Chapter 13
Online File W13.1
Strategic Information Systems Frameworks
Online File W13.2
Applications Portfolios
Online File W13.3
Ward and Peppard’s Strategic Planning Framework
Online File W13.4
Tools and Methodologies of IT Planning
Online File W13.5
More on Nolan’s Six Stages of IT Growth Model
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ONLINE FILE W13.1
STRATEGIC INFORMATION SYSTEMS FRAMEWORKS
A framework for a strategic information system (SIS) is a descriptive structure that
helps us understand and classify the relationships among strategic management,
competitive strategy, and information technology. One reason for the abundance of
SIS frameworks is that there are many different types of information systems. Here
we present only a few of the more important frameworks, basically to illustrate their
role in the study of SIS.
We introduce the following:
• Three frameworks that are related to Porter’s models: Porter and Millar
(A Closer Look W13.1.1), Wiseman and MacMillan, and Bakos and Treacy
• McFarlan’s application portfolio framework
• A customer resource life-cycle framework
• A global business drivers’ framework for multinational corporations
Competition has been affected by IT in three vital ways. First, industry structure
and the rules of competition have changed as a result of new information technologies. Second, organizations have outperformed their competitors by using IT. Finally,
organizations have created new businesses by using IT. Based on this conclusion,
Porter and Millar developed a five-step framework that organizations can use to
exploit the strategic opportunities IT creates. Note that almost exactly the same
effects are observed in e-commerce (Choi and Whinston, 2000; Turban et al., 2002).
An important implementation question is how to find applications for the cells in
this matrix. An example of a company that used this framework to find applications
A Closer Look
W13.1.1
Porter and Millar’s Five-Step Process
Step 1. Assess information intensity. Organizations
need to assess the information intensity of each link in
each of their value chains. If customers or suppliers are
highly dependent on information, then intensity is high,
and strategic opportunities are likely to exist. Higher
intensity implies greater opportunity.
Step 2. Determine the role of IT in the industry structure. An organization needs to know how buyers, suppliers, and competitors might be affected by and react to IT.
Step 3. Identify and rank the ways in which IT can create competitive advantage. An organization must analyze how particular links of the value chain might be
affected by IT.
Step 4. Investigate how IT might spawn new businesses. Excess computer capacity or large corporate
databases can provide opportunities for spinoff of new
businesses. Organizations should answer the following
three questions:
• What information generated (or potentially generated)
by the business should be sold?
• What IT capacities exist to start a new business?
• Does IT make it feasible to produce new items related
to the organization’s current products?
Step 5. Develop a plan for taking advantage of IT.
Taking advantage of strategic opportunities that IT presents requires a plan. The process of developing such a plan
should be business-driven rather than technology-driven.
Source: Compiled from M. E. Porter and V. E. Millar, “How Information
Gives You Competitive Advantage,” Harvard Business Review,
July–August 1985. Reprinted by permission of Harvard Business Review.
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Search-Related
Costs
Unique Product
Features
Bargaining
Power
Figure W13.1.1 Bakos
and Treacy’s causal model
of competitive advantage.
(Source: “Information
Technology for Corporate
Strategy, MIS Quarterly, June
1986. © 1986 by the
Management Information
Systems Research Center
(MISRC) by the University of
Minnesota and the Society
for Information Management
(SIM). Reprinted by
Permission.)
Switching
Costs
Competitive
Advantage
Internal
Efficiency
Comparative
Efficiency
Interorganizational
Efficiency
is GTE Corporation. The company employed a brainstorming procedure and identified more than 300 ideas for strategic applications of IT.
Let us consider how IT can support the five activities (shown on the left side of
Figure W13.1.1) that drive bargaining power and comparative efficiency from the
point of view of a company planning a defensive strategy.
1. IT can create or enhance unique product features. For example, Mattel enables
customization of its Barbie dolls over the Web. Similarly, Rosenbluth’s systems
provide unmatchable cost reduction for their customers.
2. IT can increase the switching cost to a company’s customers when certain
IT-based services are provided (e.g., a Web-based tracking system).
3. IT contributes to internal efficiency; it is known for its effectiveness in reducing
costs and increasing productivity, as shown throughout the book.
4. IT can increase interorganizational efficiency through synergy, enhancing business partnerships, joint ventures, and other alliances. This is done by using EDI,
extranets, and vertical exchanges for procurement (see Chapter 5 in the text).
5. IT can create new business models, such as reverse auctions and vertical exchanges,
or can support new business models, such as “fee for service,” which replaced commissions as the revenue model of Rosenbluth. In doing so, improved internal efficiency, interorganizational efficiency, and searchrelated costs all contribute to
competitive advantage.
F. W. McFarlan developed a framework (1984) with which organizations can
analyze their mix of existing, planned, and potential information systems. The
framework, which can be applied to any type of application, including e-commerce,
can be viewed as a four-cell matrix. Applications are classified into a collection
(portfolio) of the following four categories:
1. High potential: applications that may be important in achieving future business
success (such as intelligent systems or human resources planning)
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2. Key operational: applications upon which the organization currently depends
for success (such as inventory control, accounts receivable, personnel duties)
3. Strategic: applications that are critical for future business strategy (eprocurement,
extranet, enterprise resource planning)
4. Support: applications that are currently valuable and desirable (but not critical)
for business success (such as videoconferencing and multimedia presentations)
Note that the classification is done according to current and future contributions
as perceived by management. Note also that the positioning of the applications may
vary from company to company. For example, online training, which we listed as a
support application, would be a key operational application for a software vendor.
References for Online File W13.1
Bakos, J. Y., and M. W. Treacy, “Information Technology and Corporate
Strategy: A Research Perspective,” MIS Quarterly, June 1986.
Choi, S. Y., and A. B. Whinston, The Internet Economy: Technology and
Practice. Austin, TX: SmartEcon Pub., 2000.
McFarlan, F. W., “Information Technology Changes the Way You Compete,” Harvard Business Review, May–June 1984.
Turban, E., et al., Electronic Commerce: A Managerial Perspective,
2nd ed. Upper Saddle River, NJ: Prentice Hall, 2002.
Wiseman, C., and I. MacMillan, “Creating Competitive Weapons from
Information Systems,” Journal of Business Strategy, Fall 1984.
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ONLINE FILE W13.2
APPLICATIONS PORTFOLIOS
A major issue in IT planning is to determine what specific applications an organization needs to have during the period covered by the plan. For this purpose, organizations use an applications portfolio.
An applications portfolio is the mix of computer applications that the information system department has installed or is developing on behalf of the company. The
applications portfolio categorizes existing, planned, and potential information systems based on their business contributions. This 2 2 matrix (as shown in Figure
13.2.1), is a powerful IT planning tool that is easy to understand.
STRATEGIC
Figure W13.2.1
HIGH POTENTIAL
Applications that
are critical to
sustaining future
business strategy
Applications that
may be important
in achieving future
success
Applications on which
the organization
currently depends
for success
Applications that
are valuable but
not critical to
success
Applications portfolio
matrix. (Sources: Ward and
Peppard, 2002, Figure 1.7,
p. 42.)
KEY OPERATIONAL
Reference for Online File W13.2
Ward, J., and J. Peppard, Strategic Planning for Information Systems, 3rd
ed. New York: Wiley, 2002.
SUPPORT
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ONLINE FILE W13.3
WARD
AND
PEPPARD’S STRATEGIC PLANNING FRAMEWORK
Ward and Peppard (2002) provided an in-depth analysis of strategic planning in
their proposed IT Strategy Formulation and Planning Framework. The model, as
shown in Figure W13.3.1, consists of three building blocks—inputs, outputs, and
essential activities.
INPUTS
The inputs to Ward and Peppard’s strategic planning framework are as follows:
• The internal business environment: current business strategy, objectives,
resources, processes, and the culture and values of the business.
• The external business environment: the economic, industrial, and competitive climate in which the organization operates.
• The internal IT environment: the current IT perspective in the business, its maturity, business coverage, and contribution to attainment of the organization’s goals
(e.g., cost reduction), skills, resources, and the technological infrastructure. The
current application portfolio of existing systems and systems under development,
or budgeted but not yet under way, is also part of the internal IT environment.
• The external IT environment: technology trends and opportunities and the use
made of IT by others, especially customers, competitors, and suppliers.
External
business
environment
External
IS/IT
environment
Internal
business
environment
Internal
IS/IT
environment
Current
application
portfolio
IS/IT
STRATEGY
PROCESS
Business
IS
strategies
Figure W13.3.1 The
IS/IT strategic model.
(Source: Ward and Peppard,
2002, Fig. 3.8, p. 154.)
IS/IT
management
strategy
Future
application
portfolio
IT
strategy
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OUTPUTS
The outputs to Ward and Peppard’s strategic planning framework are:
• IT management strategy: the common elements of the strategy that apply
throughout the organization, ensuring consistent policies where needed.
• Business IS strategy: how each unit or function will deploy IT in achieving its
business objectives.
• Application portfolios. Alongside each of the business objectives are application
portfolios to be developed for the business unit and business models, describing
the information architectures of each unit. The portfolios may include how IT will
be used at some future date to help the units achieve their objectives.
• IT strategy: policies and strategies for the management of technology and specialist resources.
APPROACH
In any strategic process, some sort of structure to the approach and clear principles
are obviously necessary. Ward and Peppard (2002) have summarized the key characteristics of the approach chosen:
•
•
•
•
•
•
Flexible, modular, and able to pick up deliverables from earlier or parallel activities
Emphasis on deliverables
Clear checkpoints
Recognition of the interactive and cyclic nature of the process
Recognition of the importance of the human side of the process
Simple diagramming tools
Reference for Online File W13.3
Ward, J., and J. Peppard, Strategic Planning for Information Systems, 3rd
ed. New York: Wiley, 2002.
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ONLINE FILE W13.4
Tools and Methodologies of IT Planning
Category
Tools/Methodologies
External business environment
PEST analysis
Business portfolio analysis
Industry and competitive analysis
Competence analysis and SWOT
SWOT
Mission and objectives BSC and CSFs
Process and activity analysis
Value chain analysis
Resource life cycles
Strategic option generator
Data flow analysis and modeling
Internal business environment
External IT environment
Internal IT environment
Sources: Compiled from Ward and Peppard (2002).
Reference for Online File W13.4
Ward, J., and J. Peppard, Strategic Planning for Information Systems, 3rd
ed. New York: John Wiley & Sons, 2002.
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ONLINE FILE W13.5
MORE
ON
NOLAN’S SIX STAGES
OF
IT GROWTH MODEL
Nolan’s model became the basis for a strategic information systems planning
methodology, known as the Nolan-Norton methodology, and this model has been
quite influential among IT practitioners. Academic researchers subsequently conducted studies to evaluate its validity, but they did not find a lot of support for specific aspects of the model (Benbasat et al., 1984).
King and Teo (1997) have taken Nolan’s concept and applied it to the evolution
of IT planning within organizations. Their research indicates that IT planning moves
over time through the following four stages of growth:
1.
2.
3.
4.
Separate planning. There is a weak relationship between IT and business planning.
One-way linked planning. IT plans are based on business plans.
Two-way linked planning. Business and IT plans are coordinated.
Integrated planning. IT planning is an integral part of business planning.
Even if it does not have strong empirical support, Nolan’s model does represent
a useful perspective for conceptualizing how new information technologies develop
and how they should be planned and managed. For example, the development of the
Web in the 1990s seems to correspond in many organizations to the early stages of
Nolan’s model. The initiation stage extended through 1994. During this period, few
organizations outside the academic and research worlds had any demand for Web
sites. The expansion stage started around 1995 with a large increase in organizational activities on the Internet. In 1996 and 1997, some organizations expressed
concern about the tremendous costs in relation to uncertain benefits, indicating an
interest in moving on to the control stage. Development and use of organizational
intranets and extranets in 1997/1998 and creation of exchanges in 1999/2000 corresponds to the integration stage.
References for Online File W13.5
Benbasat, I., et al., “A Critique of the Stage Hypothesis: Theory
and Empirical Evidence,” Communications of the ACM, 27(5),
May 1984.
King, W. R., and T. S. H. Teo, “Integration between Business Planning
and Information Systems Planning: Validating a Stage Hypothesis,”
Decision Sciences, Spring 1997.