In recent years, the use of Information Technology and other large databases has had a great impact on the way businesses strategies are formulated. In simple terms, strategy refers to how an organization gets from where it is to where it wants to be. All successful organizations have a clear vision or goal. The strategy will be a clearly planned set of policies that will guide the organization towards their stated goals. Thus all businesses, no matter what their size or location is, need a well formulated strategy that can provide direction and focus. However, with the advent of modern technology, the way these strategies are formulated has changed considerably. In this post I will discuss how the availability of Information Technology and large databases for formulation of strategies has proven to be a blessing for organizations globally and that successful organizations tend to depend greatly on these resources.
“If you’re not an active internet citizen by the mid 1990s, you’re likely to be out of business by the year 2000” – Patricia B. Seybold
In its simplest form, technology used to be defined as the use of tools, machines and science in an industrial context. This definition has been in existence since more than a century ago. However, in today’s business world, technology is utilized in a whole new way. Information Technology and databases are one such example that have transformed the ways organizations operate today. The potential applications for their use are increasing on a daily basis. The availability of huge amounts of data to organizations has had many benefits in strategy formulation that have been discussed below.
Business managers can now obtain the required data quickly and frequently from not just all departments within the organization but from people all around the world. A key stage in strategy formulation is the assessment of the company’s position in relation to its market, its competitors as well as the external environment. This is because in order to make appropriate and effective strategies, companies must be well aware of their current position.
The availability of Information Technology and databases makes this task much easier and reliable since it allows rapid retrieval of information and saves time. Stock control available on the internet is much more effective since information is directly available updated regularly. The need of professional publishing firms has been reduced and thus the overall costs for research have been reduced.
For example, the market intelligence reports are detailed reports on individual markets that are produced by specialists and are usually very expensive. However, now such information is easily available through databases and local business libraries such as Euromonitor and Mintel reports.
Traditionally, a lot of time and energy was wasted in market based research through surveys and other manual means. But in today’s Globalized, hi-tech world all important information can be retrieved through Information Technology. Managers have a direct access to important information such as population consensus, economic or social trends, national or international statistics, surveys and much more.
Market research is a broad process which assists greatly in strategy formulation by:
- Reducing the risks associated with new product launches
- Predicting future demands and changes
- Explaining sales patterns for existing products and trends in the market
- Assessing the most consumer’s response to various products and activities
Thus it is clear that the availability of Information Technology and databases has allowed businesses to save costs while at the same time do effective research for strategy formulation.
Short-term and long term objectives
After the market based research, the next key stages in strategy formulation include setting the company’s short and long term goals. It is important for companies to have clear and well defined goals along with long-term decisions that will direct the business towards the decided goals and objectives.
It is important for strategies to be based upon specific, measurable, realistic objectives. The use of electronic technology aids in the setting up of these objectives by providing managers with relevant and updated information. It allows business to business communication via the internet which can be used to search for best investors or cheapest suppliers. Through the use of Information Technology data can be analysed and processes rapidly allowing managers to interpret them and take appropriate decisions quickly. It is easier not just to keep check on market trends but also on potential competitors and their activities which in turn influences the strategy. Thus the availability of resources speeds up the process of designing the organizations objectives and strategy.
Integration and coordination
Strategic decisions are always cross-functional and so it is important for all departments to be linked together so that the strategies can be implemented effectively and efficiently. All different functional areas such as HR, finance and marketing, etc. need to work together in order to get the best results. Internal communication is now much quicker than it traditionally was. For International Organizations, it is important that all branches remain connected and for this purpose, Information Technology provides cost effective and reliable means. Through the use of databases and spread sheet programs, the need for vast quantities of paper records is not seen any-more. Information can be retrieved rapidly which saves time and allows linking of two or more sets of data. These resources have enabled managers to consider ‘what if’ scenarios in budgeting and forecasting which is vital for strategy formulation.
Efficient use of resources
Strategy formulation or changing of strategy is neither an easy nor a cheap task. It is important to use the available resources in the most effective way and give the best results from the limited resources available. The availability of Information Technology and databases for strategy formulation reduces costs in a number of ways thus leaving more room for improvement. It allows reduction of costs that were traditionally spent on hiring large secretarial staff, purchasing professional publications, designer salaries. Thus productivity has increased and cost per unit is much lower than in non-computerised environments.
For designing an effective strategy it is important to analyse the current strategy and its implications. Information Technology resources assist in this task by providing data on all driving factors and constraining factors acting on an organization’s strategy.
Even though the applications of technology in strategic formulation are tremendous they do have their potential limitations. Critics argue that if existing staffs are being replaced by technology it would lead to redundancy costs as well as large scale unemployment. Apart from these, there will also be substantial training costs for employees and capital costs as well as costs on maintenance and upgrading of systems.
Another issue that is often raised is of labour relations. If the technological changes are not explained and presented to workers in a positive way then it could damage labour relations which would negatively influence the company’s strategy and goals. If many jobs are being lost in the process of technological advancements then workers would suffer from job insecurity and this would effect their motivation level.
Information Technology resources and databases are also prone to breakdowns as a result of which the whole organization or processes may be halted. Many internet websites are attracting hackers armed with malware of all kinds: spyware, viruses and on-line scams. Hundreds of applications being developed for web-sites are used as launch pads of malware such as Trojans. Again, such viruses could bring down whole organizations and has often led to loss of millions of dollars for companies.
There are many national and international constraints on the use of Information Technology as well as legal and ethical issues that must be kept in mind. Apart from this, the power that this vast amount of information brings could be misused leading to reduction in authority and empowerment of managers.
The ease of transfer of data electronically may lead to an information overload which would prevent strategy makers from identifying the most important information and the areas of business most in need of an action.
The world-wide-web only has access to data that has been gathered from limited sources and is not always relevant. A great deal of data is available but it is rarely sufficient and primary research is still required. The data on the internet may not have been updated frequently and be out of date. It may not be entirely suitable for an organization that needs to formulate its strategy from scratch. Also, the data collection methods and their accuracy are not always known in case of Information Technology resources.
Under these circumstances, the traditional ways of strategy formulation might seem to be more relevant since they have a specific purpose and more confidential as no other organization has an access to them.
However, despite the risks and drawbacks, the fact remains that Information Technology and large databases have changed the very nature of opportunities and threats to organizations by altering the life cycles of products, increasing distribution speeds, creating new products and services, erasing limitations and changing the historical trade-off between production standardization and flexibility. A number of organizations are greatly benefiting strategically from these new opportunities.
I’ll discuss the example of Shell here, the oil company that increased its spending on research and development by 36% in 2008 and benefited greatly through its strategy of technological developments. Shell has used the latest technologies over the years and focused on bio-technology, carbon emission storage and alternative fuels. This has allowed the organization to gain competitive advantage in an increasingly tough competitive world. This example illustrates the importance of Information Technology for businesses in designing a clear strategy that is focused on long-term goals.
So I’ll conclude that even though the Information Technology resources and large databases have their limitations, their importance for strategy formulation in the 21st century cannot be ignored. These resources are altering economies of scale, changing entry barriers and redefining the relationships between industries and the various suppliers, creditors, competitors and customers. Managers must still consider the associated risks in strategy making apply the information after thorough analyzation, evaluation and monitoring to minimize the potential limitations.