by Malcolm Eva
10 May 2007
The Study Guide for Paper P3, Business Analysis, features a number of models to aid Information System (IS) strategy planning. These models can be used to assist in identifying and assessing strategic opportunities, or diagnosing and appraising the current strategic situation.
Some of these models are known by acronyms, such as the PEST or SWOT checklists. Some are represented as matrices, such as the Boston Matrix. Others are diagrammatic, such as Porter's 5-forces or the Value Chain.
At Paper P3, you should be both familiar with the models in their traditional form, and be able to apply them to different scenarios. Although the textbooks describe what could be called the 'classical' application of models, the value of the models often lies in their flexibility. To illustrate this, two well-known models are discussed in this article - PEST and Value Chain - showing how they can be used to reflect different situations.
PEST (Political, Economic, Sociological, Technological), also known as SLEPT (including Legal) and PESTLE (including Legal and Environmental), represents the factors in the wider environment to which an organisation needs to react. The Political, Economic, Sociological, and Technological elements are usually applied at a macro-level, to the world at large. They can, however, be scaled down to show internal, organisational influences on a given target department.
Table 1, at the end of this article, illustrates the macro and micro-levels of PEST, with examples at an organisational and departmental level, indicating the factors that an analyst may want to examine.
PEST is not only relevant to environment analyses - it can also be used to help assess the feasibility of a proposal for business change. Thus a business analyst, when considering a solution in a department or division of a company, might perform a PEST analysis. The analyst would examine the organisational strategy, board make-up, and organisational structure for political influences. Economic factors would include the budget allocation, cross-charging policies, and accounting models. Sociological factors might be the prevailing organisational culture, or the likelihood of a change in work practice or redundancies. Technological considerations would cover the capability of the current infrastructure to handle the new system, and the compatibility of different components of the system.
As can be seen, used in this way, the PEST model draws more on the internal, departmental level experience. By focusing on internal factors, the analysis allows us to see whether or not the proposed solution will be compatible with the company's present position and expectations. The model itself has not been changed by using it in this way, but it has demonstrated flexibility in its application.
The value chain
Another model that can be used to illustrate flexibility in application is Porter's Value Chain. Most textbooks describe the Value Chain in terms of the handling of physical resources.
In itself, the Value Chain is a model which helps us break down the business cycle into strategic activities that add value to a product or service. Through this analysis, the company can identify where costs are too high, or are reasonable, and also understand where and how differentiation from competitors can be achieved. In the context of managing business information, the company can also decide where information systems can help reduce costs and deliver competitive advantage.
As mentioned above, in most textbooks the Value Chain refers mainly to the handling of physical goods, often in a manufacturing or retail context. In Example 1, only the primary activities are considered, as 'backroom' support (or secondary) activities are similar, regardless of the type of organisation.
Example 1 - Handling physical goods
Inbound logistics may be met by automated warehouse procedures for manufacturing, or by a dedicated transport fleet for shipping stock into branch stores.
Operations would be controlled by a manufacturing system, such as a production scheduling system, or by a stacking and selling process in a retail business
Outward logistics could be handled by a delivery fleet, a transport scheduling system or a collection point.
See Figure 1: The value chain (M E Porter (1980)