Chapter 3 E-Business strategy formulation Strategic management of E-Business.
-
date post
22-Dec-2015 -
Category
Documents
-
view
232 -
download
3
Transcript of Chapter 3 E-Business strategy formulation Strategic management of E-Business.
Important trends enabled by IT and Internet Ability to re-engineer supply chains
Use of information to smooth out inefficiencies & bottlenecks, & thus achieve efficiency & effectiveness gains
Ability to re-engineer relationships with customers
Manipulate large amounts of information about customer to identify trends, preferencesImprove decision making about delivering on customer value proposition
Ability to use Internet to disseminate information throughout organisation
Results in more efficient internal operations
Why focus on e-business planning?
Strategy vital to achieving benefits of these trends
IT adopting more strategic role
Concern about delivery of business valueTo realise value, need to undertake strategic analysis of possibilities of IT and Internet
‘High stakes’ with IT investmentsNeed to recognise and manage risk, and weigh this against the achievement of organisational objectives
Why focus on e-business planning?
Proportion of capital expenditure on IT 50% capital equipment expenditure in some organisations and in some industries
Future of business now inextricably linked to IT
Why focus on e-business planning?
Challenges
How to leverage connectivity, speed, and accessibility created by Internet and associated technologies to extend/enhance/enable our business vision?
To be successful (viable) long term, must identify where profitability lies
Must develop coherent strategies by which to exploit potentialities of I/IS/IT to deliver value to customers and shareholders
SISP*defined
‘...planning for the effective long-term management and optimal impact of information, information systems, and information technology…’
(Ward & Griffiths 1996, p.6)
*SISP: Strategic Information Systems Planning
Objectives of planning IS/IT/ e-commerce requirements
Ensure that focus of all IT investments (including Internet-based technologies) is on delivery of business goals and objectives
Ensure all stakeholders (especially senior management team) understand what IT and Internet can achieve
Increase their commitment to deploy IT to enable achievement of organisational objectives
Objectives of planning IS/IT/e-commerce requirements
Develop appropriate resourcing levels for IT and e-commerce
Establish priorities for IT investments
What is business strategy?
Plan that integrates organisation’s goals, policies, actions into integrated whole
Direction organisation takes in order to compete effectively and meet stakeholder expectations
Requires vision (challenging desired future state for organisation) and mission (reason for existence, overriding purpose
Business, IS, and IT strategies
(Ward & Peppard 2002)
Business Strategy
IS StrategyDemand oriented
Application focused
IT StrategySupply oriented
Technology focused
IT impact& potential
Establish direction and objectives
Articulate information requirements and systems needed to deliver thatinformation
Identify technological infrastructure required
Impacts of Internet on planning
Business Strategy
IS Strategy
IT StrategyHas a major effect of Internet(and hype!) been to elevate strategic thinking about technologyto the level of business strategy?
Implicationsof
Internet
Objectives of e-business planningTo ensure that IT and e-commerce support and enhance achievement of business objectives
To achieve cost-effective investment in IT and
e-commerce for measured business benefitsControlling expenditures and ensuring delivery of value from IT
To protect existing information and IT assetsReduce maintenance costs
To prioritise IT investments according to ability to support achievement of business objectives
To gain commitment and understanding of senior executives with respect to the role of IT in the organisation
Who should be involved?
Specialist planners
Senior executives
Senior IS management
Representatives from different
functions
Trading partners?Major customers?
Problems of NOT planning
competitors gain competitive advantage
business goals unachievable due to systems limitations
organisational information resource not adequately exploited
systems not integratedduplication of effortinaccuracypoor management information
lack of commitment from senior executives
new systems fail to deliver business benefits
lack of focus on business needs
technologies become a constraint on business
no means of prioritising appropriate resource levels for IS/IT
Problems of NOT planning
Understanding long term goals and vision for organisation
Its ‘strategic intent’ (Broadbent & Weill 1997)
Understand external environment
Identify potential synergies and economies of scale through similarities between business units
Appreciate impacts of Internet on organisation and industry
Appreciate the strategic context
Understand external and internal IT environments
Recognising key IT trends in industryAppreciate how competitors and business partners are using ITUnderstand internal strengths and weaknessesRecognise capabilitiesPerform audit of IT infrastructure, IT skills and IT management
Appreciate the strategic context
Articulate business and IT maxims
Business maxims: high level statements about competitive position, how value created for customers, intentions regarding growth and development, its position of use of resources, etc.
IT maxims: statements about how information and IT will be valued and deployed in the organisation
Defining key parametersfor IT
Role of IS/ITstrategic enabler (opportunistic) or support?
Sourcing of IS/ITInsourced, selectively sourced, or outsourced?
Structure of IS/IT deptDecentralised, federal, or centralised?
View of IT infrastructureEnabling or utility view?
Decisions about parameters should be aligned with business strategy
Complementary views of strategy
View presented so far regards strategy as developed from understanding of nature of competition, industry and organisational structure and competitive response
But strategy can be articulated based on understanding of internal resources, capabilities and competencies, and access to external resources etc., which can be harnessed as sources of competitive advantage
Each perspective offers valuable insights into strategies that an organisation can adopt
Tools to support strategy formulation
SWOT analysis
Product and service lifecycles
PEST analysis
Competitive forces analysis
Value chain analysis
Critical success factor analysis
Business technology audit
Gap analysis
SWOT analysis
Strengths, WeaknessesAnalyse internal capabilities, skills
Look to exploit strengths for advantageConsider weaknesses and minimise potential disadvantage
Opportunities, ThreatsExternal analysis to identify opportunities for exploitation, threats to be minimised or countered
SWOT analysis can provide understanding of IT resource requirements and future developments
SWOT Analysis
RetreatProtect1. …
2. …
StrenghtenAttack1. …
2. …
1. …
2. …
1. …
2. …
Self
Environment
WeaknessesStrengths
Oppor
- tunities
Threat
s
Product lifecycle – emergence
demand is uncertain
market ill-defined
I/IS/IT focus:
market research
product development
Product lifecycle – growth
need major investment to meet growth in demand
marketing
production
new product development
revised supplierrelationships
I/IS/IT focus:
support growth
must not inhibit ability to satisfy demand
create barriers to entrytie in suppliers and customers
high investment needed
Product lifecycle – growth
competition increasessupply starts to exceed demand
fight to retain market share
Product lifecycle – maturity
I/IS/IT focus:
defensive strategyunderstand competition
increase productivitymore efficient, effective use of resources
build up customer switching costs
better management of supply and distribution channels
Product lifecycle – maturity
cost effective in serving market
I/IS/IT focus:
detailed and accurate management infodemand forecastsprofitability of customers, productscost controls
Product lifecycle – decline
Product and service lifecycle
Help managers think creatively about whether or not they have information needed to manage wildcats, rising stars, cash cows and dogs effectively
Helps to identify gaps in existing information provision
PEST Analysis
Political/legalGovernment legislation, taxation, industrial relations, privacy, environmental protection requirements, etc.
EconomicStage of economic cycle, unemployment, inflation, interest rates, relative affluence of society
SocioculturalLifestyle changes, demographic characteristics, income distribution, consumer preferences, etc.
PEST Analysis (cont.)
TechnologicalRate of technological innovation, rate of infusion and diffusion with respect to technology
Consider key environmental influences, drivers of change and how these might change over time
For e-businesses, consider how technological change is driving changes in other areas
Consider role of IT in exploiting of mitigating against the effects of these changes
Threat of new entrants
Barriers to entry will be high if
economies of scale are extremely important
capital requirement of entry is high
access to distribution channels is difficult
patents or specialist skills are required
there are a large number of existing rivals
existing rivals are large and strongly positioned
competition in the industry is intense
product offerings in the industry are highly differentiated
high brand loyalty exists
access to raw materials or other critical resources is difficult
Threat of new entrants (cont.)
How has the Internet,
vastly increased connectivity,
and improved communication channels
impacted the
threat of new entrants?
Threat of new entrants (cont.)
Threat of new entrants
New entrants meanadditional capacity
reduced prices
new basis for competition
IS/IT canreduce costs
increase rate of product / service innovation and development
better control distribution and supply channels
achieve better match between products and customers
Bargaining power of suppliers
Supplier power is likely to be high
few suppliers
switching costs are high
there is a possibility of the supplier integrating forward
brand of a supplier is powerful
suppliers’ customers are of little importance to the supplier
How has the Internet,
vastly increased connectivity,
and improved communication channels
affected the
bargaining power of suppliers?
Bargaining power of suppliers
Supplier power high
If supplier power is high
prices/costs will tend to be higher
quality of supply will tend to be lower
there will tend to be reduced availability of supply
IS/IT can
use supplier sourcing systems
help to extend quality control into suppliers
enable forward planning with suppliers through interorganisational systems including the use of EDI and/or Internet technologies
Bargaining power of buyers
Buyer power is likely to be high when
there are few buyers
there are alternative sources of supply
component or material cost is a high percentage of total cost
there is a threat of backward integration by the buyer if satisfactory prices or suppliers cannot be obtained
How has the Internet,
vastly increased connectivity,
and improved communication channels
affected the
bargaining power of buyers?
Bargaining power of buyers
Buyer power high
If buyer power is high
prices forced down
higher quality demanded
service requirements higher and more flexible
higher competition in industry
IS/IT can help by
differentiating products/services
improving price/performance
increasing switching costs of buyers
facilitating buyer product selection
Threat of substitution may take many forms:
actual or possible substitution of one product for another
a new process may render a product superfluous
substitutes may be thought of as competing for discretionary expenditure
‘doing without’ can also be thought of as a substitute
Threat of substitution
How has the Internet,
vastly increased connectivity,
and improved communication channels
impacted on the
threat of substitution?
Threat of substitution
Threat of substitute products
The threat of substitute products
tends to limit the potential market and profit
tends to put a ceiling on prices
IS/IT can reduce the effects by
helping to improve price/performance
helping to enhance products and services to increase value
improving rate of innovation
identifying new customer needs
Competitive rivalry will be intensified if
market growth is slow or in decline
a small number of similar sized competitors dominate
there are high fixed costs and/or there are high industry exit barriers for all rivals
there is over-capacity in the industry
Rivalry within industry
How has the Internet,
vastly increased connectivity,
and improved communication channels
impacted on
competitive rivalry?
Rivalry within industry
Intense competition from rivals leads to
aggressive competition on price
competition regarding product development
distribution and service being critical factors in customer choice
the need for customer loyalty
IS/IT can reduce the effects by
helping to improve price performance
helping to differentiate products and services
helping the firm ‘get closer to the end consumer’
understand the requirements or needs of the ‘end consumer’
Rivalry within industry
Using competitive forces
identify / analyse significant players in each force
determine nature / strength of impact of each player
devise strategy to exploit / defend / neutralise impacts
identify opportunities for IS/IT to support / implement / manage strategy
Value chain analysis (internal)
Value chain analysis enables consideration of internal activities and processes, thus understanding where costs are incurred, and where value is added
Examines organisation in terms of primary activities (core business processes) and support activities
Important device for ensuring that managers receive information they need to monitor achievement of corporate goals and objectives
CSFs require information to monitor achievement in key result areas
CSFs may require systems enhancements or new systems
Critical success factor analysis
Business-technology audit
Provides managers with an assessment of business value of IS, against an assessment of their technical quality
Business value: value judgement about contribution an IS makes to achievement of business goals and objectives
Technical quality: assessment of age, amount spent on maintenance, ease of maintenance, required infrastructure, risk
Gap analysis
Aims to identify and then help remedy gaps that exist between skills, knowledge, competencies, capabilities that an organisation requires to be successful, and resources an organisation currently has
Portfolio of systems
At end of strategy formulation process, organisation should be clear on
business goals and objectivese-business goals and objectiveshow IT used to support achievement of goals and objectivesState of existing portfolio of systemsWhere strengths and weaknesses liePrioritised set of new systems, required refurbishments
Portfolio of systems (cont.)
Application portfolio analysis helps to ‘map’ balance required of new investments and maintenance of existing investments
Portfolio of systems needs to be aligned with business strategy