Policy and Strategic Information Systems

B107 Principles of Information Systems

TOPIC 9

POLICY AND STRATEGIC INFORMATION SYSTEMS

Objectives:

To define vision, mission, strategy and policy
To explain the strategic grid framework
To define what strategic information systems are
To explain Porter’s competitive forces model
To describe the value chain and explain how it can be used for identifying IT opportunities

Reading:

Ahituv et al (1994) Chpt 7
O’Brien (1996) Management Information Systems Chpt 11

Introduction

This topic covers 2 main areas:

Information systems policy:

the strategy for IS use within an organisation

IS strategy within overall organisational strategy.

Strategic information systems (SIS):

IS for strategy formulation/maintenance

and/or

IS that have a large (strategic) impact - SIS can be TPS, MIS, DSS etc – an IS becomes strategic not because of who uses it but because of how it is used to give the organisation a competitive advantage.

IS Policy Components

1. Vision: An inspirational image of future direction ….. simple, broad, linking dreams to action, leading to a mission.

“Microsoft's early vision of a computer on every desk and in every home is coupled today with a strong commitment to Internet-related technologies that expand the power and reach of the PC and its users.”

“Microsoft's long-term vision of the personal computer as a tool to empower people and organizations to do great things drives its development efforts as the next era of personal computing and communications technology approaches.”

2. Mission – a vision leads to a mission.

A mission statement describes what the company/IS dept is or intends to be, and its distinguishing features.

A mission statement should exist for an organisation, and for the IS function. The IS mission will support the organisational mission.

“Since its inception in 1975, Microsoft Corp.'s mission has been to create software for the personal computer that empowers and enriches people in the workplace, at school and at home.”

See the web site below for some humorous examples of mission statements:

3. Strategy – the approaches and actions to be taken to achieve mission

Originally a military term, now endemic in the commercial world.

Originally “planning the conquest of enemies by deploying resources”.

Specific and coherent directional statements defining IS in relation to its environment and directing resource allocation, in line with the mission.

See the following for examples of strategic plans:

1. Organisational strategic plan:

2. IT strategic plan:

Example – Defence Information Systems

VISION
The seamless delivery of information that enhances Australia's Defence capabilities.

MISSION
To provide a secure and cost effective information management environment and associated infrastructure and systems that connect the right people with the right information at the right time to capabilities to enable the achievement of the Defence Mission.

STRATEGIES
This is aimed to be achieved through strategies focussing on:

connectivity and security of networks;

interoperability using a common operating environment for applications and desktop support; and

the blending of operational and administrative systems within a single enterprise information management framework that connect the right people with the right information at the right time.

4. Policies - guidelines detailing how strategy is to be implemented.

Policies are needed to define priorities and direct IS decisions to ensure they are consistent with strategy.

Areas where IS policy is needed include:

Hardware e.g. standardisation, sourcing decisions,
Software e.g. standards, languages, supported packages
Staffing e.g. training, recruitment
Application development e.g. methodology, prioritisation, documentation
Finance & accounting – funding levels for IS, charge out?

Read example ‘Formulating a Microcomputer Policy’ p208 Ahitiv

Together, vision, mission, strategy and policy provide a framework indicating where the IS department is going and how it is going to get there

Formulating policy

There are many conceptual frameworks which can help formulate IS policy.

One of the most widely used is the Strategic Grid (McFarlan & McKenny) - See Ahituv Fig 7.1

Grid can be used to analyse an organisation, (as described in text) or to analyse the IS applications portfolio of a company:

Strategic – applications that are critical to sustaining future business strategy

Factory – dependent upon IT for day to day functions, but no competitive advantage

Support – not highly dependent, valuable, but not critical to success

Turnaround – new applications under development which will have a strategic role

TheStrategic Grid ctd.

The organisation, (and in larger companies, each strategic business unit (SBU)) needs to decide which category of IT needs it has, so that it can adopt IS strategies that fit it (see Ahituv Table 7.2).

General management and IS management need to agree.

Increasingly, more organisations are falling into the strategic box.

How responses to IS issues may differ depending on placement in strategic Grid (Table 7.2 Ahituv)

IS Issues / Support / Strategic
CIO reports to / Functional manager / CEO
IS planning / Technical / Strategic
IS mission / Control / Technological innovation
Investment in IT / Conservative / Aggressive
Skills of CIO / Technical / Business management
Focus of IT / Efficiency (productivity) / Effectiveness (competitive advantage)
Organisational location of IT / Low / High
IS management style / Control / Influence
User involvement / Low / High

Strategic IS

Defined as any IS which supports the organisation’s competitive strategy.

The fastest growth area for IS as IT is moving from a support role to a strategic role.

The emphasis has moved from using IT to cut costs, to using IT to develop new products, create links with customers and suppliers, with an increasing focus on systems that reach beyond the company boundaries.

IT impacts on an organisation at 3 levels:

Industry level
Firm level
Strategy level

Many industry sectors have been totally transformed by the use of IT.

Question

What significant changes have occurred from the introduction of IT in the following sectors?

Banking

Air travel

Publishing and Book Retail

Example

Ahituv (p212) gives the following example of types of IS that relate to inventory processing:

TPS – records inventory transactions and updates inventory master file

MIS – manages and controls inventory

DSS – supports managers in determining inventory policy

SIS – processes customers’ inventories and links them to the firm’ s order entry system

Why is the 4th example classified as a SIS?

How else could you classify the SIS?

Effect of IT at firm level

The impact of IT at the individual firm level is determined by the competitive forces the firm faces. Porters model of competitive forces models these (Ahituv Fig 7.2).

This model revolutionised business theory by focusing not on getting the internal workings of the firm right, but on the competitive forces a firm has to deal with in its environment.

IT can assist in dealing with all of these forces:

1. Suppliers

Increase the number and mix of suppliers (e.g., by accessing commercial data bases that provide information on suppliers).

Reduce the bargaining power of suppliers by insisting on IT-based linkages (e.g., just-in-time inventories).

2. Buyers

Reduce the bargaining power of buyers by increasing the costs of switching to other suppliers (e.g., by installing terminals at the buyer's site).

Increase the number of buyers (e.g., by using electronic markets).

3. New Entrants

Create barriers to entry (e.g., mandatory heavy investments in hardware and software)

Be the first to offer a new product or service.

Control or own vital data bases.

4. Substitutes

Enrich your product with information-based services.

Speed up the life cycle of products (e.g., by using CAD/CAM technology).

5. Intra-industry Rivals

Join forces with rivals (e.g., ATM networks)

Introduce new information-intensive products

Generic Business Strategies

Porter suggests 3 generic strategies organisations can adopt:

Overall cost leadership
Differentiation of products/services -distinguishing your firm's products/services from competitors
Focus - differentiation or low cost in a narrow segment (niche)

Other widely suggested strategies:

Innovation - introducing a product or process change that results in a fundamental transformation in the way business is conducted

Growth - achieve advantage by volume or geographical expansion, backward or forward integration, product-line diversification

Alliance - achieve advantage by forging marketing agreements, forming joint ventures

Value chain analysis

The value chain (also developed by Porter) is a framework that can be used to analyse the activities of a firm. It can be used to identify ways to cut costs or enhance the value of products.

The value chain consists of:

Primary activities - those that transform raw materials into dispatched product – ie inbound logistics, operations, outbound logistics, marketing and sales, after sales service.
Support activities – those that provide the organisational infrastructure - ie corporate infrastructure, human resources management, R&D, procurement.

Each activity adds value, at a cost. If the total cost of added values is less than the customer pays then there is a profit

Value chain analysis can be used to identify and target points in the chain where costs can be reduced or value can be added, and for the IT department, where IT can be used to do this. (Ahituv Fig 7.3)

The activities in the chain are interdependent, and analysis should also look at the links in the chain e.g. communications from customer support can be fed back into production or marketing.

To fully understand the organisation’s environment, we also need to look at our company in relation to the chains of others, as a value system (fig 7.4)

Value chain analysis is often used in conjunction with CSF (Critical Success Factors) analysis to determine the critical activities in the system.

Risks with SIS

SIS are often large, complex and use cutting edge technology, all factors which imply high project risk.

Other risk factors include:

Continued investment for sustainability
By making IS the major vehicle for producing or delivering its product, a company may risk opening its primary line of business to competitors who have underutilized IS resources.
SIS may trigger monopoly litigation.
Investments in SIS may simply not pay off competitively.
Companies developing and implementing SIS may give their customers or suppliers the IT know-how to get along without them in the long run.
By increasing the strategic importance of IT, companies may increase the relative strength of suppliers of hardware and software, thus establishing a very powerful supplier.
Companies may divert resources and management attention away from their main line of business.
The SIS may fail to meet real customer's needs (conceptualization failure).
Information about a new SIS is prematurely leaked to a competitor.
The SIS may be too easy, or require low investment by a competitor, to replicate. Historically, successful innovations are always copied.
Sometimes a SIS may be pushed too fast, before the requisite organisational changes are made.
The SIS may lower entry barriers of potential new entrants to the industry (e.g., it educates customers to other alternatives of doing business).
A firm may join an inadequate SIS alliance that dissolves after a short life.

Guidelines for SIS

Evaluate the impact of SIS at the firm and industry level before a decision is made to proceed.
Reduce the risk of being bypassed by continually adopting and adding features to meet additional or changing customers' needs (let the competitors play catch-up).
Carefully consider the resources and capabilities of current and potential competitors.
Promote technical partnership between general management, user management, and skilled IS professionals in SIS projects.
Verify commitment and support of top management.
Verify that the organization's culture provides for willingness to entertain innovative ideas.
Build on internal IT knowledge and IS capabilities and systems.

B107 Principles of Information Systems1