why managers must understand the relationship between strategic planning and it

Why Managers Must Understand the Relationship Between Strategic

Planning and IT• Alignment

– IT organization and resources work on projects that support the key objectives of the business

• According to the 2007 State of the CIO Survey conducted by CIO Magazine– Four of five CIOs say they are not aligned with their

organization's strategic goals

Information Technology for Managers 1

Why Managers Must Understand the Relationship Between Strategic

Planning and IT (continued)• IT people must:

– Recognize and understand business needs – Develop effective solutions

• Business managers must communicate: – Vision, objectives, and strategies of the organization


What is Strategic Planning?

• Strategic planning – Helps managers identify desired outcomes and

formulate feasible plans by using available resources and capabilities

– Typically an annual process

• Variety of approaches– Issues-based– Organic– Goals-based


Defining Vision and Mission

• Vision/mission statement – Communicates an organization’s overarching

aspirations– Guides organization through changing objectives,

goals, and strategies– Components

• Core ideology

• Mission statement

• Vision of a desirable future

– Inspires and requires employees to stretch to reach its goals


Conducting Internal Assessment

• Involve all levels and business units

• Prepare a historical perspective

• Gather data about internal processes and operations

• Analyze data to identify and assess: – How well the firm is meeting current objectives and

goals– How well its current strategies are working

• Process identifies many of the strengths and weaknesses of the firm


Analyzing External Environment

• Examine the industry in which the organization competes

• Collect and analyze facts about its key customers, competitors, and suppliers– Members of the organization should be prepared to

hear things they do not like

• Michael Porter’s Five Forces Model– Most frequently used model for assessing the nature

of industry competition


Analyzing External Environment (continued)

• Competitive financial analysis

• Strengths, Weaknesses, Opportunities, Threats (SWOT) matrix illustrates:– What the firm is doing well– Where it can improve– What opportunities are available– What environmental factors threaten the future of the

organization


Defining Objectives

• Objective – Statement of a compelling business need that an

organization must meet to achieve its vision and mission

– Example• Preserving consistency in revenue and earnings

growth


Establishing Goals

• Goal – Specific result that must be achieved to reach an

objective

• Several goals may be associated with a single objective

• Short-term, medium-term, and long-term goals

• Big Hairy Audacious Goals (BHAGs)

• Recognize and drop goals that are no longer relevant


Setting Strategies

• Strategy – Specific actions an organization will take to achieve

its vision/mission, objectives, and goals

• Managers should consider: – Long-term impact of each strategy on revenue and

profit– Degree of risk involved– Amount and types of resources that will be required– Potential competitive reaction

• Draw on the results of the SWOT analysis


Setting Strategies (continued)

• Michael Porter’s three fundamental strategies– Become the cost leader– Provide goods and services for a set of customers

better than others– Focus on a specific niche in the marketplace

• Market options matrix – Identify an organization’s product and market options

• Growth-share matrix– Allocate resources among various business units


Defining Measures

• Measures – Metrics that track progress in executing chosen

strategies to attain an organization’s objectives and goals

– Help managers determine if a strategy’s ultimate purpose is being achieved

• Run the risk of “getting what they measure” without accomplishing anything meaningful


Deploying OGSM

• O– The organization establishes numerical…

• G– Goals that index each objective, sets…

• S – Strategies on how to reach the goals, and defines…

• M– Measures to assess how well the strategies are

being executed


Deploying OGSM (continued)

• Highest-level OGSM – Deployed to the organization’s business units and

functional units– Managers translate the information into their own

unit’s objectives and goals as input to their own OGSM processes


Identifying Projects and Initiatives

• IT staff members pick up ideas for potential projects– Through interactions with various business

managers – From observing other IT organizations and

competitors

• Can generate many ideas for IT projects that support corporate objectives and goals

• Classify various potential projects by type


Prioritizing Projects and Initiatives

• Combined process of setting and scheduling priorities is needed – To define which projects will be staffed and when

they will be executed

• Each viable project must relate to a specific organizational goal


Prioritizing Projects and Initiatives (continued)

• Can the organization measure the business value of the initiative?– Tangible benefits

• Can be measured directly and assigned a monetary value

– Intangible benefits • Cannot directly be measured and cannot easily be

quantified in monetary terms


Prioritizing Projects and Initiatives (continued)

• What kinds of costs are associated with the project, and what is the likely total cost of the effort over multiple years?

• See if the project has an attractive rate of return

• Managers must consider risks

• Sequencing of projects must be considered

• Is the organization ready and capable of taking on this project?


A Manager Takes Action

• Lowe’s IT Portfolio Management Process

• Steady stream of IT-related efforts in its project pipeline

• CIO Larry Stone and Stephen Boerst, Lowe’s manager of IT strategy and planning– Upgraded the firm’s process for prioritizing IT

initiatives– Established an IT steering committee– Used portfolio management software


Executing Projects and Initiatives

• Business managers have a key role in ensuring good results that meet business needs

• Success rate for IT projects is not high

• Standish Group– Estimated in a 2004 report that the IT project

success rate is only about 34 percent


Measuring and Evaluating Results

• Actual results of a project must be compared with the goals it expected to achieve– Comparison may indicate that a change is needed

• Managers must be flexible and willing to reevaluate their positions


Effective Strategic Planning: United Parcel Service (UPS)

• Outline of a strategic plan developed for United Parcel Service

• Define mission/vision

• OGSM


Defining Vision and Mission

• Vision– To bring the world’s businesses together through

synchronized commerce by coordinating their distribution systems, supply chains, and order management systems, helping them to compete better in an expanding global economy

• Mission– To develop business solutions that create value and

competitive advantages for customers of all sizes through product differentiation, market penetration, better customer service, and improved cash flow


Conducting Internal Assessment

• Example: UPS

• Historical perspective– Two teenagers started the service in 1907

• Claude Ryan and Jim Casey

– Expanded its Next Day Air service to all 50 states and Puerto Rico by 1985

– Began tracking with Delivery Information Acquisition Devices (DIADs)

– Captured major shipping associated with e-commerce

– Rebranded Mail Boxes, Etc. to The UPS StoreInformation Technology for Managers 32

Conducting Internal Assessment (continued)

• Current strategies– Global expansion– Provide all modes of service

• Identification of strengths– Financial strength– Makes effective use of technology

• Identification of weaknesses– Thin operating margin

• Identification of threats– Union contracts


Conducting External Assessment

• Examining industry– UPS competes in the package delivery industry

• Identification of strengths– Dominant market share– Global reach– Strong brand image

• Identification of opportunities– Acquisitions– Growth in e-commerce– International growth


Conducting External Assessment (continued)

• Identification of threats– Rising oil prices– Terrorism

• Competitive analysis


Defining Objectives

• Key objective– Future profitability

• Revenues of $43 billion and operating income of $6 billion in 2005

• Growth from 2002 – 2005– Revenue 10.8 percent– Profit 14.5 percent

• Preserve this consistency in revenue and earnings growth


Establishing Goals

• Increase operating profits in all three business segments– Domestic delivery– International delivery– Supply chain and freight


Setting Strategies

• Primary strategy – Take advantage of UPS’s competitive strengths – Maintain the firm’s focus on meeting or exceeding

customer requirements


Defining Measures


Deploying OGSM to IT

• Dave Barnes– Promoted to senior vice president and CIO of UPS in

2005– Responsible for ensuring that IT organization

understands the corporate OGSM

• Define, execute, and measure projects that are consistent with the firm’s mission, objectives, goals, and strategies


Identifying and Prioritizing Projects and Initiatives

• Breakthrough– UPS Package Flow Technology– Designed to support growth, improve productivity,

reduce costs, and provide the platform for new services

– Savings from this project are estimated to be $750 million per year starting in 2008

• Growth– Expanding Worldport hub– Increase sorting capacity over the next five years by

60 percent to 487,000 packages per hourInformation Technology for Managers 41

Identifying and Prioritizing Projects and Initiatives (continued)

• Innovation– Continues to monitor RFID advances closely

• Enhancement– EDD (Enhanced DIAD Download) is UPS-developed

software that downloads an electronic manifest to the driver’s DIAD at the start of each workday

• Maintenance– Continually evaluating and upgrading the DIAD

device


Identifying and Prioritizing Projects and Initiatives (continued)

• Mandatory– Target Search – Enables U.S. Customs and Border Protection agents

to inspect packages that pass through the Worldport international hub


Executing Project, Then Measuring and Evaluating Results

• During project execution– Actual results are compared to expected results

• Some approved projects even may be cancelled based on negative results


Summary

• Strategic planning– Helps managers identify desired outcomes and

formulate feasible plans– Requires analysis of internal and external

environment

• Management defines:– Objectives– Strategies


Summary (continued)

• Organization’s objectives, goals, strategies, and measures (OGSM) – Must be deployed to its various business units and

functional units so that everyone knows what is expected and how to achieve it


why managers must understand the relationship between strategic planning and it

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