Chapter 3: Internal Strategic Alternatives

Overview

STRATEGIC ALTERNATIVES are normally viewed as initiatives that are external in nature. Mergers and acquisitions and outsourcing are well publicized and make headlines in major business and industry periodicals. There has been a growing preference toward external Strategic Alternatives that is validated by the growth in the value of mergers as well as the size of outsourcing contracts. Yes, these external means are important and are viable ways to execute against a strategic plan. Yet these alternatives need to be looked at carefully as their effectiveness is not conclusive. On the other hand, internal SAs have taken a backseat in terms of visibility and priority. Internal initiatives, or efforts where internal means are used to develop specific competencies, are equally as important as external SAs, and they are viable ways of increasing value. On balance, internally developed competencies may generate more value in the long run, have lower cultural hurdles to overcome, and have lower switching costs and barriers to exit. It is much harder to unwind a merger or rebuild an outsourced service than to scrap an internal initiative.

This chapter will deal with two of the most common internal SAs—information technology and business process reengineering. (For the purposes of our discussion, the terms IT and technology will be used interchangeably.) Despite the bursting of the Internet bubble in the late 1990s, the strategic use of information technology will continue to grow. We will see a more thoughtful use of technology in the future predicated on economic justification, not marketing hype. This trend has already started with the performance of crude financial tests such as ROI (return on investment) measures. As the size and complexity of IT systems continues to increase, businesses realize that this is something they need to get right—especially since many systems are now shared directly with their customers.

A closely related initiative to IT is business process reengineering (BPR). BPR is a simply a drastic change in what you do as a business. The relationship between these two SAs is that technology projects invariably spawn a reengineering project. Implementations in large-scale technology projects will naturally change the way you conduct business. Of course, BPR can also be implemented as a stand-alone and independent way to increase value. Many large companies have units whose sole function is reengineering of processes. Since drastic change is involved, BPR becomes a high stakes game where the end result can change as fast as the process.