Sesi02 IS and IT Roles in Organization and Business Strategy
IS/IT Roles in Organiza2on and Their
Rela2onship to Business Strategy
By: Zainal A. Hasibuan
Faculty of Computer Science
University of Indonesia
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
an organiza2on.
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
SPIS in Indonesia: Local point of view
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
large volume in a rela2vely short 2me (SPMB data).
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
Each era has different characteristics of IS.
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
Characterize the nature of business at DP era?
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
Characterize the nature of business at MIS era?
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)
Characterize the nature of business at SIS era?
Planning
systems
examples
SIS
MIS
DP
Control
systems
example
Operational
systems
examples
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
Early Views and Models of IS/IT in Organizations (Anthony, 65)
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),
Valuelink (Baxter Healthcare).
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
Exercise your critical thinking by giving more examples to those success factors !!
Trends in the evolution of business IS/IT (source: adapted
from R.D. Galliers and E. Somogyi)
Different views of strategic information systems
The Relationship Between the Business, SIS,
MIS, and DP
Business Strategic
Management
Executive Management
IS/IT Strategic
Management
Impact Analysis
Information Analysis
User Management
IS
Management
Systems Design
User Operations
Project and
Computer Management
The relationship between business, IS and IT strategies
An Applications Portfolio for the ‘Combined Era’ McFarlan ‘84
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
Start thinking about the example of IS/IT Strategy!!
The Context of IS/IT Strategy (Sullivan,
1985)
Internal organization pressures:
demanding further distribution of IS/IT control
Diffusion:
degree of
decentralization of
IS/IT control
in the
organization
High
Low
Opportunistic
Complex
Traditional
Backbone
Low
Infusion-degree of dependence of
IS/IT of the business
High
External competitive
pressures: increasing
the criticality of
IS/IT to the business
Evolu2on of Business Planning
(Welleck, dkk.,1980)
Effectiveness of
strategic decision
making
Multi-year budgets
Gap analysis
Static allocation of
resources
Annual budgets
Functional focus
Stage 1
Financial
planning
(meet budget)
Stage 2
Forecast-based
planning
(predict the
future)
Situation analysis and
competitive assessments
Evaluation of strategic
options
Dynamic allocation of
resources
Stage 3
Externally
oriented
(think
strategically)
Well defined strategic
framework
Strategically focused
organization
Widespread strategic
thinking capability
Reinforcing management
processes
Supportive value system
and climate
Stage 4
Strategic
management
(create the
future)
Framework for Business Planning
External Environments
Economic
Technological
Political
Social
Pressure
Groups
Values
Customers
Suppliers
Shareholders
Employees
Unions
Government
Public
Stake
Holder
Objectives
Evaluate
feedback
Ecological
Legal
Competitors
Identify current Identify future Threats
and
strategies
strategies
opportunities Customers
Analyze
internal
resources
Monitor
Implement
Strategies Strategies
Evaluate
strategies
Select
Strategies
Suppliers
Shareholders
Employees
Unions
Public
Media
Financial Ins.
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
a specific set of customers, and competes with a well‐
defined set of compe2tors
Defini2on of Business Strategy
• Defini2on of business strategy:
– An integrated set of ac2ons aimed at increasing the long‐
term well‐being and strength of the organiza2on rela2ve to
its compe2tors
Process of Business Planning
Establish
strategic
direction
Define
strategies
Achieve
strategies
feedback
• Define mission and objectives
• Assess situation and options
• Select options
Strategic planning of
options selected
Implement strategies
Strategic thinking and opportunistic
decision making
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
Bargaining
power of
buyers
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.
Business strategy: “how to discourage new entrants to come
into the business”
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.
Business strategy: “how to create a loyal customers?”
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.
Business strategy: “how to differentiate your 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.
Business strategy: “how to make the buyers depend on your business”
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
Business strategy: “how to make the suppliers depend on your business”
Generic Compe22ve Strategy
Low
Cost
Competitive
Advantage
Differentiation
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.
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
services to increase the product’s value
Continued..
• 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
deal through intermediaries
Continued..
• 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
offered at a much lower cost than tradi2onally
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 By linking purchasing and remittance systems to reduce
overheads of customer.
for 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.
New routes/schedule to cater for demand.
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
Get closer to the end consumer—understand the
requirements
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
• Enterprises are discovering that IT can influence the rela2ve
performance of most departments
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
projects – not preceded by formal IS/T Planning
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
failed IT implementa2ons
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
between verbal (direct) and in‐direct
interac2ons – to ensure that ideas and
opinions are fully expressed
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
• Who’s project is this: an IT department project?
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
businesses stronger
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
What are the challenges of IS/IT Plan in
Indonesia?
Rela2onship to Business Strategy
By: Zainal A. Hasibuan
Faculty of Computer Science
University of Indonesia
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
an organiza2on.
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
SPIS in Indonesia: Local point of view
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
large volume in a rela2vely short 2me (SPMB data).
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
Each era has different characteristics of IS.
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
Characterize the nature of business at DP era?
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
Characterize the nature of business at MIS era?
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)
Characterize the nature of business at SIS era?
Planning
systems
examples
SIS
MIS
DP
Control
systems
example
Operational
systems
examples
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
Early Views and Models of IS/IT in Organizations (Anthony, 65)
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),
Valuelink (Baxter Healthcare).
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
Exercise your critical thinking by giving more examples to those success factors !!
Trends in the evolution of business IS/IT (source: adapted
from R.D. Galliers and E. Somogyi)
Different views of strategic information systems
The Relationship Between the Business, SIS,
MIS, and DP
Business Strategic
Management
Executive Management
IS/IT Strategic
Management
Impact Analysis
Information Analysis
User Management
IS
Management
Systems Design
User Operations
Project and
Computer Management
The relationship between business, IS and IT strategies
An Applications Portfolio for the ‘Combined Era’ McFarlan ‘84
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
Start thinking about the example of IS/IT Strategy!!
The Context of IS/IT Strategy (Sullivan,
1985)
Internal organization pressures:
demanding further distribution of IS/IT control
Diffusion:
degree of
decentralization of
IS/IT control
in the
organization
High
Low
Opportunistic
Complex
Traditional
Backbone
Low
Infusion-degree of dependence of
IS/IT of the business
High
External competitive
pressures: increasing
the criticality of
IS/IT to the business
Evolu2on of Business Planning
(Welleck, dkk.,1980)
Effectiveness of
strategic decision
making
Multi-year budgets
Gap analysis
Static allocation of
resources
Annual budgets
Functional focus
Stage 1
Financial
planning
(meet budget)
Stage 2
Forecast-based
planning
(predict the
future)
Situation analysis and
competitive assessments
Evaluation of strategic
options
Dynamic allocation of
resources
Stage 3
Externally
oriented
(think
strategically)
Well defined strategic
framework
Strategically focused
organization
Widespread strategic
thinking capability
Reinforcing management
processes
Supportive value system
and climate
Stage 4
Strategic
management
(create the
future)
Framework for Business Planning
External Environments
Economic
Technological
Political
Social
Pressure
Groups
Values
Customers
Suppliers
Shareholders
Employees
Unions
Government
Public
Stake
Holder
Objectives
Evaluate
feedback
Ecological
Legal
Competitors
Identify current Identify future Threats
and
strategies
strategies
opportunities Customers
Analyze
internal
resources
Monitor
Implement
Strategies Strategies
Evaluate
strategies
Select
Strategies
Suppliers
Shareholders
Employees
Unions
Public
Media
Financial Ins.
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
a specific set of customers, and competes with a well‐
defined set of compe2tors
Defini2on of Business Strategy
• Defini2on of business strategy:
– An integrated set of ac2ons aimed at increasing the long‐
term well‐being and strength of the organiza2on rela2ve to
its compe2tors
Process of Business Planning
Establish
strategic
direction
Define
strategies
Achieve
strategies
feedback
• Define mission and objectives
• Assess situation and options
• Select options
Strategic planning of
options selected
Implement strategies
Strategic thinking and opportunistic
decision making
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
Bargaining
power of
buyers
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.
Business strategy: “how to discourage new entrants to come
into the business”
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.
Business strategy: “how to create a loyal customers?”
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.
Business strategy: “how to differentiate your 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.
Business strategy: “how to make the buyers depend on your business”
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
Business strategy: “how to make the suppliers depend on your business”
Generic Compe22ve Strategy
Low
Cost
Competitive
Advantage
Differentiation
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.
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
services to increase the product’s value
Continued..
• 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
deal through intermediaries
Continued..
• 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
offered at a much lower cost than tradi2onally
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 By linking purchasing and remittance systems to reduce
overheads of customer.
for 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.
New routes/schedule to cater for demand.
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
Get closer to the end consumer—understand the
requirements
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
• Enterprises are discovering that IT can influence the rela2ve
performance of most departments
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
projects – not preceded by formal IS/T Planning
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
failed IT implementa2ons
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
between verbal (direct) and in‐direct
interac2ons – to ensure that ideas and
opinions are fully expressed
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
• Who’s project is this: an IT department project?
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
businesses stronger
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
What are the challenges of IS/IT Plan in
Indonesia?