ISM 4 Strategy

7/30/2019 ISM 4 Strategy

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Info rmat ion System for

Strateg ic Management


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1.1 Strategy (definition)

Strategy is defined as the determination of the basic long term

objective and goals of an enterprise and the formulation of plans

and the acquisitions,allocation and utilization of resources

necessary to accomplish these goals.

A/C to Alfred D.Chandler, Strategy is the determination of the

basic long term purpose and objectives of an enterprise and the

adoption of courses of action and allocation of resources necessary

for carrying out these goals.


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Purpose of strategy

To position or set direction within environment

To focus effort within the organization

To define the organization, to give meaning to the organizationsactivities

To provide consistency

For efficiency & focus

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Thinking Strategically:

The Three Big Strategic Questions

1. Where are we now -- what is our situation?

2. Where do we want to go?

3. How will we get there?



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What Is Strategy?

Concept

Competitive moves and business approaches management

employs in running a company

Managements Game Plan to

Please customers

Position a company in its chosen market

Compete successfully

Achieve good business performance



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Elements of Strategy

1) Goals: A strategy invariably indicates the long term goals toward

which all efforts are directed.

2) Scope:A strategy defines the scope of the firm that is,the kind of

products the firm will offer,the broad areas of activity it will

undertake.

3) Competitive Advantage:A strategy also contains a clear

statement of what competitive advantages the firm will pursue and

sustain. Competitive advantage arises when a firm is able to

perform an activity that is distinct and different from of its rivals.

4) Logic: this is the most important element of strategy.



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Levels of Strategy (1)

Corporate Level strategic decisions are concerned with:

overall purpose and scope

adding value to shareholder investment

portfolio issues

resource allocation between SBUs

structure and control of SBUs

corporate financial strategy



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LEVELS OF STRATEGY (2)

Business Unit strategy is concerned with:

competitive strategy

developing market opportunities

developing new products/services

resource allocation within the SBU

structure and control of the SBU



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LEVELS OF STRATEGY (3)

Operational Strategies are concerned with:

the integration of resources, processes, people and skills

to implement strategy



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1.2. Strategic Advantage with MIS

Management through decision making is a common feature in all the

organization.

The organization may be large or small, performing at one or multi locations

and the information need is typical to all of them. It is, therefore, necessary

to understand the use of the information, the nature of the information, the

value of the information, the media and the structure of reporting withreference to the type and the levels in the organization.

The MIS should acknowledge the problems and difficulties in various

methods of the data gathering and their sources in the organization.

The information has a value if it causes changes in the decisions, the actionor the behaviour of decision maker. The MIS design should find an optimum

point where the cost and the benefits are balanced.


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1.2.1Competitive Strategy Concepts

The strategic role of information system involves usingIT to develop products, services and capabilities to give

a company major advantages over the competitive

forces it faces in the real marketplace.

Strategic information is one that helps an organization

gain a competitive advantage,reduces competitive

disadvantage or meet other enterprise objectives



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1.2.1.1.Porters Competitive Forces Model

According to Porter,an industrys profit potential(long run return oninvested capital) depends on five basic competitive forces within the

industry.these are:

1)Rivalry of competitors within the industry

2)Threat of new entrants

3)Threat of substitutes

4)The bargaining power of customers

5)The bargaining power of suppliers



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Fig. Forces driving industry competition (Porters Model)


1.New Entrants

5.Industry Competitors

Intensity of Rivalry

3. Buyers

4.Substitutes

2.Suppliers


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Use of Porters Model

List players

Analyze business drivers

Devise a strategy

Investigate supportive informationtechnologies


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1.2.1.2.Porters Competitive Forces Strategies

1)Cost leadership Strategy

2)Differntiation Strategy

3) Innovation Strategy

4)Growth Strategy

5)Alliance Strategy

6)Other competitive strategy

Improving business processes,promoting business innovation,lockin customers and suppliers,creating switching costs,raising barriers

to entry,developing a strategic information base etc.



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Strategic Information Systems

Strategic Information System change the goals ,operations,

products, services or environmental relationship to help the

organization gain a competitive advantage.

Strategic information systems alter the way a firm conductsits business or the very business of the firm itself.


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1.2.2.Strategic Uses of IT

The basic Strategies in the business use of information as a resource are:

1)Lower Costs

Use IT to reduce the cost of business processes.

Use IT to reduce the costs of customers or suppliers.

2)Differentiate

Develop new IT features to differentiate products and services.

Use IT features to reduce the differentiation advantages of competitors.

Use IT features to focus products and services at selected market niches.



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3) Innovate-

Create new products and services that includes IT components

Develop Unique new markets or market niches with the help of IT.

Make radical changes with IT like cut costs, improve quality,efficiency,or

customer service or shorten time to market.

4) Promote Growth-

Use IT to manage regional and global business expansion.

Use IT to diversity and integrate into other products and services.

5) Develop Alliances-

Use IT to create virtual organizations of business partners.

Develop Inter enterprise info. System that support relationship with

customer,suppliers and others.


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Examples to use Strategic Information Systems to implement

strategies for competitive advantage in various ways like:1)Cost Leadership Strategy -

Online build to order, online seller bidding, online auctions

2)Differentiation-

Customer / suppliers E-commerce, Online Customer Design, Customer

Online Shipment tracking

3)Innovation-

Online Discount stock trading, online full service customer systems


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4)Growth-

Global Intranet, POS inventory tracking, Merchandise ordering byGlobal Satellite System

5) Alliance-

Automatic Inventory Replenishment by Supplier, Virtual

manufacturing alliances, online one-stop shopping with partners

.


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1.2.3. Building Customer Focused Business

Customer focused business is not to do with best products, high profileoffices, best location rather it can include various things like:

1)Customer loyalty

2)Quality,Innovative Products

3)Community with the bank4)Online feed-back and follow up,

5)CRM-follow up of the clients

6)Integrate employees

7)Segmentation of clients

8)Contact center/call center


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1.2.3.1.Building Blocks of Customer Focused Business

1)BuildPassion and commitment (has to come from staffand managers)

2)Buildprocess around the customers not thebusiness (build process to make things easier for the

customers looking at every step)

3)Build a Relationship (basis of relationship building isA.B.C-Always BE Communicating)

4)Build a Culture of wanting to Know (find out onregular basis what customer want from business i.e.feedback should be there)


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1.2.3.2.Key Process for staying Customer Focused

1)Management Systems Build management systems around the

customers needs

2)Innovation - Innovate products & services a/c to the customerchanging requirements

3)Training training program of staff should be designed with thecustomers in mind, which provide satisfaction to the customers and

increase customer loyalty

4)Leadership and Rewards- develop a culture that reinforces andrewards customer focus

5)Customer Perceptions- organizations should learn it and make sure it

can act what it learns6)Complaint Resolutions- complaint provided one more opportunity for

the organization to remove errors


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1.2.4.Value Chain Analysis

Value Chain Analysis which was devised by M.Porter

It is a technique which helps organizations assess its

resources and in so doing Determine its Strengths and

possible weaknesses

The value chain analysis looks at the activities that go to

make up a product or service with a view to ascertaining

how much value each activity adds. These activities can

be categorized as either Primary Activities And SupportActivities.


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Value Chain Analysis emphasis how

managers and business professionals

should try to develop a variety of strategic

uses of internet and other technologies forthose basic processes that add the most

value to a companys products or services

and thus to the overall business value ofthe company

Value Chain Analysis


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1.2.4.1.Two broad categories of value activities

1) Primary Activities:Activities connected with thePhysical Creation of the Firms Product and Service,itsMarketing and Delivery and provision of After-salesupport.

a)Inbound Logistics- Procurement,storage,flow of i/p,warehousing etc

b)Operations- Machining,assembly,packaging,maintenance,testing etc.

c)Outbound logistics- collection,storage & physical distribution etc.

d)Marketing and Sales-Advertising,sales promotion,channelselection,channel relation,pricing.

e)Service-to enhance & maintain the value like repair,installationsupply of parts


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2)Support Activities:Activities which provide Input or

infrastructure for Primary Activities to be performed.

a)Procurement- purchase of materials and service inputs.

b)Technology Development- perfection & upgradation

c)HRM-recruitment,training & development of manpower

d)Firm Infrastructure-general mangement,

accounting,finance ,legal affairs ,strategic planning


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Porters Value Chain

Firm Infrastructure

Human Resources Management

Technology Development

Procurement

Inbound

LogisticsOperations

Outbound

Logistics

Marketing

& SalesService

Profit

Margin

Porters Value Chain Model


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1.2.4.2.Value Chain Analysis

Value chain analysis involves the following steps:

1)Identify Activities (strength & weaknesses)

2)Allocate Costs (Asign costs & assets to each activity)

3)Identify the activities that differentiate the firm

4)Examine the value chain (list activity thet are imp.to

buyer satisfaction & market success)


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1.3Using IT for Strategic Advantage

Strategic Advantage refers to obtaining a sustainable

competitive edge over competitors, the ability to obtain

a greater than normal return on investment.

IT can be used to develop products, services and other

capabilities that will enable companies to achieve

strategic advantage.

Improvements in Business Processes can help anorganization cut costs, improve quality and customer

service and develop innovative products.


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1.3.1.Strategic Applications and issues in IT

1)Breaking Time Barriers: IT is used to shorten the intervals b/w the

process .Eg Telecommunications

2)Breaking Cost Barriers: ITcan reduced costs in production,

communication, distribution,minimize inventory levels etc.

3)Breaking Structural Barriers: thevarious structuralbarriers include:

a) Delivery of service

b) Scope and penetration of markets

c) Creating Strategic alliances with customers, suppliers, and even afirms competitors


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1.3.2.Business Process Reengineering (BPR)

Business Process Reengineering is a fundamentalrethinking and radical redesign of business processes to

achieve dramatic improvements in cost, quality, speed and

service.

Fundamental Rethinking calls forquestioning everything thatis being followed, practiced and found acceptable for

centuries. It rejects old legacies and proven practices.

Radical Redesign calls fortrimming and chopping of

designs so that the cost is reduced, service is improved and

the customer get the higher value at a higher speed.The

redesign calls a change in the technology, tools and

techniques.


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1.3.2.1Characteristics of BPR

1)Sevaral Jobs are Combined into one.

2)Employees make decisions (empowerment of employee).

3)Sevaral jobs get done simultaneously.

4)Process may have multiple versions (mass production,customization)

5)A single point of contact is provided to customers,called a case

manager or a deal structure.


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1.3.2.2.Need of Business Process Reengineering

The major Environmental pressures are summarized asthe three Cs- Customers, Competition, and Change.

1) Customers today know what they want,what they are

willing to pay and how to get products and services on

their own terms.

2) Competition is continuously increasing with respect to

price, quality, selection, service, technology, delivery.

3)Change continues to occur.


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1.3.2.3.Phases in BPR

According to Peter F. Drucker, Reengineering is new, and it has to

be done. All successful BPR projects begin with the most Criticalrequirement- Communication throughout the organization.

Various Phases in the Business reengineering process are:

1)Begin Organizational Change,

2)Building the reengineering organization,

3)Identifying BPR opportunities,

4)Understanding the Existing process,

4)Understanding the Existing process,6)Blueprint the new Business System,

7)Perform the Transformation.


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Fig. Phases in BPR

Begin Organizational Change

Building the reengineering organization

Identifying BPR opportunities

Understanding the Existing process

Understanding the Existing process

Blueprint the new Business System

Perform the Transformation


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1.3.3.Becoming an Agile Company

Agility in context of Business is the ability to adapt

to the rapidly changing business environment.

The attributes of an agile company

Broad Product Range, customized products, process

orders in large numbers etc.


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1.3.3.1.Four fundamentals strategies of an Agile

competition are

1)To produce products and services that serve customerrequirements. Eg,Pricing should be based on value to customerrather than on cost of production

2)Maintain Cordial Relationship both within the organization and withthe competitors.

3)Maintain flexible organizational structure so that changes can beadapt quickly.

4)Foster Entrepreneurial skills and empower employees by rewardingthem for good performance.This improves employees adaptabilityand creativity.


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1.3.4.Clean State Reengineering

In this, everything is designed from scratch. This approach is most likely to create the Optimal

System for the organization.

This approach is more expensive, slower and harder toapply.

Advantage

Not constrained by the limitations of any particular tools.

Not constrained by knowledge about Artifacts and processes.


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1.3.5.Creating a Virtual Company

Forming a virtual company can be one of the mostimportant strategic uses of IT.

A Virtual Company is an organization that uses IT to

link People, Organizations, Assets and Ideas.

Virtual Organizations emphasize that success of an

organization depends on adaptability and ability to

exploit opportunities


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Fig. Managing the Virtual Enterprise

Managing the

Internet: The

Entire Business

Managing theExtranet: The

Organisation to

Organisation

Managing theIntranet: The

Organisation

Network

Managing theVirtual

Enterprise

Identify and

Deliver

Customer Value

Expectations

Coordinated

Processes

Management

Coordinate

PartnerObjectives


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1.3.5.1.Characteristics of Virtual Companies

1)They respond to the changing business environment quickly.

2) They are opportunistic.

3) They strive for excellence.

4) They use IT proficiently to deliver customer solutions.

5) They build relationship with their partners on the basis of mutual

trust.

6) Ability to merge their competencies with their partners.


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1.3.5.2.Basic business Strategies of Virtual companies

Involve1)Share infrastructure and risk with alliancepartners.

2)Link complementary core competencies.

3)Increase facilities and market coverage

4)Gain access to new markets and share marketand customer loyalty.

5)Migrate from Selling products to sellingsolutions.


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1.3.6.Building a knowledge creating company

Knowledge is the ability of an actor to respond to a body of facts andprinciples accumulated over a period of times.

Kinds of knowledge: (a) On the basis of source

1)Explicit Knowledge: data ,documents,stored data

2)Tacit Knowledge : which resides in workers

(b) On the basis of presence of it in organization

1)Internal Knowledge: Knowledge of thefirm,product,process,employees skills

2)External Knowledge :market,competitors technology trends


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Tacit/ Explicit Knowledge

Tacit knowledge- Knowledge that we do not

know we know. Difficult to articulate and

generally expressible only through action.

Explicit knowledge- Knowledge that we know

we know. Can be articulate, codified, stored,

transferred through documents.


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1.3.6.1.Role of knowledge

1) Choosing Rational Action

2) Create differential Advantage

3) Gain Agility


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1.3.6.2. Knowledge Management (KM)

Knowledge Management is the process through whichorganizations generate value from intellectual and

knowledge based assets.

Knowledge Management comprises a range of practices

used in an organizations to identify, create, represent,distribute and enable adoption of insights and

experiences. Such insights and experiences comprise

knowledge, either embodied in individuals or embedded

in organizational processes or practices.


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KM efforts focuses on organizational objectives such as

Improved performance

Competitive advantage

Innovation

Sharing of lessons learned and continuous

improvemrnts of the organization

It helps in sharing valuable insights,to reduce training

time,and to adapt to the changing environment.


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1.3.6.3.Knowledge Management systems

Knowledge Management systems are an effective and efficient use ofknowledge in order to facilitate organizational learning and knowledge

creation.

Knowledge in business knowledge management system refer to :

1) Processes

2) Procedures

3) Reference work

4) Forecasts and

5)Best practices


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1.3.6.4.KM system are designed to provide

1) Rapid feedback to knowledge workers

2) Encourage behaviour changes bt employees and

3) Significantly improve business performance

4) Create,organize and make available important

information


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1.3.6.5. Requirements of knowledge management

systems

Tools require:

Graphic tools,

Analytical tools,

Communication tools,

Document management tools


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Fig. Requirements of Knowledge management systems

Externalknowledge

Base

Software

Graphics visualization

Modeling SimulationDocument management

Communications

Hardware Platform : Knowledge workstations

User Interface


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1.3.6.6.Examples of Knowledge Management systems:

1) Computer aided design (used to design car)

2) Virtual reality systems (used to train pilots in U.S.)

3) VRML (Virtual Reality Modeling Languages)

(for interactive 3 d modeling, used by companies by

putting their system right on the internet)


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1.4.Improving Business Quality (Total Quality

Management)

The Customer is always the king.Dimensions of Quality

1) performance- how the product operates

2)Conformance- meeting the standards

3) Features- adding extras to the basic features

4) Durability- life span

5) Reliability- how the product operate over a period of time

6) Aesthetics- look, sound, feel, taste or smell

7) Serviceability- how easily it is repaired


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1.4.1.Principles for Improving Quality

1) Delighting the customer

2) Managing quality by fact

3)People based management

4)Continuous improvements


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1.4.2. Essentials of TQM are as follows:

1) Mission which is in accordance with the fulfillment of the customer needs

2) Focus which is on customer requirement,

3) Leadership which is marked by a vision in alignment with the public

responsibility,

4) System which include Strategic quality planning process management,

quality information, human resource development, client server

partnering, employee involvement, continuous learning, improvements,

innovation, recognition preferably as teams.

Documents

ISM 4 Strategy