Why Managers Must Understand the Relationship Between Strategic Planning and IT
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Transcript of Why Managers Must Understand the Relationship Between Strategic Planning and IT
Why Managers Must Understand the Relationship Between Strategic
Planning and IT• Alignment
– IT organization and resources work on projects that support the key objectives of the business
• According to the 2007 State of the CIO Survey conducted by CIO Magazine– Four of five CIOs say they are not aligned with their
organization's strategic goals
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Why Managers Must Understand the Relationship Between Strategic
Planning and IT (continued)• IT people must:
– Recognize and understand business needs – Develop effective solutions
• Business managers must communicate: – Vision, objectives, and strategies of the organization
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What is Strategic Planning?
• Strategic planning – Helps managers identify desired outcomes and
formulate feasible plans by using available resources and capabilities
– Typically an annual process
• Variety of approaches– Issues-based– Organic– Goals-based
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Defining Vision and Mission
• Vision/mission statement – Communicates an organization’s overarching
aspirations– Guides organization through changing objectives,
goals, and strategies– Components
• Core ideology
• Mission statement
• Vision of a desirable future
– Inspires and requires employees to stretch to reach its goals
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Conducting Internal Assessment
• Involve all levels and business units
• Prepare a historical perspective
• Gather data about internal processes and operations
• Analyze data to identify and assess: – How well the firm is meeting current objectives and
goals– How well its current strategies are working
• Process identifies many of the strengths and weaknesses of the firm
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Analyzing External Environment
• Examine the industry in which the organization competes
• Collect and analyze facts about its key customers, competitors, and suppliers– Members of the organization should be prepared to
hear things they do not like
• Michael Porter’s Five Forces Model– Most frequently used model for assessing the nature
of industry competition
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Analyzing External Environment (continued)
• Competitive financial analysis
• Strengths, Weaknesses, Opportunities, Threats (SWOT) matrix illustrates:– What the firm is doing well– Where it can improve– What opportunities are available– What environmental factors threaten the future of the
organization
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Defining Objectives
• Objective – Statement of a compelling business need that an
organization must meet to achieve its vision and mission
– Example• Preserving consistency in revenue and earnings
growth
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Establishing Goals
• Goal – Specific result that must be achieved to reach an
objective
• Several goals may be associated with a single objective
• Short-term, medium-term, and long-term goals
• Big Hairy Audacious Goals (BHAGs)
• Recognize and drop goals that are no longer relevant
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Setting Strategies
• Strategy – Specific actions an organization will take to achieve
its vision/mission, objectives, and goals
• Managers should consider: – Long-term impact of each strategy on revenue and
profit– Degree of risk involved– Amount and types of resources that will be required– Potential competitive reaction
• Draw on the results of the SWOT analysis
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Setting Strategies (continued)
• Michael Porter’s three fundamental strategies– Become the cost leader– Provide goods and services for a set of customers
better than others– Focus on a specific niche in the marketplace
• Market options matrix – Identify an organization’s product and market options
• Growth-share matrix– Allocate resources among various business units
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Defining Measures
• Measures – Metrics that track progress in executing chosen
strategies to attain an organization’s objectives and goals
– Help managers determine if a strategy’s ultimate purpose is being achieved
• Run the risk of “getting what they measure” without accomplishing anything meaningful
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Deploying OGSM
• O– The organization establishes numerical…
• G– Goals that index each objective, sets…
• S – Strategies on how to reach the goals, and defines…
• M– Measures to assess how well the strategies are
being executed
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Deploying OGSM (continued)
• Highest-level OGSM – Deployed to the organization’s business units and
functional units– Managers translate the information into their own
unit’s objectives and goals as input to their own OGSM processes
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Identifying Projects and Initiatives
• IT staff members pick up ideas for potential projects– Through interactions with various business
managers – From observing other IT organizations and
competitors
• Can generate many ideas for IT projects that support corporate objectives and goals
• Classify various potential projects by type
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Prioritizing Projects and Initiatives
• Combined process of setting and scheduling priorities is needed – To define which projects will be staffed and when
they will be executed
• Each viable project must relate to a specific organizational goal
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Prioritizing Projects and Initiatives (continued)
• Can the organization measure the business value of the initiative?– Tangible benefits
• Can be measured directly and assigned a monetary value
– Intangible benefits • Cannot directly be measured and cannot easily be
quantified in monetary terms
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Prioritizing Projects and Initiatives (continued)
• What kinds of costs are associated with the project, and what is the likely total cost of the effort over multiple years?
• See if the project has an attractive rate of return
• Managers must consider risks
• Sequencing of projects must be considered
• Is the organization ready and capable of taking on this project?
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A Manager Takes Action
• Lowe’s IT Portfolio Management Process
• Steady stream of IT-related efforts in its project pipeline
• CIO Larry Stone and Stephen Boerst, Lowe’s manager of IT strategy and planning– Upgraded the firm’s process for prioritizing IT
initiatives– Established an IT steering committee– Used portfolio management software
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Executing Projects and Initiatives
• Business managers have a key role in ensuring good results that meet business needs
• Success rate for IT projects is not high
• Standish Group– Estimated in a 2004 report that the IT project
success rate is only about 34 percent
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Measuring and Evaluating Results
• Actual results of a project must be compared with the goals it expected to achieve– Comparison may indicate that a change is needed
• Managers must be flexible and willing to reevaluate their positions
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Effective Strategic Planning: United Parcel Service (UPS)
• Outline of a strategic plan developed for United Parcel Service
• Define mission/vision
• OGSM
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Defining Vision and Mission
• Vision– To bring the world’s businesses together through
synchronized commerce by coordinating their distribution systems, supply chains, and order management systems, helping them to compete better in an expanding global economy
• Mission– To develop business solutions that create value and
competitive advantages for customers of all sizes through product differentiation, market penetration, better customer service, and improved cash flow
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Conducting Internal Assessment
• Example: UPS
• Historical perspective– Two teenagers started the service in 1907
• Claude Ryan and Jim Casey
– Expanded its Next Day Air service to all 50 states and Puerto Rico by 1985
– Began tracking with Delivery Information Acquisition Devices (DIADs)
– Captured major shipping associated with e-commerce
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Conducting Internal Assessment (continued)
• Current strategies– Global expansion– Provide all modes of service
• Identification of strengths– Financial strength– Makes effective use of technology
• Identification of weaknesses– Thin operating margin
• Identification of threats– Union contracts
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Conducting External Assessment
• Examining industry– UPS competes in the package delivery industry
• Identification of strengths– Dominant market share– Global reach– Strong brand image
• Identification of opportunities– Acquisitions– Growth in e-commerce– International growth
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Conducting External Assessment (continued)
• Identification of threats– Rising oil prices– Terrorism
• Competitive analysis
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Defining Objectives
• Key objective– Future profitability
• Revenues of $43 billion and operating income of $6 billion in 2005
• Growth from 2002 – 2005– Revenue 10.8 percent– Profit 14.5 percent
• Preserve this consistency in revenue and earnings growth
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Establishing Goals
• Increase operating profits in all three business segments– Domestic delivery– International delivery– Supply chain and freight
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Setting Strategies
• Primary strategy – Take advantage of UPS’s competitive strengths – Maintain the firm’s focus on meeting or exceeding
customer requirements
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Defining Measures
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Deploying OGSM to IT
• Dave Barnes– Promoted to senior vice president and CIO of UPS in
2005– Responsible for ensuring that IT organization
understands the corporate OGSM
• Define, execute, and measure projects that are consistent with the firm’s mission, objectives, goals, and strategies
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Identifying and Prioritizing Projects and Initiatives
• Breakthrough– UPS Package Flow Technology– Designed to support growth, improve productivity,
reduce costs, and provide the platform for new services
– Savings from this project are estimated to be $750 million per year starting in 2008
• Growth– Expanding Worldport hub– Increase sorting capacity over the next five years by
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Identifying and Prioritizing Projects and Initiatives (continued)
• Innovation– Continues to monitor RFID advances closely
• Enhancement– EDD (Enhanced DIAD Download) is UPS-developed
software that downloads an electronic manifest to the driver’s DIAD at the start of each workday
• Maintenance– Continually evaluating and upgrading the DIAD
device
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Identifying and Prioritizing Projects and Initiatives (continued)
• Mandatory– Target Search – Enables U.S. Customs and Border Protection agents
to inspect packages that pass through the Worldport international hub
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Executing Project, Then Measuring and Evaluating Results
• During project execution– Actual results are compared to expected results
• Some approved projects even may be cancelled based on negative results
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Summary
• Strategic planning– Helps managers identify desired outcomes and
formulate feasible plans– Requires analysis of internal and external
environment
• Management defines:– Objectives– Strategies
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Summary (continued)
• Organization’s objectives, goals, strategies, and measures (OGSM) – Must be deployed to its various business units and
functional units so that everyone knows what is expected and how to achieve it
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