FREE online courses on Information Technology - Chapter 4 IT AND CORPORATE STRATEGY

 

Integrating IT and Strategy

 

A Key task of top management is formulating corporate strategy. What does the corporation do well? Can it continue this activity at a high level of performance? What opportunities for new directions are available? What are competitors doing? A firm can continue its present course, maintaining momentum where it is doing well. Alternatively, the corporation can dramatically change its strategy by deciding among competing alternatives for new ventures.

 

As an example, a single-product, singe-market firm might try diversifying to reduce cyclical fluctuations in product demand and to reduce the impact of a major change in consumer buying patterns. A large energy company decided to enter the market for information processing equipment by purchasing a number of high-technology firms and integrating them into a new subsidiary. This new business was expected to grow and help the energy firm cope with uncertainties in its primary petroleum business. A few years later, the firm sold most of its technology businesses after experiencing heavy losses.

 

There are three levels of integration of information technology with corporate strategy. At the lowest level of integration, we find independent information systems that help the firm implement strategy to improve efficiency. These systems are not directly linked to the strategy formulation process or integrated with a strategic plan. The need for such a system is usually perceived by an operational unit, and its primary objective is to improve efficiency. A large number of information systems fall into the independent category. They process routine transactions, produce output that goes to customers, provide exception reporting, and so on.

 

The second level of integration is characterized by policy formulation systems designed to aid the strategic planning process. In this case, the system helps formulate the plan but is not a part of an end product or service produced by the firm. A planning application is a good example of a policy support system. The data needed for accessible through the computer. A set of analytic tools in the system includes a bank of models with a large mathematical programming routing that helps select a course of action to maximize corporate performance over a multiyear planning horizon. In addition,  econometric and risk analysis models are available. Technology itself becomes a part of the strategy; it expands the range of strategic alternatives considered by the firm.

 

At the third level, the technology itself becomes a part of policy execution. It expands the range of strategic alternatives considered by the firm. At this level, technology bears an integral relation to a company's strategic thinking by helping to define the range of possibilities. At the same time, it provides a good portion of the means by which the strategy, once chosen, is to be implemented.