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0 Strategy Development

Developing an IT and Internet-enabled business strategy can be vital to the success of your
organization. It requires that you look at your current situation, determine where you want to go, and
how best to get there.

Upon completion of this module, you should be able to:

• Perform an external and internal situation analysis.
• Identify an e-vision for success through the strategic use of the Internet and IT.
• Conduct a value-chain and stakeholder analysis to identify opportunities to use the Internet
and IT to create organizational value and impact.

5.1.0 Business Strategy

In this section, you will learn how to begin the strategy development process by reviewing your
organization’s external and internal situation and creating an e-vision statement.

By the end of this section you will be able to:

• Define a business strategy and explain its importance.
• Conduct an external and internal situation analysis and summarize them using a PEST, Five
Forces, and SWOT Analysis.
• Review your organization’s mission, goals, and objectives, and relate them to your Internet
and IT strategies.
• Describe how Internet-enabling strategies can be applied to address your organization’s
strengths, minimize its weaknesses, and address opportunities and threats.
• Create an e-vision of success.

5.1.1 Planning Process Overview

The business strategy and portfolio planning process follow three steps:

1. Situation Analysis and Visioning
2. Portfolio Management
3. Business Case and Financial Concepts

Situation Analysis and Visioning

This first step defines the current situation.

1. External Review - Competitive Analysis, Environmental Analysis
2. Internal Review - Goals, Objectives, Strengths and Weaknesses, Opportunities and Threats

Portfolio Management

This second step identifies opportunities.

1. Strategic Issues Summary
2. Vision
3. Value Chain Analysis & Friction Point Analysis

The first step in this process is to perform a situation analysis. Project Selection and Project Roadmap 2. Fact Three: Rapid changes in business and technology mean that opportunities and threats can appear quickly. The primary aim of a business strategy is to search for opportunities that will improve the company’s current situation and reshape its future.1. It will help you identify where you want to go by identifying opportunities. Project Lifecycle Management 4.2 What is a Business Strategy? A business strategy is a business-specific action plan to achieve a goal or an objective.1. What does this mean for your business? Organizations must consider the risks and rewards of achieving sustainable advantage. Fact Two: Business leaders must regularly re-evaluate core competencies and strategies to ensure that they align with the needs of their customers. 5. Typically. 5. and challenges and the ability of your business to address them. differentiation. and sustainable success. and the business itself. Business Case Project Proposal 3.3 Why Create a Business Strategy? Fact One: Organizations have periods of scarce resources and need to ensure that their investments help them achieve their goals and objectives. Identification and Prioritization Business Case and Financial Concepts This third step is for selection and planning. ask yourself these questions when analyzing your current business situation to determine in which areas an Internet-enabled solution can address your business’s needs. How will Internet-enabled solutions: • Improve the growth of my organization? • Increase revenue? • Create new products and services? • Improve product margins? • Lower operating expenses? • Improve my organization’s effectiveness? • Increase productivity? . This will examine your business’s internal and external environment including the market and competition. 1. As a business owner. Plan and strategize your implementation with a sound business case and proposal. these strategies seek to achieve superior customer value. threats. 4.

it is important to review your external and internal operating environments. The micro-environment This environment affects the businesses within a particular industry. Buyer Power. Economic. opportunities. and Barriers. social. Its elements are Supplier Power. Changes in the external environment often present new challenges and opportunities and new ways to reach your goals and objectives.4 Processes and Tools Before you can determine the best strategies for your organization. The macro-environment This environment affects all organizations. and technological environment in which your organization operates? ( PEST Analysis) • The Micro Environment: What are the competitive factors within your industry that influence the growth and profitability of your business? (Five Forces Analysis) 2. and Technological factors ( PEST ). It includes Political. Internal Situation Analysis What are the internal factors that affect your competitive position and strategies? • Business Review: What is your organization's mission? What are your current goals and objectives? What are the core competencies of your organization? • Opportunity/Threat Assessment: What are the strengths. Rivalry. Visioning Success Based on a summary of the situation analysis.2.1 PEST Analysis A PEST analysis is an analysis of the external macro-environment that affects all organizations. you can create a visionary statement of what you would like to achieve in the next 24 months using the Internet and IT. 5. One popular tool used for a micro-environment analysis is Michael Porter's Five Forces Analysis (Michael Porter.0 External Situation Analysis The first step of a situation analysis is to analyze your organization's current situation within its external operating environment: 1. economic.1. It focuses on four factors: P = Political E = Economic S = Social T =Technological . weaknesses.5. and threats to your organization? (SWOT Analysis) 3. 1. External Situation Analysis: • The Macro Environment: What is the overall political. Social. You will examine both the external forces which affect your organization as well as its internal structure. 2. 1985). Threat of Substitutes. 5.2.

These factors affect customer needs and the size of potential markets. leading to … 2.. and influence outsourcing decisions.2 PEST Factors The PEST analysis takes into account the following factors: 1. 3. changes in the external environment can also create new opportunities. Government deregulates the telecom industry.The demographic and cultural aspects of the external environment. New e-commerce opportunities for a variety of different businesses. Increased competition and lower prices for Internet access..Technological factors can raise or lower barriers to entry. Economic Factors . Young people spending more hours using the Internet to browse and shop. You will need to perform a PEST analysis for all of the countries where your organization operates.These external factors are usually beyond your organization’s control and sometimes appear as threats. Example The following is a hypothetical example of the effects of a change in the macro-environment: 1. make production levels more efficient. A growing number of homes in the country buying broadband Internet access. 2. 4. Many macro- environmental factors are country-specific or industry-specific. Political Economic • Economic growth • Political stability • Foreign investment • Trade barriers • Interest rates • Telecommunication regulation • Currency exchange rates • Tax policies • Inflation • Business licensing • Unemployment • Employment laws • Average standard of living • Environmental regulations • Saving rate Social Technological • Population growth rate • Research and Development activities • Education levels • Speed of technological change • Age distribution • Access to technology • Overall concern for health issues • Access to technology skills • Religious beliefs • Cultural practices . Political Factors . However. creating … 5.These affect the purchasing power of potential customers and the business’s cost of capital. or the rate of return that a firm would receive if they invested their money some place else with similar risk. leading to … 3. 5. leading to … 4. Social Factors . Technological Factors .2.Government regulations and legal issues that define both the formal and informal rules under which your organization must operate.

Kodak tried to sell a similar type of camera in 1975. if there is only one mine that provides a needed material to a particular industry. but only a limited number of people buying them.2. Concentrate on the top few factors that will have the greatest impact on your organization. Determine the overall strength of the competition: What is the combined effect of all of these factors? Overall. the price of containers from other industries. Edwin Land introduced the Polaroid camera in 1947.5. o Asset specificity: A new business must have detailed technical knowledge.2. then the buyers have more control and the price should drop. and potential shortages of key resources. Supplier Power . for producers. such as glass bottles. Buyer Power . known as Porter's Five Forces. Identify the factors that are causing each force to be strong or weak: List out the factors that you found in step one. • Look for the long-term drivers of change such as globalization. moderate or weak? Rivalry Among Businesses in the Industry . 5. For example: o Government regulation: Governments can create monopolies (for example. 5.3 PEST Tips Some things to remember about using the PEST analysis: • Be selective. Barriers to Entry . 2. This framework. Assess the strength of each of the five competitive forces: Review the questions below to assess your strength. any business should be able to enter or exit a market. 1. 3. 2.This occurs when there is competition from a product from a different industry. 4. o Patents or proprietary knowledge: For example. 3.This is the power that buyers have over the producers in an industry. power utilities). are they strong. then they can exert more control over the producers that they supply. If suppliers are powerful. technical shifts. Degree of Rivalry . These prevent other businesses from entering the market. in order to enter certain industries.The strength of competition. Polaroid sued Kodak for patent infringement and won. In reality. affects the price of aluminum beverage cans.Suppliers provide the raw materials. Threat of Substitute . For example. For example. For example. This could be a good source of competitive advantage. 5. then that mine can sell its material at a higher price. identifies five factors that influence the profitability of an individual market. Michael Porter devised a useful framework for evaluating the attractiveness of an industry or market (Porter 1985). such as labor or suppliers.In theory. if there are a lot of cell phone manufactures. and a lot of capital. steel cans.2.5 Analyzing Your Competitive Situation How can you use Porter’s Five Forces model to analyze your competitive environment? Follow these steps: 1. and plastic containers. • Identify any factors that may pose an opportunity for you but not for your competitors. Kodak was prevented from entering the instant camera industry.4 Porter's Five Forces An important aspect of the micro-environmental analysis is the industry in which your business operates or is considering operating. there are many different factors that can prevent a new business from entering an existing market.

. Do a small number of buyers purchase large volumes of your products? 2. Do your suppliers have strong bargaining power? 2.3. Is it expensive to switch your suppliers? 4. Is price competition strong? 2. you will be able to better choose the opportunities that have the most potential for success. An internal analysis should consider the following factors within your organization. Are rivals actively improving customer service? 4. Is the market becoming more attractive to other businesses? 2. Are substitutes readily available? 3. or performance? 3. and KPIs Before you can identify Internet and IT initiatives that will provide the greatest benefits. 1. It also must understand where it is vulnerable to competitors and changes in the macro environment. Are there many substitutes for the supplier's products? Threat of Substitutes 1. goals.3. objectives.1 Mission. Do your suppliers' products make up a large portion of your total cost? 3. Goals.0 Internal Situation Analysis Your organization must understand its strengths and core competencies. Are customers dissatisfied and looking for alternatives? 5. Objectives. Are barriers to entry low? 3. Are rivals actively improving product quality. Are your products standardized? 3. Are rivals actively improving distribution networks? Supplier Power 1. Does it cost much for a buyer of your product to switch to a substitute? Buyer Power 1. Does it cost much for a buyer of your product to switch to another product? Barriers to Entry 1. features. Are there other businesses supplying your product in the marketplace? 4. in the context of the Internet-enabled initiative that you are planning: • Product • Operations • Organization • Technology • Marketing and Sales • Customer Service and Support 5. and its value in the marketplace. and Key Performance Indicators (KPIs). Can your buyers' needs be met by alternative products? 2. With this knowledge. it is important to review your organization's mission statement.

much of which may not seem to apply to your new initiatives. KPIs should measure critical success factors of the organization to enable management to measure improvements and take corrective action when needed. The SWOT Analysis acts like a filter to reduce the amount of information so that you can focus on just your key issues.2 What is a SWOT Analysis? A SWOT Analysis is a simple way to assess your company’s strengths and weaknesses and to match them against opportunities and threats that your company may encounter. answer the following questions about your organization: • Where are we going? • What do we expect to achieve? Objectives Objectives are the specific measurable results that are expected within a particular time period. answer the following questions about your organization: • How do we know if we are making progress? • Do we need to do anything differently? 5. or average order size. This statement describes why an organization exists. consistent with a goal and strategy. Objectives are a clear target that measures an organization's progress towards its goals. one goal might be to increase sales faster than the growth of the industry.Mission Statement The mission statement describes the aims. For example. The mission statement addresses the following questions about your organization: • What is our purpose? • Who are our customers? • What do they need? • How will we meet that? Goals Goals are end aims that the organization wants and expects to attain sometime in the future. conveys a sense of purpose to employees. average sales by sales person. . For example. For example. answer the following questions about your organization: • What does success look like? • When will we achieve it? Key Performance Indicators Key Performance Indicators (KPIs) are the specific measurable indicators that will be used to report progress towards organizational goals and objectives.3. KPIs to measure sales might include average discount by region. and projects an image of the organization to its customers. To determine your goals. values and overall plan of an organization. To determine your objectives. The internal and external situation analysis can produce a large amount of information. To determine your KPIs. Goals should be directed toward a vision and consistent with the mission. a sales objective might be to grow revenue by 20 percent per year.

minimize its weaknesses. Each quadrant of the matrix compares two of the SWOT categories.4 SWOT Matrix The second step when performing a SWOT analysis is to identify potential opportunities and threats. Doing this will help you to develop specific strategies for dealing with the issues that the situation analysis raised. and production systems? • Does your organization manage its inventories efficiently? • Does your organization have strong brands? • What is the market share of your organization in its various product lines? • Does your organization have a strong team of skilled employees? • Are there employees with skills unique in the industry? • What does your organization do well? • What do other people see as your organization’s strengths? • What are the major sources of your organization's revenue and profit? • Has your organization demonstrated the ability to adapt and change? • Are the marketing and advertising programs effective? • Does your organization use information technology effectively? 5. such as patents.SWOT stands for Strengths. Answer the following questions: • What relevant resources does your organization have. Strengths . Weaknesses. capitalize on its opportunities.Threats Weaknesses – Threats . or weaknesses and threats. and how they interrelate. product. This will help to bring together people from different areas of the business to identify strengths and weaknesses. marketing. you will be better able to apply your organization’s strengths. Opportunities. proprietary software. distribution channels. • Strengths: Capabilities that provide a competitive advantage • Weaknesses: Factors in which the capabilities of competitors are superior • Opportunities: Favorable circumstances for profit and growth • Threats: Potential dangers or risks to the business By understanding these four components. then create a SWOT matrix.3 Performing a SWOT Analysis The first step in performing a SWOT Analysis is to examine your internal capabilities in key competitive areas including financial.3. and deter potentially devastating threats! 5.Opportunities Weaknesses . This can help you match your internal strengths and weaknesses with your external threats and opportunities. and Threats. such as strengths and opportunities.3.Opportunities • Use organization's internal strengths to • You may have internal weaknesses that take advantage of external opportunities prevent you from pursuing some • These are the best strategies to employ opportunities • You may not be able to pursue this until • These strategies aim at improving you have applied other quadrant strategies weaknesses to take advantage of opportunities Strengths . and organizational. technical.

Opportunities Weaknesses .Threats Strength Weakness • Personalized service • Limited inventory • Stock custom made so time required to .Threats Weaknesses . • Use your strengths to avoid or reduce • These are defensive tactics designed to external threats reduce weaknesses and avoid threats • Do not attempt to tackle all of the threats • An organization faced with numerous to your organization threats and weaknesses may have to: • Weigh the severity and immediacy of the merge.3. make cuts. They summarized this information in the SWOT matrix. they identified some strategies to create a competitive advantage or minimize their weaknesses.Opportunities Strength Weakness • Knowledgeable and experienced sales • Vulnerable to price competition staff Opportunity Opportunity • Provide furniture using eco-friendly and • Retailers need help designing their client's sustainable products that customers will office spaces pay more for Strategy Strategy • Create a web portal that allows retailers to • Create a website that promotes the eco- design virtual office spaces for their friendly aspect to differentiate from the clients competition Benefits of Strategy Benefits of Strategy • Increased revenue • Increased market penetration • Increased customer satisfaction • New customer acquisition • Reduced administration costs Metrics (KPIs) Metrics (KPIs) • Revenue • Revenue • Frequency of purchases • Revenue per sale • Frequency of purchases Strengths . declare bankruptcy. or threat first before deciding to deal with it close 5.5 SWOT Analysis Example XYZ Corporation performed a situation analysis using the SWOT matrix. Strengths . Based on an assessment of their business' strengths and weakness relative to the opportunities and threats.

it is good to involve team members in creating your e-vision statement. To get started. This time period is far enough away to allow you to consider innovative new approaches. customers. While most vision statements express a long term vision. Creating the e-Vision Statement Start the process of creating a vision statement after performing your strategic analysis.Threat create products • Discounts offered by competitors Threat Strategy • Competitors have better stock availability • Offers an online order tracking tool for Strategy retailers to track their orders to retain loyalty • Provide online listing of special order furniture available for factory direct Benefits of Strategy shipping • Increased customer satisfaction Benefits of Strategy • Increased loyalty and retention • Reduced administration costs • Increased customer satisfaction • Reduced order cancellations • Increased sales • Reduced administration costs Metrics (KPIs) Metrics (KPIs) • Administration cost per sales • Order-to-payment ratio • Revenue • Faster time to payment • Lower administration costs • Lower sales and marketing costs • Lower inventory costs 5. This conveys the organizational goals.0 Visioning Success After completing the Situation Analysis.4. and partners. A good way to align your IT strategies with your organization is to envision what success looks like. How would you describe what you accomplished? Consider these questions: . and beliefs for employees. To achieve strategic value from your organization's IT investments. values. The vision statement guides the organization in reaching future goals. Most organizations express it in the form of a vision statement. your IT infrastructure and enabling-applications should be consistent with your mission and support your goals and objectives. imagine that it is two years from now and you are describing your success. An organization's vision depicts the organization as you would like it to become in the future. but is close enough to promote immediacy and action. your e-vision statement should only look 24 months into the future. As vision statements build organizational culture and expectations. your organization will now have a clearer picture of where it wants to go with its Internet and IT initiatives.

and SWOT analysis. • Define a business strategy and explain its importance.0 Conclusion In this module. • Describe how Internet-enabling strategies can be applied to address the strengths of your organization. Porter’s Five Forces. and SWOT analysis tools. what are the expected outcomes and how are they measured? 5.5. business review. Five Forces. • Create an e-vision of success. and objectives of your organization. • Conduct an external and internal situation analysis and summarize them using a PEST. minimize its weaknesses. and relate them to your Internet and IT strategies. . You also learned how to create a vision statement based on the output of the analysis tools. goals. You should now be able to: • Review the mission. you learned how to evaluate the internal and external situation of your organization using PEST. • Who are the stakeholders or beneficiaries? • What do they expect and want? • When the vision has been achieved. and address opportunities and threats.