Information Technology Policy and Strategy Lecturer/Convenor: Richard Boateng, PhD. Email: richard@pearlrichards.org Office: UGBS RT18 (rooftop) The Concept of Strategy Research Methods Dr Richard Boateng [richard@pearlrichards.org] 1
Class Website www.vivaafrica.info 2
Objectives of the Session to ensure that students understand the business model and strategy; and to enable students to analyze the three components of a business model strategy, capabilities, and value through a business model audit 3
Course Readings - Recommended 1. Applegate, L.M., R.D. Austin and F.W. McFarlan (2010) Corporate Information Strategy and Management:Text and Cases (8th ed). New York: Irwin/McGraw Hill, 2010. 2. Bower, J. & Gilbert, C. (2007). How managers everyday decisions create or destroy your company s strategy. Harvard Business Review. 3. Broadbent, M. and Kitzis, E., (2004). The New CIO Leader: Setting the Agenda and Delivering Results, Harvard Business School Press. 4. Other relevant readings on IS Policy which will be made available in class. 4
Assessment Group Assignments 15 % Individual Assignments 15% 5
Business Model: Framework and Definition A business model defines how an organization 1. interacts with its environment to define a unique strategy, 2. attract the resources and build the capabilities required to 3. execute the strategy, and create value for all stakeholders. 6
Analyzing Strategy Strategy is a series of choices that determine the opportunities you pursue and the market potential of those opportunities. Applegate et al. (2009) Competitive Strategy is about being different. It is about deliberately choosing a different position and set of activities that enable you to deliver unique value. Porter (1996) Porter, M. (1996) What is strategy? Harvard Business Review, November-December, p. 64 7
Strategic Choices or Positions Define revenue drivers for a firm and its potential for growth over time. Applegate et al. (2009) Strategy is not just about now but also about the future. Sustaining value is more critical. 1. Market Positioning determines the choice of customers to serve, the needs an expectations that will be met, the channels that will be used to reach the customers. 2. Product Positioning determines the choice of products and services to offer, the features of those offerings and the price that will be charged. 8
Strategic Choices or Positions Define revenue drivers for a firm and its potential for growth over time. Applegate et al. (2009) Strategy is not just about now but also about the future. Sustaining value is more critical. 3. Business Network Positioning determines the role an organization plays and the activities it performs within an extended network of suppliers, producers, distributors and partners. 4. Boundary Positioning determines markets, products and businesses that will NOT be pursued. 9
Strategic Choices or Positions Define revenue drivers for a firm and its potential for growth over time. Applegate et al. (2009) Strategy is not just about now but also about the future. Sustaining value is more critical. Sustainable Advantage occurs when barriers exist that make it difficult for competitors to imitate or substitute a firm s actions (including products and services) or for customers to switch. Not that imperfect imitation or substitution may still affect sustainable advantage. 10
Business Model Audit Strategy 1. Business context 2. Competitors and substitutes 3. Business network Capabilities 1. Processes and Infrastructure 2. Evaluate people and partners 3. Organization and culture 4. Leadership and governance Value 1. Internal and External Stakeholders 2. Business model drivers and alignment 3. Financial model and determine financing needs 11
Business Model Strategy Audit To effectively position a firm, a business model strategy audit becomes necessary. Analyze Business Context What businesses are we in? 1. Examine industry and competitive dynamics and consider relevant demographic, economic, political, regulatory, and societal factors that could influence or influences the business. 2. Identify key trends which either positively or negatively impact the industry and disruptors/game changers = opportunity or threat 3. Identify opportunities to be pursued and those which will NOT be pursued and associated risks. 12
Business Model Strategy Audit To effectively position a firm, a business model strategy audit becomes necessary. Analyze Customers What customers are we serving? 1. Identify key problems of customers and how does your products and services address them. Market research, internal customer information and be the customer experience the customer s frustration. 2. Segmentation of customer may be necessary demographics, geographic, psychographics and behavior. IT may play a key role to achieve learn about the customers. 13
Business Model Strategy Audit To effectively position a firm, a business model strategy audit becomes necessary. Analyze Competitors and Substitutes What alternatives are in the market or in development? 1. What makes your competitors products and services different from your product and services? 2. Do the differences matter? Are the customers willing to pay for the differences? What can customers afford? 3. Do competitors posses any specific resources which are unique, proprietary and unsubstitutable? 4. Barriers of entry low or high? IT may play a key role to achieve learn about the competitors. 14
Business Model Strategy Audit To effectively position a firm, a business model strategy audit becomes necessary. Analyze Business Network What is the value of the firm in its industry value chain? 1. Identify and understand the role an organization plays and the activities it performs within an extended network of suppliers, producers, distributors and partners. 2. What are the relationships between the various players? 3. Who controls key resources and capabilities in the industry and how powerful or influential are these players? IT may play a key role to achieve learn about the competitors. 15
Analyzing Capabilities Resources are Assets and Capabilities for detecting and responding to market opportunities and threats. (Wade and Hulland, 2004) Assets are considered as anything tangible or intangible which a firm uses in its processes for creating, producing, and/or offering its products (goods or services) to a market. Capabilities are repeatable patterns of actions in the use of assets to create, produce, and/or offer products to a market. (Sanchez et al., 1996 in Wade and Hulland, 2004) Sanchez, R., Heene, A. and Thomas, H. (1996) Introduction: Towards the Theory and Practice of Competence-Based Competition, Oxford: Pergamon Press. Wade, M. and Hulland, J. (2004) Review: The Resource-Based View and Information Systems Research: Review, Extension and Suggestions for Future Research, MIS Quarterly, Volume 28, Number 1, pp. 107-142. 16
Analyzing Capabilities To effectively position a firm, a business model capability audit becomes necessary. Analyze Processes and Infrastructure 1. Identify and understand the core processes required to produce products, deliver services, acquire and serve customers, manage relationships with key stakeholders and innovate products and services continuously. 2. Identify support processes which enable all core processes (including human resource, finance, accounts et cetera). 3. What is the role of IT in executing all these core processes? 17
Analyzing Capabilities To effectively position a firm, a business model capability audit becomes necessary. Analyze People and Partners 1. Does the company have the expertise to carry out required activities and processes? 2. Does the company have reputation to attract and retain top talent? Is it losing employees to competitors? 3. Is there an comprehensive HR policy in place to govern recruiting, compensation, performance evaluation and training and development? IT may play a key role to manage knowledge in the organization. 18
Analyzing Capabilities To effectively position a firm, a business model capability audit becomes necessary. Assess Organization and Culture 1. Does the organization design conflict in the conduct of processes and activities? 2. Does a system of accountability and decision-making authority exist? 3. Does an informal culture support or hinder individuals and groups a they attempt to fulfill their responsibilities? 4. Do shared vision enable cooperation between employees and partners of the firm? 19
Analyzing Capabilities To effectively position a firm, a business model capability audit becomes necessary. Evaluate Leadership and Governance 1. Does the company have governance systems and structures to balance creativity and vision needed to set goals and prioritize investments with the discipline to execute and deliver results. Governance systems include strategic controls (defining strategy and goals); operational controls (short-term objectives); risk management and development of shared values and culture. 2. Do leaders at all levels balance creativity and innovation and execution.? 20
Analyzing Value Value delivered to all stakeholders Intangible or tangible expectation/substance for which a firm may trade or exchange another resource To effectively position a firm, a business model value audit becomes necessary. Identify Internal and External Stakeholders 1. Who are the firms internal and external stakeholder and what are their interests and expectation? 2. Are these stakeholders will to pay? Can the firm attract and retain them motivate them to spend? 21
Analyzing Value To effectively position a firm, a business model value audit becomes necessary. Identify Business Model Drivers and Alignment 1. What are the key strengths, weaknesses, opportunities or threats identified in the whole audit process? 2. Does IT enable each of the drivers of economic value? Develop a financial model and determine financing needs 1. What assumptions have been made concerning drivers of revenue, costs and asset efficiency? 2. Determine the Return on Equity (ROE) for profit firms. 22
Analyzing Business Model Linkages 23
Using the DuPont Formula to Deconstruct ROE Profit Margin is a measure of the company s success at turning revenues into profits. For every dollar of revenue how much of that dollar goes to net income (profit). Net Income = Revenue - Expenses 24
Using the DuPont Formula to Deconstruct ROE Asset Efficiency measures of the efficiency with which an organization utilizes its assets by answering the question: How many dollars of revenue do we generate for each dollar of assets on our products? Intangible assets are often not quantified. 25
Using the DuPont Formula to Deconstruct ROE Leverage measures of the percentage of a company s assets that would be available to shareholders if the company was sold after subtracting how much of the assets would be needed to pay off creditors. For every dollar of value created, how much goes to increasing shareholder value? 26
Business Model Audit Strategy 1. Business context 2. Competitors and substitutes 3. Business network Capabilities 1. Processes and Infrastructure 2. Evaluate people and partners 3. Organization and culture 4. Leadership and governance Value 1. Internal and External Stakeholders 2. Business model drivers and alignment 3. Financial model and determine financing needs 27
Evolving Business Models Enhance: Incremental improvements to existing business models Expand: Launch new product categories, enter markets, or expand capabilities, Explore: Launch new businesses and build new capabilities Exit: Exist a product or market or outsource a capability. 28
Assignment 1. Read the Discussion Note on Strategic Information Systems Planning 2. Download and read four academic articles on SISP. 3. Develop a powerpoint presentation on how to conduct SISP outlining the steps required. 4. Powerpoint presentation should be less than 20 slides. 29