Strategy Development for E-Banking
Because e-banking is new, significantly different from traditional banking, and has a very broad impact on the business, it should be managed strategically rather than tactically. This chapter identifies "some of the relevant issues" from the perspective of corporate strategy.
CORPORATE STRATEGY
The definition of "strategy" differs among sources, though common elements are that it is long-term planning (not within the current year) that involves a permanent change to the organization (capital investment).
It is generally divided into strategy by design (a systematic approach to future plans based on past trends) and strategy by discovery (consideration of alternatives that deviate from a predictable continuation of status quo).
Both of these approaches are necessary in e-banking, as an organization considers the medium as an extension of its traditional business as well as the possible "new" alternatives and opportunities the medium offers.
STRATEGY DEVELOPMENT TOOLS
The remainder of the chapter will be a description of tools and approaches for strategic management for e-banking. (EN: I expect this means a succotash of random topics.)
The Alignment Problem
Traditionally, "alignment" referred to coordinating the information technology with the organizations' business unit strategies, though this been challenged because, in so many words, business do not have a strategy to which IT can be aligned. Also, the author asserts that IT should not be viewed as being distinct from the rest of the business, and should in some instances be the driver of strategy
The author's proposal is to separate IT strategy from business strategy and define them in parallel. The rational for this is that business units, left to their own devices, will continue to be compartmentalized and myopic, and a broader IT perspective can encourage (or require) integration and synergy that business units may not see as being in their individual interests
EN: I think the author has a good point here, but it's a careful balance to prevent the tail from wagging the dog. It seems to me the business should be in charge of requirements (what will be done) whereas IT should control implementation (how it will be done), and that the line between the two should be well defined and well defended.
Corporate Planning in the Organization: The IS Map
The author presents an existing approach to technology planning, then pokes holes in it. (EN: no point in documenting the details - he describes only to dismiss, and it seems like a straw man to me)
The E-Business and Information Systems Domain
The author differentiates between the domain of business and the domain of IT - which is another way of asserting his earlier position of keeping the business from driving the nature of the IT solution in a fractured manner.
The Alignment Perspective
The author examines for "perspectives" on alignment:
One: Business strategy impacts the organization, and the IT infrastructure precipitates. This is the current practice, which has led to a fragmented and uncoordinated IT infrastructure.
Two: Business strategy precipitates IT strategy, which dictates the IT infrastructure. This seems to be the approach the author is championing.
Three: IT strategy is developed, and the business strategy is based upon it, and in turn drives the organization. The problem with this approach is that the IT systems are accepted as given, and do not adapt to the needs of the business.
Strategic Action
A circular process diagram is presented, in which the business develops its strategy, IT strategy is developed to support it, the IT strategy develops a system, the system impacts business operations, and the current operations lead to the next cycle (beginning with business strategy).
This is similar to the second approach described above, but supports the perception of strategy as an ongoing task rather than once-and-done.
The Business Domain
The author defines business domain by considering at the specific activities undertaken by the business, grouping them into categories or domains of control (marketing, logistics, manufacturing, etc) and determining their interrelations (how activities support one another). The fundamental approach is to define goals, then determine what resources are necessary to achieve those goals, then determine what changes must be made to the business structure to have the resources needed, and finally, to undertake the actions, using those resources, to achieve end-state.
The Information Systems Domain
The author suggests four categories for future changes to an IT infrastructure:
- Strategic - Critical to support business strategy. If these are not implemented, the business will fall behind its competition or be penalized in a significant way
- High Potential - Provides significant benefit to the organization. (e.g., a substantial cost savings)
- Factory - Essential to provide continued support for ongoing business operations (largely upgrades and maintenance for operational efficiency)
- Support - Useful, but of negligible cost impact or strategic value to the enterprise.
The author indicates that this approach has been used by his own consultancy, and that is useful in prioritizing UIT initiatives.
The author also indicates that there is a "life cycle" to technology. A new technology takes about four years catch on, is widely used for about three more years, and is abandoned for newer technology after seven years. Therefore, you can predict when systems will need to be replaced
EN: There is some merit to this, but my sense is that this may be a little too general and aggressive to be used as an automatic rule. IT guys like it because it's job security and a constant supply of new toys. Better to take a more rational approach. Depending on the tech in question, there may be a longer or shorter lifespan.
EN: The author also has a lot to say about monitoring technology in use in the industry, but his approach seems to be keeping up with the Joneses. Again, there's some merit to keeping an eye on competition, but imitative motivation within a field leads to commoditization and lemming behavior of firms in an industry.
COMPETITIVE ADVANTAGE
The idea that IT can give a company a competitive advantage came to the fore in the 1980's, at a time when having IT at all was, in fact, an advantage over firms who did not have it. The concept has been perpetuated as a sense that having different or better IT than other companies can sustain or perpetuate this advantage is widespread. The author means to examine the concept, as a way to evaluate whether the axiom remains valid.
Three Generic Strategies
Theorist Michael Porter defines three generic strategies for competitive advantage: differentiation (unique qualities of your product or service), cost leadership having the lowest price), and specialization (focusing efforts on the unique needs of a specific market segment). In e-banking, competition focuses primarily on differentiation (a unique user experience) and cost leadership (use of IT to reduce costs, hence prices)
IT Sources of Competitive Advantage
In IT, there are three sources of competitive advantage: information technology (the hardware and software that is used), information systems (the way in which technology is combined), and the information itself (data resident in the systems), though the three may overlap.
The competitive advantage of information technology is limited, as the same technology is generally available to all players. To derive an advantage, your firm must get its hands on the technology before its competitors. To sustain the advantage, there must be some factor (price, exclusive license, patent) that prevents competitors from obtaining it quickly. Firms that develop custom solutions in-house are at a distinct advantage over those that purchase solutions, though even in the former case, the lead is perishable.
The advantage gained from information systems is different in that all players in an industry may have access to the same technology, but a given firm can be "smarter in how it uses the technology." However, this remains a short-term advantage, generally due to the migration of employees among firms.
The competitive advantage gained from the information itself derives from the maxim that "knowledge is power." In some instances, it is the mere possession of certain information that gives one firm an edge; in others, it is that the firm makes use of information that its competitors have not recognized the value of. The former is a sustainable competitive advantage (so long as the information can remain secure), the latter merely a temporary one (competitors will eventually discover it).
In the end, most of the competitive advantage to be gained from IT is very short-lived, and its value is largely intangible, leading many theorists to dismiss the notion of IT as a source of sustainable competitive advantage (though they will concede that it can provide a short-term advantage).
Frameworks for the Analysis of Competitive Advantage
Porter also maintains that a company's success depends entirely on its competitive position relative to others in the same industry.
The author goes on to describe some of the desirable qualities of an information system, but it isn't clear how you assess a company's position (or that of it's competitors) on a continuum. For example, how to you assign a numeric value to your organizations' "system integration" and then make the same assessment of a competitor? This seems to imprecise to be useful.