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ISM 4330 - Lecture 01

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ISM 4330 - Lecture 01 Powered By Docstoc
					       Importance Of This Class

 Top trends (concerns) of CIOs:
  1.   Cost management
  2.   “Single-customer” view
  3.   Privacy & data security
  4.   E-enabled business (and government)
  5.   Shortage of skilled workers
  6.   Shortage of knowledge capital (IP)
                            Source: Gartner Research (2002)

                                                              1
       Importance Of This Class

 Top trends (concerns) of CIOs:
  1.   Cost management
  2.   “Single-customer” view
  3.   Privacy & data security
  4.   E-enabled business (and government)
  5.   Shortage of skilled workers
  6.   Shortage of knowledge capital (IP)
                            Source: Gartner Research (2002)

                                                              2
       Importance Of This Class

 Top priorities of CIOs:
  1.   “IS-to-business” linkage
  2.   Demonstrating business value
  3.   Reducing total IT costs
  4.   Program/project priorities
  5.   Security & privacy
  6.   IT architectures
                             Source: Gartner Research (2002)

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       Importance Of This Class

 Top technology issues of CIOs:
  1.   Security enhancement
  2.   Web design & content
  3.   Application integration




                                 Source: Gartner Research (2002)

                                                                   4
      Gartner Research (2002)

 Their fundamental research question:

    “How will IT fit into the strategy of
     tomorrow’s successful company?”




                                            5
          Gartner’s Predictions

1. By 2004, the use of IT will shift from
   business necessity to business
   differentiation … and its focus will
   shift from internal efficiency to
   external business agility!


    (Estimated probability of occurring = 80%)

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          Gartner’s Predictions

2. Through 2006, “best-in-class” IS
   organizations will successfully connect
   the preparation, motivation, and
   performance of their workforce to the
   delivery of tangible business value!


    (Estimated probability of occurring = 80%)

                                                 7
          Gartner’s Predictions

3. By 2005, the competencies needed for
   one-third (1/3) of IS job roles will have
   changed completely!




    (Estimated probability of occurring = 70%)

                                                 8
         Gartner’s Predictions

4. Through 2005, the credibility of IS
   organizations will depend as much on
   business savvy and relationships as
   on technical competencies!



   (Estimated probability of occurring = 80%)

                                                9
       What Does This Mean For
                ME?
 Gartner’s predictions suggest:
     You will inevitably be evaluated on how well
      your business competency complements
      your technical skills!
     Graduates of business schools with a strong
      foundation in BOTH technology and
      business strategy have an advantage!


                                                 10
            The Conclusion?

 This class can be EXTREMELY
  important to your future … and I will
  help you to put together the business
  and technical skills that will help you to
  be successful.

 Now, on to the course syllabus …

                                               11
          What Is Strategy?

 Strategy answers the question:

  Why do some organizations succeed …
  and why do other organizations fail?




                                         12
          Strategy, Defined …

 The classic definition:

  “Strategy is the determination of the long-
    term goals and objectives of an enterprise,
    and the adoption of courses of action and
    allocation of resources necessary for
    carrying out those goals.”

                                Alfred Chandler (1962)

                                                         13
        What Does Strategy Do?

 It helps determine:
     Which business(es) a firm is in
     Which business(es) a firm should be in
     The kind of company the firm is to be




                                   Andrews (1971)

                                                    14
      Here’s Another Definition …

 Strategy is the result of:
     A balanced consideration of a particular
      firm’s skills and resources
     The opportunities extant in the economic
      environment
     The personal desires of management,
      presumably tempered by its sense of social
      responsibility
                                   Rumelt (1972)

                                                   15
         A More Modern View …

 Strategy is:
     A unifying theme that gives coherence and
      direction to the actions and decisions of an
      organization




                                     Grant (1998)

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       One More Modern View …

 Strategy is:
     A pattern of decisions and actions that
      managers take to achieve an organization’s
      goals




                                  Hill & Jones (1998)

                                                        17
              Creating Strategy

 Strategy as “design”:
     Planning & rational choices
        INTENDED strategy
 Strategy as “process”:
     Responses of Decision-makers to forces
        EMERGENT strategy
 Either will lead to REALIZED strategy

                                               18
          Michael Porter (1996)

 Porter argues: “Corporate strategy is
  about being different.”
     Choosing a different set of activities to
      deliver a unique mix of value
     Compare to: “Operational Effectiveness,”
      which is based upon performing similar
      activities better than your rivals


                                                  19
          Michael Porter (1996)

 Porter asks (rhetorically): “What are the
  possible sources for success?”
     Superior resources or capabilities
      (Operational Effectiveness)
     Luck
     Strategy



                                              20
            Michael Porter (1996)

 Porter continues: “For most firms, the
  overriding goal is superior performance.”
     Therefore, strategy is the preferred way to
      achieve superior organizational performance
     BUT … for a strategy to be successful, it
      must be consistent (“fit”) within the firm’s
      internal and external environment
         Environments: Firm, industry, macroenvironment

                                                       21
            Michael Porter (1996)

 Porter defines an industry as: “A group
  of firms offering products/services that
  are close substitutes for each other.”
     Industry Attractiveness (corporate strategy)
         “Which industries should we be in?”
     Competitive Advantage (business strategy)
         “How should we compete?”


                                                     22
Porter’s “Five Forces” Model




                           23
                              Rivalry

 Direct rivalry among competitors
     Structure of competition
         A few equal competitors (or lots of small firms)  rivalry
     Structure of costs
         High fixed costs  capacity utilization  volume-based
          competition  price becomes main weapon  rivalry 
     Extent of differentiation
         Homogenous goods (~ commodities)  rivalry



                                                                       24
                               Rivalry

 Direct rivalry among competitors:
     Customer’s “switching costs”
         “Costs” incurred by a buyer that “bind” them to a supplier
         LOW switching costs  rivalry
     Diversity of strategies & objectives
         Divergent cost structures or objectives will  rivalry
     Exit barriers
         Conditions that “trap” firms in an industry will  rivalry



                                                                       25
                     Entry Barriers

 Combating threats from new
  entrants:
     “Factor cost advantages”
         These are the advantages that incumbents have
           Preferred access to raw materials
           Lower labor or capital costs
           Favorable channels of distribution
           Proprietary technologies



                                                      26
                 Entry Barriers

 Sources of entry barriers:
     Capital requirements
     Economies of scale (technical & financial)
     Absolute cost advantages (e.g. - patents)
     Product differentiation
     Sunk costs (not recovered upon exit)



                                                   27
                 Entry Barriers

 Sources of entry barriers:
     Research & development intensity
     Vertical integration (raises risks, though)
     Switching costs (consumer commitment)
     Government entry restrictions




                                                    28
                Entry Barriers

 Strategic sources of entry barriers:
     Preemptive & retaliatory actions by
      incumbents
     Excess capacity
     Selling expenses (including advertising)
     Market segmentation (makes broad entry
      more difficult)
     Information asymmetries (customer data)

                                                 29
                   Substitution

 Threat of substitution:
     Brand loyalty & perceived value are
      influenced by the availability of an
      acceptable substitute capable of performing
      the same function
       Fiberglass insulation (rolled sheets vs. blown)
       High-fructose corn syrup, beet sugar, cane sugar




                                                       30
              Customer Power

 This threat exists as a function of:
     Customer bargaining leverage
       Few customers who make LARGE purchases
       Low switching costs

       Threat of backwards integration

       Customers know suppliers costs




                                                 31
               Customer Power

 This threat exists as a function of:
     Price sensitivity, which is greatest when:
       Product has little influence on the performance of
        the final product
       Product is a significant proportion of the
        customer’s total costs
       Customer profits are low




                                                        32
                Supplier Power

 This threat exists as a function of:
     Supplier’s size relative to customer’s size
     Customer’s ability to acquire equivalent
      products elsewhere
     Threat of forward integration
       Full integration
       Tapered integration




                                                    33
          Additional Threats

 Government regulation
 Technological innovations
 Volatility of the market demand
 Global changes (e.g. - exchange rates)




                                           34
        Which of the 5 Forces

 You just came up with a revolutionary
  new bottle opener. It is predicted that
  one in every 5 households will own one
  over the next five years. It is really
  cheap to make, too. Unfortunately it is
  impossible to patent and it is really easy
  to reverse engineer.
 Potential Entrants

                                               35
“On to Chapter
      1”




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