Impact Analysis
Information Analysis
So… What’s an IS/IT Strategy?
• IS/IT strategy is composed of two parts
– IS component – IT component
• IS strategy defines the organiza2on’s requirement
for informa2on systems to support the overall strategy of the business
• The IT strategy is outlining the vision of how the
organiza2on’s demand for informa2on and systems will be supported by IT
• It addresses the provision of ICT capabili2es and
resources and services such as IT opera2ons, systems development and user support
The Context of IS/IT Strategy (Sullivan,
1985)
Opportunistic
Traditional
Complex
Backbone Low
Low High
High
Infusion-degree of dependence of IS/IT of the business
External competitive pressures: increasing the criticality of
IS/IT to the business Diffusion:
degree of decentrali- zation of IS/IT control in the
organization
Internal organization pressures:
Evolu2on of Business Planning
(Welleck, dkk.,1980)
Stage 1 Stage 2 Stage 3 Stage 4
Financial Forecast-based Externally Strategic
planning planning oriented management
(meet budget) (predict the (think (create the
future) strategically) future)
Effectiveness of strategic decision making
Annual budgets Functional focus
Multi-year budgets Gap analysis
Static allocation of resources
Situation analysis and competitive assessments Evaluation of strategic options
Dynamic allocation of resources
Well defined strategic framework
Strategically focused organization
Widespread strategic thinking capability
Reinforcing management processes
Framework for Business Planning
External Environments Economic Political Ecological
Technological Social Legal
Customers Suppliers Shareholders Employees Unions
Government Public
Stake Holder
Pressure Groups
Competitors Customers Suppliers Shareholders Employees Unions Public Media
Financial Ins.
Values
Input to Business Planning
• External environments ‐ sources of important signals
to organiza2ons
• Pressure groups ‐ demand recogni2on and rapid
management response
• Stakeholders ‐ demand fair share of created wealth • Business planning is usually carried out for each
strategic business unit
– A unit that sells a dis2nct set of products or services, serve
Defini2on of Business Strategy
• Defini2on of business strategy:
– An integrated set of ac2ons aimed at increasing the long‐
Process of Business Planning
• Define mission and objectives • Assess situation and options • Select options
Strategic planning of
options selected Implement strategies
Strategic thinking and opportunistic decision making
Establish strategic direction
Define strategies
Achieve strategies
Technique to Develop Business Strategy:
Compe22ve Forces in Industry (Porter, 1980)
Threat of new entrants
Bargaining power of suppliers
Rivalry among existing
competitors
Threat of substitute product
Factors Affec2ng The Impact of
Compe22ve Forces
• New entrants
– Capital requirements
– Patents and specialists skill required – Distribu2on channels available
– Achieved/required economies of scale and resultant
cost advantages
– Number and size of exis2ng rivals and intensity of
compe22on
– Differen2a2on and brand establishment/loyalty – Access to raw materials/cri2cal resources etc.
Strategic Choices: Factors Affec2ng The
Impact of Compe22ve Forces
•
Subs2tute products/services
– Customer awareness of needs and means of
sa2sfac2on
– Customer sensi2vity to value for money and
ability to compare
– Exis2ng loyalty of customer—impact of “industry”
promo2on
– Ability to differen2ate products etc.
Strategic Choices: Factors Affec2ng
The Impact of Compe22ve Forces
•
Compe22ve rivalry will be intensified by:
– Market growth slow (or in decline)
– Small number of similar sized compe2tors
dominate
– High fixed costs and/or high exit barriers for all
rivals
– Overcapacity and/or capacity increments are
large units
– Commodity‐like, undifferen2ated products.
Strategic Choices: Factors Affec2ng The
Impact of Compe22ve Forces
• Buyers’ power will be increased by:
– Concentrated/few buyers making high volume and/or high
value of purchases
– Low switching costs across suppliers
– Price sensi2ve and many alterna2ve sources of supply – Weak brand iden22es, products not differen2ated
– Buyers capable of backward integra2on due to low entry
cost.
Strategic Choices: Factors Affec2ng The
Impact of Compe22ve Forces
•
Suppliers’ power will be increased by:
– Few suppliers—high switching costs for rivals and
suppliers deal with many small customers
– Poten2al subs2tute supplier/resources not easily
available
– Supplied goods make up large part of firm’s costs – Suppliers capable of forward integra2on or bypass
to customers
Generic Compe22ve Strategy
Low Cost
Characteris2cs of Generic Strategies
Generic Strategies
Commonly Required Skills and Resources
Commonly Organizational Requirements
Overall cost leadership
Sustained capital investment and access to capital
Process engineering skills Intense supervision of labor
Tight cost control, frequent, detailed control reports.
Structured organization and responsibilities. Incentives based on meeting strict
quantitative targets
Differentiation Strong marketing abilities and creative
flair.
Product engineering skills.
Strong capability in basic research. Corporate reputation for quality or technological leadership.
Strong cooperation from distribution channels.
Strong coordination among functions in R&D, product development, and marketing. Subjective measurement and incentives instead of quantitative measures (market based incentives).
Amenities to attract highly skilled labor or creative people.
Looser, more trusting organizational relationships.
Focus Combination of the above policies
directed at the particular strategic target.
Implica2ons of Compe22ve Business
Strategy to IS/IT Strategy
•
How can IS/IT affect the nature and
value of the product or service and its
life cycle?
– Generate a new product or a new line of
business
– Enable products to be designed or delivered
more quickly
– Be used to add addi2onal features or
• How can IS/IT affect the demand for products and
services, segments more effec2vely, extend them geographically, or provide new distribu2on
channels to reach the market?
– Enable to reach more appropriate customers
– Enable to match our different products/services to
customer appropriately
– Enable the product/service to be distributed in new
ways to the customers
– Enable to get closer to the market‐place rather than
• How can IS/IT affect the cost base of the key
processes in the industry or change the balance in the trade‐off between flexibility and
standardiza2on?
– Enable the product/service to be produced more
economically
– Enable produc2on and associated logis2cs to be
integrated to produce greater flexibility of resource use
– Enable a higher quality of product or service to be
Examples of How IS/IT has affected the compe22ve forces in the airline industry
How can IS/IT build barriers to new entry?
By increasing IT entry cost for reservation systems. By tying in distribution channels (travel agencies).
How can IS/IT build in switching costs for customer?
By linking purchasing and remittance systems to reduce overheads of customer.
Discount/volume packages to discourage piecemeal purchase.
How can IS/IT change the basis of competition?
Lower costs: optimize yield per aircraft.
Differentiate service:reconfiguring aircraft due to demand.
Niche/focus service into high yield sectors (business travel)
How can IS/IT change the balance of power in supplier/customer
relationship?
Agent is constantly aware of seat availability of competing airlines.
Airline can readily promote unsold capacity via chosen agents.
How can IS/IT generate new products/ services?
Integrated travel package to high mileage business customers—by passing agencies.
Impact of Compe22ve Forces and Poten2al
IS/IT Opportuni2es
Key force impacting the industry
Business implications Potential IS/IT effects
Threat of new entrants
Additional capacity Reduced prices
New basis for competition
Provide entry barriers or reduce access by: exploiting existing economies of scale, differentiate products or services, control distribution channels, segment markets
Buyer power high
Forces prices down Demand higher quality Require service flexibility Encourage competition
Differentiate products or services and improve price or performance
Increase switching costs of buyer Facilitate buyer product selection Supplier power
high
Raises prices or costs Reduced quality of supply Reduced availability
Supplier sourcing systems
Extended quality control into suppliers Forward planning with supplier
Substitute products threatened
Limits potential market and profit Price ceilings
Improve price or performance
Redefine products and services to increase value Redefine market segments
Intense
competition from rivals
Price competition Product development
Distribution and service critical Customer loyalty required
Improve price or performance
Differentiate products and services in distribution channel and to consumer
Why is IS/T Planning Important?
• IT Strategy is the process of defining the strategic use
of technology in an organiza2on.
• The IS/T Planning process ensures efficient and
effec2ve investment of IT to support the business
• IT is More Cri2cal to Corporate Success
• The use of IT is increasingly pervasive
Indonesia and IS Planning
• There is a tendency not to pay a^en2on for
‘planning’
• The aVtude extends to IS/T planning
• Part of the problem is that there is no ‘tangible’ or
‘less realizable’ outcome resul2ng from IS/T planning
• We see more Indonesian organiza2ons conduct IT
Results of Lack of IS/T Planning
•
Failed of IS/T projects
•
We see IT projects which lacks direc2on, weak
in scope, have li^le of no iden2fica2on of
Cri2cal Success Factors.
•
Inefficient use of investment in IT
•
Bad name for IT professionals and due to
IS/IT Planning for the Indonesian
•
Need processes which are more facilitator‐
driven, higher involvement of consultants who
has psychological and cultural sensi2vity
•
Need processes which are a combina2on
IS/T Planning in Indonesian
Organiza2ons: Reali2es
• Jus2fica2on for audi2ng purposes
• Idea omen comes bo^om up: hence the challenges • Do not believe in documenta2on: hence the
approach is omen less formal
• Difficult to get buy‐in from management who would
rather see IT implementa2on projects
Trends in IS/T Planning
• We will see more ‘formal’ IS/T Planning ac2vi2es
with increase of IS/T dominance as an integral part of business
• IS/T Planning will need to be done faster, with the
faster trend of technology development
• Clear defini2on between business plan, IS/T planning
and IT implementa2on will become more and more blurred as technology will con2nue to drive
Exercise Your Thought
Explain the evolution roles of IT/IS in an
organization?
What are Business and IS/IT strategies?
Explain the relationship of Business, IS/IT
strategies?
How external forces influence business
strategy and IS/IT strategies
