1 MANAGEMENT INFORMATION SYSTEM DEFINITION: Management Information system is a set of formalized procedures to provide managers at all levels with

appropriate information from all relevant sources (both internal and external) to enable them to make timely and effective decisions for planning and controlling the activities for which they are responsible. ALTERNATIVE DEFINITION: In the modern terms an MIS is defined: As an organized combination of people, hardware, software, communications networks and data resources that collects, transforms, and disseminates information in an organization for managerial functions of an organization. It comprises of: A single set of hardware, software, databases, telecommunications, people and procedures that are configured to collect, manipulate, store and process data into information. Hardware: Computer equipment used to perform input, processing, and output activities Software: Computer programs that govern the operation of the computer Database: An organized collection of facts and information. Telecommunications:- The electronic transmission of signals for communications: enables organizations to carry out their processes and tasks through effective computer networks. People: These are personnel who manage, run, program and manage the system Procedures:- the strategies, policies, methods and rules for using a CBIS Global Challenges in information Systems Cultural Challenges. Countries and regional areas have their own cultures and customs that can significantly affect individuals and organizations involved in global trade Language Challenges:- Language differences can make it difficult to translate exact meaning from one language to another Time and distance Challenges:- Time and distance can be difficult to overcome for individuals and organizations involved in global trade in remote locations 2 Infrastructure challenges:- High quality electricity, Telephone services, internet connections and skilled employees might be expensive or not readily available. Currency challenges:- the value of different currencies can vary significantly over time, making international trade more difficult and complex Product and Service challenges:- Traditional products that are physical or tangible can be difficult to deliver to the global market Technology transfer issues:- Most governments dont allow certain military-related equipment and systems to be sold to some countries. State, regional and national laws:-Every state, region and country have a set of laws that have to be obeyed by citizens and organizations operating in the country. Trade Agreements:- Countries often enter into trade agreements with each other. Who are the users of Information from an MIS? Managers The idea of using the computer as a management information system was a breakthrough because it recognized managers need for problem solving

information. Embracing the MIS concept made several firms develop applications specifically aimed at management support. Non-managers Non-manages and staff specialists also use the MIS output. Persons & organizations in the firms environment Users outside the company benefit from the MIS as well. They can be customers receiving invoices, stockholders getting dividend checks, and government checking tax reports. ROLE OF CMIS The role of MIS is to support management process in: (i) Report Generation. (ii) Inquiry processing. (iii) Data analysis. Report Generation: Reports are the primary means of disseminating information in CBMIS. The reports are classified according to their frequency, level of detail and the 3 degree to which they anticipate information need. There are several types of reports that can be generated by a CBMIS: (a) Scheduled reports - produced at regular intervals during the business cycle and may contain such information as sales per period, resources employed (Daily, weekly, monthly, annually etc). (b) Unscheduled reports (demand reports or ad hoc) that a manager may request to satisfy an anticipated need. For example a cash flow crisis at any particular time could precipitate an investigation into the spending habits in each cost centre in order to determine the likely situation into the following months. (c) Special reports that are prepared to satisfy unanticipated need. (d) Predictive Reports - predictive in nature and are more concerned with modelling of future events such sales forecast and can be useful as early warning systems. (d) Hybrid reports - a combination of all the reports. Report Detail Managers do not need detailed reports but require summary reports, which use statistical summaries like averages, ranges, deviations. Others are exception reports that falls outside certain management defined parameters. Use of Reports: The greatest need for disseminating information occurs in co-ordinating and controlling functions. Reports are the means of communicating the nature of tasks to be carried out. Co-ordinating reports flow downward in an organization, conveying the implementing instructions of plans from higher to lower levels of management. Controlling reports flow upward as managers report the accomplishment of tasks, resource consumption etc. Inquiry Processing The use of DBMS (Database Management System) enhances inquiry processing and inquiries are alternatives to special reports. Inquiries produce results in seconds or minutes as opposed to days or weeks required for special reports. Use Of Inquiry Processing: This is used to support planning and organizing functions. Information that meet a certain criteria can be extracted by inquiry processing. 4 Data Analysis This is the examination of subsets of data with the purpose of discerning hidden meaning. Most of this analysis is statistical in nature and uses mathematical models. Commonly used models are trend analysis, linear

regression, linear programming etc. Use Of Data Analysis: Planning may require information that is not readily apparent in the raw data. Data analysis supports planning through mathematical models. Impact Of IS Management: Modern management needs IS not so much to get ahead but to hold its own in a changing environment. Middle management are the greatest users of IS especially in programmed decisions. FACTORS THAT INFLUENCE ON STRUCTURE OF AN MIS MIS is influenced by: (a) Primary function of the organization whether it is private organization or public organization will influence the overall structure of CBMIS. (b) The structure and levels of the organization. (c) The degree of centralization and decentralization. (d) Interactions with the environment. (e) Decisions that need to be taken whether they are programmed or non-programmed. (f) The scale of operation. (g) Management style - i.e autocratic, democratic, or laissez-faire. VALUE OF MIS Information has always been a vital resource for all forms of life since time immemorial. In early days information could be sent by such methods as drums and smoke signals. No organization can survive without information. Information is used to reduce the risk attached to making a decision thus information increases knowledge and reduces risk. The balance between what is necessary and what is enough is not easy to decide. No clear proof that more information leads to better decision. Improving quality and quantity will create value if it is used effectively. On its own information has no value, its value can only come from the users of the system and not from the producers of information. Management at all levels and functions are the only ones who can attribute value to an IS as a result of actions and decision taken with the information emanating from the IS either to utilize resources more effectively or increase organization efficiency or increase profits. 5 VALUATION AND COST OF INFORMATION Value of Information The value of information is derived from the actions by decision makers which in some way increase profitability and efficiency. Cost of information This falls under two main headings: (a) The cost of designing and setting up the system (b) The cost of day to day operation (a) Cost of design and set up (i) Cost of systems analysts, programmers and consultants. (ii) Cost of equipment used (iii)Cost of implementing the system after designing it. (iv) Training costs. (b) Operating Costs (i) Wages and salaries of employees operating the system. (ii) Cost of supplies e.g. paper, printer ribbons, diskettes etc (iii) Other ongoing costs e.g. telecommunication charges. The effect of accuracy on cost and value The general principle is that the cost of information should not exceed its value. Collecting more information may increase its value but it may also increase its cost. ESTABLISHING INFORMATION NEEDS Any research on information needs must start from the present position and examine ; (i) Information used at present.

(ii) Information needed but not available. (iii) The information which cannot be obtained. Examine the information produced at present by asking the following questions: (a) Why is this information produced? 6 (b) Who receives it?. (c) Why do they receive it ?. (d) What decisions is it used for?. The second step is defining what is needed and due to the difficulties involved, detailed survey is required that answers the following questions: a) What decisions does the manager take? b)What type of decisions are they? Are they: (i) Complex: made infrequently unstructured, depending largely on current circumstances unknown information requirement. (ii) Routine: made more frequently but structured. (iii) Mechanical - made regularly highly structured with easy access to the data required. (c) What information is needed for each decision ? FACTORS THAT GOVERN THE OUTPUT FROM AN MIS Destination of the report - who is to receive the report and at what level is he in the organization?. Use of the report - What will it be used for and what decisions will be taken based on the report?. Urgency - How urgent is the report? Report detail - How detailed should the report be for the right decision to be taken. Frequency - How frequent should the report be? - Daily, weekly, monthly, annually etc. MIS PROBLEMS The following are some of the problems that may arise in MIS applications: Information is not on time 7 There is too much information and too little specialisation Presentation is in the wrong format Lack of conciseness The system is not cost-effective Information is not properly integrated Too much information i.e. information overload leading to inefficiency and insufficient attention. Very little information i.e. information under-load so that the recipient has very little information upon which to base decisions. INFORMATION SYSTEM INFRASTRUCTURE IS consists of five major resources: People Hardware Software Data Network Information Products DECISION MAKING This takes place at all the three levels: Top Management - Strategic decision making. Middle Management - Tactical decision making. Operational Management - Operational decision making. External influences may affect decision making within and outside the levels and outside the organization and any external information is required if good decisions have to be made. Since Decision making involves a choice

between alternatives, Information availability reduces uncertainty and helps managers to see the likely effects of various decisions. The following are some of the problems that may arise in the use of information for decision making process: Information is not on time There is too much information and too little specialisation presentation is in the wrong format Lack of conciseness The system is not cost-effective Information is not properly integrated Too much information i.e. information overload leading to inefficiency and insufficient attention. Very little information i.e. information under load so that the recipient has very little information upon which to base decisions. 8 INFORMATION USAGE AT VARIOUS LEVELS Characteristic Top Management Middle Management Operating Management Planning Heavy Moderate Minimum Control Moderate Heavy Heavy Time frame 1-5 years Up to one year Day to day Scope of activity Extremely broad Entire functional area Single sub functions Nature of activity Unstructured Moderately structured Highly structured Level of complexity Very complex, many variables Less complex, better defined variables Straight forward Job Measurement Difficult Less difficult Relatively easy Result of activity Plans, Policies and strategies Implementation schedules, performance yardsticks End Product Type of information utilized External Internal with reasonable accuracy Internal, historical with very high level

of accuracy Mental attributes Creative, innovative Responsible, Persuasive, Administrative Efficient, effective Number of people involved Few Moderate number Many Departmental/Divisional interaction Intra-Division IntraDepartment InterDepartment Decision and Information: The manager needs information to help him to select courses of action i.e. make decisions, control implementation of an action and to record success or failure of an action taken. Thus a manager must receive information related to his job, his responsibilities and the decision which he makes. Blind decisions can be made but their outcomes are unpredictable and pure chance. In modern business nothing is left to chance thus an efficient Information system is mandatory. Thus the first principle of an IS is that information should not be produced for its own sake. Information is good for decision making if it is: Complete 9 When making a decision we need to get all the available information. e.g. purchasing goods we would need all the information about suppliers who would supply us with the required goods. Relevant Information should be screened to remove any factors which are irrelevant to making the decision. Timely Information can only be of use if it is received in time to affect the decision making process. E.g production of reports the more sooner, they are produced the better and this is an obvious advantage to computerised systems. Accurate Information must be reliable enough to facilitate meaningful decisions. However, there is no point in achieving a high level of accuracy for its own sake. Understandable Information which is easy to understand is more likely to produce action. Computers have been accused of producing information that is hard to understand. Significant In order to keep information simple and to the point it is advisable to screen out any facts which are not significant enough to affect the decision making process. For example, facts which tell simply tell us that things are going according to plan need not be reported at all. The system should concentrate on exceptional reporting. Adaptable As the organisation evolves, management needs for information are constantly changing. They may need new facts or they may need them presented or analyzed in a different way. And an information system

should be adaptable to management needs DECISION MAKING PROCESS According to Simon Model decision making process has three steps Intelligence -searching for conditions that call for decisions Design -inventing, developing, and analyzing possible courses of action Choice -selecting a course of action from those available o Unstructured problem has no structured phases o Semi structured problem has some structured phases o Structured problem has all structured phases 10 Procedures for obtaining the best solution are known Objectives are clearly defined Management support systems can be useful o Unstructured problems often solved with human intuition o Semi structured problems solve with standard solution procedures and human judgment A Decision Support System can help managers understand problems in addition to providing solutions. Managers are constantly called upon to make decisions in order to solve problems. Decision making and problem solving are ongoing processes of evaluating situations or problems, considering alternatives, making choices, and following them up with the necessary actions. Sometimes the decision-making process is extremely short, and mental reflection is essentially instantaneous. In other situations, the process can drag on for weeks or even months. The entire decision-making process is dependent upon the right information being available to the right people at the right times. The decision-making process involves the following steps: Define the problem. Identify limiting factors. Develop potential alternatives. Analyze the alternatives. Select the best alternative. Implement the decision. Establish a control and evaluation system. Define the problem The decision-making process begins when a manager identifies the real problem. The accurate definition of the problem affects all the steps that follow; if the problem is inaccurately defined, every step in the decisionmaking process will be based on an incorrect starting point. One way that a manager can help determine the true problem in a situation is by identifying the problem separately from its symptoms. The most obviously troubling situations found in an organization can usually be identified as symptoms of underlying problems. (See Table 1 for some examples of symptoms.) These symptoms all indicate that something is wrong with an organization, but they don t identify root 11 causes. A successful manager doesn t just attack symptoms; he works to uncover the factors that cause these symptoms. TABLE 1 Symptoms and Their Real Causes Symptoms Underlying Problem Low profits and/or declining sales Poor market research High costs Poor design process; poorly trained employees Low morale Lack of communication between management and subordinates

High employee turnover Rate of pay too low; job design not suitable High rate of absenteeism Employees believe that they are not valued Identify limiting factors All managers want to make the best decisions. To do so, managers need to have the ideal resources information, time, personnel, equipment, and supplies and identify any limiting factors. Realistically, managers operate in an environment that normally doesn t provide ideal resources. For example, they may lack the proper budget or may not have the most accurate information or any extra time. So, they must choose to satisfice to make the best decision possible with the information, resources, and time available. Develop potential alternatives Time pressures frequently cause a manager to move forward after considering only the first or most obvious answers. However, successful problem solving requires thorough examination of the challenge, and a quick answer may not result in a permanent solution. Thus, a manager should think through and investigate several alternative solutions to a single problem before making a quick decision. One of the best known methods for developing alternatives is through brainstorming, where a group works together to generate ideas and alternative solutions. The assumption behind brainstorming is that the group dynamic stimulates thinking one person s ideas, no matter how outrageous, can generate ideas from the others in the group. Ideally, this spawning of ideas is contagious, and before long, lots of suggestions and ideas flow. Brainstorming usually requires 30 minutes to an hour. The following specific rules should be followed during brainstorming sessions: 12 Concentrate on the problem at hand. This rule keeps the discussion very specific and avoids the group s tendency to address the events leading up to the current problem. Entertain all ideas. In fact, the more ideas that come up, the better. In other words, there are no bad ideas. Encouragement of the group to freely offer all thoughts on the subject is important. Participants should be encouraged to present ideas no matter how ridiculous they seem, because such ideas may spark a creative thought on the part of someone else. Refrain from allowing members to evaluate others ideas on the spot. All judgments should be deferred until all thoughts are presented, and the group concurs on the best ideas. Although brainstorming is the most common technique to develop alternative solutions, managers can use several other ways to help develop solutions. Here are some examples: Nominal group technique. This method involves the use of a highly structured meeting, complete with an agenda, and restricts discussion or interpersonal communication during the decisionmaking process. This technique is useful because it ensures that every group member has equal input in the decision-making process. It also avoids some of the pitfalls, such as pressure to conform, group dominance, hostility, and conflict, that can plague a more interactive, spontaneous, unstructured forum such as brainstorming. Delphi technique. With this technique, participants never meet, but a group leader uses written questionnaires to conduct the decision making. No matter what technique is used, group decision making has clear advantages and disadvantages when compared with individual decision making. The following are among the advantages: Groups provide a broader perspective. Employees are more likely to be satisfied and to support the final decision.

 Opportunities for discussion help to answer questions and reduce uncertainties for the decision makers. These points are among the disadvantages: This method can be more time-consuming than one individual making the decision on his own. The decision reached could be a compromise rather than the optimal solution. 13 Individuals become guilty of groupthink the tendency of members of a group to conform to the prevailing opinions of the group. Groups may have difficulty performing tasks because the group, rather than a single individual, makes the decision, resulting in confusion when it comes time to implement and evaluate the decision. The results of dozens of individual-versus-group performance studies indicate that groups not only tend to make better decisions than a person acting alone, but also that groups tend to inspire star performers to even higher levels of productivity. So, are two (or more) heads better than one? The answer depends on several factors, such as the nature of the task, the abilities of the group members, and the form of interaction. Because a manager often has a choice between making a decision independently or including others in the decision making, she needs to understand the advantages and disadvantages of group decision making. Analyze the alternatives The purpose of this step is to decide the relative merits of each idea. Managers must identify the advantages and disadvantages of each alternative solution before making a final decision. Evaluating the alternatives can be done in numerous ways. Here are a few possibilities: Determine the pros and cons of each alternative. Perform a cost-benefit analysis for each alternative. Weight each factor important in the decision, ranking each alternative relative to its ability to meet each factor, and then multiply by a probability factor to provide a final value for each alternative. Regardless of the method used, a manager needs to evaluate each alternative in terms of its Feasibility Can it be done? Effectiveness How well does it resolve the problem situation? Consequences What will be its costs (financial and nonfinancial) to the organization? Select the best alternative After a manager has analyzed all the alternatives, she must decide on the best one. The best alternative is the one that produces the most 14 advantages and the fewest serious disadvantages. Sometimes, the selection process can be fairly straightforward, such as the alternative with the most pros and fewest cons. Other times, the optimal solution is a combination of several alternatives. Sometimes, though, the best alternative may not be obvious. That s when a manager must decide which alternative is the most feasible and effective, coupled with which carries the lowest costs to the organization. (See the preceding section.) Probability estimates, where analysis of each alternative s chances of success takes place, often come into play at this point in the decision-making process. In those cases, a manager simply selects the alternative with the highest probability of success. Implement the decision Managers are paid to make decisions, but they are also paid to get results

from these decisions. Positive results must follow decisions. Everyone involved with the decision must know his or her role in ensuring a successful outcome. To make certain that employees understand their roles, managers must thoughtfully devise programs, procedures, rules, or policies to help aid them in the problem-solving process. Establish a control and evaluation system Ongoing actions need to be monitored. An evaluation system should provide feedback on how well the decision is being implemented, what the results are, and what adjustments are necessary to get the results that were intended when the solution was chosen. In order for a manager to evaluate his decision, he needs to gather information to determine its effectiveness. Was the original problem resolved? If not, is he closer to the desired situation than he was at the beginning of the decision-making process? If a manager s plan hasn t resolved the problem, he needs to figure out what went wrong. A manager may accomplish this by asking the following questions: Was the wrong alternative selected? If so, one of the other alternatives generated in the decision-making process may be a wiser choice. Was the correct alternative selected, but implemented improperly? If so, a manager should focus attention solely on the implementation step to ensure that the chosen alternative is implemented successfully. TYPES OF DECISIONS: There are two types of decisions: 15 Programmed decisions (Structured)- routines where decision rules and procedures can be devised (usually computer based). Non-programmed decisions (Unstructured) - usually with high levels of risk where many factors within and outside the organization have to be considered. Decision Making Styles There are four decision making styles: Direct style where those using direct style have low tolerance for ambiguity and are rational in their way of thinking. They are efficient and logical and decision making is fast and focus on the short run. They make decisions with very scanty information and assess few alternatives Analytic style those in this category have much greater tolerance for ambiguity. They look for more information before making a decision and consider more alternatives. They are careful decision makers with the ability to cope with unique situations Conceptual style those in this category tend to be very broad in their outlook and will look at many alternatives. They focus on the long run and are very good at finding creative solutions to problems. Behavioural style those in this category work well with others and are concerned about the achievement of others like subordinates and are receptive to suggestions from others and try to avoid conflict. STRATEGIC INFORMATION SYSTEMS Definition: A Strategic Information System (SIS) is a system that helps companies change or otherwise alter their business strategy and/or structure. It is typically utilized to streamline and quicken the reaction time to environmental changes and aid it in achieving a competitive advantage In this concept IT becomes an integral component of business processes, products and services that help a company gain a competitive advantage in the global market place. Key features of the Strategic Information Systems are the following:

 Decision support systems that enable to develop a strategic approach to align Information Systems (IS) or Information Technologies (IT) with an organization s business strategies Primarily Enterprise resource planning solutions that integrate/link the business processes to meet the enterprise objectives for the optimization of the enterprise resources 16 Database systems with the "data mining" capabilities to make the best use of available corporate information for marketing, production, promotion and innovation. The SIS systems also facilitate identification of the data collection strategies to help optimize database marketing opportunities. The real-time information Systems that intend to maintain a rapid-response and the quality indicators. The increasing demand of IS and IT has made the management IT/IS more and more complex and difficult. SISs are different from other comparable systems as: They change the way the firm competes. They have an external (outward looking) focus. They are associated with higher project risk. They are innovative (and not easily copied). Ref: http://www.scribd.com/doc/7047213/MIS-Chapter-03-Strategic-Information-Syst emsforCompetitive-Advantage Strategies for Competitive Advantage Modern technology is increasingly being used as part of an information systems strategy which yields competitive advantage for the organization. This can be achieved by using IT to change the structure of the industry within which it operates. A business operating within an industry is subject to five main competitive forces according to Porter and Millar and the way a business responds to these forces determines its success. These forces are: Degree of rivalry Power of suppliers Power of customers Threat of Substitute products Barrier to entry Porters model identifies the forces that influence competitive advantage in the marketplace. Of greater interest to most managers is the development of a strategy aimed at establishing a profitable and sustainable position against these five forces. To establish such a position, a company needs to develop a strategy of performing activities differently from a competitor. Porter proposed cost leadership, differentiation, and niche strategies. Additional strategies have been proposed by other strategic-management authors (e.g., Neumann, 1994; Wiseman, 1988; Frenzel,1996). Turban et al, (2006) sited 11 strategies for competitive advantage: 1. Cost leadership strategy 17 Produce products and/or services at the lowest cost in the industry. A firm achieves cost leadership in its industry by thrifty buying practices, efficient business processes, forcing up the prices paid by competitors, and helping customers or suppliers reduce their costs. 2. Differentiation strategy Offer different products, services, or product features. By offering different, better products companies can charge higher prices; sell more products, or both. 3. Niche strategy Select a narrow-scope segment (niche market) and be the best in quality, speed, or cost in that market.

4. Growth strategy Increase market share, acquire more customers, or sell more products. Such a strategy strengthens a company and increases profitability in the long run. Web-based selling can facilitate growth by creating new marketing channels, such as electronic auctions. 5. Alliance strategy Work with business partners in partnerships, alliances, joint ventures, or virtual companies. This strategy creates synergy, allows companies to concentrate on their core business, and provides opportunities for growth. 6. Innovation strategy Introduce new products and services, put new features in existing products and services, or develop new ways to produce them. Innovation is similar to differentiation except that the impact is much more dramatic. Differentiation tweaks existing products and services to offer the customer something special and different. Innovation implies something so new and different that it changes the nature of the industry. 7. Operational effectiveness strategy Improve the manner in which internal business processes are executed so that a firm performs similar activities better than rivals (Porter, 1996). Such improvements increase employee and customer satisfaction, quality, and productivity while decreasing time to market. Improved decision making and management activities also contribute to improved efficiency. 8. Customer-orientation strategy Concentrate on making customers happy. Strong competition and the realization that the customer is king (queen) is the basis of this strategy. Web-based systems that support customer relationship management are especially effective in this area because they can provide a personalized, one-to-one relationship with each customer. 18 9. Time strategy Treat time as a resource, then manage it and use it to the firms advantage. Time is money, Internet time (i.e., three months on the Internet is like a year in real time), first-mover advantage, just-in-time delivery or manufacturing, competing in time (Keen, 1988), and other time-based competitive concepts emphasize the importance of time as an asset and a source of competitive advantage. One of the driving forces behind time as a competitive strategy is the need for firms to be immediately responsive to customers, markets, and changing market conditions. A second factor is the time-to-market race. By introducing innovative products or using IT to provide exceptional service, companies can create barriers to entry from new entrants. 10. Lock in customers or suppliers strategy Encourage customers or suppliers to stay with you rather than going to competitors. Locking in customers has the effect of reducing their bargaining power. 11. Increase switching costs strategy Discourage customers or suppliers from going to competitors for economic reasons. Competitive advantage of SIS.pdf (pg 4) ASSIGNMENT II You have been contracted to advise a company that intends to sell animal feeds in a small town called RURUI on the newly constructed Thika Superhighway. On the same area are several other companies who have been selling the same cattle feeds for several years. Write down the strategic moves you would advise the company to undertake in order to attract customers to its premises. Some of the customers have known these animal feeds retailers for over a decade and credit is usually made available to them when they do not have money to buy the feeds. STRATEGIC MANAGEMENT OF IT

DEFINITION According to ANSOFF(1990) strategic management is a systematic approach to a major and increasingly important responsibility of general management to position and relate to the firm to its environment in a way which will assure its continued success and make it secure from surprises Gleck and Jaunch defines strategic management as a stream of decisions and actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives 19 Rowe defines strategic management as the decision process that aligns the organisations internal capability with the opportunities and threats it faces in the environment Greenley defines strategic management as concerned with the overall long range direction of organisations and consequently provides a framework for operational management. According to Johnson and Scholes Thus strategic management is concerned with: Strategic analysis Strategic choice Strategic implementation MAJOR ELEMENTS OF STRATEGIC MANAGEMENT Strategic Analysis o The environment o Expectations, objectives and power culture o Resources Strategic choice o Generation of choice o Evaluation of options o Selection of strategy Strategy implementation o Resource Planning o Organisation structure o People and systems STRATEGIC PROBLEMS (CHALLENGES) Factors that determine the nature of Strategic problems facing an organisation fall into four groups: Nature of the industry Nature of the enterprise Current circumstances The organisation environment Nature of the industry The key industry factors include: The type of products produced The markets served The technology of production The access to or nature of materials Nature of the Enterprise 20 The size of the organisation affects its strategic problems and the means available to the organisation to deal with them. Ownership of the organisation also influence upon strategic problems whether it is public or private The degree of maturity is also an important factor and also the extent of its operations (national or international) Current Circumstances The circumstances it is operating in especially the economy in which it is operating in . For example operating under depressed economy the strategy would be different as opposed to when operating under times of economic expansion

Organisation Environment Different strategies are required to operate under different economies e.g. developed economies vs underdeveloped economies. INFORMATION SYSTEM STRATEGIC PLANNING Introduction Strategic planning is a management tool that is used to help an organization do a better job by focusing its energy to ensure that members of the organiztion are working towards the same goals , assess and adjust the organization direction in response to a changing environment. Dissection of strategic planning provides the following: Strategy A rule for making decisions under conditions of partial ignorance Broad collection of decision rules and guidelines that an organization scope and growth direction Ansoff (1965) Corporate strategy. A formulation of basic organizational missions, purposes and objectives , policies and program strategies to achieve them and the methods needed to ensure that strategies are implemented to achieve organizational ends. Steiner and Miner (1977) Management Policy and strategy. Interpretation of the environment and the development of consistent patterns in streams of organizational decisions Mintzberg (1979) The structure of organizations A broad based formula for how business is going to compete, what its goals should be and what policies will be needed to carry out 21 those goals. The essence of formulating competitive strategy in relating an organization to its environment. Porter (1980) Competitive Strategy. Thus in Strategy can be defined in summary as the pattern of resource allocation decisions made throughout an organization. These include desired goals and beliefs about what are acceptable and most critically unacceptable means for achieving them. Strategic Planning prepares the best way to respond to the circumstances of the organization environment whether or not its circumstances are known in advance. Being strategic means being clear about the organization objectives, resources and incorporating both in to a dynamic environment. The process is about planning because it intentionally involves setting goals and developing an approach to achieving those goals. In strategic planning an organization must be responsive to a dynamic changing environment in which decisions are made that will ensure that the organizations ability to successfully respond to changes in the environment. Thus strategic planning consists of the following three elements: Formulation of the organizations future mission in light of changing external factors such as regulation, competition, technology and customers. Development of a competitive strategy to achieve the mission. Creation of an organizational structure which will deploy resources to successfully carry out its competitive strategy. Strategic planning turns an organizations vision into concrete achievables. BUSINESS STRATEGIC PLANNING Determine the business mission and objectives: This is a general statement of the business overall purpose and aims and has several aims. The objectives both medium and long term should support the business overall mission where each objective should have a measurable performance indicator that can be used to determine the

success of the organization in meeting the objective. Identify the likely future performance against objectives 22 The organization should be continuously monitor and evaluate its performance against its current objectives. This may involve forecasts in terms of sales, cash flows, material requirements and profitability based on current situation. Carry out a SWOT analysis that will be able to identify strengths, weaknesses, opportunities and threats. Develop a business strategy This is the set of plans that a business will implement to achieve a stated objective BUSINESS STRATEGIC PLANNING BUSINESS INFORMATION SYSTEM STRATEGY Difference between Business information systems strategy and Business information technology strategy: Business information systems strategy is focused on determining what information systems must be provided in order that the objectives of the business strategy are realized. This focuses on information needs of the organization. Whereas DETERMINE BUSINESS MISSION AND OBJECTIVES IDENTIFY STRENGTHS AND WEAKNESS IDENTIFY THREATS AND OPPORTUNITIES IDENTIFY LIKELY FUTURE PERFORMANCE AGAINST OBJECTIVES DEVELOP A BUSINESS STRATEGY INFORMATION SYSTEMS STRATEGY FINANCIAL STRATEGY MARKETING STRATEGY 23 Business information technology strategy is focused on determining what technology and technological systems development are needed in order that the business information systems strategy can be realized. There is close interaction between the two and will also deal on how the information resource and information system development is to be managed. There has been a serious debate on how best to develop a strategy for IS/IT which has been fuelled by the speed with which IT has changed and by a recognition that IT is being used less as a support function but as an integral part of business development and operations. STRATEGIC PLANNING MODEL Planning Element Plan component Key question Strategic Analysis Mission What should we be doing? Goals Where are we going? Strategic Choice Strategies What routes have we selected? Strategic

Implementation Policies How do we guide our collective decisions to get there? Decisions What choices do we have? Actions Shall we do it ? Example : Mission To be the industry cost leader Goal Achieve Staff productivity Strategy Reduce time lost due to ill health Decision Ban smoking Action Put up signs and police the decision COMPONENTS OF THE STRATEGIC PLAN There are four components of the strategic plan: Mission and Vision Goals 24 Strategy Policy Mission and Vision This addresses the organizations basic question i.e. What business are we in which is the central purpose of the organizations existence. A mission statement typically describes an organization in terms of: Purpose Why the organization exists Business The main method or activity through which the organization tries to fulfill this purpose Values the principles or beliefs that guide an organizations members as they pursue the organizations purpose A vision statement presents an image of what success will look like. Rader (1994) suggests seven characteristics of Mission statements: Engage the imagination with powerful images of target outcomes Employ images that are clear, concise and compelling Express strong values and beliefs about the future Provide guidance for actions that must and must not be done Focus discussions and shape choices about consequences Challenge us to stretch continually beyond current performance Apply to each and every member of the community Example Mission statement The support of the centers is to increase the effectiveness of the non-profit sector by providing management consulting, training and research. Vision statement We envision an ever-increasing global movement to restore and revitalize the quality of life in local communities. Goals This defines the future positions of the organization Strategy This defines the general direction in which the organization chooses to move to meet goals to achieve the mission. The strategy is constrained by: Nature of the organization Resources Capabilities Culture Structure Environment within which it operates Management style etc 25 Policy This provides the framework for the implementation of any major changes

needed to be made by summarizing the key benefits the strategy is intended to yield. Many models have been advanced to guide in information system strategy formulation. Porters Five Forces Model Roger Clarkes Model Nolan Model Strategic Information Systems Theories Porters Strategic Theory The context in which SIS theory emerged was the competitive strategy put forward by porter (1980, 1985), which was based on industrial organisation economics. FIVE FORCES MODEL (Porter and Millar, 1985) Modern technology is increasingly being used as part of an information systems strategy which yields competitive advantage for the organization. This can be achieved by using IT to change the structure of the industry within which it operates. A business operating within an industry is subject to five main competitive forces according to Porter and Millar and the way a business responds to these forces determines its success. These forces are: Degree of rivalry Power of suppliers Power of customers Threat of Substitute products Barrier to entry Degree of rivalry Unless in a monopolistic situation any business is to competition from other firms and this is the biggest threat to a firm and IT can be used as a competitive strategy against its rivals When a rival acts in a way that elicits a counter-response by other firms, rivalry intensifies. The intensity of rivalry commonly is referred to as being cutthroat, intense, moderate, or weak, based on the firms aggressiveness in attempting to gain an advantage. In pursuing an advantage over its rivals, a firm can choose from several competitive moves: 26 Changing prices - raising or lowering prices to gain a temporary advantage. Improving product differentiation - improving features, implementing innovations in the manufacturing process and in the product itself. Creatively using channels of distribution - using vertical integration or using a distribution channel that is novel to the industry. For example, with high-end jewelry stores reluctant to carry its watches, Timex moved into drugstores and other non-traditional outlets and cornered the low to mid-price watch market. Exploiting relationships with suppliers - for example, from the 1950 s to the 1970 s Sears, Roebuck and Co. dominated the retail household appliance market. Sears set high quality standards and required suppliers to meet its demands for product specifications and price. The intensity of rivalry is influenced by the following industry characteristics: 1. A larger number of firms increases rivalry because more firms must compete for the same customers and resources. The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership. 2. Slow market growth causes firms to fight for market share. In a growing market, firms are able to improve revenues simply because of the expanding market.

3. High fixed costs result in an economy of scale effect that increases rivalry. When total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs. Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry. 4. High storage costs or highly perishable products cause a producer to sell goods as soon as possible. If other producers are attempting to unload at the same time, competition for customers intensifies. 5. Low switching costs increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers. 6. Low levels of product differentiation is associated with higher levels of rivalry. Brand identification, on the other hand, tends to constrain rivalry. 7. Strategic stakes are high when a firm is losing market position or has potential for great gains. This intensifies rivalry. 8. High exit barriers place a high cost on abandoning the product. The firm must compete. High exit barriers cause a firm to remain in an industry, even when the venture is not profitable. A common 27 exit barrier is asset specificity. When the plant and equipment required for manufacturing a product is highly specialized, these assets cannot easily be sold to other buyers in another industry. Litton Industries acquisition of Ingalls Shipbuilding facilities illustrates this concept. Litton was successful in the 1960 s with its contracts to build Navy ships. But when the Vietnam war ended, defense spending declined and Litton saw a sudden decline in its earnings. As the firm restructured, divesting from the shipbuilding plant was not feasible since such a large and highly specialized investment could not be sold easily, and Litton was forced to stay in a declining shipbuilding market. 9. A diversity of rivals with different cultures, histories, and philosophies make an industry unstable. There is greater possibility for mavericks and for misjudging rival s moves. Rivalry is volatile and can be intense. The hospital industry, for example, is populated by hospitals that historically are community or charitable institutions, by hospitals that are associated with religious organizations or universities, and by hospitals that are for-profit enterprises. This mix of philosophies about mission has lead occasionally to fierce local struggles by hospitals over who will get expensive diagnostic and therapeutic services. At other times, local hospitals are highly cooperative with one another on issues such as community disaster planning. 10. Industry Shakeout. A growing market and the potential for high profits induces new firms to enter a market and incumbent firms to increase production. A point is reached where the industry becomes crowded with competitors, and demand cannot support the new entrants and the resulting increased supply. The industry may become crowded if its growth rate slows and the market becomes saturated, creating a situation of excess capacity with too many goods chasing too few buyers. A shakeout ensues, with intense competition, price wars, and company failures. Power of suppliers The supplier provides the necessary inputs of raw materials, machinery and manufactured components for a firms production process. The supplier can exert pressure by pushing up prices of inputs by threatening to take their supplied goods elsewhere to a competitor within the same industry thus increasing rivalry.

A producing industry requires raw materials - labor, components, and other suppl ies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if p owerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry s profits. The following tables outli ne some factors that determine supplier power. 28 Suppliers are Powerful if: Example Credible forward integration threat by suppliers Baxter International, manufacturer of hospital supplies, acquired American Hospital Supply, a distributor Suppliers concentrated Drug industry s relationship to hospitals Significant cost to switch suppliers Microsoft s relationship with PC manufacturers Customers Powerful Boycott of grocery stores selling non-union picked grapes Suppliers are Weak if: Example Many competitive suppliers product is standardized Tire industry relationship to automobile manufacturers Purchase commodity products Grocery store brand label products Credible backward integration threat by purchasers Timber producers relationship to paper companies Concentrated purchasers Garment industry relationship to major department stores Customers Weak Travel agents relationship to airlines Power of customers Customers can exert power over a business by threatening to purchase the product or service from a competitor. This can be large if number of customers are few and competitors are many. One way to stop this is to increase switching costs when switching to another supplier. One way is to have an online ordering facility for the business service or product. For example with electronic banking the belief is that when a customer has established a familiarity with one system there is a disincentive to switch to another. The power of buyers is the impact that customers have on a producing industry. I n general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsony - a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopsonies exist, but frequently there is some asymmetry betwe

en 29 a producing industry and buyers. The following tables outline some factors that determine buyer power. Customers are Powerful if: Example customers are concentrated - there are a few buyers with significant market share DOD purchases from defense contractors customers purchase a significant proportion of output - distribution of purchases or if the product is standardized Circuit City and Sears large retail market provides power over appliance manufacturers customers possess a credible backward integration threat - can threaten to buy producing firm or rival Large auto manufacturers purchases of tires customers are Weak if: Example Producers threaten forward integration - producer can take over own distribution/retailing Movie-producing companies have integrated forward to acquire theaters Significant customerswitching costs - products not standardized and buyer cannot easily switch to another product IBM s 360 system strategy in the 1960 s customers are fragmented (many, different) - no customer has any particular influence on product or price Most consumer products Producers supply critical portions of customers input - distribution of purchases Intel s relationship with PC manufacturers Threat of substitute products Substitute products are those that are within the industry but are differentiated in some way. A business may lose a customer if the substitute product meets the need of the customer more closely. The competition engendered by a threat of substitute comes from products outside the industry. For example: The price of aluminum beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are 30 substitutes, yet they are not rivals in the aluminum can industry. To the manufacturer of automobile tires, tire retreads are a substitute. Today, new tires are not so expensive that car owners give much consideration to retreading old tires. But in the trucking industry new tires are expensive and tires must be replaced often. In the truck tire market,

retreading remains a viable substitute industry. In the disposable diaper industry, cloth diapers are a substitute and their prices constrain the price of disposables. IT can prevent this happening by: Introducing switching costs Or by use of CAD/CAM Barrier to entry Within an industry there is always a threat that a new company may enter into a particular market and take some of the customers. This may reduce the profit margin. The traditional response to counteract entry of new entrants is to create barrier to entry by: Exploiting economies of scale in production Creating brand loyalty Creating legal barriers for example use of patents Using effective production methods. IT can assist business by reduction of labour costs or speeding up the production process. Barriers to entry arise from several sources: 1. Government creates barriers. Although the principal role of the government in a market is to preserve competition through antitrust actions, government also restricts competition through the granting of monopolies and through regulation. Industries such as utilities are considered natural monopolies because it has been more efficient to have one electric company provide power to a locality than to permit many electric companies to compete in a local market. To restrain utilities from exploiting this advantage, government permits a monopoly, but regulates the industry. The regulatory authority of the government in restricting competition is historically evident in the banking industry as well as the oil industry in Kenya. Deregulation of banks intensified rivalry and created uncertainty for banks as they attempted to maintain market share. In the late 1970 s, the strategy of banks shifted from simple marketing tactics to mergers and geographic expansion as rivals attempted to expand markets. 31 2. Patents and proprietary knowledge serve to restrict entry into an industry. Ideas and knowledge that provide competitive advantages are treated as private property when patented, preventing others from using the knowledge and thus creating a barrier to entry. 3. Asset specificity inhibits entry into an industry. Asset specificity is the extent to which the firm s assets can be utilized to produce a different product. When an industry requires highly specialized technology or plants and equipment, potential entrants are reluctant to commit to acquiring specialized assets that cannot be sold or converted into other uses if the venture fails. Asset specificity provides a barrier to entry for two reasons: First, when firms already hold specialized assets they fiercely resist efforts by others from taking their market share. New entrants can anticipate aggressive rivalry. For example, Kodak had much capital invested in its photographic equipment business and aggressively resisted efforts by Fuji to intrude in its market. These assets are both large and industry specific. The second reason is that potential entrants are reluctant to make investments in highly specialized assets. 4. Organizational (Internal) Economies of Scale. The most cost efficient level of production is termed Minimum Efficient Scale (MES). The existence of such an economy of scale creates a barrier to entry. The greater the difference between industry MES and entry unit costs, the greater the barrier to entry. So industries with high MES deter entry of small, start-up businesses. To operate at

less than MES there must be a consideration that permits the firm to sell at a premium price - such as product differentiation or local monopoly. Easy to Enter if there is: Common technology Little brand franchise Access to distribution channels Low scale threshold Difficult to Enter if there is: Patented or proprietary knowhow Difficulty in brand switching Restricted distribution channels High scale threshold Easy to Exit if there are: Salable assets Low exit costs Independent businesses Difficult to Exit if there are: Specialized assets High exit costs Interrelated businesses 32 GENERIC STRATEGIES TO COUNTER THE FIVE FORCES Strategy can be formulated on three levels Corporate level Business unit level Functional or departmental level. The business unit level is the primary context of industry rivalry. Michael Porter identified three generic strategies: cost leadership, differentiation, focus That can be implemented at the business unit level to create a competitive advantage. The proper generic strategy will position the firm to leverage its strengths and defend against the adverse effects of the five forces. To remain competitive an organisation may adopt two basic stances: Low cost Product differentiation According to Porter an organisation has four generic strategies available to it in order to maintain competitive advantage: Cost leadership Differentiation Cost focus Focused differentiation In this regard competitive advantage grows out of the way an organisation organises and performs discrete activities Example of IT applications to Porters Strategic Stances: To gain competitive advantage a firm must either provide comparable value to the customer, but perform its activities more efficiently than its competitors (lower cost) or perform activities in a unique way that creates greater buyer value and commands a premium price (differentiation). Many differentiation bases exist and can be classified into four groups: Product quality, features, options, style, brand name, packaging, sizes, services, warranties, returns Pricing -list, discounts, allowances, payment period, credit terms Place channels, coverage, locations, inventory, transport Promotion advertising, personal selling, sales promotion, publicity

33 IT can be used to sharpen the organisation products through these various attributes Roger Clarkes Strategic Theory According to the theory an enterprise activities are subject to: New technologies New or shifting buyer needs Change in industry segmentation Shifts in costs or availability of factors of production Change in government regulations NOLAN STAGE MODEL Richard L. Nolan developed the theoretical Stages of growth model (SGM) during the 1970s. This is a general model, which describes the role of information technology (IT), and how it grows within an organisation. The Nolan stage model purports to explain the evolution of IS within an organization by consideration of various stages of growth. Expenditure of IT increases with the stages. According to the model there are six stages of growth: Initiation Contagion Control Integration Data administration Maturity Initiation in this stage the computer is used for low level transaction processing such as accounting, payroll and billing and there is little planning for information systems and users are not aware of information technology. New applications are developed using traditional languages such as COBOL and very little systematic methodology. Key Points user awareness is low IT personnel are "specialized for technological learning". IT planning and control is lax. Emphasis on functional applications to reduce costs. 34 Contagion In this stage awareness of IT increases among users but there is little understanding of the benefits or limitations of IT. Users become more enthusiastic and require more application development. IT is treated as an overhead within the organization and there is little check on user requests for more applications. Budgetary control over IT expenditure and general managerial control is low. An increasing proportion of programming effort is taken in maintenance of systems and this is a period of unplanned growth. Key Points Proliferation of applications. Users superficially enthusiastic about using data processing. Management control even more lax. Rapid growth of budgets. Management regard the computer as "just a machine". Rapid growth of computer use throughout the organisation s functional areas. Computer use is plagued by crisis after crisis. Control As continuing problems occur with unbridled development of projects there is a growing need to manage the information systems. The DP department is reorganized and the DP manager becomes more accountable having to justify expenditure just like the other mainstream departments within the organization. The increase of projects is controlled by imposing charges on user departments and the use of computer services and users see little

progress in the development of information systems. Key Points No reduction in computer use. Greater importance of the IT division to the organisation. Centralised controls put in place. Applications often incompatible or inadequate. Use of database and communications, often with negative general management reaction. Increasing end-user frustration with the IT services provided Integration Having achieved control the organizational data processing function takes on a new direction and becomes oriented towards information provision. Interactive terminals are introduced in user departments, development of a database undertaken and introduction of data communication technologies done. User departments are now supported in their information requirement. There is a great demand for applications and an increase in 35 the supply and expenditure to meet the demand. Redundancy of data and duplication of data due to the proliferation of applications become a problem. Key points Rise of control by the users. Large data processing budget growth. Demand for on-line database facilities. Data processing department operates like a computer utility. Formal planning and control within data processing. Users more accountable for their applications. Use of steering committees, applications financial planning. Data administration The response to data duplication and redundancy is to introduce controls on proper administration of data. The view is to regard data as an organization resource that needs to be planned and managed. This stage is characterized by the development of an integrated database. Users become more accountable for integrity and correct use of the information resource. Key Points Data administration is introduced. Identification of data similarities, its usage, and its meanings within the whole organisation. Applications portfolios are integrated into the organisation. Data processing department serves more as an administrator of data resources than of machines. Use of term IT/IS rather than "data processing Maturity During this stage IS becomes an integral part to the functioning of the organization. The application portfolio mirrors closely the organizational activities. The data structure becomes a data model for the organization. There is a recognition of the strategic importance of information where now the information manager gets same importance as the director of finance or human resource director. Key Points Systems that reflect the real information needs of the organisation. Use of data resources to develop competitive and opportunistic applications. 36 Data processing organisation viewed solely as a data resource function. Data processing emphasis on data resource strategic planning. Ultimately, users and DP department jointly responsible for

the use of data resources within the organization. Manager of IT system takes on the same importance in the organisational hierarchy as (say) the director of finance or director of HR. Implications of Nolan model for strategic planning The concentration of the model on database technology ignores the fact that: The growth of microcomputer has significantly affected how users use IT and have become autonomous of the computer centre. There has been significant development in the area of communication and networks especially local area networks linking microcomputers and other technologies together New software development tools and decision support tools have shifted the emphasis to the user as development agent. But despite this the model still provides away of viewing the development of information systems within an organization by recognizing that: The growth of an information system must be accompanied by an organizational learning process There is need to control the use of scarce resources There is a shift of emphasis between users and computer centre in the process of growth. There is a move from concentration on computer technology to data management.