CHAPTER 1

1. CHAPTER 1 INFORMATION SYSTEMS IN BUSINESS

2. INFORMATION TECHNOLOGY’S ROLE IN BUSINESS • Information technology is everywhere in business • Anyone involved in business must understand technology

3. Information Technology’s Impact on Business Operations • Customer service: click-to-talk, call scripting, auto answering, call centers • Finance: accounting packages, Sarbanes Oxley • Sales and marketing: campaign management, customer relationship management • Operations: supply chain management • Human resources: software to track employees at risk of leaving

4. Information Technology’s Impact on Business Operations

5. Information Technology’s Impact on Business Operations • Which types of IT services can be used to meet these types of goals? • Reduce costs/ improve productivity: supply chain management, enterprise resource planning • Improve customer satisfaction/loyalty: customer relationship management, loyalty programs • Create competitive advantage: business intelligence/data warehousing • Generate growth: sales management systems • Streamline supply chain: demand planning software • Global expansion: e-business

6. Information Technology’s Impact on Business Operations

7. Information Technology’s Impact on Business Operations • Organizations typically operate by functional areas or functional silos • Functional areas are interdependent • they require information from around the organization to operate

8. INFORMATION TECHNOLOGY BASICS • Information technology (IT) – any computer-based tool that people use to work with information and support the information and information-processing needs of an organization • Information technology is an important enablerof business success and innovation. IT does not guarantee success!

9. INFORMATION TECHNOLOGY BASICS • Management information systems (MIS) – the business function that plans for, develops, implements, and maintains IT hardware, software, and applications that people use to support the goals of an organization • MIS is a business function, similar to Accounting, Finance, Operations, and Human Resources

10. INFORMATION TECHNOLOGY BASICS • When beginning to learn about information technology it is important to understand the following: • Information • IT resources • IT cultures

11. Information • Data - raw facts that describe the characteristic of an event • Information - data converted into a meaningful and useful context • If you were building a system to track students: • Data might include height, name, and hair color • Information might include student to professor ratio, percentage of marketing majors who are female, number of students who pass the course. • If you were building a system to track inventory: • Data might include chair manufacturer, chair color, and chair size • Information might include number of chairs required for students in each class, average number of chairs needed to be replaced each semester.

12. IT Resources • People use • Information technology to work with • Information

13. IT Cultures • Information-Functional Culture • Employees use information as a means of exercising influence or power over others. For example, a manager in sales refuses to share information with marketing. This causes marketing to need the sales manager’s input each time a new sales strategy is developed. • Information-Sharing Culture • Employees across departments trust each other to use information (especially about problems and failures) to improve performance. • Information-Inquiring Culture • Employees across departments search for information to better understand the future and align themselves with current trends and new directions. • Information-Discovery Culture • Employees across departments are open to new insights about crisis and radical changes and seek ways to create competitive advantages.

14. ROLES AND RESPONSIBILITIES IN IT • Information technology is a relatively new functional area, having only been around formally for around 40 years • Recent IT strategic positions include: • Chief Information Officer (CIO) • Chief Technology Officer (CTO) • Chief Security Officer (CSO) • Chief Privacy Officer (CPO) • Chief Knowledge Office (CKO)

15. ROLES AND RESPONSIBILITIES IN IT • Chief Information Officer (CIO) – oversees all uses of IT and ensures the strategic alignment of IT with business goals and objectives • Broad CIO functions include: • Manager – ensuring the delivery of all IT projects, on time and within budget • Leader – ensuring the strategic vision of IT is in line with the strategic vision of the organization • Communicator – building and maintaining strong executive relationships

16. ROLES AND RESPONSIBILITIES IN IT • Average CIO compensation by industry

17. ROLES AND RESPONSIBILITIES IN IT • What concerns CIOs the most

18. ROLES AND RESPONSIBILITIES IN IT • Chief Technology Officer (CTO) – responsible for ensuring the throughput, speed, accuracy, availability, and reliability of IT • Chief Security Officer (CSO) – responsible for ensuring the security of IT systems • Chief Privacy Officer (CPO) – responsible for ensuring the ethical and legal use of information • Chief Knowledge Office (CKO) - responsible for collecting, maintaining, and distributing the organization’s knowledge

19. ROLES AND RESPONSIBILITIES IN IT • Skills pivotal for success in executive IT roles

20. The Gap Between Business Personnel and IT Personnel • Business personnel possess expertise in functional areas such as marketing, accounting, and sales • IT personnel have the technological expertise • This typically causes a communications gap between the business personnel and IT personnel

21. Improving Communications • Business personnel must seek to increase their understanding of IT • IT personnel must seek to increase their understanding of the business • It is the responsibility of the CIO to ensure effective communication between business personnel and IT personnel

22. MEASURING INFORMATION TECHNOLOGY’S SUCCESS • Key performance indicator(KPI) – measures that are tied to business drivers • Metrics are detailed measures that feed KPIs • Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals

23. Efficiency and Effectiveness Metrics • Efficiency IT metric – measures the performance of the IT system itself including throughput, speed, and availability • Efficiency focuses on the extent to which an organization is using its resources in an optimal way, “Doing things right” • Effectiveness IT metric – measures the impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases • Effectiveness focuses on how well an organization is achieving its goals and objectives, “Doing the right things”

24. Benchmarking – Baselining Metrics • Regardless of what is measured, how it is measured, and whether it is for the sake of efficiency or effectiveness, there must be benchmarks – baseline values the system seeks to attain • Benchmarking – a process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and procedures to improve system performance

25. Benchmarking – Baselining Metrics • E-governement benchmarks

26. E-governement benchmarks • E-government efficiency metrics includes the number of computers per 100 citizens, the number of Internet hosts per 10,000 citizens, the percentage of the citizen population online • E-government effectiveness metrics include CRM practices, customer-service vision, approaches to offering e-government services through multiple-service delivery channels, and initiatives for identifying services for individual citizen segments

27. The Interrelationships of Efficiency and Effectiveness IT Metrics • Efficiency IT metrics focus on technology and include: • Throughput • Transaction speed • System availability • Information accuracy • Web traffic • Response time

28. The Interrelationships of Efficiency and Effectiveness IT Metrics • Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include: • Usability • Customer satisfaction • Conversion rates • Financial

29. The Interrelationships of Efficiency and Effectiveness IT Metrics • Security is an issue for any organization offering products or services over the Internet • It is inefficient for an organization to implement Internet security, since it slows down processing • However, to be effective it must implement Internet security • Secure Internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower right corner of a browser)

30. The Interrelationships of Efficiency and Effectiveness IT Metrics

31. OPENING CASE QUESTIONSApple - Merging Technology, Business and Entertainment • What might have happened to Apple if its top executives had not supported investment in iPods? • Formulate a strategy for how Apple can use efficiency IT metrics to improve its business • Formulate a strategy for how Apple can use effectiveness IT metrics to improve its business • Why would it be unethical for Apple to sell its iTunes customer information to other businesses? • Evaluate the effects on Apple’s business if it failed to secure its customer’s information and it was accidentally posted to an anonymous Web site

32. IDENTIFYING COMPETITIVE ADVANTAGES • To survive and thrive an organization must create a competitive advantage • Competitive advantage – a product or service that an organization’s customers place a greater value on than similar offerings from a competitor • First-mover advantage – occurs when an organization can significantly impact its market share by being first to market with a competitive advantage

33. IDENTIFYING COMPETITIVE ADVANTAGES • Competitive advantages are important for an organization but it is even more important to understand that competitive advantages are typically temporary since competitors are quick to copy competitive advantages • United was the first airline to offer a competitive advantage with its frequent flyer mileage (this first-mover advantage was temporary) • Sony had a competitive advantage with its portable stereo systems (this first-mover advantage was temporary) • Microsoft had a competitive advantage with its unique Windows operating system • Does Microsoft still has a competitive advantage with its Windows operating system?

34. IDENTIFYING COMPETITIVE ADVANTAGES • Organizations watch their competition through environmental scanning • Environmental scanning – the acquisition and analysis of events and trends in the environment external to an organization • Frito-Lay does not just send its representatives into grocery stores to stock shelves—they carry handheld computers and record the product offerings, inventory, and even product locations of competitors. • This information is used to gain business intelligence on everything from how well competing products are selling to the strategic placement of its own products. • Three common tools used in industry to analyze and develop competitive advantages include: • Porter’s Five Forces Model • Porter’s three generic strategies • Value chains

35. THE FIVE FORCES MODEL – EVALUATING BUSINESS SEGMENTS • Porter’s Five Forces Model determines the relative attractiveness of an industry

36. Buyer Power • Buyer power – high when buyers have many choices of whom to buy from and low when their choices are few • One way to reduce buyer power is through loyalty programs • Loyalty program – rewards customers based on the amount of business they do with a particular organization

37. Supplier Power • Supplier power – high when buyers have few choices of whom to buy from and low when their choices are many • Supply chain – consists of all parties involved in the procurement of a product or raw material

38. Supplier Power • Organizations that are buying goods and services in the supply chain can create a competitive advantage by locating alternative supply sources (decreasing supplier power) through B2B marketplaces • Business-to-Business (B2B) marketplace – an Internet-based service that brings together many buyers and sellers

39. Supplier Power • Two types of business-to-business (B2B) marketplaces • Private exchange – a single buyer posts its needs and then opens the bidding to any supplier who would care to bid • Reverse auction – an auction format in which increasingly lower bids are solicited from organizations willing to supply the desired product or service at an increasingly lower price

40. Threat of Substitute Products or Services • Threat of substitute products or services – high when there are many alternatives to a product or service and low when there are few alternatives from which to choose • Switching cost – costs that can make customers reluctant to switch to another product or service • Examples??

41. Threat of New Entrants • Threat of new entrants – high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market • Entry barrier – a product or service feature that customers have come to expect from organizations in a particular industry and must be offered by an entering organization to compete and survive • Example of high and low??

42. Rivalry Among Existing Competitors • Rivalry among existing competitors – high when competition is fierce in a market and low when competition is more complacent • Although competition is always more intense in some industries than in others, the overall trend is toward increased competition in just about every industry

43. Class Exercise • Choose two products to perform a Porter’s Five Forces analysis. The two products must compete in the same market. • Potential Products • Laptop Computer and Desktop Computer • PDA and Laptop Computer • iPod and Walkman • DVD Player and VCR Player • Digital camera and Polaroid Camera • Cell Phone and Blackberry PDA • Coca-Cola Plastic Bottle and Coca-Cola Glass Bottle • GPS Device and a Road Atlas • Roller skates and Rollerblades • Digital Books to Printed Books • Digital Paper to Paper

44. THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS • Organizations typically follow one of Porter’s three generic strategies when entering a new market • Broad strategies reach a large market segment • Broad cost leadership • Broad differentiation • Focused strategy • Target a niche market • Concentrate on either cost leadership or differentiation

45. THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS

46. Value Creation • Once an organization chooses its strategy, it can use tools such as the value chain to determine the success or failure of its chosen strategy • Business process – a standardized set of activities that accomplish a specific task, such as processing a customer’s order • Value chain – views an organization as a series of processes, each of which adds value to the product or service for each customer

47. Value Creation Value Chain

48. Value Creation • Primary value activities acquire raw materials and manufacture, deliver, market, sell, and provide after-sales services • Support value activities support the primary value activities • Customers determine the extent to which each activity adds value to the product or service • The competitive advantage is to: • Target high value-adding activities to further enhance their value • Target low value-adding activities to increase their value • Perform some combination of the two

49. Applying IT to the Value Chain • IT can be applied to add value to both primary and support value activities • Marketing campaign management system (primary) • Target marketing campaigns more efficiently thereby helping to reduce costs • Better pinpoint target market needs to help increase sales • HR system (support) • More efficiently reward employees based on performance • Identify employees at risk of leaving their jobs and find additional challenges or opportunities to help retain the employees and reduce turnover costs

50. Value Creation • Value chains with Porter’s Five Forces