strategy developmen t

1. CONSIDERATIONS
IN
STRATEGY
DEVELOPMENT
MODULE 03

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

3. Elements of a strategy
1. Mission statement
2. Environmental assessment
3. Statement of objectives
4. Expression of strategy
5. Maintenance processes
6. Performance assessment

4. • FORMULATE THE IT MISSION

5. Elements of a strategy-
MISSION
• The first and most important step in
formulating a strategy is to state the
organization’s 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.

6. • 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.

7. 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

8. Elements of a
strategy-MISSION
• The mission statement should describe
the organization’s business and indicate
who its customers are.
• The customers needs and the
organization’s 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.

9. PORTER AND MILLAR’S
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

10. 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)

11. 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.

12. BENETTON SPA – ITALIAN
FASHION RETAILER
• Plans for taking advantage of IT :
1. Delay production of garments until the order is
placed thereby eliminating excess inventory.
2. Flexibility offered by computerized
manufacturing systems allows quick response
3. Delete slow selling items from its product lines
and expand the production to fast selling
clothes
4. E.g based on the information received from
each stores immediately after each sale the
company dye their sweaters to match demand

13. Elements of a strategy-
Environmental 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.

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

15. 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
• he 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.

16. INDUSTRY
ATTRACTIVENES
S
Threat of
New
Entrants
Threat of
NewNew
EntrantsEntrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Threat of
Substitute
Products
Rivalry Among
Competing Firms
in Industry

17. Barriers to
Entry
Threat of New Entrants
• 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
Barrier to entry is High When ….Barrier to entry is High When ….

18. SuppliersSuppliers
exert powerexert power
by:by:
** ThreateningThreatening
to raise pricesto raise prices
or to reduceor to reduce
qualityquality
Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:
Bargaining Power of Suppliers
• Few Firms Dominate Supplier IndustryFew Firms Dominate Supplier Industry
• Few Substitutes for Supplier Prdts. (SP)Few Substitutes for Supplier Prdts. (SP)
• Buyer Not an Imp Customer for SupplierBuyer Not an Imp Customer for Supplier
• SP important (price/quality) to BuyerSP important (price/quality) to Buyer
• SP is Highly DifferentiatedSP is Highly Differentiated
• SP Has High Switching CostsSP Has High Switching Costs
• High Threat of Forward Integration by SHigh Threat of Forward Integration by S
• Low Threat of Backward Integration byLow Threat of Backward Integration by
BuyerBuyer

19. Buyers exercise
power by
* Bargaining down prices
* Forcing higher quality
•Playing firms off
each other
Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:
Buyers face few switching costsBuyers face few switching costs
Buyer concentration is highBuyer concentration is high
Purchase accounts for a significant fractionPurchase accounts for a significant fraction
of supplier’s salesof supplier’s sales
Products are undifferentiatedProducts are undifferentiated
Buyers’ industry earns low profitsBuyers’ industry earns low profits
Buyer presents a credible threat ofBuyer presents a credible threat of
backward integrationbackward integration
Product unimportant to qualityProduct unimportant to quality
Buyer has full informationBuyer has full information
Bargaining Power of Buyer

20. Substitute
s limit the
prices
firms can
charge
Threat of Substitute Products
• Close Substitutes are AvailableClose Substitutes are Available
• Low Switching CostLow Switching Cost
• High Price Value Performance of SubstitutesHigh Price Value Performance of Substitutes
• High Profitability of producers of substitutesHigh Profitability of producers of substitutes
High When …High When …

21. CutthroatCutthroat competitioncompetition is more likely when:is more likely when:
Rivalry Among Existing Competitors
Large no. of competitors (Low Conctrn. Ratio)Large no. of competitors (Low Conctrn. Ratio)
Many equally balanced competitorsMany equally balanced competitors
Slow growth industrySlow growth industry
High fixed costs & High Storage CostsHigh fixed costs & High Storage Costs
Lack of product differentiationLack of product differentiation
Changing conditions of demand and supplyChanging conditions of demand and supply
Capacity added in large incrementsCapacity added in large increments
High strategic stakesHigh strategic stakes
High exit barriersHigh exit barriers
Low switching costs between rivals productsLow switching costs between rivals products

22. 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.

23. 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.

24. 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.

25. 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.

26. Threat of substitute
products or services
(+) By making the overall
industry more efficient.
(–) The proliferation of Internet
approaches creates new
substitution threats.

27. 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.

28. 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.

29. 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

30. Internal Thrust areas – An inward look
• Process of looking at the firm’s internal functions
to capitalize on emerging technology
• The basic issues are :
1. HOW can these systems be augmented or
enhanced to improve the firm’s 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?

31. 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)
Inbound
Logistics
(raw
material
handling
and ware -
housing)
Operations
(machining,
Assembling,
testing)
Outbound
Logistics
(Warehousing
and
distribution of
finished
goods)
Marketing&
Sales
(advertising,
promotion,
pricing,
channel
relations)
After-Sales
Service
( installation
repair,
parts)
Web distributed supply chain management

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

33. 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.

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

35. Procurement
• Internet-enabled demand planning;
real-time available-to-promise /
capable-to-promise 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.

36. 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.

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

38. 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)

39. 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.

40. 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.

41. Strategic Thrusts
1. Differentiation
2. Cost
3. Innovation
4. Growth
5. Alliance
6. Time
7. Improved Internal efficiency
8. Customer –oriented approach

42. • Formulation of statement of
Objectives and strategy

43. 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.

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

45. TYPES OF STRATEGY
1. Functional Strategy
 The purpose is to support the firm’s 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.

46. 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.

47. 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

48. 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.

49. REQUIREMENTS OF A
STRATEGY STATEMENT-
Contd..
• Information must be added regarding
1. the environment,
2. the basis on which the goals and objectives
were selected,
3. the assumptions on which they depend,
4. the risks present,
5. and the options or flexibilities that are available
and responsible

50. Strategy Ingredients
1. Course of action
2. Assumptions
3. Risks
4. Options
5. Dependencies
6. Resources
7. Financial projections
8. Alternatives

51. Strategy Ingredients-
Course 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.

52. Strategy
Ingredients-
Assumptions
• 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.

53. Strategy Ingredients-
Assumptions …
• Assumptions that exercises significant influence
over the strategy are :
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.

54. Strategy Ingredients-
Risk
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.

55. Strategy
Ingredients-
DependenciesOne technical strategy may depend on another
technical strategy to produce capability or a
process for use by the former.
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.

56. Strategy Ingredients-
Resources &
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.

57. 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 firm’s future.

58. 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.

59. 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.

60. 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.

61. 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.

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

63. Strategic control
• STRATEGY MAINTENANCE
• PERFORMANCE ASSESMENT

64. THE RELATIONSHIP
OF STRATEGY AND
PLANNING
ELEMENTS
NATURE OF THE
BUSINESS
THE ENVIRONMENT
GOALS AND
OBJECTIVES
STRATEGY
STATEMENT
STRATEGIC
PLAN
OPERATING
PLAN
PERFORMANCE ASSESMENT
STRATEGY MAINTENANCE

65. Elements of a strategy-
STRATEGY
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.

66. 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

67. IT Strategy Issues
• Business aspects
• Technical issues
• Organizational concern
• Financial matters
• Personnel considerations

68. 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 firm’s objectives, the IT managers
must include this involvement in the function’s
strategy statement.
• They must ensure that the function’s 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.

69. 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 firm’s goals and objectives.
• This utilization must be consistent with
reasonable risks and available or attainable
resources

70. 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.

71. 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

72. 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.