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Strategy (business vs IT)

posted May 15, 2013, 12:17 PM by Jageshwar Tripathi   [ updated May 16, 2013, 10:53 PM ]
IT strategy in other post but before IT strategy it is important to realize and accept relationship and difference between IT strategy and Business Strategy (this is the objective of this post, not to provide definition of strategy or repeat what is already said about strategy). To understand the difference or relationship we will have to first look at what is already said about strategy. Let us look at it first:
Word "Strategy" without any prefix or suffix is what?
  • A plan to achieve some goals?
  • Long term plan to achieve some very important goals?
  • Plan to achieve long term objectives?
  • Long term plan to achieve some long term goals?
 These terms are limiting and create confusion. If you consider following you will be able to understand why above statements limit the word strategy:
  • Strategy in games (chess or some other game of that nature)
  • Strategy in military
  • Strategy in business
  • IT strategy (IT is not a business here but a support function of business)

In many cases word long term is mentioned when defining strategy but strategy can be for anything, anywhere, at high level or at low level. One thing which can certainly be said about strategy is the goal or objective. Strategy is to achieve an objective (or some objectives). To achieve those objectives:

  • a plan,
  • some methods among many alternatives and
  • study about environment or opposition is applied/used

Here plan is not planning or even not strategic planning.

Who should make and use strategy and when?

Strategy can be at any level in an organization so considering it as something done by top management or organization leaders is also not true. Teams in an organization can have their strategies and an individual may have his strategies to achieve his objectives. If many people are working for an organization their objectives should be aligned with organization's objective and often they are part of organization level strategy but there can be strategies at every level to achieve goals of organization level strategies.

Why am I saying "many strategies at different levels" is because if you consider strategy to be defined at top level of the organization and not at individual level or team level, you are talking about a scenario where top leadership is creating strategy for all/everyone. If this is the case all others are going to follow it and hence we are considering there is brain at top level but rest others are just followers. Top leaders should define micro level strategies in that case, which doesn't happen and should not happen, otherwise the organization will be an organization of slaves commanded by a dictator.

How practically it happens? Many organizations only believe in making strategy at top level followed by lower level staff and in that case those organizations (strategies) fail and even if they succeed it is because of individual heroes at different levels who make their own strategies to achieve their objectives assigned by the organization. In many organizations either there is a total disconnect between strategies at different levels or lower level doesn't put its brain, just follows the order. There are many organizations where applying strategy happens at different levels and there is a culture to promote it. These organizations define the overall objectives, provide the direction and allow specific teams to define their strategies to achieve objectives assigned to them.

Coming to IT strategy and business strategy, we should understand that IT is to support business so IT should help in achieving business objectives, that's why it is often said IT strategy should be aligned with business. But business strategy can have strategy to deal with competition, IT doesn't have a competition in that scenario except helping or supporting business to compete. In such scenario business strategy is made to deal with the competition and IT can be used as a tool or weapon to deal with the competition in many cases.

Theories or principles related to strategy

To understand it better let us see what is already said about management strategies or business strategies and look at IT again, how those theories can be applied to IT too (or can not be):

Michael Porter's three principles

Michael Porter in his paper "What is strategy?" mentioned about three principles for setting strategy (also known as generic strategies):

  • Cost leadership strategy
  • Differentiation strategy
  • Segmentation or market focused strategy

Balanced score card

Strategy performance framework developed by Kaplan and Norton. It not only focuses on financial performance of an organization or individuals but also focuses of other perspectives. For an organization it is important to  invest in long-term capabilities and customer relationships which should also be considered as gain along with financial gains.

Here are perspectives covered in balanced scorecard approach:

  • Financial
  • People (learning and growth)
  • Customer
  • Process (internal business process)

6 P's

Six P's is used to analyze products in different markets. These six p's are:

  1. Product
  2. Place
  3. Pricing
  4. Promotion
  5. People
  6. Process
     

Competitive advantage theory

Michael Porter defined a model for competitive advantage strategy.  He defined "five forces that shape industry competition":  

  1. Bargaining power of buyers
  2. Bargaining power of suppliers
  3. Threat of new entrants
  4. Threats of substitute products or services
  5. Rivalry amongst existing competitors

Ansoff Matrix

Igor Ansoff suggested a matrix to show possible alternate growth strategies for  an an organization in the market.

He defined matrix on existing products, possible future products versus existing market (customers) and new market

  Existing product
 New product
 Existing market
 Market penetration
 New Product development
 New market
 Business development
 Diversification

Based on this matrix a company can decide on its strategy to focus on market penetration, product development, market development or diversification.

Choice of one of these strategy for business growth is based on core strength of a company. If there is enough scope for more business in existing market with existing products, company may focus on penetrating existing market to maximize business. Often after a certain point of time limit of an existing market reaches so company has to decide either it can focus on a new project development if core strength of the company is in its customer base but it can go for development of a new market if its core strength is in its existing product.

Strategic canvas

Kim and Mouborgne suggested this concept to check the performance against some key criteria. This can help knowing gap between how we are doing currently and what is expected.

  Performance criteria
 Current
 Desired
 Product Criteria1
Criteria2
Criteria3
etc
  
 Process Criteria1
Criteria2
Criteria3
etc
  
 People Criteria1
Criteria2
Criteria3
etc
  
Price
 Criteria1
Criteria2
Criteria3
etc
  

Interesting resources and references:

http://www.slideshare.net/dipalij07/porters-generic-strategies-with-examples

http://en.wikipedia.org/wiki/Business_strategy

http://www.resourcenation.com/blog/the-6-ps-of-marketing/3964/

http://www.quickmba.com/strategy/generic.shtml

http://en.wikipedia.org/wiki/Porter%27s_generic_strategies

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