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Understanding a Company’s Strategy

A threat is a force, organisation or person, which seeks to gain access to, or compromise, information. A threat can be assessed in terms of the probability of an attack. Vulnerability A weakness of a system or facility holding information that can be exploited to gain access. Asset Value E. g. the impact if information were leaked or disclosed. Business Risk The combination of asset value, threat and vulnerability. Importance of Confidentiality 1 Confidential information (“B2B”) can involve research, design, prototypes and key technologies

2 Privacy (“B2C”) concerns the facts a business holds about an individual. Safe storage, non-transfer to others and responsible usage are required by law. (In any case, a database holding information about customers can also be considered a valuable asset) DPA 1998 – Principle 7 Appropriate technical and organizational measures shall be taken against unauthorized and unlawful processing – Technical and Organizational measures – Encryption – Digital Signatures – Access to personal information Business Continuity Management

According to the Business Continuity Institute ‘a realistic objective is to ensure the survival oy your organisation by establishing a culture that will identify and manage those risks that could cause it to suffer’: Inability to maintain customer services Damage to image,

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reputation or brand Failure to protect the company assets Business control failure Failure to meet legal requirements Every business should therefore develop a comprehensive business continuity plan Involving Outside Experts What is Outsourcing?

1 Outsourcing is the strategic use of outside resources to perform activities traditionally handled by internal staff and resources. 2 Outsourcing is a management strategy by which an organization outsources major, non-core functions to specialized, (efficient) service providers. Strategic Outsourcing Hire external firm to create (and manage) system ? Specialist firm may have more skills May be able to extend your existing resources BUT Choose vendor carefully Prepare contract and payment style carefully Outsourcing Life Cycle Why use Outsourcing? The top two reasons 1. Reduce and control operating costs

2. Improve company focus (i. e. on core competencies or on specialist services) Some related factors driving IS outsourcing 1 Highly qualified IT staff are difficult to find and retain 2 By bringing in outside expertise, management can focus less on IS operations and more on the information itself. 3 Outsourcers are specialists, should understand how to manage IS staff more effectively. 4 Outsourcers may have larger IS resources that provide greater capacity on demand. 5 The Internet and the ‘ASP’ model Some disadvantages of outsourcing 1 Abdication of control 2 High switching costs

3 Lack of technological innovation 4 Loss of ownership Further considerations To get a balanced view: 1 Don’t focus solely on price 2 Carefully analyse and negotiate the service levels to be provided by the various suppliers 3 Evaluate the possible disadvantages to the organisation and the hidden costs (such as those on the previous slide) 4 Determine if outsourcing relationship produces a net benefit for your company BIS3000 Lecture Four Introduction to Strategy The Information Systems Strategy Triangle Business Strategy Porter’s Competitive Advantage Strategies 1 Cost leadership: be the cheapest

2 Differentiation: focus on making your product stand out for non-cost reasons 3 Focus: occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation. Strategy (Johnson & Scholes) Strategic management (Johnson & Scholes) Strategic Fit and Stretch (Johnson & Scholes) Strategic management and Position (Johnson & Scholes) Thinking Strategically: The Three Big Strategic Questions 1. Where are we now? 2. Where do we want to go? – Business(es) to be in and market positions to stake out? – Buyer needs and groups to serve? – Outcomes to achieve? 3. How do we get there? What is Strategy?

1 A company’s strategy consists of the set of competitive moves and business approaches that management is employing to run the company 2 Strategy is management’s “game plan” to – Attract and please customers – Stake out a market position – Conduct operations – Compete successfully – Achieve organizational objectives The Five Tasks of Strategic Management Mission Statement and Strategic Visions Example: Mission and Vision Statements Characteristics of the Strategic Management Process 1 Need to do the five tasks never goes away 2 Boundaries among the five tasks are blurry 3 Strategizing is not isolated from other managerial activities

4 The big challenge: To get the best strategy-supportive performance from employees, perfect current strategy, and improve strategy execution Five Forces Model of Competition (Thompson & Strickland) Porter’s Five Forces 1 Industry Competitors: Rivalry is high when it is expensive to leave an industry, the industry’s growth rate is declining, or products have lost differentiation. 2 Threat of New Entrants: can be lowered if there are barriers to entry. Sometimes IS can be used to create barriers to entry. 3 Threat of Substitutes: depends on buyers’ willingness to substitute and the level of switching costs buyer’s face.

4 Bargaining Power of Buyers: can be high if it’s easy to switch. Switching costs are increased by giving buyers things they value in exchange – such as lower costs or useful information. 5 Bargaining Power of Suppliers: forces is strongest when there are few firms to choose from, quality of inputs is crucial or the volume of purchases is insignificant to the supplier. The Five Forces Model and IS 1 The Five Forces Model provides a way to think about how information resources can create competitive advantage. 2 Using Porter’s Model, General Managers can: – Identify key sources of competition they face

– Identify uses of information resources to enhance their competitive position against competitive threats – Consider likely changes in competitive threats over time Considerations 1 How well is the present strategy working? 2 SWOT analysis Resource Strengths, Weaknesses, Opportunities and Threats 3 Strategic cost analysis and value chains 4 Assess the competitive position 5 Identify strategic issues What are the firm’s SWOT? S W O T represents the first letter in – S trengths – W eaknesses – O pportunities – T hreats For a company’s strategy to be well-conceived, it must be matched to both – Resource strengths and weaknesses

– Best market opportunities and external threats to its well-being Role of SWOT Analysis in Crafting a Better Strategy Developing a clear understanding of a company’s – Resource strengths – Resource weaknesses – Best opportunities – External threats Drawing conclusions about how – Company’s strategy can be matched to both its resource capabilities and market opportunities – Urgent it is for company to correct resource weaknesses and guard against external threats Core Competencies 1 Expertise in building networks and systems 2 Speeding new/next-generation products to market 3 Better after-sale service capability

4 Skills in manufacturing a high quality product 5 Innovativeness in developing product features 6 Speed/agility in responding to new market trends 7 System to fill customer orders accurately and swiftly 8 Expertise in integrating multiple technologies to create families of new products Distinctive Competencies 1 A company competence is the product of organizational learning and experience and represents real proficiency in performing an internal activity 2 A core competence is a well-performed internal activity that is central (not peripheral or incidental) to a company’s competitiveness and profitability

3 A distinctive competence is a competitively valuable activity that a company performs better than its rivals Strategic Management Principle Company Value Chain ? A company consists of all the activities and functions it performs in trying to deliver value to its customers. ? A company’s value chain shows the linked set of activities, functions, and business processes that it performs in the course of designing, producing, marketing, delivering, and supporting its product / service and thereby creating value for its customers. ? A company’s value chain consists of two types of activities

Primary activities (where most of the value for customers is created) ? Support activities that are undertaken to aid the individuals ands groups engaged in doing the primary activities Porter’s Value Chain Model 1 Porter’s Value Chain Model looks at increasing competitive advantage by reorganizing the activities related to create, support and deliver a firm’s product or service. 2 These activities can be divided into two broad categories: – Primary activities that relate directly to how value is created for a product or service.

– Support activities that make the primary activities possible and that manage the coordinate of different activities. Value Chain of the Firm Importance of Value Chain Analysis? 1 A company’s cost competitiveness depends on how well it manages its value chain relative to how well competitors manage their value chains 2 When a company’s costs are “out-of-line”, the “high- cost” activities can exist in any of three areas in the industry value chain 2. 1. Suppliers’ activities 2. 2. The companies’ own internal activities.

Forward channel activities (e. g. distributors) Gaining Competitive Value 1 The Value Chain model suggest that competition can come from two sources: – Lowering the cost to perform an activity and – Adding value to a product or service so buyers will be willing to pay more. 2 Lowering costs only achieves competitive advantage if the firm possesses information on the competitor’s costs 3 Adding value is a strategic advantage if a firm possesses accurate information regarding its customer such as: which products are valued? Where can improvements be made?

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