Porter’s Value Chain

&
Nolan’s 6 Levels

03/22/11 PGM 1
 This week
• How can we think about:
– organisational structure and
– how organisations link to each other?
• How can we analyse an organisations
IT/IS development?
• Strategy and planning
•

03/22/11 PGM 2
 Porter’s Value Chain Model (1985)
• PRIMARY ACTIVITIES
• In bound logistics (inputs)
• Operations (manufacturing & testing)
• Outbound logistics (storage &
distribution)
• Marketing & sales
• Service


3
Porter’s Value Chain Model (1985)
• SUPPORT ACTIVITIES
• Firm Infrastructure
• Human Resources Management
• Technology Development
• Procurement


•
•
•
•

4
The Generic Value Chain - Graphically
Firm Infrastructure

Human Resources Management

Technology Department

Procurement

Inbound Operations Outbound Sales Service

Logistics Logistics and
Mkting
03/22/11 PGM 6
VALUE SYSTEM
•
• A firm’s value chain is part of a larger stream of
activities, which Porter calls a “Value
System”
•
• Includes the suppliers that provide the
necessary inputs AND their value chains
•
• Applies to both products & services, for any
organization, PUBLIC or PRIVATE
•
• The basis for the Supply Chain
Management
• 7
• Think about UPSTREAM and DOWNSTREAM
 Porter’s Value Chain

Supplier Firm’s Channel Buyer’s

Value Value Value Value
chain chain chain chain

• Porter views industry as a series of value chains

• It is important to understand how interacting
components influence each other
• The way the value chain is tailored will influence a
firm’s competitiveness in the market place
• How can IT/IS provide strategic advantage?
The Value Chain Model
• The Value System Model is used to:
•
• Evaluate a company’s process and
competencies
• Investigate whether adding IT can support
the value chain
• Enable managers to assess the
information intensity and the role of IT

9
 The organisation

03/22/11 PGM 10
 The Ideal Organisation
• A defined business strategy
• Total commitment of employees
• Effective organisation
• Lateral, vertical, open and reliable
communication
• Effective training and development
• Individual self awareness
• Job satisfaction amongst the employees

03/22/11 PGM 11
 The Real Organisation
• Have difficulties with their information base
– departmental systems, poor corporate standards,
duplication, no easy access to data
• There is a resistance to change because power
(knowledge) shifts with IT/IS
• IT opponents views are strengthened because of past
experiences of costs running out of control, system
failures etc.

03/22/11 PGM 12
• The organisation - Where is it in terms
of IS/IT development?
–
– Planning for IT may depend on the stage that
the organisation has reached
–
– There are many tools for this analysis

03/22/11 PGM 13
 Nolan’s 6 stages of DP growth
• Nolan asserts that organizations go through six
stages of IT growth
1. Initiation: When computers are initially introduced
2. Expansion (Contagion): Centralized growth takes place as
users demand more applications
3. Control: In response to management concern about cost
versus benefits, systems projects are expected to show
a return
4. Integration: Expenditures on integrating (via
telecommunications and databases) existing systems
5. Data administration: Information requirements rather than
processing drive the applications portfolio.
6. Maturity: The planning and development of IT are closely
coordinated with business development

03/22/11 PGM 14
 Nolan’s 6 stages of DP growth

Transition Point

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6

INITIATION

EXPANSION

CONTROL

INTEGRATION

DATA ADMIN

MATURITY
03/22/11 PGM . 15
1. Initiation Stage

• Computers introduced to business

•
• Little management Interest
•
• No centralised Information Systems
development

03/22/11 PGM 16
2. Contagion Stage

• Centralized growth takes place as users

demand more applications
•
• Little management control, therefore
•
• IT expenses increase rapidly

03/22/11 PGM 17
3. Control
• In response to management concern:
• Management seek control – computing projects
subject to ROI, cost and benefit analysis
• Planning, standards and methodologies
imposed through management initiative
• Backlog of application development occurs –
scarce resources

03/22/11 PGM 18
Through the transformation point
–


 Data processing
 to

 Information and

 Knowledge processing

03/22/11 PGM 19
4. Integration
• Expenditures on integration
– via telecommunications and databases
• Leads to heavy investment – networks, servers
• User involvement and accountability in systems
development
• ISD begins to provide service to users (as well
as solutions)


03/22/11 PGM 20
5. Data Administration
• Information not processing drives application
portfolio
• Database capabilities aid sharing of data
and information
• Information shared with other organisations

03/22/11 PGM 21
6. Maturity
• IT planning and development closely co-
ordinated with business development
• IT is a strategic partner within the organisation
• Corporate system in place
• ISD and users share accountability for allocation
of computing resources
•
•

03/22/11 PGM 22
Nolan’s Work

• Nolan R. L., Managing the crises in Data

Processing, Harvard Business Review, Vol
16, No 3, March 1973, pp 81-91
• Nolan R. L., Managing Computer Resource: a
stage hypothesis, Communications of the
ACM, Vol 16, No 3, March 1973, pp 399
405.

03/22/11 PGM 23
Approaches to I.T. planning
• NO planning
• TRADITIONAL information resource planning
• STRATEGIC information systems planning
• REACTIVE information resource planning
• LINKED information resource planning

03/22/11 PGM 24
No Planning
•
•
• Speaks for itself – more of this about than
you might think

03/22/11 PGM 25
 Inputs and Outputs for the Traditional Information
Resource Plan
Last Years Budget
Computer Operations

Last Years Backlog

Traditional
Planning Program maintenance
Process
Machine depreciation
+ lease cost

Application Development
Staff numbers + Salaries

03/22/11 PGM 26
Linking Business and IS/IT Strategy
BUSINESS STRATEGY
IT Impact • Business Decisions WHERE is the business
and  • Objectives & Direction going and WHY?
Potential • Change
 
Supports Direction
business for business
 

IS STRATEGY
• Business Based WHAT is required?
• Demand Oriented
• Application Focussed
 
Infrastructure Needs and
and services Priorities
 

IT STRATEGY
• Activity Based HOW can it be delivered?
• Supply Oriented
• Technology Focussed

03/22/11 PGM 27
 IT Planning Issues
•Basic IT planning addresses the following four general
issues:
1. Aligning the IT plan with the organizational business plan
2. Designing an IT architecture for the organization in such a
way that users, applications, and databases can be
integrated and networked together.
3. Efficiently allocating information systems development
and operational resources among competing
applications.
4. Planning information systems projects so that they are
completed on time and within budget and include the
specified functions

03/22/11 PGM 28
IT Planning
• A Strategic information systems plan identifies a set of
computer-based applications that will help a company
reach its business goals.
•
• IT planning identifies the applications portfolio, a list of
major, approved IS projects that are consistent with
the long-range plan.
•
• Initial mechanisms addressed operational planning, and
eventually shifted to managerial planning.
•

03/22/11 PGM 29
A Generic/General Approach to SPIT

Systems
Objectives,
Audit
Goals, Strategic
Mission options
Applications
opportunities
by
Vision brainstorming
- timescales Strategic
Information Information
- funding
Technology Systems
- productivity - resources Plan
- competitive Architecture
- control
edge
Strategy - business
effectiveness

CSF’s +
K P I’s Data Usage
- business Business
models objectives
- data + constraints

03/22/11 PGM 30
 Two views

Four stage model


Components of an IS/IT Strategy Plan

There are other views

03/22/11 PGM 31
Four-Stage Model of IT Planning

03/22/11 PGM 32
 IT Planning Stages
Strategic IT planning Establishing the relationship between the
overall organizational plan and the IT plan.
Information Identifying broad, organizational
requirements analysis information requirements to establish a
strategic information architecture.
Resource allocation Allocating both IT application development
resources and operational resources.
Project planning Developing a plan that expresses schedules
and resource requirements for specific
information systems projects.

03/22/11 PGM 33
 Stage 1: Strategic Information Planning
• SIP must be aligned with overall organizational planning and
with e-business
• To accomplish this alignment, the organization must execute
the following:
1.Set the IT mission.
2.Assess the environment.
3.Assess existing systems’ availabilities and
capabilities.
4.Assess organizational objectives and strategies.
5.Set IT objectives, strategies, and policies.
6.Assess the potential impacts of IT.
•
• An organization would conduct the same six steps for e-
03/22/11business PGM 34
Stage 2: Information Requirements Analysis
Step 1: Define underlying organizational subsystems.


Step 2: Develop subsystem matrix.



Step 3: Define and evaluate information requirements



for organizational subsystems.



Step 4: Define major information categories and map



interview results into them



Step 5: Develop information/subsystem matrix.



03/22/11 PGM 35
 Stage 3: Resource Allocation
• Resource allocation consists of developing the
hardware, software, data communications, facilities,
personnel, and financial plans needed to execute the
master development plan defined in Stage 2.
• This stage provides the framework for technology and
labor procurement, and identifies the financial
resources needed to provide appropriate service
levels to users.
• Funding requests from the ISD fall into two categories;
•
• Those necessary to stay in business
• Those for improving the information architecture
03/22/11 PGM 36
Stage 4: Project Planning
•
• Project Planning provides an overall
framework within which specific
applications can be planned, scheduled, and
controlled.
•
•
• Project Management is covered in another
module

03/22/11 PGM 37
 Components of an IS/IT Strategy Plan
1. INVESTMENT STRATEGY
– What do we invest in, when and at what cost?
2. INFORMATION STRATEGY
– How do we manage and share information?
3. ARCHITECTURE STRATEGY
– What technologies do we use and how?
4. ORGANISATION STRATEGY
– How do we organise the I.T. function?

03/22/11 PGM 38
 1.The Investment Strategy
•Must be linked to overall organisational strategy
•
•Statement of how investment will be made in
IS/IT over a given time period

•Arriving at this statement is a difficult process

•

03/22/11 PGM 39
2.The Information Strategy
•Should provide long term benefit by
•creating a stable integrated information
framework
•providing a rapid response to dynamic business
needs
•improving efficiency and effectiveness in
processing information
•improving the overall quality of information

03/22/11 PGM 40
 3.The Architecture Strategy
•Defines the I.T. infrastructure.
- The hardware
- The network structures
- The operating systems
- The applications

•Must meet both current and future needs,

•
•Must be aligned with the organisation’s overall
strategies

03/22/11 PGM 41
4.The Organisational Strategy
•
•Comprises of many sub-strategies
•Staffing
•Training
•Documentation
•Procurement
•Operations
•Security
•Recovery arrangements
•Development
•Performance monitoring
•Is / it planning

03/22/11 PGM 42
Benefits of SPIT to Managers
• Effective communication with top management
• Top management support and interest in
systems
• Better planning of systems that respond to
business needs
• Long-range planning base for data processing ,
resources + funding
• Agreed system priorities
• Higher probability of delivering systems that are
useful

03/22/11 PGM 43
 Reading
• Information Technology for Management
– Chapter 13 – pp 527 to 538
• Today’s handout
– Michael Porter - Strategy and the Internet
•
• Look at references and bibliography for this
chapter
•
• Computing Press – read it
 Next Week
•
•
•
 Inter-organisational
 &
 Global Information Systems