Information System and Information Technology Strategy - Essay Example

Information System and Information Technology Strategy 0 Introduction: A strategy in general is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage for the firm. A Business Strategy on the other hand is "an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage in specific product markets" (Rindova and Fombrun, 1999) It must be understood that in any business environment, the strategic planning is not just a matter of formulating the strategies and deploying them. But it has a greater magnitude of how the people in the respective organizations perceive the strategies and make an effective use of them in furthering the goals of the organization. As the overall definition of strategy goes strategy is the direction and scope of an organisation with a long-term perspective that aims at putting the organization in an advantageous position by reorganizing its own resources to meet the challenging business environments. In the process, strategy tries to match the requirements of the market and to meet the demands of the stakeholders of the firm. Strategies do exist at different levels of the organization. Some strategies are formed at corporate level and few others are formed at the business levels. The overall strategies when broken down take the form of operational strategies. It is also imperative for any organization to have its systems regarding the collection and dissemination of information in place so that the top management of the firm is supplied with valid inputs for making effective managerial decisions affecting the business of the firm. A proper alignment of the business strategies and the information system strategies will enable the firm to plan its resources more effectively to accelerate the growth of its business. With this background this paper makes a detailed report on the role the information system and information technology strategies play in the development of a business along with the potential benefits that may arise to the business out of the implementation of the information systems strategies along with the business strategies. 2.0 Role of Information Systems Strategy: Porter (2001) described the five overlapping stages in the evolution of technologies in business: "automation of discrete transactions, functional enhancement of activities, cross-activity integration, integration of the entire value chain, and the optimization of various activities in the value chain in real time." In this whole process the information systems have played a critical role in the development of competitive advantage for the businesses. The role of Information Systems Strategy has been described as a learning process that involves considerable interaction between the managers at various levels. The purposes of such interaction are: The integration of the information systems of the business Development of corporate planning process Alignment of the application of Information Systems with the organizational business goals Development of integrated and comprehensive Information Systems plans Determination of the requirements of information to enable the organization to achieve its objectives(Auer and Reponen, 1997, Earl, 1989, Galliers, 1991, Teo and King, 1997) 3.0 Definition of Information Systems Strategy: Information Systems Strategy has been defined as "the process of identifying a portfolio of computer-based applications that will assist an organization in executing its business plans and realizing its business goals" (Lederer and Sethi, 1988). Remenji (1991) defines the Information Systems Strategic Planning "as the process of establishing a programme for the implementation and use of IS in such a way that it will optimize the effectiveness of the firm's information resources and use them to support the objectives of the whole enterprise as much as possible". The Information Systems Strategic Planning is another dimension of the strategic planning process of the business whereby the organizational goals are achieved by integrating the management of the organization with the different information systems into an adaptive and ongoing process. Information system strategy refers to the process of a portfolio creation that enables the implementation and use of the information systems to attain the maximum efficiency and effectiveness in the operations of the firm and also in achieving its business objectives. Teo and King (1997) defined Information Systems Strategic Planning as "the process of formulating Information Systems objectives, defining strategies and policies to achieve them, and developing detailed plans to achieve the objectives" Thus the information systems strategic planning process may be considered as a long range planning involving the arrangement of capital, labour, technology, expertise and information technological capabilities needed to take advantage of the opportunities that may arise(Baker, 1995). 4.0 Frameworks of Information Systems Strategy Planning: Information system strategic planning and its frame work have been attended to by numerous researchers in the recent past. Lederer and Salmela (1996) have recommended a theoretical frame work for ISSP that takes into account the following constituents: External environment Internal environment Planning resources Planning process Information plan Plan implementation and Alignment Figure 1. A theoretical model of ISSP Source: Lederer and Salmela, (1996) 5.0 Factors affecting the Information Systems Strategy Planning: There are certain crucial factors that need to be addressed and reviewed to achieve the goals and objectives of any information system strategy planning. These factors affect the overall efficiency of the IS and also are responsible for the improvement of the Information System Strategy Planning. In general the following factors affect the planning, performance and success of the information systems strategies: 5.1 Environmental Factors: According to Das et al.,(1991)while deciding on the different types of information systems required by the firm, the management has to consider the external environment in which the firm is operating and the effect of such environment on the effect of these systems. It must be appreciated that the uncertainties prevailing in the organisation's environment with respect to the acceptability of the IS and its successful implementation often definitely act as deterrent factors for the success of the IS. 5.2 Role of Information: It can be so stated that the information input from the planning process of the business and also the resources available with the firm for effective planning greatly influence the quality of the planning process. The information system planning process being developed by the organization in turn decides the quality of the contribution by the ISS to the organizational performance. 5.3 Participation of the Top Management: Ranganathan and Kannabiran(2004) have identified the following actions of the top management in participating the IS management process lead to great results: Attendance to the IS related committees Making their suggestions and contributions to such committees Arranging task forces to further the process of ISSP Organizing frequent meetings for ISSP Allocating necessary resources for the purpose of ISSP The authors opine that these are the important determinants of successful IS performance in an organization. 6.0 Alignment of Information System Strategy with the Business Strategies: One of the key factors for successful planning is a proper alignment of IS and business strategy(Henderson and Venkatraman, 1993). Alignment of IS strategy with business strategy refers to the transfer of the business mission, objectives and strategies to be enabled, supported and stimulated into an associated set of mission, objectives and strategies in the IS plan to influence positively the use of IS applications for competitive advantage and applying IS/IT in an appropriate and timely way to support and complement business strategies and goals Alignment of IS with business strategy (Luftman and Brier, 1999). Alignment of IS plan with business plan represent the timing and coordinating activities during the development of two plans instead of focus on content of plans. The greater level of integration between two strategies is more likely to use IS application for competitive advantage. In addition, Earl (1996)further proposed that ISS need change in response to the business environment. ISS is required to be dynamic and supporting the current business strategy to respond the changes in the market that influence strategic and technological change (Ward and Peppard, 2002). In addition, both culture and the role of information are taken account when focus on ISS is on alignment with business strategy. With the framework presented by Henderson & Venkatraman, there is an element that their approach of alignment can be interpreted as a range of managerial and administrative actions that transform the corporation in a way that the firm can align the domain of choices contained within the content of alignment where the primary performance aim of the use of IS/IT is to provide service enhancements. 7.0 Models of Competitive Advantage: Michael Porter's models of competitive advantage specify that a competitive strategy takes offensive or defensive approach to create a unique position in the industry. This position will enable the firm to cope successfully with the competitive forces and result in the outcome of an enhanced return on investment. Thus according to the Porter, a sustainable competitive advantage is achieved by the above average performance of the firm. The basic types of competitive advantage include cost leadership and differentiation. A combination of these two competitive advantage models results in a third model of 'focus' 7.1 Cost Leadership: The cost leadership is achieved by the firms by becoming a low cost producer of the industry. "A cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for its competitive advantage" (12 Manage) In an industry when more than one firm tries to become a cost leader it becomes detrimental not only to that firm but also to others in the industry. Usually the cost leadership is achieved through economies of scale. 7.2 Differentiation: Differentiation implies that the firm strives to become unique in the industry on the basis of certain factors that are highly appreciated by the customers. While attempting the differentiation, the firm should also keep an eye on the cost elements also. In the differentiation areas the costs should be lower than the premium price that the product can fetch from the buyers. The differentiation may be brought about in product, distribution, sales, marketing, service, image etc. 7.3 Focus: By 'focus' it is meant that the group tries to become the best in a segment or groups of segments. There are two variants of focus; cost focus and differentiation focus. 8.0 Cost Benefit Analysis of the Information System Strategies: Most of the companies rely on the historical cost data to assess the utility and sot/benefit justification for their information systems. For some firms the estimation of cost and benefits of such system poses a problem as they may not have the required process for collection of such information. The companies often have problems in understanding the cost structures of their information system initiatives and also it is difficult for them to employ the methods by which the risk exposures can be translated to costs. Such companies can use effective cost benefit analysis methods to justify the investments in the information system and information technology improvements. The purpose of a cost/benefit analysis is to provide a set of quantitative metrics to assist the companies in their decision making. There are five criteria for evaluating the alternative information system investments. They are: Total Implementation Costs Net project value Total system value Benefit/Cost ratio and Risk exposures The total implementation costs determine the amount to be invested in the total system configuration and by assessing the total requirements of funds, the companies would be able to take a decision on the investments in the information systems without affecting the growth of the company in other areas of need. Net project value exhibits the extent to which the present information system solution would help the existing overall systems. Total system value demonstrates the costs associated with the unmitigated system areas of the company to enable the company to make a realistic cost/benefit analysis. Combined with the risk exposures, after implementing the proposed system against the possible alternatives these criteria form the basis of correlation between benefits of desired system improvements, costs associated with the proposed system within the overall financial budget and the adaptability of the new systems with the existing ones. 9.0 Empirical Evidences in Information System Strategy: In the Information systems strategic planning there are two important aspects that are quite often underemphasized in the operation of any of the companies; first is the planning process or the ways to accomplish the planning and the second is the evolution of the planning as a system of learning. Both of these perspectives are capable of guiding the organizations to bring about changes in their planning process over the period of time in an attempt to improve the effectiveness and also the viability of the investments in the information system strategies. Strategic information systems are basically the computerized systems incorporating the alignment of the uses of information system and information technology strategically with the overall business strategies. There should be proper linkage of the strategic information systems planning with business planning for an effective strategy formulation and performance measures. Such linkage is being provided by the empirical studies encompassing useful data, information, rules and experiences acquired to be incorporated into a knowledge base for efficient information system strategies. 10.0 Outsourcing vs. In-sourcing: With the increased economic globalisation, outsourcing has assumed grater importance in the business development. Outsourcing takes place when a firm allows another vendor, specialized in respective field, to have the firm's operations being performed at locations external to the organisation. For example, an IT enable service firms taking care of the IT function of other multi-national corporations. In-sourcing is getting the activities of the firm done by the different departments or divisions of the firm itself. Examples of in - sourcing include the finalisation of a firm's accounts by its Accounts Department. Outsourcing being highly a strategic decision involves several considerations and strategic analysis. Some of them are: It is necessary that the firm must ensure that the function/operation that is outsourced does not belong to its core competency group of activities. Outsourcing a core competent activity would have a negative impact on the growth of the company and would cost the organisations merely. Another important factor that needs consideration while outsourcing is the security and privacy of the information. This is a major concern for the customers as well in the audit. In fact this is one of main issues while outsourcing the jobs of banks. Any outsourcing decision should correspond itself with the business strategies currently in vogue in the company. It is also important that the selected vendor should be capable of carrying out the jobs entrusted having relevant expertise and existing infrastructure that can be capitalized on through an outsourcing decision. Entrusting the out sourcing jobs to vendors who are incapable of delivering will create problems for the firms in the long run. 10.1 Advantages of Out Sourcing: Apart from the above considerations there are several other factors that influence the decisions relating to the out sourcing. Similarly there are various advantages that result from out sourcing the activities. Reduction in Cost of Operations: Based on the tremendous infrastructure, the vendors have it is possible to achieve economies of scale which is a distinct advantage for the firm out sourcing. Thus the vendors are in a better position to offer competitive costing to the customers. Enhanced Output Quality: Because of their experience serving several clients they will be able to offer a higher quality of output. The vendors would have attained best experience over the period that would bring a vast advantage to the company outsourcing. Re-Allocation of Resources: Since the facilities are outsourced, firms can now concentrate more towards their core-competencies and allocate the outsourced department resources to the other departments to enhance productivity. Advance Set of Tools & Techniques: Since the vendors have higher cost advantages, they can afford to experiment and bring in new equipment to ensure that their productivity remains on the higher side. Thus, these advantages can be enjoyed by the customer as well. The out sourcing and in sourcing decisions are usually affected by the information systems and information technology strategies developed and deployed by the company. Similarly the internal and external environments surrounding the company also determine the level of out sourcing by the company. 11.0 Conclusion: The businesses today with a view to gain more competitive advantages are focusing on the possibilities of value creation along the demand and supply chains. Along the line several information system strategies have also evolved through the processes of automation of discreet transactions towards the enablement of the optimization of the value chain. The new and improved requirements of businesses require a proper and meaningful alignment of the information system strategies with the existing business strategies across the entire value chain to derive the maximum advantage. This paper witnessed the role of information system strategies and an outline of the models of competitive advantage along with a comparison of outsourcing with in sourcing of the activities. References: 12 MANAGE Competitive Advantage (Porter) http://www.12manage.com/methods_porter_competitive_advantage.html AUER, T. & REPONEN, T. (1997) Information systems strategy formation embedded into a continuous organizational learning process. Information Resources Management Journal, 10, 32. BAKER, B. (1995) The role of feedback in assessing information systems planning effectiveness. Journal of Strategic Information Systems, 4, 61-80. DAS, S. R., ZAHRA, S. A. & WARKENTIN, M. E. (1991) Integrating the content and process of strategic MIS planning with competitive strategy. Decision Sciences, 22, 953-984. EARL, M. J. (1989) Management strategies for information technology, Prentice-Hall, Inc. Upper Saddle River, NJ, USA. EARL, M. (1996) Information Systems Strategy: Why Planning Techniques Are Not The Answer. Business Strategy Review, 7, 54-67. GALLIERS, R. D. (1991) Strategic information systems: myths, reality and guidelines for successful implementation. European Journal of Information Systems, 1, 55-64. HENDERSON, J. C. & VENKATRAMAN, N. (1993) Strategic Alignment: Leveraging Information Technology for Transforming Organizations. IBM Systems Journal, 32, 4-16. LEDERER, A. L. & SALMELA, H. (1996) Toward a theory of strategic information systems planning. Journal of Strategic Information Systems, 5, 237-253. LEDERER, A. L. & SETHI, V. (1988) The Implementation of Strategic Information Systems Planning Methodologies. MIS Quarterly, 12, 445-461. LUFTMAN, J. & BRIER, T. (1999) Achieving and sustaining business-IT alignment. California Management Review, 42, 109-122. PORTER, M.E. (2001). Strategy and the Internet. Harvard Business Review, 79(3), 62-78 RANGANATHAN, C. & KANNABIRAN, G. (2004) Effective management of information systems function: an exploratory study of Indian organizations. International Journal of Information Management, 24, 247. REMENJI, D. & NATIONAL COMPUTING CENTRE, L. (1991) Introducing Strategic Information Systems Planning, NCC Blackwell. RINDOVA, V. P. & FOMBRUN, C. J. (1999) Constructing Competitive Advantage: The Role of Firm-Constituent Interactions. Strategic Management Journal, 20, 691-710. TEO, T. S. H. & KING, W. R. (1997) Integration between business planning and information systems planning: an evolutionary-contingency perspective. Journal of Management Information Systems, 14, 185-214. WARD, J. & PEPPARD, J. (2002) Strategic Planning for Information Systems: Wiley. Chichester. Read More