Strategic Issues in IT Lecture 2

8/4/2019 Strategic Issues in IT Lecture 2

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A Strategic Framework


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What is a framework ?

A hypothetical description of a complex entity orprocess

A structure supporting or containing something

A basic conceptual structure

In software: A set of software (compile/run-timeelements, libraries, tools, services),

documentation, policies, procedures, thatsupports the implementation of technologyspecific higher level software elements.


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What are the components of astrategic framework?

A vision for the future

A mission statement that defines what the organisationdoes

A statement about the current position of the

organisation and how its progress towards its goals andobjectives will be measured

A means of generating and selecting the strategies toachieve those goals

Implementation of the processes to achieve thestrategies

A control mechanism to monitor and get feedback fromimplemented processes


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Strategic framework

Develop Mission& Vision

Statements

Internal &External Audits

Set Long termobjectives &

Goals

Generate ,Evaluate & Select

Strategies

Implement

Strategies

Measure andevaluate Progress


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Vision and Mission statements

Vision statement: A statement that captures thelong-term picture of what the organization wantsto become

A mission statement defines in a paragraph orso any entity's reason for existence. It embodiesits philosophies, goals, ambitions and mores.Any entity that attempts to operate without a

mission statement runs the risk of wanderingthrough the world without having the ability toverify that it is on its intended course.


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Sample vision statements

"Our vision is to be earth's most customercentric company; to build a place wherepeople can come to find and discover

anything they might want to buy online."Amazon.com

To organize the world's information and

make it universally accessible and useful

- Google


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Sample mission statements

"To build a place where people can cometo find and discover anything they mightwant to buy online" Amazon

To promote openness, innovation, andopportunity on the web - Mozilla

Nasa:

To improve life here, To extend life to there,

To find life beyond.


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Internal and external audits

Internal

RBV

Core Competencies

Value Chain

External

5 Forces

Competitor Analysis

EFE Matrix


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Internal Audit

Look at Internal

strengths/weaknesses


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RBV- resource based view

Internal resources are more important thanexternal factors. They are the basis forcompetitive advantage.

Identify all key resources

Evaluate resources

Protect the resources you identify as high value.


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Core Competencies

What a firm does that is strategicallyvaluable They are

Valuable

Rare

Costly to imitate

Non substitutable


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Value Chain

A value chain describes the categories ofactivities within and around an

organisation, which together create a

product or service.

The goal of these activities is to create value

that exceeds the cost of providing theproduct or service, generating a profitmargin.


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Purpose of External Audit

Identify

Opportunities

Threats


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Porters Five Forces

Five-Forces Analysis is a framework foranalyzing a particular industry.

Yet, the five forces affect all the otherbusinesses in that industry.

Five forces do not determine whether aspecific firm can be successful


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Porters Five Forces

Threat of

Substitute

Products

Threat ofNew

Entrants

Threat of

New

Entrants

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers


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Competitor Analysis

An assessment of the strengths andweaknesses of current and potentialcompetitors.


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External Factor EvaluationMatrix (EFE Matrix)

Tool to visualize and prioritize theopportunities and threats that a businessis facing

External factors assessed in the EFEmatrix are the ones that are subjected tothe will of social, economic, political, legal,

and other external forces


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EFE Process

List factors

Divide factors into two groups:opportunities and threats.

Assign Weights

Rate Factors

Multiple weights by ratings Total all weighted scores


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EFE example


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Establishing Long Term Objectives

Quantifiable

Measurable

Realistic Understandable

Challenging

Hierarchical Obtainable


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Performance Measures byorganisational level


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Competitive strategies

Generic strategies were used initially inthe early 1980s, and seem to be evenmore popular today. They outline the three

main strategic options open toorganization that wish to achieve asustainable competitive advantage.

Cost Leadership

Differentiation

Focus or Niche strategy


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Cost leadership

A type of competitive strategy with which theorganization aggressively seeks, efficient

facilities, cut cost, and employs tight cost control

to be more Efficient than competitors. The low cost leader in any market gains

competitive advantage from being able to manyto produce at the lowest cost.

Low cost mean company can undercutcompetitors.


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Differentiation

A type of competitive strategy with which theorganization seek to distinguish its product

or services from competitors.

The organization may use advertising, distinctiveproduct features exceptional service or newtechnology to achieve a product perceived asunique.

This strategy may be profitable becausecustomer will pay high price for the product.


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Focus

The type of competitive strategy thatemphasizes concentration on a specific

regional market or buyer group.

The premises is that the need of a groupcan be better serviced by focusing entirelyon it.


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Generate & Evaluate Strategies

BCG matrix

PESTLE

SWOT


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BCG growth matrix

A concept developed by the BostonConsulting Group that evaluates SBUs

with respect to the dimension of business

growth rate and market share


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BCG growth matrix

Cash Cow Star

Dog Problem Child

Market Share

High

Low


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BCG matrix

Dogs. These are products with a low share of alow growth market. These are the canine versionof 'real turkeys!'. They do not generate cash for

the company, they tend to absorb it. Get rid ofthese products.

Cash Cows. These are products with a highshare of a low growth market. Cash Cows

generate more than is invested in them. So keepthem in your portfolio of products for the timebeing.


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BCG matrix

Problem Children. These are products with alow share of a high growth market. Theyconsume resources and generate little in return.

They absorb most money as you attempt toincrease market share.

Stars. These are products that are in highgrowth markets with a relatively high share of

that market. Stars tend to generate highamounts of income. Keep and build your stars.


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PESTLE

PESTLE analysis - an audit of anorganisation's environmental influences

Purpose of using this information to guidestrategic decision-making.

If the organisation is able to audit its currentenvironment and assess potential

changes, it will be better placed than itscompetitors to respond to changes.


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PESTLE

PESTLE stands for

Political

Economic

Sociological

Technological

Legal

Environmental


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SWOT Analysis

A method of studying organizational resources andcapabilities to assess the firms strengths and

weaknesses and scanning its external environment toidentify opportunities and threats.

Provides you with a critical view of the internal andexternal environment

Helps you evaluate your ability to accomplish yourmission.


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SWOT matrix

Strengths

Weaknesses

Opportunities

Threats


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Strategy Implementation

Action stage (put formulate strategy intoaction)

Establish annual objectives

Devise policies

Motivate employees

Redirecting marketing efforts Prepare budgets


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Formulation vs implementation

Formulation focuses on effectiveness

Implementation focuses on efficiency

Shift in responsibilities from strategists todivisional or functional managers


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Management Issues

Annual objectives

Policies

Resources Organizational Structure

Restructuring

Rewards/Incentives


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Management Issues

Resistance to change

Natural environment

Supportive culture Production/ operations

Human resources


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The nature of strategyimplementation

Strategy implementation means change

Less than 10% of strategies formulated aresuccessfully implemented!


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Strategy Implementation Failure

Failing to segment markets appropriately

Paying too much for a new acquisition

Falling behind competition in R&D Not recognizing benefit of computers in

managing information


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Successful StrategyImplementation

Market goods & services well

Raise needed working capital

Produce technologically sound goods Sound information systems


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Strategy review and evaluation

Strategies become obsolete

Internal environments are dynamic

External environments are dynamic


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Strategy Evaluation

Vital to the organizations well-being

Alert management to potential/actualproblems in a timely fashion

Erroneous strategic decisions can havesevere negative impact on organizations


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Three basic activities in strategicreview

1. Examine the underlying bases of afirms strategy.

2. Compare expected to actual results.

3. Identify corrective actions to ensure thatperformance conforms to plans.


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Difficulties in Strategy Evaluation

1. Increase in environments complexity

2. Difficulty predicting future with accuracy

3. Increasing number of variables4. Rate of obsolescence of plans

5. Domestic and global events

6. Decreasing time span for planningcertainty


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Strategy Evaluation Should

Initiate managerial questioning

Trigger review of objectives & values

Stimulate creativity in generatingalternatives


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The product life cycle

The Product Life Cycle (PLC) is basedupon the biological life cycle. For example,a seed is planted (introduction); it begins

to sprout (growth); it shoots out leavesand puts down roots as it becomes anadult (maturity); after a long period as an

adult the plant begins to shrink and die out(decline).


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Product Life Cycle


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Introduction Stage

In Introduction stage, sales are low as a newidea is first introduced to a market.

Customers aren't looking for the product, andmay not be aware of its benefits or advantages

over current offerings. In fact, they may not even know about it. Informative promotion is needed to tell potential

customers about the new product concept. Even

though a firm promotes its new product, it takestime for customers to learn that the product isavailable. Money is invested in developing themarket in anticipation of future profits.


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The Growth Stage

The Growth stage, industry sales grow quickly -but industry profits rise and then start falling.

The innovator begins to make big profits asmore and more customers buy.

But competitors see the opportunity and enterthe market.

Some just copy the most successful product, ortry to improve it to compete better. Others try to

refine their offerings to do a better job ofappealing to some target markets. The newentries result in much product variety.


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Maturity Stage

Maturity occurs when industry sales level off.

Competition gets tougher as aggressive competitorshave entered the race for profits.

Industry profits continue to go down during maturity

because promotion costs rise and competitors continueto cut prices to attract more business. New firms may stillenter the market during this stage. These late entriesskip the early life cycle stages, including the profitablegrowth stage. They must try to take market share from

established firms, which is difficult and expensive in asaturated, flat market. Customers who are satisfied withtheir current relationship won't be interested in switchingto an unknown brand.


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Decline Stage

During the Sales Decline stage, new productsreplace the old.

Price competition from dying products becomes

more vigorous, but firms with strong brands maymake profits until the end because theysuccessfully differentiated their products. Theymay also keep some sales by appealing to the

most loyal customers or those who are slow totry new ideas. These buyers might switch later,smoothing the sales decline.


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Continuous assessment 1

Due 03/11/10


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CA 1 group assignments

Compare and contrast the strategies of two competing IT companies(a list is provided below) reviewing in particular their previous 5 to 10years of business.

The report should provide a critical review of what the companiesset out to achieve and what they actually achieved.

Support your observations with correctly referenced sources andpropose the future trajectory of each company providingrecommendations on how they should proceed for the next 5 years.

Your report should be written in the style of an external consultantasked by an investor for advice on which of the two companies toinvest in.


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Group assignment

10 Slides 15 minutes & Questions

Write a 5,000 Word Report

Submit via Webcourses only


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Group assignment

1. Google vs Microsoft

2. Apple vs Nokia

3. HP vs Dell

4. Microsoft vs Mozilla

5. VMWare vs Citrix

6. Google vs Facebook


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Paper to review

Paper 1What is Strategy Porter, 1996

Read for next class!

Available on website

Documents

Strategic Issues in IT Lecture 2