Chapter I & 1: The Information Systems Strategy Triangle Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson.gonzaga.edu John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices MIS • Management • Information • Systems Which component is mostly important? John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 2 INTRODUCTION • Shouldn’t managers rely on experts when it comes to making the decisions on IS for their organizations? – Managers today need to know about their organization’s capabilities and uses of information as much as they need to understand how to obtain and budget financial resources. – A manager who does not understand the basics of managing and using information cannot expect to be successful in today’s business environment. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 3 Figure I.1 - Reasons why business managers should participate in information systems decisions Reasons: •IS must be managed as a critical resource •IS enables change in the way people work together •IS integrates with almost every aspect of business IS enables business opportunities and new strategies •IS can be used to combat business challenges from competitors John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 4 A Business View of Why Managers Need to Participate: • IT accounts for more than 50% of the capital-goods dollars spent in the US. • US companies spend $7,500 per employee on IT and use is growing exponentially. • As managers decide which activities receive funding, it is essential that they have a basic grounding in managing and using IS. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 5 Information Ecology • • Data = simple observations ______ Information = data endowed with ___________ relevance and purpose. Knowledge = information that • ___________ has been situationalized and contextualized to provide value. 6 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 6 Figure I.9 System Hierarchy Oversee Develop System’s Architecture Design Requirements Management and Strategies Structure Information System Infrastructure People Technology Information John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Process 7 7 Essential Value Propositions for a Successful Company • Business Model • Core Competency – Outsourcing – Offshoring • Execution – Set corporate goals and get executive sponsorship for the initiative John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 8 WHY STRATEGY? (DBQ) • Why is it important for business strategy to drive organizational strategy and IT strategy? What might happen if business strategy were not the driver? John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 9 Planning is everything ... What are Two Major Outputs for an organization? develop Customers, market, competition Vision Mission guide Strategy create Tactic Products, Services John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 10 N Real World Example • During an ice storm in 2007 many airlines were cancelling flights. • Jet Blue waited to cancel flights and paid a heavy price. • Had to cancel 1,000 flights over 5 days. • Up to 9 planes full of passengers were stranded for up to 6 hours on the tarmac. • An inadequate reservation system and shoestring communication system was blamed for the problems by Neelman. • Changes had to be made. 11 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 11 Why is it important for business strategy to drive organizational strategy and IT strategy? What might happen if business strategy were not the driver? Typically, managers seem to think that changing or upgrading an information system (or even a component of an information system) will only positively impact a business. Quite the opposite, in fact, is true. By making changes in organizational strategy or IT strategy first, the triangle is "out of balance" and there will be consequences in the affected areas. For example, building a virtual organization, but not changing the business strategy to something like … "insuring our people are productive and have the widest possible work place opportunities" can lead to significant disconnects between workers, their managers, and their customers. And, worse, without supplying the virtual worker with the appropriate information system (a computer at home, a laptop, etc) will lead to a decrease in productivity by the virtual worker, and a major disruption of business operations. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 12 Information System Strategy Triangle Strategy Triangle Business (Firm) Strategy Where is the business going and why? Needs and priorities IS/IT Strategy Organizational Strategy What is required? Infrastructure and services How it can be delivered? 1. Architecture/Infrastructure 2. MIS organization 3. Funding 4. Project Management John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 13 Information System Strategy Triangle • A business strategy is a well-articulated vision of where the business seeks to go and how it expects to get there. • An organizational strategy is the organization’s design, as well as the choices it makes to define, set up, coordinate, and control its work processes. • IS strategy is the plan the organization uses in providing information systems and services. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 14 The Information Systems Strategy Triangle • Successful firms’ business strategy drives both their organizational and IS strategies: • They must, therefore, seek to balance business, organizational, and IS strategies • IS Strategy is affected by the other strategies a firm uses. Changes in IS strategy must be accompanied by constant adjustments in the other two • IS strategy can have (sometimes unintentional) consequences on business and organizational strategies John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 15 Example • Give an example in which a company fails to perform well because it does not align its three strategies. • Any? – too much focus on IT – used to be considered as a “hardware” company (PC, DOS etc.) – new division established in early 1990: GLOBAL SERVICIE DIVISION – it now becomes a “Service” corp. – “TOTAL solution” John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 16 Louis V. Gerstner, Jr. IBM former CEO and president (1992-2002) Prior to joining IBM, Mr. Gerstner served for four years as chairman and chief executive officer of RJR Nabisco, Inc. This was preceded by an 11year career at American Express Company, where he was president of the parent company and chairman and CEO of its largest subsidiary, American Express Travel Related Services Company. Prior to that, Mr. Gerstner was a director of the management consulting firm of McKinsey & Co., Inc., which he joined in 1965. In January 2003 he assumed the position of chairman of The Carlyle Group, a global private equity firm located in Washington, DC. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 17 BRIEF OVERVIEW OF BUSINESS STRATEGY FRAMEWORKS John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 18 Striving for Competitive Advantage • Firm level: Industry & Competitive Analysis Competitive Forces Model (discussed in chap.2) Competitive Strategy D’Aveni’s Hypercompetition Model (7s) • Business level Value-Chain Analysis John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 19 PORTER’S FIVE COMPETITIVE FORCES MODEL NEW MARKET ENTRANTS •Switching cost •Access to distribution channels •Economies of scale INDUSTRY COMPETITORS THE FIRM •Selection of suppler •Threat of backward integration SUPPLIERS SUBSTITUTE PRODUCTS & SERVICES Threats •Cost-effectiveness •Market access •Differentiation of product or service Bargaining power John WileyDr. & Sons, Dr. Chen, Information Theory and Practices Chen,Inc. The&Trends of the InformationSystems Systems–Technology •Redefine products and services •Improve price/performance •Buyer selection •Switching costs •Differentiation CUSTOMERS 20 TM -20 N Business Strategy Frameworks • Porter’s Generic Strategies Framework (and its variants) • Hypercompetition and the New 7-Ss framework (D’Aveni) N John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 21 Figure 1.2: Porter’s Generic Strategy Framework – 3 Strategies for achieving Competitive Advantage Competitive Advantage Lower Cost Position Industrywide (Broad Target) Overall Cost Leadership Particular Segment only (Narrow Target) Uniqueness Perceived by Customer Differentiation Focus N Competitive Mechanism Dr. Chen, John The Wiley Trends & Sons, of the Inc. Information & Dr. Chen, Systems Information Technology Systems – Theory and Practices TM -22 22 Porter’s Competitive Advantage Strategies • Cost leadership: be the cheapest • Differentiation: focus on making your product and/or service stand out for non-cost reasons • Focus: occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 23 Variants on Differentiation Strategy • Shareholder value model: create advantage through the use of knowledge and timing • Unlimited resources model: companies with a large resource can sustain losses more easily than ones with fewer resources (deep pocket advantage) N John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 24 Profits relative to competitions (%) Relationship between profits and time of market introduction 300 250 200 150 100 50 0 -10 -5 0 5 10 Time of market introduction relative to competition (months) John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 25 Business Strategies and its Competitive Advantage Lower Cost Position Industry wide (Broad Target) Particular Segment only (Narrow Target) Uniqueness Perceived by Customer Cost Leadership Differentiation Cost Focus Differentiation Focus Industrial economy Knowledge-based economy Competitive Mechanism Dr. Chen, John The Wiley Trends & Sons, of the Inc. Information & Dr. Chen, Systems Information Technology Systems – Theory and Practices N TM -26 26 Figure I.6 (2.4) Business Level: The Value Chain (Value) N John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 27 Manufacturing Industry Value Chain Product and Service Flow Support Activities Administrative and Other Indirect Value Added Research and Development Production Engineering and Manufacturing Sales and Marketing Distribution Service Primary Activities N Dr. Chen, The Trends of the Information Systems Technology John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 28 The Value System: Interconnecting relationships between organizations Upstream value Firm value Downstream value 29 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 29 Hypercompetition and the New 7-S’s framework (D’Aveni) Every advantage is eroded. • _______________________ • Sustaining an advantage uses too much time and resources that can be a deadly distraction. • The goal should be___________, disruption not _______________ sustainability of advantage. • Initiatives are achieved with a series of small steps. • Hypercompetiton occurs when technologies or offerings are so new that standards and rules are influx, resulting in competitive advantages that cannot be sustained. It is characterized by intense and rapid competitive moves, in which competitors must move quickly to build new advantages and erode the advantages of their rivals. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 30 D’Aveni’s Disruption and 7-S’s Vision for Disruption Old 7Ss: structure, strategy, system, style, skills, staff, and superordinate goals. Identifying and creating opportunities for temporary advantage through understanding • Stakeholder satisfaction • Strategic Soothsaying directed at identifying new ways to serve existing customers better or new customers that are not currently served by others Market Disruption Capability for Disruption Sustaining momentum by developing flexible capacities for • Speed • Surprise That can be applied across actions to Build temporary advantage By Richard D’Aveni, professor of business strategy at Dartmouth College John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Tactics for Disruption Seizing the initiative to gain advantage by • Shifting the rules • Signaling • Simultaneous and sequential strategic thrusts With actions that shape, mold, or influence the direction or nature of the competitor’s response N 31 D’Aveni’s Hypercompetition Model (cont.) • Hypercompetiton Strategies for Disruption • Hypercompetition Tactics for Disruption – 1. Stakeholder satisfaction is key – 1. Shifting rules of the market to winning each dynamic to create tremendous interaction with competitors disruption for competitors. – 2. Strategic soothsaying is the – 2. Signals out to (a) make process for seeking out new announcements of strategic knowledge for predicting what intent to dominate a customers will want in the future marketplace, or (b) manipulate the future moves of rivals. – 3. Speed is crucial to take advantage of opportunities and – 3. Simultaneous or sequential respond to counterattacks by strategic thrusts using several competitors moves to mislead or confuse a competitor. – 4. Surprise enhances a company’s ability to stun a competitor, to build up superior position before a competitor can counterattack. Speed of the disruptive turbulence created by hypercometition is driven by globalization, more appealing substitute products, more fragmented customer tastes, deregulation, and the invention of new business models – all contributing to structural disequilibrium, falling barriers to market entry, and the dethronement of industry leaders John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 32 Example: • At General Electric, Jack Welch, implemented a DYB (“Destroy Your Business”) approach by placing employees in the shoes of competitors to highlight weaknesses and find fresh ways of meeting customer needs. • Similarly GE’s Medical Systems Division used DYB to respond to the challenges posed by the Internet. N John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 33 “Be fearful when others are greedy, and be greedy when others are fearful.” -- Warren E. Buffett, CEO, Berkshire Hathawy, Inc. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 34 BRIEF OVERVIEW OF ORGANIZATIONAL STRATEGIES John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 35 Figure 1.6 Summary of Key Strategy Frameworks • Generic Strategies: Competitive Advantage (CA) through low cost, differentiation or focus • Hypercompetition: CA is temporary, created through speed and aggression in the market John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 36 Porter’s Model vs. Hypercompetition Model Industries Competitive Advantage (Characteristics) Competitive Advantage (How to) Porter’s Model Relatively stable Establish a strong, long-term position and defend it. Attain a fit with the environment as in traditional markets Hypercompetition Model Dynamic 1) Ever-increasing competition 2) Changing power between players Short-lived, take advantage of any small window of opportunity that arises (thru speed and aggression) 1) change rules of competition 2) create disruptions (during which temporary advantages can be exploited) John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 37 Figure 1.6 The Business Diamond Business Process Tasks and Structure (Source: Hammer et al, 1994) Values and Beliefs Management and Measurement Systems (control) John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 38 N 38 Figure 1.7 Managerial Levers Execution Organization Control Decision rights Business processes Strategy Formal reporting relationships Data People, Information, and Technology Informal networks Values Source: Cash, et al., 1994 Incentives and rewards Planning Organizational effectiveness Performance measurement and evaluation Culture 39 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 39 Figure 1.8 Summary of Org. Strategy Frameworks Framework Key Idea Usefulness in IS Discussions Business Diamond There are 4 components of an organization: business processes, values and beliefs, management control systems, and tasks and structures. Using IS in an organization will affect each of these components. Use this framework to identify where these impacts are likely to occur Management levers Organizational variables, control variables, and cultural variables are the levers manager can use to affect change in their organizations This is a more detailed model than the Business diamond and gives specific areas where IS can be used to manage the organization and to change it 40 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 40 Summary of Key Strategy Frameworks Framework Key Idea Usefulness in Information Systems Discussions Porter’s generic strategies framework Firms achieve competitive advantage through cost leadership, differentiation, or focus. Understanding which strategy is chosen by a firm is critical to choosing IS to complement that strategy. D’Aveni’s hypercompetition model Speed and aggressive moves and countermoves by a firm create competitive advantage. The 7-S’s give the manager suggestions on what moves and counter moves to make and IS are critical to achieve the speed needed for these moves. Brandenberg and Nalebuff’s co-opetition model Companies cooperate and compete at the same time. Being cooperative and competitive at the same time requires IS that can manage these two roles. 41 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 41 Figure. Enhanced Model of “Built To Last”: Continuity and Change in Visionary Companies Strategic Competitive Advantages and creating values Preserve •Core Values •Core Purpose Change •Culture & Operating Practices •Specific Goals and Strategies •Processes •Safety •Quality Care •Efficiency •Effectiveness •Innovation Management IT (tangible, strategic mechanism) John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 42 What is Web 2.0? • "Web 2.0" refers to the second generation of web development and web design. – It is characterized as facilitating communication, information sharing, interoperability, user-centered design and collaboration on the World Wide Web. It has led to the development and evolution of web-based communities, hosted services, and web applications. – Examples include social-networking sites, video-sharing sites, wikis, blogs, mashups and folksonomies. – Web 2.0 is the business revolution in the computer industry caused by the move to the Internet as a platform, and an attempt to understand the rules for success on that new platform. Source: http://en.wikipedia.org/wiki/Web_2.0 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 43 Major Issues for the Next Society 1. Internationalization 4I + 1K 2. Technology Internationalization Integration Innovation Information and Knowledge 3. Population John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 44 Mini Case Study • Case Study 1-1: Roche’s new scientific method (p.41-43) • Form Groups • Group discussion and work on the case and answers to questions • Questions #1 thru #4 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 45 #1. IS/IT Strategy Triangle • Each group: • Complete the case using “Strategy Triangle” model 46 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 46 Information System Strategy Triangle Business (Firm) Strategy Organizational Strategy IS/IT Strategy N John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 47 Information System Strategy Triangle for Roche’s new scientific method 1. Genomics Revolution/ Breakthroughs 2. First to the Market with a new drug to cure cancer or other diseases (First Mover) 1. Culture of failure is alright (Fail Fast Approach) 2. Hire people who can adapt to changing 3. Build Teams 4. Reward system Business (Firm) Strategy Organizational Strategy John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices IS/IT Strategy IT revolution (Process voluminous data fast) 1. To screen compounds 2. To run simulations or GeneChip experiments 3. To identify and locate genes that are associated with stroke using Decode 48 N Q#1: According to Case Study 1-1 (Pearlson’s text, pp. 41-42), how and what does the business strategy affect information systems and organizational decisions? • In order to take advantage of advances in the genomics revolution, Roche is rethinking the way it builds teams (organizational strategy), rewards teams (organizational strategy), hires people (organizational strategy), creates a culture (organizational strategy) and processes data (IS strategy). • In particular, it is shedding its ultracompetitive approach in favor of culture-changing collaborative approaches. It is now recruiting through advertisements run on the back pages of Science magazine. Its IS strategy incorporates the GeneChip and Fail Fast approach to speed the screening of compounds that are tested. IS must be designed to handle the large volume of data that must be analyzed. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 49 Q#2: What “generic” strategy (by Porter) does Roche appear to be using based upon this case? Provide a rationale for your response. • • Roche’s business strategy appears to be first to market with a new drug to cure cancer or other diseases whose genes are identified in through the genomics project. Thus, they appear to be applying the differentiation strategy of having a drug that adds value in the cure of a disease. (It could be argued, though, that Roche is applying a focus/differentiation strategy by concentrating on cancer or strokes… it is not entirely clear what Roche’s overarching business strategy is from the case). John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 50 Q#3: Apply the Hypercompetition model to Roche. Which of the 7 Ss are demonstrated in this case? • • The hypercompetition model suggests that speed and aggressiveness of moves and countermoves in any given market can create strategic advantage. Clearly this case demonstrates Roche’s concern with a speedy discovery. An example is its ‘Fail Fast’ philosophy. To uncover successful drugs, it is conducting thousands of experiments… a series of small steps. To compete, Roche is taking advantage of its deep pockets and is relying on its timing and know-how. Below are some possible applications of D’Aveni’s 7-Ss: John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 51 7-S Application Superior stakeholder satisfaction Maximizing customer satisfaction by adding value through the discovery of breakthrough drugs to cure cancer, stroke, or other disabling diseases Strategic soothsaying Seeking new knowledge in a variety of ways: applying new technologies such as GeneChip; advertising for new employees in a wide range of sources, including Science magazine; leveraging on the knowledge of it employees through more collaboration and teamwork Positioning for speed Using IS to process large volumes of data more efficiently; applying ‘Fail Fast’ philosophy to identify winners more speedily Positioning for surprise Altering its organizational and IS strategies to speed the discovery of new breakthrough drugs Shifting the rules of competition Using breakthrough discoveries of revolutionary drugs to treat major diseases can result in new ways to serve customers that transforms the industry; Trying to take advantage of discoveries in the genomics projects Signaling strategic intent ? Simultaneous and sequential strategic thrusts ? John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 52 Q#4: How do information systems support Roche’s business strategy? • The case discusses a number of ways in which IS supports Roche’s business strategy: – – – to screen compounds, to run simulations or GeneChip experiments with potential new drugs, and to identify and locate genes that are associated with stroke using Decode. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 53 Q#5 (Extra) What is the risk(s) of using/adopting the information systems? • Roche may awaken a sleeping giant with better resources for implementing a better system (and/or reverse engineering of their system) • Concern of loss of data will cause disaster to the company (e.g., 10 people are using 90% of the company total computer capacity) John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 54 Potential Risks There are many potential risks that a firm faces when attempting to use IT to outpace their competition. • Awakening a sleeping giant – a large competitor with deeper pockets may be nudged into implementing IS with even better features • Demonstrating bad timing – sometimes customers are not ready to use the technology designed to gain strategic advantage • Implementing IS poorly – information systems that fail because they are poorly implemented • Failing to deliver what users want – systems that don’t meet the firm’s target market likely to fail • Web-based alternative removes advantages – consider risk of losing any advantage obtained by an information resource that later becomes available as a service on the web • Running afoul of the law – Using IS strategically may promote litigation N John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 55 55 End of Chapter 1 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 56