Summary

Strategic Planning for Information Systems John Ward and Joe Peppard Wiley, 2002, 3rd edition ISBN: 0470841478, 624 pages

Theme of the book

This book is concerned with information systems and information technology, and the prioritisation of both areas on the management agenda, so that a cohesive strategy can be formulated to add value and improve business performance. The book presents a tool kit of techniques with which to identify and analyse the business and its environment, and then appropriately devise strategies. It takes the reader through the entire process of developing an IS/IT strategy, including all the elements that need to be considered in an organisational context.

Strategic Planning for Information Systems

Key learning points

“…the conventional view that business strategy drives IS strategy, which in turn drives IT strategy is not sufficient for the expanding role of IS/IT…If IS/IT is to make a genuine contribution to business strategy, a different model and logic is required that allows the capabilities of IS/IT to be an intrinsic component of strategy rather than one of its consequences.” IS/IT strategy must be understood in terms of the organisation’s business strategy and its internal and external environment. If IS/IT strategy is not making a contribution to business value, it may be because there is no alignment between business strategy and IS/IT strategy. This must be urgently addressed. An objective of IS/IT is developing a value added portfolio of applications that have a strategic impact on the organisation to increase performance. This is achieved by aligning IS/IT demand to business strategy, and exploring opportunities for IS/IT to shape business strategy. “It is obviously important to devise appropriate business-driven IS strategies and then appropriate IT-supply strategies. But having a strategy is not going to lead to business success! Implementing and then updating that strategy as the business progresses is how success will occur.” Following strategy implementation there must be a process of review; to identify what has been achieved compared against what needed to be achieved. Processes need to be put in place so that if mistakes have been made they are not repeated in the future.

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Strategic Planning for Information Systems

Contents of the book 1. The

evolving

role

of

information

systems

and

technology

in

organisations: A strategic perspective 2. An overview of business strategy concepts and the IS/IT strategy implications 3. Developing an IS/IT strategy: Establishing effective processes 4. IS/IT strategic analysis: Assessing and understanding the current situation 5. IS/IT strategic analysis: Determining the future potential 6. Determining the business information systems strategy 7. Managing the applications portfolio 8. Strategic management of IS/IT: Organising and resourcing 9. Managing investments in information systems and technology 10. Strategies for information management: Towards knowledge 11. Managing the supply of IT services, applications and infrastructure 12. Strategic planning for information systems: Quo vadis?

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The strategic role of information systems and information technology

The authors begin by explaining that every organisation is fundamentally dependent on its information systems (IS) or the application of its information technology (IT). Over the years this dependency has increased in light of e-commerce and globalisation. Although IS and IT can be used simply to maintain business operations, significantly they can also be a source of competitive advantage. Although many people use the terms IS/IT interchangeably there are important differences between them: •

IS existed before IT, it is the means by which people and organisations gather, process, store, use and disseminate information. It can be understood in terms of language and communication.

•

IT is the actual technology, for example the hardware or software. It facilitates the gathering, processing, storing, delivery and sharing of information.

“…the conventional view that business strategy drives IS strategy, which in turn drives IT strategy is not sufficient for the expanding role of IS/IT…If IS/IT is to make a genuine contribution to business strategy, a different model and logic is required that allows the capabilities of IS/IT to be an intrinsic component of strategy rather than one of its consequences”

Hence although in the past organisations may have dealt with IS/IT in a tactical short-term manner, managers must understand that many advantages can stem from developing a future-orientated strategic approach to IS/IT. If managers apply a different attitude to IS/IT by viewing it strategically, they can uncover opportunities and develop a real competitive advantage for the firm that cannot be easily replicated by competitors through simply purchasing the same technology. How can managers use IS/IT strategically? •

Usually IS/IT is internally focused to address the organisations processes and issues. Instead look externally to the customers, competitors, markets, and suppliers

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•

Share information via technologically based systems with customers and suppliers. For example suppliers can use external linkage systems to monitor sales and purchasing, or customers can track the progress of their packages

Integrate information held throughout the organisation. Value can b •

e added by aligning all the knowledge held on a customer or competitor in a system.

•

Develop, produce and market new or improved products and services based on information. For example internet banking, or adding value to a tangible product, such as on-line support.

•

Provide managers with quality and timely information about markets, customers, technology, competitors etc. to support the development and implementation of strategy.

•

Focus on the value added that can be generated from IS/IT, rather than viewing it as a mechanism to reduce overheads.

•

Share benefits gained from systems throughout the organisation, and even with customers and suppliers. This can be a strong advantage over competition as they cannot re-create the relationships which the information has allowed to be built.

•

Understand what the customer wants and what value means to them, to match products and services to the requirements of the marketplace.

•

Pursue business driven innovation, not technology driven. Do not simply follow the most innovative technology, because there may not be a market for it. Ensure that customers will buy it and that it fits with the purpose of the organisation.

•

Use information gained on customers to build the business, for example knowledge of purchasing patterns can be used to develop targeted special offers.

What is an IS/IT strategy?

An IS/IT strategy is one that makes a contribution to business value. To do this there needs to be an alignment between the business strategy and IS/IT strategy. The IS/IT managers must understand the external environment (competition, customers, suppliers), and the affect this has on the organisation. Developing a knowledge of the business is essential as otherwise it will only be viewed from an IS/IT perspective, and this will limit the implications of any strategy from being determined. Business strategies should be shaped on this information, while also being driven by information from IS/IT. In tandem the IS/IT strategy needs to develop from business strategy. From there the managers must evaluate what

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information, systems and technology are needed to enable delivery of the strategies. The authors explain IS/IT strategy as:

“IS strategy deals with what to do with information, systems and technology and how to manage the applications from a business point of view”

It is therefore concerned with aligning information and systems to support business needs, and identifying and exploiting competitive opportunities for IS/IT. It is based in the strategy of the business and considers the competitive impact of IS/IT, by identifying the investments needed to accomplish the organisation’s objectives, exploring what benefits will be produced, and if any changes have to occur to make it fit current systems.

“IT strategy designates how technology is to be applied in delivering information and how the technology resources are managed to meet the range of business needs”

This is how the organisation’s demand for information and systems is supported by technology. It is understood by the provision of IT capabilities, resources and services. The consequences of not having a IS/IT strategy may include: •

Making investments that do not support business objectives

•

Having no integration, resulting in a duplication of effort

•

Poor information management, which is inconsistent and/or slow

•

Mis-understanding of purpose across users and IS/IT specialists

•

Ad-hoc redevelopment of systems that do not fulfil their original purpose

•

Potential business advantage from IS/IT are not identified and exploited

•

Strategies that are subject to business risk

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Using strategy concepts for IS/IT strategy formulation

Before developing an IS/IT strategy, managers should gain an understanding of the internal and external environment. The importance of IS/IT in business terms and the opportunities that exist need to be assessed. Managers must understand the potential of IS/IT from a business perspective and align investments in IS/IT with the objectives of the organisation. This analysis and the associated tools that follow should be performed by both IS/IT managers and business managers to ensure that a thorough understanding of the business is used. The model (below) gives an overview of the IS/IT strategy formulation process. From analysing the internal and external environment, to the development of the different strategies, and the creation of an applications portfolio. This is a useful model because it captures all the elements of building the IS/IT strategies and reminds managers of what needs to be considered when constructing a strategy. The model shows all the elements that impact on the creation of the IS/IT strategy process. The strategies would describe policy, deployment and responsibility etc. and how the information will be developed or managed. The current application portfolio feeds back to the internal environment.

External business environment

External IS/IT environment

Internal IS/IT environment

Internal business environment

IS/IT STRATEGY PROCESS

Business IS strategies

IS/IT management strategies

Current application portfolio

IT strategies

Future application portfolio

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One way of understanding the environment is by performing a situational analysis

to

understand

its

current

situation,

strengths,

weaknesses,

opportunities and threats. From an external perspective identify, analyse or consider: • What market segments the organisation operates in and if there are options to increase the market shares held • Are the organisation's products new, mature or declining • The current and potential competitors, to understand their strengths and weaknesses The authors also advocate performing Porter's five forces to gain a deeper understanding of how the organisation operates in its industry, and how it interacts with customers, suppliers, competitors, new entrants and product and service substitutes. Understanding these areas helps managers position the organisation so as to gain a better place than competitors, identify what threats may arise and what opportunities to exploit. This can be achieved by analysing the industry in light of the five forces, and then determining the impact this has on IS/IT or the effect IS/IT could have on them, and then develop appropriate strategies. Questions can be asked such as: •

Competitors: how can IS/IT change basis of competition

•

Buyers: how will IS/IT increase the power of customer, will this change relationships with the customers

•

New entrants: how new entrants enter the industry based on IS/IT, or can IS/IT build a barrier to their entry

•

Suppliers: how can IS/IT change the balance of power and relationships with suppliers

•

Substitutions: how can IS/IT generate new products and services

As well as undertaking an analysis of the external environment a review of the internal environment is advantageous. In continuing the situational analysis, from an internal perspective identify, analyse or consider: •

The financial position of the organisation

•

What skills and training the employees have and how this relates to the organisation’s purpose

•

The usefulness of the physical assets

•

R&D ability

•

The organisation's structure, relationships and culture, and its effectiveness in changing circumstances

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If this information is not documented, it should be discussed with business managers; specifically concentrating on the success factors that are imperative to the organisation. In considering the purpose and operations of the organisation IS/IT managers need to specifically determine what information is needed and how it should move around to fulfil the different tasks in the organisation: •

How critical is the information in the systems, how can it be used, obtained, altered

•

Understand the role of information in the value chain, and what it needs to do, for example exploit opportunities or decrease complexity

There will also need to be a review of the current and future IS/IT situations. IS/IT managers and business managers should perform this together because their perception on the role and effectiveness of IS/IT will be different and useful, for example determining if the organisation has a negative perception of them that would need to be altered before any commitment would be given to a IS/IT strategy. The trends and opportunities that are emerging from new technology should be assessed, as should how and whether competitors will apply it in their organisations. A managerial awareness of the position the organisation is at regarding IS/IT will show how far it needs to move to get to IS/IT being integrated with business strategy. The internal IS/IT environment should also be assessed to evaluate if the infrastructure, devises etc., work effectively enough to respond to the way things are needed to be done in the IS/IT strategy. The “fitness” of the IS/IT team should also be assessed to determine if it can properly implement the strategies. Therefore it needs to be considered how effective it was in the past and currently, what weaknesses or strengths the team has, what managers and general employees think of IS/IT. To improve performance and the perception of the role of IS/IT in the business, authors recommend: 1. Get basics right: ensure can deliver basic IT services. Get commitment from all IS/IT employees to understand the importance of the business focus; move the team from thinking in terms of tactical work and towards improving customer service or increasing productivity and how IS/IT can answer these issues. 2. Enlist key influencers: key individuals in the organisation who can act as advocates for IS/IT or who need persuading to smooth issues later. 3. Build credibility: build a dialogue with the rest of the organisation, earn trust and respect, and demonstrate the business value of IS/IT.

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4. Seek early involvement in projects: actively seek involvement and focus on benefits and delivery. 5. Place IS/IT in a business context: reframe IS/IT, so that IS/IT decisions are also the concern of business managers. 6. Cultivate and maintain partnership: emphasise continual communication and revisit all previous stages.

Developing IS/IT strategies

Once information on the external and internal environment has been analysed, creative thinking as a brainstorming exercise can be performed to develop strategies that can exploit opportunities, use strengths, address weaknesses and defend against threats. The authors suggest posing a series of questions as a basis for creative thinking: •

How can IS/IT affect the nature and value of the products and services

•

Can IS/IT add a new line of business or increase a product's value

•

How can IS/IT affect the demand for products and services, segment markets more effectively, extend them geographically or provide new distribution channels to reach the market

•

Can IS/IT let us reach more customers or get closer to the marketplace

•

How can IS/IT affect the cost base of the key processes in the industry

•

Can IS/IT enable products and services to be produced more economically, or at a higher quality than normal

In building strategies the authors recommend following one specific focus of either: •

Low cost: identify the lowest-cost approach to the activities of the business, and minimise all expenses, to drive down the cost charged to customers. IS/IT can help bring in efficiency and the flexibility and integration of systems. For example Airlines have tickets booked via the internet and self-service check in.

•

Differentiation: employ innovation and creativity via customer driven strategies to create, for example a strong brand. IS/IT is used to focus on enabling new ideas and improving existing processes, such as creating databases to understand customers.

•

Niche: low cost or differentiation strategies are followed in a market niche. IS/IT is predominantly used in identifying, understanding and holding on to customers.

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It is useful to have a business level person and IS/IT person creating the strategy, as this ensures it makes sense from both perspectives. It also makes it more relevant and allows swifter adoption. From here future strategies can be planned and should be assessed on: •

The management and financial risks

•

Potential responses from competitors

•

Degree new capabilities of the organisation and employees are needed to fulfil them

•

Whether the structure is right to achieve it or does there need to be a reorganisation

•

Ability to implement regarding competencies, resources, processes and culture

•

Implications for customers and suppliers

Prioritise strategies to decide which to implement, for example some may be too ambitious. Often the IS/IT strategy will be depicted as an architectural model (below), this helps: •

As an aid to clearly understand what is happening in the business and showing business processes and information flows

•

As a communication mechanism to show how IS/IT works to a business audience

•

To highlight important flows or where opportunities or problems will occur

•

To map what already exists with what is needed

•

To consolidate understanding across organisation, as it can map all perspectives, for example marketing and production

The architectural model shows the business processes, and inter-linked activities and roles. Key entities are the areas of importance to a business process, which could include people, places or events. Once created the models can be discussed to see how far they can go to achieve meeting business needs. It helps in understanding the organisation in terms of structure, relationships, and people, pertinent to the IS/IT strategy and business strategy.

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Architecture model Business model Business data model

Business process model Process/Entity matrix

R C

IS model Entity life history

IS process model App 1

IS/Entity matrix App 2

R

IS data model

C

IS functional model App 1

App 2

Advancing the strategy

It must be assessed whether the current culture, management style, and values of the organisation are in line with the direction of the IS/IT strategy. This is especially critical if there has never been an IS/IT strategy linked to business strategy before, as it needs to be determined if any of the elements should be altered to fit the strategy or vice versa. This is important because if there is not harmony between the two then it will hinder the strategies successful implementation. A common problem many organisations face in pursuing IS/IT strategy is that there is not enough management commitment behind IS/IT strategy plans or implementation. One way to overcome this is through building strong relationships between IS/IT managers and business managers. It may also be useful to have an executive management level sponsor of the IS/IT strategy as this reinforces commitment and reinforces the allocation of resources etc. Even if buy-in is gained from business managers to develop the strategies, it cannot just be left to IS/IT to implement the plans, there needs to be commitment in order for it to work and activities be supported throughout the organisation. This commitment is difficult to get if top management do not understand the impact IS/IT can have or how it

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can create competitive advantage. Some of them may not be able to see past ‘computers’; this needs to be addressed or the organisation will never move forward. One way of achieving buy-in is to communicate the IS/IT strategy. This gives a clear sign of commitment across the organisation, and highlights what changes will be made and what resources utilised. Communication of the strategy also stops rumours about what is happening; especially if the message is reinforced in a consistent manner. Furthermore in presenting the strategy across the organisation, problems that were not originally identified can be highlighted by those individuals who were not involved in any of the planning stages, they may also have ideas as to how to develop the strategy further.

The application portfolio

Once the IS/IT strategy has been built managers will need to use it to develop the applications portfolio. The applications portfolio brings together the existing, planned and potential IS/IT strategies and assesses their business contributions, and the role and value of the set of applications. Much of this information will have been generated to develop the IS/IT strategy. This includes: •

Existing applications: those in place and for the near future. Assesses their contributions to existing business and how well they support future requirements. Are they strengths or weaknesses in current and future scenarios

•

Required applications: these are necessary to achieve business objectives and strategies and what the contribution will be

•

Potential application: what might be valuable in future, if feasible to deliver and give some benefits

Potential applications can be separated into four types in order to gauge which to support: •

High potential: applications that may be important in achieving future success: new business ideas and technical opportunities

•

Strategic: applications that are critical to sustaining future business strategies: market requirements, competitive pressures, business objectives, obtain advantage and then sustain it

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•

Key operations: applications on which the organisation currently depends for success: improve performance of existing activities, integrate systems to avoid duplication and inconsistencies, avoid disadvantages

•

Support: applications that are valuable but not critical to success: improve productivity, efficiency. Cost efficient use of IS/IT funds and resources

There needs to be a balance between these types of application. The portfolio cannot just be full of high potential applications because they are often the most costly and risky, in both finances and resources, which could damage the organisation if they do not succeed. Instead time and money need to be invested in resources that generate the best business results in achieving organisational aims. The different types of application will need, different processes and development tools, different degrees of involvement from executives, line managers and IS/IT, and different IS/IT organisational structures and therefore justification. All the users, i.e. strategic, IS/IT business, line managers, need to discuss the portfolio to reconcile differences and understand which applications to prioritise so as to get maximum benefits. Every application should be assessed on a number of key questions: •

Why: is the investment being made, what contribution is needed, how does it tie in with the business strategy and IS/IT strategy

•

How: to implement systems, is it a standard or bespoke solution

•

What: is required

The business and IS/IT implications of these should be considered. The authors also suggest evaluating the applications in terms of their benefits: •

Traditional cost-benefit: efficiency improvements in organisation processes

•

Value link: estimates improvements in business performance from improving linkages between processes and activities

•

Value acceleration: consider time dependence of benefits and costs, as a knock-on effect in other areas of the business

•

Value restructuring: productivity from processes and organisational change, as a result of improving systems

•

Innovation evaluation: estimating the value to business of new business or new practices levered from IS/IT, e.g. change to organisational image

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Analysing these costs and benefits gives an overall “worth” of each application. This can then compared against the prioritised strategies to determine which are feasible to pursue. The application should be judged on the overall contribution they are expected to deliver to the business. Hence the contribution needs to be weighed against taking the business where it needs to go and fulfilling the objectives. A decision has to be made as to whether the risks and costs are worth potential benefits. It cannot only come down to cost, consider instead: •

What is most important to do, based on identified benefits

•

What is capable of being done, based on available resources

•

What is likely to succeed, based on risk of failure of each investment

Monitoring and reviewing

“It is obviously important to devise appropriate business-driven IS strategies and then appropriate ITsupply strategies. But having a strategy is not going to lead to business success! Implementing and then updating that strategy as the business progresses is how success will occur”

Therefore whatever processes managers use to analyse situations and assess opportunities must be periodically reviewed to readdress and change the IS/IT strategy. If there is no review then the strategy being implemented may not fit with the actual environment. To do this the strategy must be flexible enough to cope with change, this could be external business factors or external technological factors, either as opportunities or threats, new products in IS/IT, or a regulations change. Internal business factors can also alter, for example a takeover, new CEO or staff restructuring. Or it could be if the implementation does not work in reality. Business and IS/IT strategies have to be re-aligned when new opportunities or constraints are identified, otherwise finances, time and resources will be wasted in pursing strategies that are redundant. In such cases it is better to stop and redirect strategies and implementation than follow a course that cannot succeed. This means that all elements of the strategy must be understood so that if anything which impacts upon them alters, it can be addressed. This means that the external environment, business needs, opportunities and benefits accrued from the strategy need to be monitored.

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To support this knowledge there has to be strong co-ordination and communication between IS/IT and business, or else IS/IT will continue implementing while business managers know a change has happened. Furthermore a monitoring processes needs to be established so if the strategy or its implementation are off track the situation can be rectified or if not consideration can be given to shutting it down to save wasting further resources, money or time. Finally there should be a formal review and evaluation of the results. Here what was and was not accomplished is determined so as to maximise the benefits of the particular investment and learn how to improve benefits from future investment. The evaluation should involve key stakeholders. If the expected benefits have not been achieved, measures should be taken to ensure the same thing will not happen in the future. The review should also consider potential further benefits, and what improvements might now be possible as a result of implementation; otherwise many available benefits could be overlooked.

Outsourcing

Some organisations may choose to outsource some or all of their IS/IT provision. Care must be taken if following this path as: •

It can lead to a lack of knowledge, especially if the outsourcing provider changes

•

May be inflexible if contracted to do one thing and then want to make changes following strategic decisions

•

Can lose innovative capacity because of missed opportunities

•

Different culture and values of the organisation and the outsourcer

•

Gain IS/IT knowledge, but have difficultly integrating it with the system

Although it can lead to advantages such as: •

Access to specialist knowledge, that would take years for employees to learn

•

Cost savings, not just staff but access to latest technology

•

Quicker results, especially if they are under pressure to fulfil contractual deadlines

•

IS/IT may fluctuate in demand, therefore only have outsourcing when you need it

Using multiple vendors for outsourcing can minimise risks and maximise benefits, however it increases the time and resources needed to manage them all. There needs to be a person

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in the organisation who has the knowledge of IS/IT and business to track, assess and interpret changing IS/IT capabilities and relate to organisational needs, work with business managers to define IT requirements over time, and monitor and manage contractual relationships. These elements cannot be outsourced. Further consideration has to be made as to whether it is worth skilling up the gap in employees’ knowledge that is making the organisation use outsourcers.

About the Authors

John Ward is Professor of Strategic Information Systems at Cranfield School of Management. His main areas of interest are the strategic uses of IS/IT, the integration of IS/IT strategies with business strategies, the development of organisational IS capabilities and the management of IS/IT investments. He has published many papers in leading journals and co-authored several books. John also acts as a consultant to a number of major international and public sector organisations. Joe Peppard is Professor of Information Systems at Cranfield School of Management and Adjunct Professor at the University of South Australia. Joe’s research and teaching predominantly focuses on information systems and technology strategy and management. He has published widely in academic and general business journals and books. His consulting work is focused on advising organisations on IT and strategy and how to unlock business value from their IT investments.

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