Module 7: Strategic Alignment of Information Systems PDF

LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY LEARNING MODULE 7 I. TITLE : Strategic Alignment of Information Systems II. TOPIC : Information System Strategy Tr...

LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY LEARNING MODULE 7 I. TITLE : Strategic Alignment of Information Systems II. TOPIC : Information System Strategy Triangle, Strategic Use of Information Resources III. TIME FRAME : 8 hrs IV. INTRODUCTION : In today’s fast-paced business environment, effective integration of information systems relies on three essential elements: the Information System Strategy Triangle, the strategic use of information resources, and organizational strategy. The Triangle highlights the need for alignment among business, IT, and organizational strategies to achieve common goals. By leveraging information resources such as data and technology, organizations can enhance their competitive edge. A clear organizational strategy shapes company structure and culture, facilitating the successful adoption of information systems and ensuring all parts of the organization work together toward strategic objectives. V. OBJECTIVES/INTENDED LEARNING OUTCOMES By the end of this module, learners will be able to: Analyze the Information System Strategy Triangle's components and their impact on organizational success Evaluate how the strategic use of information resources can achieve competitive advantage. Assess how organizational strategy influences the integration of information systems. VI. LEARNING ACTIVITIES THE INFORMATION SYSTEM STRATEGY TRIANGLE The Information System Strategy Triangle illustrates the relationship between three critical components of an organization’s strategy: Business Strategy, Information Technology Strategy, and Organizational Strategy. Understanding this triangle is essential for ensuring that all parts of the organization are aligned and working towards common goals. Figure 1: Information System Strategy Triangle JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY BUSINESS STRATEGY Business strategy refers to the plan that outlines how an organization will compete in its market. It is a roadmap that includes the organization’s vision, mission, goals, and competitive advantages. A clear business strategy helps guide decision-making and resource allocation to ensure that all efforts are directed towards achieving the organization's objectives. It is not only about what a company aims to achieve but also about how it plans to navigate the competitive landscape. A well-defined business strategy incorporates market analysis, competitor analysis, and understanding of customer needs. Key Elements of Business Strategy Vision and Mission: The vision states what the organization aspires to become, while the mission defines its purpose and primary objectives. Together, they provide direction for strategic planning. Goals: Specific and measurable targets that the organization aims to achieve within a certain timeframe. These goals guide the organization’s actions and performance assessments. Competitive Advantage: This is what makes an organization stand out from its competitors. It can be based on factors like cost, quality, brand reputation, or customer service. The Generic Strategies Framework The Generic Strategies Framework, developed by Michael Porter, is a tool that helps organizations identify and implement strategies to achieve a competitive advantage in the marketplace. In his book, Competitive Advantage, Porter emphasizes that sustainable competitive advantage is key to long-term success. He identifies three main strategies that companies can adopt: cost leadership, differentiation, and focus. Each of these strategies has its own characteristics and advantages, depending on the company’s goals and the competitive landscape. 1. Cost Leadership is the strategy where an organization aims to be the lowest-cost producer in its industry. This approach focuses on minimizing costs to offer competitive prices while maintaining acceptable quality. By doing so, a company can attract a larger customer base and achieve higher sales volume. Key Features The organization must maintain a cost structure that is lower than competitors. It should offer products or services that are comparable in quality to those offered by others in the industry. Typically, only one company can successfully execute this strategy in a market without triggering a price war. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY Example Wal-Mart is a prime example of cost leadership. The retail giant achieves its competitive advantage through several strategies: Mass Distribution: Wal-Mart utilizes extensive distribution networks to keep costs low. Economies of Scale: By purchasing in large quantities, they negotiate better prices with suppliers. Information Systems: Advanced inventory management systems help Wal-Mart maintain operational efficiencies. As a result, Wal-Mart can offer lower prices than many of its competitors, which drives customer loyalty and increases market share. 2. Differentiation is a strategy where a company seeks to make its products or services unique and appealing to customers. This involves adding value along certain dimensions that matter most to the target audience. The aim is to stand out from competitors by providing something special, which can justify a higher price. Key Features Companies must understand the qualitative dimensions that are most important to their customers. The price charged for differentiated products must seem fair relative to the perceived value. Multiple firms can pursue differentiation in the same market. Example: Progressive Insurance shows a successful differentiation by offering unique customer service. 24/7 Availability: Progressive representatives are available around the clock to assist with accident claims. On-Site Claims Processing: They send representatives to accident scenes equipped with laptops and intelligent software, enabling immediate claim settlements. 3. Focus Strategy allows a company to concentrate on a specific market segment or niche. By tailoring its offerings to a narrow group of customers, an organization can achieve a competitive advantage. The focus strategy has two main variants: a. Cost Focus: This involves seeking a cost advantage within a specific segment. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY b. Differentiation Focus: This means providing unique products or services tailored to a particular market segment. Key Features Focused companies understand the needs and preferences of their specific customer base. They may not achieve competitive advantage in the broader market but can still excel in their targeted segment. Examples: Marriott International: Marriott uses the focus strategy effectively through its different hotel chains. For example, it may implement check-in kiosks at its budget-friendly brands to reduce operational costs while improving efficiency. These kiosks integrate with other systems like billing and customer relationship management (CRM), which streamlines operations. INFORMATION STRATEGY The IS strategy outlines how an organization provides information services to support its business operations. It plays a critical role in helping the company implement its overall business strategy. This relationship is essential because an effective IS strategy considers competition, positioning, and capabilities—key factors that influence how a business operates and thrives in the market. Competition: This involves understanding customer needs and what competitors are offering. Organizations must ask themselves what their customers want and how they can meet those needs better than their competitors. Positioning: This defines how the firm wants to compete in the market. Organizations must determine the unique value they provide that sets them apart from others. Capabilities: This refers to what the firm can do. The IS strategy helps identify and enhance the organization’s capabilities, determining how effectively it can meet business objectives. Four (4) Keys of Information System Strategy To understand the IS strategy better, we can look at a framework that highlights four key components of IS infrastructure. This framework helps managers see how these components interact with other resource considerations in IS strategy. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY What Who Where Hardware List of physical components of Individuals who Physical Location the system use and manage it Software List of Programs, Applications Individuals who What hardware it resides and Utilities use and manage it upon and where that hardware is located Networking Diagram on how hardware and Individuals who Where the nodes, wires, and software components are use and manage other transport media are connected it. located, Company service it obtained from Data Bits of information stored in Individuals who Where the information the system use and manage it resides Table 1: Four (4) Keys of Information System Strategy 1. Hardware Hardware includes all the physical devices used to support information systems. This includes: i. Personal computers used by employees for day-to-day tasks ii. Powerful computers that store data, run apps, manage network resources. 2. Software Refers to the programs that enable hardware to perform specific tasks. It includes: i. Software that is used for various business functions like accounting, customer relationship management, and inventory management. ii. This helps manage the hardware and ensures it operates smoothly. iii. Programs that facilitate communication between different systems and users. 3. Network The network is the infrastructure that allows different hardware components to communicate with each other. This can include: i. Used for accessing the internet or connecting to other networks. ii. Internal systems that allow employees to share information securely. 4. Data Data represents the actual information processed and stored within the system. Important considerations regarding data include: i. Understanding where data is stored is crucial since data and programs may not always be located together. ii. Knowing the types of data held and how they are organized is essential for efficient retrieval and use. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY ORGANIZATIONAL STRATEGY Organizational strategy refers to how a company designs and organizes its structure, processes, and culture to achieve its goals and implement its business strategy. It is essentially a roadmap that answers the question: "How will the company organize itself to reach its objectives?" This strategy encompasses decisions about the organization’s design, how work is coordinated, and how performance is controlled. Key Components of Organizational Strategy: 1. Business Diamond Framework The business diamond, introduced by Leavitt and later developed by Hammer and Champy, offers a simple yet effective framework for understanding organizational design. It identifies four crucial components that make up an organization’s plan: 1. Business Processes - These are the activities and workflows that transform input into outputs. Efficient processes help the organization deliver products and services effectively. 2. Values and Beliefs - This component encompasses the shared principles and cultural aspects that guide employee behavior and decision-making within the organization. 3. Management Control Systems - These systems include policies and procedures that monitor performance, ensure accountability, and facilitate effective resource allocation. 4. Tasks and Structures -This aspect focuses on how work is divided among individuals and teams and the hierarchical structure that supports coordination and communication. Figure 2: Business Diamond Framework This framework is useful not only for designing new organizations but also for diagnosing problems within existing ones. For instance, if an organization tries to change its culture but fails to adjust its management control systems accordingly, it may struggle to achieve meaningful change. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY 2. Managerial Levers Framework Another important framework for organizational design is presented in the book Building the Information Age Organization by Cash, Eccles, Nohria, and Nolan. This framework emphasizes the need for a balanced combination of three types of variables: 1. Organizational Variables - These include decision rights (who makes what decisions), formal reporting relationships (how information flows within the organization), and informal networks (the relationships that develop outside formal structures). 2. Control Variables - This component looks at the availability and quality of data, the nature of planning processes, and how performance is measured and incentivized. Effective control systems ensure that the organization is aligned with its strategic goals and can respond quickly to changes. 3. Cultural Variables - This includes the values and norms that define how employees interact and make decisions. A strong culture can motivate employees and drive them toward achieving organizational goals. Figure 3: Managerial Levers Framework An effective organizational strategy is crucial for a company’s success. By leveraging frameworks like the business diamond and the combination of organizational, control, and cultural variables, managers can create an adaptable and efficient organization. These frameworks help ensure that all components of the organization work harmoniously to achieve strategic objectives, ultimately leading to improved performance and competitiveness in the marketplace. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY STRATEGIC USE OF INFORMATION REOSURCES EVOLUTION OF INFORMATION SYSTEM STRATEGY From the 1960s to the 1990s, businesses used Information Systems (IS) mainly to solve their internal needs. Organizations focused on how IS could improve their operations, reduce costs, and enhance managerial support. Main Reasons for Using Information System 1. Cutting Costs Companies want to reduce the money spent on transactions. By using technology to automate tasks, they save time and money. 2. Helping Managers Organizations needed systems to collect and share information quickly. Good data helps managers make better decisions. 3. Improving Processes Businesses started to redesign their work processes to take full advantage of new technologies. This made them faster and more efficient. As more companies adopted similar IS, the benefits of having advanced systems started to fade. Businesses that once stood out found that their advantages were slipping away as competitors caught up. When competition increased, companies realized they needed to use IS in a more strategic way. This meant thinking not just about internal improvements but also about how to compete in the market. The rise of internet companies pushed traditional businesses to innovate and adapt quickly. In this new era, companies looked for systems that would help them stand out from their competition. They need to not only improve their operations but also protect themselves against nimble new companies and established firms entering their markets. The Information Systems Strategy Triangle discussed in Lesson 1 shows how IS strategy connects with organizational and business strategies. To be successful, companies need to: Align Their Strategies: IS strategy should match both organizational goals and business goals. This ensures that information helps achieve overall objectives. Consider Internal and External Factors: Managers need to look at their internal needs (like efficiency and support) and external challenges (like market competition). JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY USING INFORMATION REOSURCE AS STRATEGIC TOOLS To gain a competitive edge, general managers must effectively combine all types of resources a company has, including financial, production, human, and especially information resources. What is Information Resources? Information resources go beyond just technology or systems. They include all the data, technology, people, and processes within an organization. This means that the information systems (IS) infrastructure, which includes hardware, software, networks, and data, is a key part of these resources. Other important information resources include: Knowledge and Information: The actual data and insights the company holds. Proprietary Technology: Unique technologies that give a company an advantage. Technical Skills: The expertise of IT staff who manage and maintain systems. End Users: Employees who use the information systems in their daily tasks. IT-Business Relationships: The connection between IT staff and business managers, which can provide a competitive advantage. Business Processes: The workflows and operations within the organization. EVALUATING INFORMATION RESOURCES Investing in information resources can be costly, so managers should ask some key questions to understand the advantages these resources can create: 1. What Makes This Resource Valuable? In earlier eras, the value of information was linked to its scarcity. Information was valuable because it was hard to find and expensive to produce. However, in today's networked economy, the value often comes from how widely it can be shared. For example, a fax machine is useless alone, but its value increases as more people use fax machines. Therefore, information should be priced based on its usefulness to the buyer rather than just its production cost. 2. Who Benefits from the Value Created? Using the value chain model helps identify where value comes from within the organization and how to enhance that value for the company. 3. Is the Resource Unequally Distributed? Most managers won't have completely unique resources, but understanding the distribution of information resources across competitors can highlight opportunities. If certain valuable information is not widely available, it can give a firm a strategic advantage. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY 4. Is Resource Mobile? If key IT skills are concentrated on specific individuals, the company risks losing those skills if those employees leave. To mitigate this, organizations can create knowledge- sharing processes and document lessons learned from projects to retain important knowledge. 5. How Quickly Does the Resource Become Obsolete? While information doesn't wear out like physical goods, it can become outdated or less useful over time. Managers should understand how quickly information loses its value and what factors contribute to this decline. For example, customer addresses in a database can change, making previous data less reliable for forecasting. Information resources exist alongside other resources in a company. It’s the manager’s job to organize these resources to achieve business goals. By aligning the information systems strategy with the overall business strategy, managers can maximize their potential for profit. In a competitive market, it’s crucial to determine the best way to organize and apply information resources. This will enable the organization to compete effectively and stay ahead of rivals. Understanding these resources deeply is the first step toward using them efficiently for strategic advantage. USING INFORMATION RESOURCES STRATEGICALLY General managers must consider various factors that affect their company’s competitive environment. Ignoring any of these factors can lead to significant problems. To navigate this complex landscape, managers can adopt three key views to align their information systems (IS) strategy with the overall business strategy. Five Competitive Forces Model Michael Porter identifies five key forces that shape the competitive landscape for businesses. By understanding and influencing these forces, managers can better position their firms for success. Here’s a breakdown of these forces and how information resources can play a critical role in shaping them. 1. Potential Threat of New Entrants Existing businesses often work to prevent new companies from entering the market. They do this by creating barriers to entry, which can include unique product features, exclusive distribution channels, a strong brand image, and regulatory hurdles. How Information Resources Help: Firms can use information systems (IS) to strengthen these barriers. For example, Massachusetts Mutual Life Insurance Company developed an IS that provides its sales agents with detailed information about products JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY and customers. This infrastructure would require significant investment for a new company to replicate, thus serving as a barrier against new competitors entering the market. 2. Bargaining Power of Buyers Customers can exert considerable influence in the marketplace, especially when they have access to multiple options or the ability to buy in bulk from large retailers. How Information Resources Help: Companies can use information resources to create switching costs, which are obstacles that make it harder for customers to change their buying habits. For instance, Amazon.com uses its One Click feature to streamline purchases, making it easy for customers to buy again without re-entering their information. Honeywell also enhances customer retention through its Field Automation Service Technology (FAST), providing technicians with handheld computers for better service and communication, making it less likely that customers will switch to competitors. 3. Bargaining Power of Suppliers The power of suppliers can impact a company’s profitability, especially when there are few alternatives or when the supplier's quality is critical to the final product. How Information Resources Help: Companies can leverage technology to reduce supplier power. For instance, car manufacturers have implemented advanced quality control systems that allow them to reject subpar steel from suppliers, reducing the suppliers' influence. Additionally, many firms are creating their own content and information resources to lessen reliance on external suppliers, which can enhance their bargaining position. 4. Threat of Substitute Products The risk posed by substitute products depends on customers’ willingness to switch, the performance and price of the substitutes, and the switching costs involved. How Information Resources Help: Information resources can help differentiate products and reduce the threat of substitutes. For example, Merrill Lynch created the Cash Management Account, which combines features of several financial products into one. This innovative use of information systems allowed Merrill Lynch to attract new customers and build strong relationships, making it difficult for competitors to offer comparable alternatives without significant investment in similar systems. 5. Industry Competitors Rivalry is intense when it’s hard for companies to leave industry, when growth is slow, or when products are not easily differentiated. In such environments, companies must closely monitor competitors’ actions. For example, when a large bank developed an ATM network, smaller banks pooled their resources to create a competing network, preventing any one bank from gaining a significant advantage. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY Figure 4: Five (5) Competitive Forces Model Porter’s Value Chain Model The value chain model helps companies understand how different activities contribute to creating, delivering, and supporting their products or services. Porter divided these activities into two main categories: primary activities and support activities. Primary Activities: These are directly related to the creation of a product or service. Support Activities: These enable the primary activities to function effectively. Figure 5: Value Chain of the Firm JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY The Interconnectedness of Activities It's important to recognize that each activity in the value chain affects others. For example, improving information systems (IS) for product repairs may allow for more repairs each week, but if spare parts aren’t readily available, customers won’t benefit from the faster repair service. Thus, information resources should be applied in a way that considers the entire value chain rather than focusing on just one part. Achieving Competitive Advantage Competition can arise from two main sources: Lowering Costs: Firms can reduce the costs of their activities to improve profits. Adding Value: Firms can enhance their products or services to justify higher prices. To achieve a true competitive advantage, a company must have accurate information about its competitors. Simply reducing costs does not guarantee an advantage unless the company can lower its costs below those of its competitors, allowing it to offer lower prices and attract more customers. Extending the Value Chain Model The value chain framework can also be expanded to include a larger value system, which connects multiple firm value chains through business relationships. This broader perspective reveals several strategic opportunities to use information resources for competitive advantage. By understanding how information flows within each value chain, firms can discover new ways to create value, potentially leading to industry shakeouts where less efficient companies fail to compete. Customer Relationship Management (CRM) CRM is an important part of applying the value chain model to customer interactions. It involves various activities aimed at building and maintaining relationships with customers. CRM uses technology to gather and analyze customer information, which helps improve customer service and sales processes. For example, the Ritz-Carlton uses a CRM system called Class to remember guest preferences, enabling them to provide personalized service during future visits. Impact on Competitive Forces While the value chain model focuses on activities, it also influences competitive forces. By adding value to suppliers and customers, as well as differentiating from competitors and potential new entrants, companies can create a more advantageous position in the market. Using information resources strategically within the value chain allows firms to lower costs and enhance the value of their products or services. By considering how activities are interconnected and how information flows between them, companies can develop a comprehensive approach to gaining and maintaining a competitive advantage. JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING  LEARNING MODULE SURIGAO DEL NORTE STATE UNIVERSITY References: https://sis.binus.ac.id/2018/02/13/is-strategy-triangle/ https://catalogimages.wiley.com/images/db/pdf/0471346446.ch1.pdf https://catalogimages.wiley.com/images/db/pdf/0471715387.ch2.pdf JHON LLYOD BONIFE ITE 111 – INTRODUCTION TO COMPUTING