Chapter 5: Organizational Structures that Support Strategic Initiatives

Organizational employees must work closely together to develop strategic initiatives that create competitive advantages.

Ø  Ethics and security are two fundamental building blocks that organizations must base their businesses upon.

INFORMATION TECHNOLOGY ROLES AND RESPONSIBILITIES

Ø  Information technology is a relatively new functional area, having only been around formally for around 40 years.

Ø  Recent IT – related strategic positions:

             -   Chief Information Officer (CIO)

             -   Chief Technology Officer (CTO)

             -   Chief Security Officer (CSO)

             -   Chief Privacy Officer (CPO)

             -   Chief Knowledge Officer (CKO)

Chief Information Officer (CIO) 

 Oversees all uses of IT and ensures the strategic alignment of IT with business goals and  objectives

Broad Chief Information Officer functions include;

Ø   Manager – ensuring the delivery of all IT projects, on time and within budget.

Ø  Leader – ensuring the strategic vision of IT is in line with the strategic vision of the organization.

Ø  Communicator – building and maintaining strong executive relationships.

Average CIO compensation by industry
Industry	Average CIO Compensation
Wholesale/Retail/Distribution	$ 243,304
Finance	$ 210,547
Insurance	$ 197,697
Manufacturing	$ 190,250
Medical/Dental/Health Care	$ 171,032
Government	$ 118,359
Education	$   93,750

    

What concerns CIOs the most
%	CIOs Concerns
94	Enhancing customer satisfaction
92	Security
89	Technology evaluation
87	Budgeting
83	Staffing
66	ROI analysis
64 45	Building new applications
	Outsourcing hosting

        

Chief Technology Officer (CTO)

Ø  responsible for ensuring the throughput , speed, accuracy, availability and reliability of IT

Chief Security Officer (CSO)

Ø  responsible for ensuring the security of IT systems

Chief Privacy Officer (CPO)

Ø  responsible for ensuring the ethical and legal use of information

Chief Knowledge Officer (CKO)

Ø  responsible for collecting, maintaining and distributing the organization’s knowledge

THE GAP BETWEEN BUSINESS PERSONNEL AND IT PERSONNEL

Ø   Business personnel possess expertise in functional areas such as marketing, accounting and sales

Ø   IT personnel have the technological expertise

Ø  This typically causes a communications gap between the business personnel and IT personnel

IMPROVING COMMUNICATIONS

Ø  Business personnel must seek to increase their understanding of IT

Ø  IT personnel must seek to increase their understanding of the business

Ø   It is the responsibility of the CIO to ensure effective communication between business personnel and IT personnel

ORGANIZATIONAL FUNDAMENTALS – ETHICS AND SECURITY

Ø   Ethics and security are two fundamental building blocks that organizations must base their businesses on to be successful

Ø  In recent years, such event as the 9/11 have shed new light on the meaning of ethics and security

ETHICS 

Ø  Ethics – the principles and standards that guide our behavior toward other people

Ø  Privacy is a major ethical issues;

o   Privacy – the right to be left alone when you want to be to have control ever your own personnel possessions and not to be observed without your consent

Ø  Issues affected by technology advances

Intelligent property	Intangible creative work that is embodied in physical form
Copyright	The legal protection afforded an expression of an idea, such as a song, video game and some types of proprietary documents
Fair use doctrine	In certain situations, it is legal to use copyrighted material
Pirated software	The unauthorized use, duplication, distribution or sale of copyrighted software
Counterfeit software	Software that is manufactured to lock like the real thing and sold as such

Ø   One of the main ingredients in trust is privacy

Ø  Primary reasons privacy issues lost trust for e-business

1.	Loss of personnel privacy is a top concern for Americans in the 21st century
2.	Among Internet users, 37 percent would be “a lot” more inclined to purchase a product on a websites that had a privacy policy
3.	Privacy/security is the number one factors that would convert Internet researchers into Internet buyers

SECURITY – HOW MUCH WILL DOWNTIME COST YOUR BUSINESS??

Sources of Unplanned Downtime
Bomb threat	Hacker	Snowstorm
Burst pipe	Hail	Sprinkler malfunction
Chemical spill	Hurricane	Static electricity
Construction	Ice storm	Strike
Corrupted data	Insects	Terrorism
Earthquake	Lightning	Theft
Electrical short	Network failure	Tornado
Epidemic	Plane crash	Train derailment
Equipment failure	Frozen pipe	Smoke damage
Evacuation	Power outage	Vandalism
Explosion	Power surge	Vehicle crash
Fire	Rodents	Virus
Flood	Sabotage	Water damage (various)
Fraud	Shredded data	Wind

·       

How much will down time cost your business??
FINANCIAL PERFORMANCE •          REVENUE RECOGNITION •          CASH FLOW •          PAYMENT GUARANTEE •          CREDIT RATING •          STOCK PRICE	REVENUE •          DIRECT LOSS •          COMPENSANTORY PAYMENTS •          LOST FUTURE REVENUE •          INVESTMENT LOSES •          LOST PRODUCTIVITY
DAMAGED REPUTATIONS •          CUSTOMERS •          SUPPLIERS •          FINANCIAL MARKETS •          BANKS •          BUSINESS PATNERS	OTHER EXPENSES •          TEMPORARY EMPLOYEES •          EQUIPMENT RENTALS •          OVERTIME COSTS •          EXTRA SHIPPING CHARGES •          TRAVEL EXPENSES •          LEGAL OBLIGATIONS

PROTECTING INTELLECTUAL ASSETS

Ø  Organizational information is intellectual capital – it must be protected

Ø  Information security – the protection of information from accidental or intentional misuse by persons inside or outside an organization

Ø  E-business automatically crates tremendous information security risks for organization

Percentage of IT Budget Spent on Information Security

Average Reported Computer Security 

Expenditure/Investment per Employee 

Chapter 4: Measuring the Success of Strategic Initiatives

MEASURING INFORMATION TECHNOLOGY’S SUCCESS

·                     Key performance indicator – measures that are tied to business drivers

·                      Metrics are detailed measures that feed KPIs

·                     Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals

EFFICIENCY AND EFFECTIVENESS

·                      Efficiency IT metric – measures the performance of the IT system itself including throughput, speed, and availability

·                     Effectiveness IT metric – measures the impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases

BENCHMARKING – BASELINE METRICS

·                      Regardless of what is measured, how it is measured, and whether it is for the sake of efficiency or effectiveness, there must be benchmarks –baseline values the system seeks to attain

·                     Benchmarking – a process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and producers to improve system performance

 Common types of efficiency IT metrics

	Efficiency IT Metrics
Throughput	The amount of information that can travel through a system at any point.
Transaction speed	The amount of time a system takes to perform a transaction.
System availability	The number of hours at system is available for users.
Information accuracy	The extent to which a system generates the correct results when executing the same transaction numerous times.
Web traffic	Includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a web page.
Response time	The time it takes to respond to user interactions such as a mouse click.

Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include

	Effectiveness IT Metrics
Usability	The ease with which people perform transactions and/or find information. A popular usability metric on the Internet is degrees of freedom, which measures the number of clicks required to find desired information.
Customers satisfaction	Measured by such benchmarks as satisfaction surveys, percentage of existing customers retained, and increases in revenue dollars per customer.
Conversion rates	The number of customers an organization “touches” for the first time and persuades to purchase its products or services. This is a popular metric for evaluating the effectiveness of banner, pop-up, and pop-under ads on the Internet.
Financial	Such as return on investment (the earning power of an organization’s assets), cost-benefit analysis (the comparison of projected revenues and costs including development, maintenance, fixed and variable), and break-even analysis (the point at which content revenues equal ongoing costs).

-          Security is an issue for any organization offering products or services over the Internet.

-          It is inefficient for an organization to implement Internet security, since it slows down processing.

·         However, to be effective it must implement Internet security.

·         Secure Internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower right corner of browser)

    

                

WEBSITE METRICS

SUPPLY MANAGEMENT METRICS

CUSTOMER RELATION MANAGEMENT METRICS

 BUSINESS PROCESS RE-ENGINEERING METRICS AND 

ENTERPRISE RESOURCE PLANNING METRICS 

The balanced scorecard enables organizations to measure and manage strategic initiatives. 

Chapter 3: Strategic Initiatives for Implementing competitive Advantages.

Organization can undertake high-profile strategic initiative including:-

• -          Supply Chain Management (SCM)

• -          Customer Relationship Management (CRM)

• -          Business Process Reengineering (BPR)

• -          Enterprise Resource Planning (ERP)

      Basic Compenents of Supply Chain Management

• Supply chain strategy- Strategy for managing all resources to meet customer demand

• Supply chain partner-   Partner throughout the supply chain that deliver finished products, raw materials and services.

• Supply chain operation- Schedule for production activities

• Supply chain logistics- product deliver process

Effective and Efficient SCM System

• Decrease the power of its buyer

• Increase its own supplier power

• Increase switching costs to reduce the threat of substitute products or services

• Create entry barriers thereby reducing the threat of new entrants

• Increase efficiencies while seeking a competitive advantage through cost leadership

Effective and efficient SCM system can enable an organizatiom to:

• Identify types of customers

• Design individual customer marketing campaign

• Treat each customer as a individual

• Understand customer buying behaviors

• Re engineering the Corporation – book written by Michael Hammer and James Champy that recommends seven principles for BPR

• Finding Opportunity Using BPR

SUPPLY CHAIN MANAGEMENT
Supply chain management is management of information flows between and among activities in a supply chain to maximize total supply chain effectiveness and corporate profitability. 
BASIC COMPONENTS OF SUPPLY CHAIN MANAGEMENTEffective and Efficient of SCM System

Customers Relationship Management (CRM)
Its involves managing all aspects of a customer’s relationship with an organization to increase customer loyalty and retention and an organization’s profitability
Many organizations, such as Charles Schwab and Kaiser Permanente, have obtained great success through the implementation of CRM systems
CRM is not just technology, but a strategy, process and business goal that an organization must embrace on an enterprise wide level
CRM can enable an organization to :

Business Process Re engineering (BPR)
It is a standardized set of activities that accomplish a specific task, such as processing a customer’s orderThe analysis and redesign of workflow within and between enterprisesThe purpose of BPR is to make all business processes best in classA company can improve the way it travels the road by moving from foot to horse and then horse to car
BPR looks at taking a different path, such as an airplane which ignore the road completely

Enterprises Resource Planning (ERP)
It  integrates all departments and functions throughout an organization into a single IT system so that employees can make decisions by viewing enterprise wide information on all business operations
Keyword in ERP is “enterprise”.
ERP systems collect data from across an organization and correlates the data generating an enterprise wide view

Chapter 3: Strategic Initiatives for Implementing competitive Advantages.

Organization can undertake high-profile strategic initiative including:-

• -          Supply Chain Management (SCM)

• -          Customer Relationship Management (CRM)

• -          Business Process Reengineering (BPR)

• -          Enterprise Resource Planning (ERP)

n              Basic Compenents of Supply Chain Management

• Supply chain strategy- Strategy for managing all resources to meet customer demand

• Supply chain partner-   Partner throughout the supply chain that deliver finished products, raw materials and services.

• Supply chain operation- Schedule for production activities

• Supply chain logistics- product deliver process

Effective and Efficient SCM System

• Decrease the power of its buyer

• Increase its own supplier power

• Increase switching costs to reduce the threat of substitute products or services

• Create entry barriers thereby reducing the threat of new entrants

• Increase efficiencies while seeking a competitive advantage through cost leadership

Effective and efficient SCM system can enable an organizatiom to:

• Identify types of customers

• Design individual customer marketing campaign

• Treat each customer as a individual

• Understand customer buying behaviors

• Re engineering the Corporation – book written by Michael Hammer and James Champy that recommends seven principles for BPR

• Finding Opportunity Using BPR

SUPPLY CHAIN MANAGEMENT

Supply chain management is management of information flows between and among activities in a supply chain to maximize total supply chain effectiveness and corporate profitability. 

BASIC COMPONENTS OF SUPPLY CHAIN MANAGEMENT

Effective and Efficient of SCM System

Customers Relationship Management (CRM)

Its involves managing all aspects of a customer’s relationship with an organization to increase customer loyalty and retention and an organization’s profitability

Many organizations, such as Charles Schwab and Kaiser Permanente, have obtained great success through the implementation of CRM systems

CRM is not just technology, but a strategy, process and business goal that an organization must embrace on an enterprise wide level

CRM can enable an organization to :

Business Process Re engineering (BPR)

It is a standardized set of activities that accomplish a specific task, such as processing a customer’s order

The analysis and redesign of workflow within and between enterprises

The purpose of BPR is to make all business processes best in class

A company can improve the way it travels the road by moving from foot to horse and then horse to car

BPR looks at taking a different path, such as an airplane which ignore the road completely

Enterprises Resource Planning (ERP)

It  integrates all departments and functions throughout an organization into a single IT system so that employees can make decisions by viewing enterprise wide information on all business operations

Keyword in ERP is “enterprise”.

ERP systems collect data from across an organization and correlates the data generating an enterprise wide view

Chapter 2: Identifying Competitive Advantages

What is Competitive Advantages?

- Competitive advantages s a feature of a product or service on which customers place a greater  
   value than they do on similar offerings from competitors.
-  Competitive advantages provide same product or service either at lower price with additional    
    value. 
-  Competitive advantages are typically temporary.

What is First-Mover advantages?
- Occur when an organization can significantly impact its market share by being first to market with   a competitive advantages
- First-mover advantages also are typically temporary because other company/competitors can  
  duplicate them.
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Organization watch their competition through environmental scanning

*Environmental scanning is the acquisition and analysis of events and trends in the environment external to an organization.

There are 3 common tools used in industry to analyze and develop competitive advantages

1. Porter's Five Forces Model
     

   
Bargaining power of buyers ( Buyer power)

- Buyer power is the ability of buyers to affects the price they must pay for an item.

- The ability of customer's to put the firm under pressure, which also affects the customers               sensitivity to the prices changes

- If large number of customers will act with each other and ask to make prices low the company       will have no other choice because of large of customer pressure.

- A firm can reduce buyer power through:-

   a. Loyalty program- Rewards customers based on the amount of business they do with a particular organization

   b. Switching cost- Costs that can make customers reluctant to switch to another product or service. For example we can make produce a product that have good quality than other similar product 

Bargaining power of supplier (Supplier power)

- A supplier can be relate to various parties directly or indirectly, in obtaining raw materials or a product.
- Supplier power is the suppliers' ability to influence the prices they charge for supplies.
- Supplier power high when buyers have few choices of whom to buy from and low when their choices are many.
- Organization that are buying goods and services in the supply chain can create a competitive advantage by locating alternative supply sources (decreasing supplier power) through Business-to-business (B2B) marketplaces.
   a. What is Business-to-business (B2B) marketplace?
      -  An internet-based service that brings together many buyers and sellers
      -  By using this based we can decrease buyer power.
      -  This process occur in industrial field only. Not to end-users (custsomer)

b. There are 2 types of Business-to-business (B2B) marketplaces:-

       - Private exchanges- a single buyer posts its needs and then opens the bidding to any supplier   who would care to bid.

       - Reverse auction- An auction format in which increasingly lower bids are solicited from organizations willing to supply the desired product or service at an increasingly lower price.

Threat of substitute products or services

-Threat of substitute products or services high when there are many alternatives to a product or       services

- It can become low when there are few alternatives from which to choose.

Threat of new entrants

- In Porters five forces, threats of new entrants refers to the threat new competitors pose to existing competitors an industry.
- Threat of new entrants high when it is easy for new competitors to enter a market.
- And low when there are significant entry barriers to entering a market
 * Entry barriers- A product or service feature that customer have come to expect from organizations in a particular industry and must be offered by an entering organization to compete and survive.

Rivalry among existing competitors

-The rivalry among existing competitors is high  when competition is fierce in a market.
- And low when competition is more complacent.
-A company can reduce rivalry with product differentiation.
*Product differentiation occur when a company develops unique differences in its products or services with the intent to influence demand.
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The Three Generic Strategies

Porter has identified three generic business strategies for entering a new-market:-

a. Broad cost leadership
b. Broad differentiation
c. Focused Strategy

Cost Leadership

There are two main ways of achieving this within Cost leadership strategy.

  1. Increasing profits by reducing costs, while charging industry-average prices. 

  2.Increasing market share through charging lower prices, while still making reasonable profit on each sale because you've reduced costs.

• Broad market and low cost- Walmart competes by offering a broad range of products at low prices. Its business strategy is to be low-cost provider of goods for the cost-conscious consumer.

Differentiation 

To make a success of a differentiation strategy, organizations need:

1. Good research, development and innovation

2. The ability to deliver high-quality products or services.

3. Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.

• Broad market and high cost- Neiman Marcus competes by offering a broad range of differentiated products at high prices. Its business strategy offers a variety of specialty and upscale products to affluent consumers.

Focused strategy

Companies that use focus strategy concentrate on particular market and by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. because they serve customers in their market uniquely well, they tend to build strong brand loyalty among their customers. This makes their particular market segment less attractive to competitors.

• Narrow market and low cost-  Payless compete by offering a specific product, shoes, at  low prices. Its business strategy is to be the low-cost provider of shoes. Payless competes with Walmart, which also sells low-costs shoes, by offering  far bigger selection of sizes and styles.
• Narrow market and high cost: Tiffany & Co. competes by offering a differentiated product, jewelry, at high prices. Its business strategy allows it to be a high-cost provider of premier designer jewelry to affluent customers.

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Value Creation

Once an organization chooses its strategy, it can use tools such as the value chain to determine the success or failure of its chosen strategy.

- Business process- a standardized set of activities that accomplish a specific task, such as processing a customer's order

-Value chain- views an organization as a series of processes, each of which adds value to the product or service for each customer

- Customers determine the extent to which each activity adds value to the product or service

- The competitive advantage is to:

• Target high value-adding activities to further enhance their value
• Target low value-adding activities to increase their value
• Perform some combination of the two