5.0.

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
 4. Identification and Prioritization

Business Case and Financial Concepts

This third step is for selection and planning.

1. Project Selection and Project Roadmap

2. Business Case Project Proposal
3. Project Lifecycle Management
4. Plan and strategize your implementation with a sound business case and proposal.

5.1.2 What is a Business Strategy?

A business strategy is a business-specific action plan to achieve a goal or an objective. The primary
aim of a business strategy is to search for opportunities that will improve the company’s current
situation and reshape its future. Typically, these strategies seek to achieve superior customer value,
differentiation, and sustainable success.

The first step in this process is to perform a situation analysis. This will examine your business’s
internal and external environment including the market and competition, and the business itself. It will
help you identify where you want to go by identifying opportunities, threats, and challenges and the
ability of your business to address them.

5.1.3 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.

Fact Two: Business leaders must regularly re-evaluate core competencies and strategies to ensure that
they align with the needs of their customers.

Fact Three: Rapid changes in business and technology mean that opportunities and threats can appear
quickly.

What does this mean for your business? Organizations must consider the risks and rewards of
achieving sustainable advantage.

As a business owner, 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?
5.1.4 Processes and Tools

Before you can determine the best strategies for your organization, it is important to review your
external and internal operating environments. You will examine both the external forces which affect
your organization as well as its internal structure.

1. External Situation Analysis:

• The Macro Environment: What is the overall political, economic, social, 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. 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, weaknesses, opportunities, and
threats to your organization? (SWOT Analysis)

3. Visioning Success

Based on a summary of the situation analysis, you can create a visionary statement of what you would
like to achieve in the next 24 months using the Internet and IT.

5.2.0 External Situation Analysis

The first step of a situation analysis is to analyze your organization's current situation within its
external operating environment:

1. The macro-environment
This environment affects all organizations. It includes Political, Economic, Social, and Technological
factors ( PEST ).

2. The micro-environment
This environment affects the businesses within a particular industry. One popular tool used for a
micro-environment analysis is Michael Porter's Five Forces Analysis (Michael Porter, 1985). Its
elements are Supplier Power, Threat of Substitutes, Buyer Power, Rivalry, and Barriers.

Changes in the external environment often present new challenges and opportunities and new ways to
reach your goals and objectives.

5.2.1 PEST Analysis

A PEST analysis is an analysis of the external macro-environment that affects all organizations. It
focuses on four factors:

P = Political
E = Economic
S = Social
T =Technological
These external factors are usually beyond your organization’s control and sometimes appear as threats.

However, changes in the external environment can also create new opportunities. Many macro-
environmental factors are country-specific or industry-specific. You will need to perform a PEST
analysis for all of the countries where your organization operates.

Example

The following is a hypothetical example of the effects of a change in the macro-environment:

1. Government deregulates the telecom industry, leading to …

2. Increased competition and lower prices for Internet access, leading to …
3. A growing number of homes in the country buying broadband Internet access, leading to …
4. Young people spending more hours using the Internet to browse and shop, creating …
5. New e-commerce opportunities for a variety of different businesses...

5.2.2 PEST Factors

The PEST analysis takes into account the following factors:

1. Political Factors - Government regulations and legal issues that define both the formal and
informal rules under which your organization must operate.
2. Economic Factors - 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.
3. Social Factors - The demographic and cultural aspects of the external environment. These
factors affect customer needs and the size of potential markets.
4. Technological Factors - Technological factors can raise or lower barriers to entry, make
production levels more efficient, and influence outsourcing decisions.

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
5.2.3 PEST Tips

Some things to remember about using the PEST analysis:

• Be selective. Concentrate on the top few factors that will have the greatest impact on your
organization.
• Look for the long-term drivers of change such as globalization, technical shifts, and potential
shortages of key resources.
• Identify any factors that may pose an opportunity for you but not for your competitors. This
could be a good source of competitive advantage.

5.2.4 Porter's Five Forces

An important aspect of the micro-environmental analysis is the industry in which your business
operates or is considering operating. Michael Porter devised a useful framework for evaluating the
attractiveness of an industry or market (Porter 1985). This framework, known as Porter's Five Forces,
identifies five factors that influence the profitability of an individual market.

1. Degree of Rivalry - The strength of competition.

2. Supplier Power - Suppliers provide the raw materials, such as labor or suppliers, for
producers. If suppliers are powerful, then they can exert more control over the producers that
they supply. For example, if there is only one mine that provides a needed material to a
particular industry, then that mine can sell its material at a higher price.
3. Threat of Substitute - This occurs when there is competition from a product from a different
industry. For example, the price of containers from other industries, such as glass bottles, steel
cans, and plastic containers, affects the price of aluminum beverage cans.
4. Buyer Power - This is the power that buyers have over the producers in an industry. For
example, if there are a lot of cell phone manufactures, but only a limited number of people
buying them, then the buyers have more control and the price should drop.
5. Barriers to Entry - In theory, any business should be able to enter or exit a market. In reality,
there are many different factors that can prevent a new business from entering an existing
market. For example:
o Government regulation: Governments can create monopolies (for example, power
utilities). These prevent other businesses from entering the market.
o Patents or proprietary knowledge: For example, Edwin Land introduced the Polaroid
camera in 1947. Kodak tried to sell a similar type of camera in 1975. Polaroid sued
Kodak for patent infringement and won. Kodak was prevented from entering the
instant camera industry.
o Asset specificity: A new business must have detailed technical knowledge, and a lot
of capital, in order to enter certain industries.

5.2.5 Analyzing Your Competitive Situation

How can you use Porter’s Five Forces model to analyze your competitive environment? Follow these
steps:

1. Assess the strength of each of the five competitive forces: Review the questions below to
assess your strength.
2. Identify the factors that are causing each force to be strong or weak: List out the factors that
you found in step one.
3. Determine the overall strength of the competition: What is the combined effect of all of these
factors? Overall, are they strong, moderate or weak?

Rivalry Among Businesses in the Industry

 1. Is price competition strong?
2. Are rivals actively improving product quality, features, or performance?
3. Are rivals actively improving customer service?
4. Are rivals actively improving distribution networks?

Supplier Power

1. Do your suppliers have strong bargaining power?

2. Do your suppliers' products make up a large portion of your total cost?
3. Is it expensive to switch your suppliers?
4. Are there many substitutes for the supplier's products?

Threat of Substitutes

1. Can your buyers' needs be met by alternative products?

2. Are substitutes readily available?
3. Does it cost much for a buyer of your product to switch to a substitute?

Buyer Power

1. Do a small number of buyers purchase large volumes of your products?

2. Are your products standardized?
3. Are there other businesses supplying your product in the marketplace?
4. Does it cost much for a buyer of your product to switch to another product?

Barriers to Entry

1. Is the market becoming more attractive to other businesses?

2. Are barriers to entry low?
3. Are customers dissatisfied and looking for alternatives?

5.3.0 Internal Situation Analysis

Your organization must understand its strengths and core competencies, and its value in the
marketplace. It also must understand where it is vulnerable to competitors and changes in the macro
environment. With this knowledge, 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, in the context of
the Internet-enabled initiative that you are planning:

• Product
• Operations
• Organization
• Technology
• Marketing and Sales
• Customer Service and Support

5.3.1 Mission, Goals, Objectives, and KPIs

Before you can identify Internet and IT initiatives that will provide the greatest benefits, it is important
to review your organization's mission statement, goals, objectives, and Key Performance Indicators
(KPIs).
Mission Statement

The mission statement describes the aims, values and overall plan of an organization. This statement
describes why an organization exists, conveys a sense of purpose to employees, and projects an image
of the organization to its customers. 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. Goals
should be directed toward a vision and consistent with the mission. For example, one goal might be to
increase sales faster than the growth of the industry. To determine your goals, 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,
consistent with a goal and strategy. Objectives are a clear target that measures an organization's
progress towards its goals. For example, a sales objective might be to grow revenue by 20 percent per
year. To determine your objectives, 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. KPIs should measure critical success factors of
the organization to enable management to measure improvements and take corrective action when
needed. For example, KPIs to measure sales might include average discount by region, average sales
by sales person, or average order size. To determine your KPIs, answer the following questions about
your organization:

• How do we know if we are making progress?

• Do we need to do anything differently?

5.3.2 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.

The internal and external situation analysis can produce a large amount of information, much of which
may not seem to apply to your new initiatives. The SWOT Analysis acts like a filter to reduce the
amount of information so that you can focus on just your key issues.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

• 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, and how they interrelate, you will be better able to apply
your organization’s strengths, minimize its weaknesses, capitalize on its opportunities, and deter
potentially devastating threats!

5.3.3 Performing a SWOT Analysis

The first step in performing a SWOT Analysis is to examine your internal capabilities in key
competitive areas including financial, marketing, product, technical, and organizational. This will help
to bring together people from different areas of the business to identify strengths and weaknesses.

Answer the following questions:

• What relevant resources does your organization have, such as patents, proprietary software,
distribution channels, 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?

5.3.4 SWOT Matrix

The second step when performing a SWOT analysis is to identify potential opportunities and threats,
then create a SWOT matrix. This can help you match your internal strengths and weaknesses with
your external threats and opportunities.

Each quadrant of the matrix compares two of the SWOT categories, such as strengths and
opportunities, or weaknesses and threats. Doing this will help you to develop specific strategies for
dealing with the issues that the situation analysis raised.

Strengths - Opportunities Weaknesses - Opportunities

• Use organization's internal strengths to
take advantage of external opportunities
• These are the best strategies to employ
• You may not be able to pursue this until
you have applied other quadrant strategies
• You may have internal weaknesses that
prevent you from pursuing some
opportunities
• These strategies aim at improving
weaknesses to take advantage of
opportunities

Strengths - Threats Weaknesses – Threats

 • Use your strengths to avoid or reduce
external threats
• Do not attempt to tackle all of the threats
to your organization
• Weigh the severity and immediacy of the
threat first before deciding to deal with it
• These are defensive tactics designed to
reduce weaknesses and avoid threats
• An organization faced with numerous
threats and weaknesses may have to:
merge, make cuts, declare bankruptcy, or
close

5.3.5 SWOT Analysis Example

XYZ Corporation performed a situation analysis using the SWOT matrix. Based on an assessment of
their business' strengths and weakness relative to the opportunities and threats, they identified some
strategies to create a competitive advantage or minimize their weaknesses.

They summarized this information in the SWOT matrix.

Strengths - Opportunities 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 - Threats Weaknesses - Threats

Strength Weakness

• Personalized service • Limited inventory

• Stock custom made so time required to
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
• Reduced order cancellations
Metrics (KPIs)
Metrics (KPIs)
• Administration cost per sales
• Order-to-payment ratio
• Faster time to payment
• Increased customer satisfaction
• Increased sales
• Reduced administration costs
• Revenue
• Lower administration costs
• Lower sales and marketing costs
• Lower inventory costs

5.4.0 Visioning Success

After completing the Situation Analysis, your organization will now have a clearer picture of where it
wants to go with its Internet and IT initiatives. To achieve strategic value from your organization's IT
investments, your IT infrastructure and enabling-applications should be consistent with your mission
and support your goals and objectives.

A good way to align your IT strategies with your organization is to envision what success looks like.
An organization's vision depicts the organization as you would like it to become in the future. Most
organizations express it in the form of a vision statement. This conveys the organizational goals,
values, and beliefs for employees, customers, and partners. The vision statement guides the
organization in reaching future goals.

While most vision statements express a long term vision, your e-vision statement should only look 24
months into the future. This time period is far enough away to allow you to consider innovative new
approaches, but is close enough to promote immediacy and action.

Creating the e-Vision Statement

Start the process of creating a vision statement after performing your strategic analysis. As vision
statements build organizational culture and expectations, it is good to involve team members in
creating your e-vision statement.

To get started, imagine that it is two years from now and you are describing your success. How would
you describe what you accomplished? Consider these questions:
 • Who are the stakeholders or beneficiaries?
• What do they expect and want?
• When the vision has been achieved, what are the expected outcomes and how are they
measured?

5.5.0 Conclusion

In this module, you learned how to evaluate the internal and external situation of your organization
using PEST, Porter’s Five Forces, business review, and SWOT analysis tools. You also learned how to
create a vision statement based on the output of the analysis tools.

You should now be able to:

• Review the mission, goals, and objectives of your organization, and relate them to your
Internet and IT strategies.
• Describe how Internet-enabling strategies can be applied to address the strengths of your
organization, minimize its weaknesses, and address opportunities and threats.
• Create an e-vision of success.
• 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.