Chapter 2: Strategy and Information Management (Business IT Alignment) Flashcards Preview

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Strategy  Definition

  • A plan of action to achieve a particular goal
  • Strategy can be both long term (e.g., 3 – 5 years) and short term (next 6 months) 


IS Strategy, IM Strategy, IT Strategy

  • IS Strategy: Focuses on the system or business applications of IT and is primarily concerned with aligning them with business needs and using them to derive strategic benefits
    • What?
  • IT Strategy: Concerned with the various aspects of the technology such as architecture, technical standards, security levels, risk attitudes, and technology policies
    • How?
  • IM Strategy: Concerned with the structures and roles for the management of IS and IT, focuses on issues such as the relationship between specialist and users, management control, performance measurement processes, management responsibilities 
    • Which way? Who does it? Where is it located? 


Strategy Hierarchy

  • Corp. Level
  • Division Level
  • Functional Level
  • Operational Level
  1. Corporate strategy
    • Concerned with deciding what type of business the organization should be in and how the overall group of activities should be formed and managed
    • 1) growth strategy, 2) stability strategy, 3) retrenchment strategy
    • Depends on SWOT analysis.
  2. Generic or business unit strategy
    • Refers to the actions and approaches crafted by management to create successful performance in one particular line of business
    • 1) cost leadership, 2) differentiation, 3) focus, 4) mixed
  3. Functional strategy
    • Concerned with managerial game plan for running a major functional activity or process within a business such as research and development unit, marketing unit, financial unit, production unit, HR development unit, etc. 


Strategic Fit / Business IT Alignment Definition

  • Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. It is harder for a rival to match an array of interlocked activities than it is merely to imitate a particular sales-force approach, match a process technology, or replicate a set of product features. Porter (1996) 

  • Strategic alignment is the extent to which the business mission, objectives, and plans are supported by the IS mission, objectives, and plans. Reich and Benbasat, 2000; Sambamurthy and Zmud, 1999 

  • Alignment is the degree of fit and integration among business strategy, IT strategy, business infrastructure, and IT infrastructure. Henderson and Venkatraman (1993) 


Relationship between Corporate Strategy and Information Systems 

  • Corporate Strategy - align -> Information Systems
  • Information Systems -enable-> Corporate Strategy


Corporate Strategy: Industry & Competitive Forces 

Porters 5 forces:

  • New Market Entries (barriers to entry) -->
  • Customer (bargainaing power) -->
  • (Threat) Substitute Products / Services -->
  • Supplier (bargaining power) -->

--> Company Competitors


Competitive Forces: Basic idea 

  • The market oriented approach assumes that a company searches for an attractive market and positions itself in the market. It does so by
    • choosing a suitable generic strategy
    • influencing the direct market surroundings
  • Starting point of all planning are the objectives that should be reached by positioning in the competitive field
  • The organizational structure of a company should follow these targets („Structure follows strategy“) 


Cost Leadership 

  • Striving to be the low-cost producer in an industry can be

    especially effective

    • when the market is composed of many price-sensitive buyers

    • when there are few ways to achieve product differentiation

    • when buyers do not care much about differences from brand to brand

    • when there are a large number of buyers with significant bargaining power

  • The basic idea behind a cost leadership strategy is to underprice competitors or offer a better value and thereby gain market share and sales, driving some competitors out of the market entirely. 



  • Differentiation is aimed at producing products that are considered unique

  • Allows a firm to charge higher prices for its products to gain customer loyalty because consumers may become strongly attached to the differentiation features

  • A risk of pursuing a differentiation strategy is that the unique product may not be valued highly enough by customers to justify the higher price. 




  • Focus means producing products and services that fulfill the needs of small groups of consumers.
  • There are two types of focus strategies.
    1. A low-cost focus strategy offers products or services to a small range (niche) of customers at the lowest price available on the market.
    2. A best-value focus strategy offers products to a small range of customers at the best price-value available on the market. This is sometimes called focused differentiation.
  • Most effective
    • when the niche is profitable and growing
    • when industry leaders are uninterested in the niche
    • when the industry offers several niches
    • when there is little competition in the niche segment. 


Generic Strategies according to Porter 


Resource-based view (RBV) 

  • Provides an alternative to Porter’s competitive forces, which emphasizes the role of external factors, (e.g., attractiveness of an industry, competitive forces) for business success

  • Resource-based view: Success & failure depends on companies’ internal capabilities

    • Basic assumptions: Each company has certain core competencies or resources that are
      responsible for the individual success

    • Companies differ significantly in their resources

  • Recommendations for core competency management

    • Determine existence of core competencies and analyze their potential

    • Keep tangible resources (market oriented production facilities) up to date

    • Develop intangible resources/capabilities (organization culture and principles, skills, ...) 


Components of RBV


  • Vision
  • Dynamic Capabilities
    • Capability of an Organization to adapt their resources and competencies to a changing environment 

  • Competencies 

    • Capability of an organization to use their resources efficiently and effectively 

  • Resources 

    • Fixed Assets, Human capital, money , Reputation incl. brands, Management-Team, Technology and Patents, (organizational culture), Organisational structure 


Strategic Choice Perspective 

  • Organizational actions are only partially determined by environmental conditions

  • Managerial choices are made to achieve desired business objectives

  • Choices made by top management are critical determinants of structure and processes 


  • Maintain stability in their market domain

  • Focus on efficiency – competitive pricing, high quality products

  • Grow through market penetration

  • Ignore developments and trends outside their domain 


  • Find and exploit new product & market opportunities

  • Maintain reputation as an Innovator

  • Invest in environmental scanning

  • Organizational structure more flexible 


  • Combine strengths of prospectors and defenders

  • Minimize risks while maximizing the opportunity for profit

  • Maintain equilibrium between technological flexibility and technological stability 


Relationship of Components 

Resources --> Competencies --> Product


Those competencies most important for competition are called
core competencies. They are a starting point for the strategy development. 


Relationship of Components 

  • Dynamic capabilities and vision relate to change in the organization
  • Dynamic capabilities are sources for long term competitive advantage 


IT-relevant Dimensions of Core Competencies 


Strategic Alignment Model 


  • Corporate Strategy: Corporate level
    • Fields of activities
    • Specific competencies
    • Steering / Control
  • IT Strategy: Information technology
    • Technology area
    • System competencies
    • IT Control


  • Organizational Infrastructure and processes: Corporate level
    • administrative infrastruture
    • Processes
    • capabilities
  • IS Infrastructure and proceses: Information technology
    • Architectures
    • Processes
    • capabilities

Internal / External: Strategic fit (Automation / Integration)

Corporate / IT: Functional integration (Automation  Integration)


IT Alignment in Multi-Business Organizations 


IS/IT Strategy Process 



Various methods for determining IS strategies / Measuring IS performance 

  • Information intensity portfolio

  • Matrix for application assessment

  • Support matrix for critical success factors 


Information Intensity Portfolio 

Provides a means for understanding different industry sectors (and companies) in terms of ‘information intensity’, of both product and the productions process (Porter’s value chain). The matrix supports understanding of the importance of IS to the business, and also a means of understanding where and how it holds that importance 


Matrix for Application Assessment


Consequences of Strategic Importance of IT 


Support matrix for critical success factors 


IS Strategic Types 

  • IS for Efficiency

    • Oriented towards enhancing internal and inter-organizational efficiences and long term decision making

  • IS for Flexibility

    • Focuses on market flexibility and quick strategic decisions

  • IS for Comprehensiveness

    • Enables comprehensive decisions and quick responses through knowledge of other organizations 



Implications of Business IS Strategy Alignment 

Alignment between business strategy and IS strategy improves performance 

  • Business Strategic Types

    • Defenders

    • Prospectors

    • Analyzers 

  • IS Strategic Types

    • IS for Efficiency

    • IS for Flexibility

    • IS for Comprehensiveness 

  • --> Alignment --> Business Performance


Strategy and Information Management 


  • Definition: Strategy

  • Definition: Strategic Management

  • Strategic Alignment Model 

Responsibilities & Functions

  • Understanding the Role of Information Systems in Corporate Strategies

  • Aligning IS with corporate Strategies 

    • Information Intensity Application Assessment Critical Success Factors 

  • IT-enabled strategies 

    • Strategic Information Systems
      1. Inter-Organisational Systems
      2. Value-Added Services
      3. IT for new products and services
      4. Electronic Markets