Information Systems Planning

Lecture 11

Today lecture

Stages of Planning continued… Electric Power Research Institute

Case example: Linkage Analysis Planning CASE EXAMPLE

Scenarios on the Future of IS Management

Critical Success Factors

2. Critical Success Factors

In 1977, Jack Rockart and his colleagues at the Center for Information Systems Research (CISR), Sloan School of Management, at the Massachusetts Institute of Technology (MIT), began developing a method for defining executive information needs.

It focuses on individual managers and their current information needs, whether factual or opinion information

2. Critical Success Factors Conti

The CSF method has become a popular planning approach and can be used to help companies identify information systems they need to develop

For each executive, critical success factors (CSFs) are the few key areas of the job where things must go right for the organization to flourish.

2. Critical Success Factors conti

Executives usually have fewer than 10 of these factors that they each should monitor.

CSFs are both time sensitive and time dependent.

These key areas should receive constant attention from executives, yet CISR research found that most managers had not explicitly identified these crucial factors.

2. Critical Success Factors conti

Rockart Four sources for these factors:

One source is the industry that the business is in. Each industry has CSFs relevant to any company in it.

A second source is the company itself and its situation within the industry.

Actions by a few large, dominant companies in an industry most likely provide one or more CSFs for small companies in that industry.

2. Critical Success Factorsconti

Furthermore, several companies may have the same CSFs but, at the same time, have different priorities for those factors.

A third source of CSFs is the environment, such as consumer trends, the economy, and political factors of the country (or countries) in which the company operates

A prime example is that prior to, say, 1998, few chief executives would have listed “leveraging the Internet” as a CSF. Today, most do.

2. Critical Success Factorsconti

The fourth source is temporal organizational factors, or areas of company activity that normally do not warrant concern but are currently unacceptable and need attention.

A case of far too much or far too little inventory might qualify as a CSF for a short time.

2. Critical Success Factors conti

Rockart has found two types of CSFs:

One he calls monitoring, or keeping abreast of ongoing operations.

The second he calls building, which involves tracking the progress of “programs for change” initiated by the executive. The higher an executive is in the organization, the more building

CSFs are usually on his or her list.

2. Critical Success Factors conti

One way to use the CSF method is to use current corporate objectives and goals to determine which factors are critical for accomplishing the objectives, along with two or three prime measures for each factor.

Some measures use hard, factual data; they are the ones most quickly identified.

2. Critical Success Factors conti

Others use softer measures, such as opinions, perceptions, and hunches; these measures take more analysis to uncover their appropriate sources.

CSFs vary from organization to organization, from time period to time period, and from executive to executive.

IS plans can then be developed based on these CSFs.

Competitive Forces Model

3. Competitive Forces Model

The most widely quoted framework for thinking about the strategic use of IT is the competitive forces model proposed by Michael Porter8 of the Harvard Business School, in his book Competitive Strategy.

Porter believes companies must contend with five competitive forces, as shown in Figure 4-6.

3. Competitive Forces Model conti

Source: Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business Review, January 2008.

The Five Competitive Forces That Shape Strategy

One force is the threat of new entrants into one’s industry.

For instance, the Internet has opened up a new channel of marketing and distribution, which, in turn, has allowed all kinds of unexpected new entrants into numerous markets.

Travel Web sites, for example, are threats to travel agencies

The Five Competitive Forces That Shape Strategy

The second force is the bargaining power of buyers. Buyers seek lower prices and bargain for higher quality.

Web-based auction sites, shopping bots, and intelligent agents are all giving buyers more shopping options and more information about potential suppliers, thus increasing their bargaining power.

In fact, much of the power of the Internet has to do with this force.

The Five Competitive Forces That Shape Strategy

A third force is the bargaining power of suppliers.

For example, the Internet enables small companies to compete against large ones in uncovering requests for bids and bidding on them—leveling the playing field.

The Five Competitive Forces That Shape Strategy

The fourth force is substitute products or services.

The Internet provides a myriad of examples here. E-mail is a substitute for paper mail.

Music downloads are substitutes for CDs.

Book and music Web sites are substitutes for book and music stores.

The Five Competitive Forces That Shape Strategy

The fifth force is the intensity of rivalry among competitors.

IT-based alliances can change rivalries by, for instance, extending them into value-chain-versus-value-chain competition rather than just company-versus-company competition.

Porter three strategies competitive forces:

Porter three strategies for dealing with these competitive forces:

first is to differentiate products and services.

By making them different—that is, better in the eyes of customers—firms may be able to charge higher prices or perhaps deter customers from moving to another product, lower the bargaining power of buyers, and so on.

It is probably the most popular of his three strategies.

Porter three strategies competitive forces:

Porter’s second strategy is to be the lowest-cost producer.

He warns that simply being one of the low-cost producers is not enough.

Not being the lowest causes a company to be stuck in the middle, with no real competitive advantage.

Porter three strategies competitive forces:

Third strategy is to find a niche, such as focusing on a segment of a product line or a geographical market.

Companies that use this strategy can often serve their target market effectively and efficiently, at times being both the low-cost producer and having a highly differentiated product as well.

Five Forces Analysis of the Internet

The Internet tends to dampen the profitability of industries and reduce firms’ ability to create sustainable operational advantages, argues Michael Porter, because it has “a leveling effect on business practices.”

He reaches this sobering conclusion by looking at the effect the Internet can have on industry profitability using his five forces framework

Bargaining Power of Buyers Increases

The Internet opens up new channels for companies to deal directly with customers, rather than through intermediaries.

The Internet can decrease the bargaining power of the other channels and their intermediaries, thereby potentially increasing profitability

Bargaining Power of Buyers Increases..

The Internet gives buyers more information, both about competitors and products, strengthening their bargaining power and lowering industry profitability.

The Internet can also decrease switching costs—the cost a buyer pays to switch from buying from one firm to buying from someone else.

This also increases buyer bargaining power. In total, the increase in buyer bargaining power decreases industry profitability.

Barriers to Entry Decrease

Due to the Internet’s new channel to buyers, industries may not be so reliant on building up sales forces to sell their goods, making it easier for others to enter the industry because they can compete without having these high fixed costs.

Furthermore, location need not be as much of a limiting factor.

Small companies can sell to the world via a Web site.

Barriers to Entry Decrease

A network effect occurs when the value of a product or service increases as the number of users increases. eBay illustrates this effect:

The more buyers, the more eBay is a desirable marketplace for sellers.

And the more sellers, the more eBay attracts buyers.

The Bargaining Power of Suppliers Increases

The Internet can make it far easier for a company to purchase goods and services, which reduces the bargaining power of suppliers.

This trend would seem to increase industry profitability. But, at the same time, suppliers can more easily expand their market, finding new customers, thereby increasing supplier bargaining power.

Lower barriers to entry also erode the former advantage of a company over its suppliers

The Bargaining Power of Suppliers Increases

Electronic exchanges, which expand marketplaces, can benefit both buyers and suppliers. However, they can reduce the leverage of former intermediaries between suppliers and end users.

This decrease gives companies new competitors (their former suppliers), which can reduce industry profitability.

Threat of Substitute Products and Services Increases

An industry can increase its efficiency by using the Internet, thereby expanding its market and improving its position over substitutes.

For example, online auctions can decrease the power of classified ads and physical marketplaces because the online auctions may be more convenient to buyers.

Online exchanges, especially those with many buyers and sellers, can thus discourage substitutes.

Rivalry Among Competitors Intensifies

Proprietary offerings are more difficult to sustain in the Internet’s open-system environment, states Porter, because products and services are easier to duplicate

The Internet can change the cost structure, emphasizing fixed costs (Web sites rather than call centers, for example) and reducing variable costs (serving one more customer can be much less expensive via a Web site rather than a call center).

Value Chain Analysis

4. Value Chain Analysis

Five primary activities that form the sequence of the value chain:1 Inbound logistics: receiving and handling inputs2 Operations: converting inputs to the

product/service3 Outbound logistics: collect, store, and distribute

the product/service to buyers4 Marketing and sales: the means/incentives for

buyers to buy the product/service5 Service: enhancements/maintenance of the value

of the product/service

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4. Value Chain Analysis cont.

Four supporting activities that underlie the entire value chain:

1 Organizational infrastructure2 Human resources management3 Technology development4 Procurement

Figure 4-7 Virtual Value Chains?

Market spaces where information substitutes for physical

Can also use Porter’s Value chain analysis

AN AUTOMOBILE MANUFACTURERCase Example – Virtual Value Chain

The rental car subsidiary turned to auctioning off clean used cars to dealers to sell, via marketspace

Dealers can view the cars (and their stats) to be auctioned from a screen in their dealership, and then place bids during the online auction, held once or twice a month

The auction saves them time and effort, and the cars are guaranteed

E-Business Value Matrix

5. E-Business Value Matrix

It can be difficult for executives to prioritise projects, therefore a ‘portfolio’ management approach is valuable.

Tool used by Cisco to ensure they are developing a well-rounded portfolio of IT projects.

Every IT project is meant to be placed into one of four categories to assess its value to the company (Figure 4-8): New fundamentals: Low-Low=provide a fundamentally new way of

working in overhead areas, not business-critical areas Operational excellence: High in criticality to business-Low in newness

of idea=medium risk because they may involve reengineering work processes

Rational experimentation: Low in criticality to business-High in newness of idea=test new technologies and ideas

Breakthrough strategy: High-High=potentially have a huge impact on the company

CISCO SYSTEMSCase Example – E-Business Value Matrix

Cisco’s expense reporting system fits in its new fundamentals category

Its executive dashboards are an example of operational excellence projects

Multicast streaming video used for company meetings is a rational experiment, and

Its development of a virtual supply chain is seen as a breakthrough strategy

CISCO Executive Dashboard System

Linkage Analysis Planning

6. Linkage Analysis Planning

Examines the links organizations have with one another with the goal of creating a strategy for utilizing electronic channels

Methodology includes the following steps: Define power relationships among the various

players and stakeholders:– Identify who has the power– Determine future threats and opportunities for

the company

6. Linkage Analysis Planning cont.

• Map out your extended enterprise (Figure 4-9) to include suppliers, buyers, and strategic partners– The enterprise’s success depends on the

relationships among everyone involved– Some 70% of the final cost of goods and services is

in their information content

• Plan your electronic channels to deliver the information component of products and services– Create, distribute, and present information and

knowledge as part of a product or service or as an ancillary good

• EPRI’s challenge - compress “information float” - elapsed time from availability research findings to the

use of those results in industry

• Answer: EPRINET - a natural language front end for accessing

– Online information – Expert system-based products

– e-mail facilities, and – video conferencing

Electric Power Research Institute

Case example: Linkage Analysis Planning

Scenario Planning

7. Scenario Planning

Scenarios are stories about the way the world might be in the future

The goal of scenario planning is not to predict the future (= hard to do!), but to explore the forces that could cause different futures to take place

Then decide on actions to take if those forces begin to materialize

7. Scenario Planning cont. Long-term planning has traditionally extrapolated

from the past and has not factored in low-probability events that could significantly alter trends

Straight-line projections have provided little help!

Four steps in Scenario Planning:1. Define a decision problem and time frame to

bound the analysis2. Identify the major known trends that will affect the

decision problem3. Identify just a few driving uncertainties4. Construct the scenarios

CASE EXAMPLEScenarios on the Future of IS Management

What will IS management look like in 10 years?

Four potential futures are presented:1. The Firewall scenario could occur if companies use

traditional forms of management and see their data as proprietary

2. The Worknet Enterprise scenario could occur if companies outsource management of their data and share it extensively with specific partners

3. The Body Electric scenario could occur if new organizational forms flower (such as people owning parts of work cells in which they work) and obtain all their IT from interconnected service providers

4. The ‘Tecknowledgy’ scenario could occur if there is an open information society where any kind of information is available for a price. The main job of IS could be facilitation of knowledge processes across organizations

Scenario Planning

Conclusion Based on the successes and failures of past

information systems planning efforts, we see two necessary ingredients to a good strategic planning effort:

1. IS plans must look towards the future Future is not likely to be an extrapolation of

the past Successful planning needs to support “peering

into the future” – most likely in a sense-and-respond fashion

2. IS planning must be intrinsic to business planning

Conclusion cont.

IS plans typically use a combination of planning techniques presented No single technique is best and no single one is

the most widely used in business

Sense-and-respond is the new strategy-making mode Creating an overall strategic envelope and

conducting short experiments within that envelope, moving quickly to broaden an experiment that proves successful

Planning is “Peering into an unknown future”