Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. The choices involving both competitive advantage and scope can be summed up in cost leadership, differentiation and focus. A company chooses to pursue one of two types of competitive advantage, either via lower costs than its competition or by differentiating itself along dimensions valued by customers to command a higher price. A company also chooses one of two types of scope, either focus (offering its products to selected segments of the market) or industry-wide, offering its product across many market segments.
Cost leadership - means the lowest cost of operation in the industry. The cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve). A cost leadership strategy aims to exploit scale of production, well defined scope and other economies (e.g a good purchasing approach), producing highly standardized products, using high technology. In the last years more and more companies choose a strategic mix to achieve market leadership. This patterns consist in simultaneous cost leadership, superior customer service and product leadership.
Differentiation - means making the products/services different in some way in order to boost competitive its market value. A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy. Differentiation drives profitability when the added price of the product outweighs the added expense to acquire the product or service. Not suitable for small companies.
Focus - This dimension is not a separate strategy for big companies due to small market conditions. Big companies which chose applying differentiation strategies may also choose to apply in conjunction with focus strategies (either cost or differentiation). In adopting a narrow focus, the company ideally focuses on a few target markets (also called a segmentation strategy or niche strategy). These should be distinct groups with specialised needs. The choice of offering low prices or differentiated products/services should depend on the needs of the selected segment and the resources and capabilities of the firm. It is hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialised markets, you can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency. A focused strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment.
Sunday, 8 November 2015
IT Governance Framework
The establishment of IT Governance closely follows the reasons that a formal body of corporate governance is created. For one, corporate governance seeks to make the company more appealing to both stakeholders and shareholders by adding to its transparency and social responsibilities and management ethics. IT Governance adds to standard corporate governance by introducing decision-making processes about how IT performance is measured and how investments will be made in IT infrastructure. This is often done by a governance committee who has authority over implementation. That's why IT governance should sit at the highest level of the organisation. There is room for IT
governance wherever there are decisions to be made regarding how to
utilise technology resources to make a unit function better. In order to attain the optimal results, the IT governance body should be responsible for the following:
- Establishing and communicating an organisation-wide IT vision that supports the mission and goals
- Establishing IT policies that support strategic & IT priorities
- Establish and control the overall budget for total spend
- Suggesting or recommending technical architecture and standards
- Establishing best practices and processes
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Saturday, 7 November 2015
Information technolgy Plan
AN Information Technology Plan is a discipline field concerned with the planning process for information technology investments and decision-making. According to Architecture & Governance Magazine, (Strategic) IT planning has become an overarching discipline within the Strategic Planning domain in which enterprise architecture is now one of several capabilities. It's a time-consuming process to redesign plans in the direction that better meets business goals. IT should make plans that reflect what IT will actually do at the same time ensuring that these It related activities will help business meet its needs. An information technology plan needs to understand how IT contributes to business and its strategic goals.An Information technology plan should balance business needs with the costs to support it and manage risks of IT capabilities and include contingecies to neutralise the negative impact brought on by poorly designed changes or disasters. Even though the intrinsicacies of the IT plan vary according to the nature of business, the following items are usually included (compare the areas covered by the IT Plan and compare it with motivating factors for IT Governance. It's as if the concept of IT Plan was a answer to the establishment of IT Governance as a rule of thumb to manage IT resources according to business and meet compliance requirements on a strategic level...):
a) Service operation
b) Assistance capacity
c) IT insfrastructure
d) Application need
e) Service Provider Strategy
f) IT Principles
g)Information Security Policy (again ISO 27001)
h) IT architecture
i) Investments
j) Competencies
a) Service operation
b) Assistance capacity
c) IT insfrastructure
d) Application need
e) Service Provider Strategy
f) IT Principles
g)Information Security Policy (again ISO 27001)
h) IT architecture
i) Investments
j) Competencies
Factors that motivate IT Governance
From relative obscurity a few years ago, a plethora of factors have come together to make the concept of motivators for IT Governance a must in order to keep up with transparency requirements, shareholders expectations and accountability and financial performance. Here’s a quick primer on the basics of IT governance:
IT governance in its most simply form is about defining how organisations align IT strategy with business strategy. This is not accomplished simply with a narrow focus on either business or IT infrastructure; ensuring the company stays on track to achieve their strategies and goals calls for steady measurement of IT's performance. Measuring processes is the surest way to cater to stakeholders and an IT governance framework is crucial to answer the questions that arise from managing IT with business interests in mind. The level of IT governance implementation will vary according to company's size, industry and other regulatory requirements. A food stall on the street won't be so dependent on IT as a multinational behemoth of a company.
The drivers that motivate organisations to establish a formal IT governance are:
a) Business environment- there are macro environment and micro environment, besides the very internal business environment which comprises organisational culture and adopted frameworks and processes.
b) Compliance - common compliance guidelines and influences include:
b.1) OECD Principles - what chiefly concerns these principles is financial stability, sustainability and economic efficiency. It's also in the OECD interests to ensure that stakeholders and shareholders are treated with fairness, widen the scope of corporate governance, introduce agency conflict solving and the development of the capital market.
b.2) the Cadbury Report - For financial reporting and accountability.
b.3) Sarbanes Oxley-Act - a law that was passed to ensure that the CEO should no longer be responsible for issuing financial reports and independent audits should also be conducted in order to avoid accounting scandals.
b.4) Basel, Basel II and Basel III - a set of rules resulting from a treaty held in Basel to regulate banks' activities.
b.5) Robert Monk - his writings dealt with harmful business practices and the need for directors, shareholders and councils to narrow their ties, in addition to the extinction of company owners holding seats as CEO.
c) IT as service Provider - IT is supposed to support the business activities and should be a means to carrying out the business strategy and goals
d) Technological integration - integrating processes and technologies saves time and energy as staff members have free access to whatever information they need at the right moment.
e) Information security - should be rooted on the principles described in ISO 27001. Other ISO standards:
ISO 9000 - quality management
ISO 9126 - Software Quality
ISO 12207 - Software Life cycle maturity
ISO 15504 - Software Development Process (if you catch yourself constantly harping on about windows being crappy, chalk it up to a lack of following ISO 9126 and ISO 15504 to design uality software programs!)
ISO 20000 - IT management Services
f) Business dependency on IT - there should always be a contingency plan when there is a major interruption in the service environment so as not to hinder business continuity. Business dependency on IT is a topic often broached in risk management.
Organisations today are subject to many regulations governing data retention, confidential information, financial accountability and recovery from disasters. While none of these regulations requires an IT governance framework, many have found it to be an excellent way to ensure regulatory compliance.
The IT Governance cycle
As stated above, deploying IT to meet business goals isn't a simple task. There should be ongoing monitoring of IT performance and how continuous improvement can be incorporated into the daily processes and functions of IT in order to further align it with the business objectives. Below is a summed-up flowchart of the IT Governance cycle:
IT governance in its most simply form is about defining how organisations align IT strategy with business strategy. This is not accomplished simply with a narrow focus on either business or IT infrastructure; ensuring the company stays on track to achieve their strategies and goals calls for steady measurement of IT's performance. Measuring processes is the surest way to cater to stakeholders and an IT governance framework is crucial to answer the questions that arise from managing IT with business interests in mind. The level of IT governance implementation will vary according to company's size, industry and other regulatory requirements. A food stall on the street won't be so dependent on IT as a multinational behemoth of a company.
The drivers that motivate organisations to establish a formal IT governance are:
a) Business environment- there are macro environment and micro environment, besides the very internal business environment which comprises organisational culture and adopted frameworks and processes.
b) Compliance - common compliance guidelines and influences include:
b.1) OECD Principles - what chiefly concerns these principles is financial stability, sustainability and economic efficiency. It's also in the OECD interests to ensure that stakeholders and shareholders are treated with fairness, widen the scope of corporate governance, introduce agency conflict solving and the development of the capital market.
b.2) the Cadbury Report - For financial reporting and accountability.
b.3) Sarbanes Oxley-Act - a law that was passed to ensure that the CEO should no longer be responsible for issuing financial reports and independent audits should also be conducted in order to avoid accounting scandals.
b.4) Basel, Basel II and Basel III - a set of rules resulting from a treaty held in Basel to regulate banks' activities.
b.5) Robert Monk - his writings dealt with harmful business practices and the need for directors, shareholders and councils to narrow their ties, in addition to the extinction of company owners holding seats as CEO.
c) IT as service Provider - IT is supposed to support the business activities and should be a means to carrying out the business strategy and goals
d) Technological integration - integrating processes and technologies saves time and energy as staff members have free access to whatever information they need at the right moment.
e) Information security - should be rooted on the principles described in ISO 27001. Other ISO standards:
ISO 9000 - quality management
ISO 9126 - Software Quality
ISO 12207 - Software Life cycle maturity
ISO 15504 - Software Development Process (if you catch yourself constantly harping on about windows being crappy, chalk it up to a lack of following ISO 9126 and ISO 15504 to design uality software programs!)
ISO 20000 - IT management Services
f) Business dependency on IT - there should always be a contingency plan when there is a major interruption in the service environment so as not to hinder business continuity. Business dependency on IT is a topic often broached in risk management.
Organisations today are subject to many regulations governing data retention, confidential information, financial accountability and recovery from disasters. While none of these regulations requires an IT governance framework, many have found it to be an excellent way to ensure regulatory compliance.
The IT Governance cycle
As stated above, deploying IT to meet business goals isn't a simple task. There should be ongoing monitoring of IT performance and how continuous improvement can be incorporated into the daily processes and functions of IT in order to further align it with the business objectives. Below is a summed-up flowchart of the IT Governance cycle:
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| IT Governance cycle |
The Dead Pool
A dead pool, also known as a death pool, is a gambling arrangement to guess the person who is going to die next, sometimes with money at stake. A typical dead pool game is set with participants gathering on January 1 and making guesses about possible celebrity casualties within the year. Variations on game length and timing are also allowed in case it seems unlikely that one year is not going to be enough of a deadline for the results to be in.
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| Wagering on a no-risk bet. |
Thursday, 5 November 2015
Stages in the Evolution of Strategic Thinking
Business governance and management have come a long way from alloting exclusive resources for financial gains at the detirment of everything else and much to the company workers' chagrin who didn't have a say when decisions had to be made. Creativity was stifled and perfunctory performance of chores was encouraged. Now new management models place much larger emphasis on human resources as a company's main asset and much more is invested in working staff qualification and employee satisfaction, in addition to an entire overhaul in the way that businessses used to be run.
Stage -1
Basic financial planning defined the whole idea of management. Preparing a report in the company's financial performance during the financial year was the main objective of companies in this stage. The organisation success relied heavily on the performance of the top management tier and their knowledge of products, markets and rival. Management by Objectives was the main school of thought to organisational administration at this time.
Stage - 2
A longer time horizon was embraced and a longer-term goal started to become part ofthe managerial scope. As companies gradually came to realise, in order to allow growth to proceed apace, it was necessary to expand upon their market forecast. So environment analysis and process standardisation were engendered by this need to predict more the future and steer the company in the desired direction. The Boston Consulting Group growth matrix attained prominance at this time and was used often as a benchmark for company growth and decline. The Boston Consulting Growth is usedin conjunction with the experience curve concept in order to explain the market place of a company and determine its next step according to the premise that every CEO wants his company to eventually achieve high market share while at the same time tapering down on their efforts and investments on the business growth.
Stage - 3
In the 1970s there was a move to the third phase of externally oriented planning. Competition review and analysis became the norm at the same time that dynamic resource allocation started to become a necessity due to numerous frameworks for strategic and market analysis. A framework of notice was the SWOT analysis (strengths and weknesses as internal forces while opportunities and threats are externalities that hold some sway over the company's strategic decisions.
Stage - 4
Strategic management became a stage in its own. Strategic frameworks became formally adopted and incorporated into organisational goals and missions, being a major source of influence in the company's organisational culture and identity. It was often desirable for companies to pick a framework that best fit their market profile in order to cut across organisational boundaries and provides facilities for decision-making processes. Decision also made a shift away from being exclusive to the top tier management, now including assembly line foremen and other staff members in managerial positions not part of the strategic level of management. Quantitative forecasting also started to make room for qualitative analysis. Market attractivity also became an issue in management with leaders scrambling to come up with solutions to attract a larger share of customers and to foster close relationships with suppliers. The Portter's Five Forces (threat of new entrants, threat of new products, bargaining power of suppliers and bargaining power of buyers and rivalry) was a common trend during this phase which as main priority the need to work on attractiveness of industry profitablity.
Stage - 5
Organisational culture and systemic thinking came as an answer to the lack of fulfilled expectations from the previous era. Coordenation of all resources towards the achievement of common goals became a commonly accepted approach as companies started to look outside for growth and prosperity, marking a complete break from purely financial motives. The external environment became an important point of interaction and contacts, giving rise to social and ecological concerns on the part of the company. Good governance practice also started to become widely adopted in light of accounting scandals. The rise of corporate governance was important in that companies needed to be in good standing with their stakeholders and could no longer rely on internal audits to report their fiscal performances and still be trusted. External audits and independent compliance requests were standardised
BCG's Experience Curve
Learning usually includes becoming more proficient at doing something
while adopting processes that have proved successful to accomplishing
similar tasks, coupled with the added benefit of experience about
knowing how to deal with core routines which are necessary to drive
business to success.
As a concept, the experience curve was designed by the Boston Consulting Group and Bruce D. Henderson which basically states that proicess maturity follows experience, which in turn means more efficient uses of resources for higher return over investment. It can be said that the production of any good or service experiences this effect. As cumulative volume doubles, value added costs drop steadily. By value added costs it's meant to encompass administration, marketing, distribution and manufacturing. They tend to decrease over time. The experience curve can be expressed graphically by plotting the curve with the cumulative units produced on the horizontal axis and unit cost on the vertical axis. An effective experience curve indicates that unit costs should drop when compared to its original level.
Reasons for the effect
The primary reason for the validity of the experience curve effect is the long-term consequence of learning through hands-on experience in addition to reflexive analysis conducted on all the laboural processes involved in the production or performance of something. As learning begins with making succesively larger finds until a threshold is reached beyond which they become smaller and smaller. The common aspects that drive the experience curve model of growth are labour efficiency (employees becoming more dexterous at their assignments), standardisation, specialisation, methods improvements, technology-driven learning, changes in the resource mix and product redesign.
As a concept, the experience curve was designed by the Boston Consulting Group and Bruce D. Henderson which basically states that proicess maturity follows experience, which in turn means more efficient uses of resources for higher return over investment. It can be said that the production of any good or service experiences this effect. As cumulative volume doubles, value added costs drop steadily. By value added costs it's meant to encompass administration, marketing, distribution and manufacturing. They tend to decrease over time. The experience curve can be expressed graphically by plotting the curve with the cumulative units produced on the horizontal axis and unit cost on the vertical axis. An effective experience curve indicates that unit costs should drop when compared to its original level.
Reasons for the effect
The primary reason for the validity of the experience curve effect is the long-term consequence of learning through hands-on experience in addition to reflexive analysis conducted on all the laboural processes involved in the production or performance of something. As learning begins with making succesively larger finds until a threshold is reached beyond which they become smaller and smaller. The common aspects that drive the experience curve model of growth are labour efficiency (employees becoming more dexterous at their assignments), standardisation, specialisation, methods improvements, technology-driven learning, changes in the resource mix and product redesign.
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