Lecture

1. Lecture IT Service Management Information Systems, Organisations, and Strategic use of IT

2. Learning Objectives • Explain information system and function of information system • Distinguish between information system and information technology • Understand the need of organisational structure and the characteristics of various types of structures • Identify and describe important features of organizations that managers need to know about in order to build and use information systems successfully • Explain how the value chain and value web models help businesses identify opportunities for strategic information system applications.

3. Learning Objectives • Demonstrate how Porter’s competitive forces model helps companies develop competitive strategies using information systems • Explain how the value chain and value web models help businesses identify opportunities for strategic information system applications. • Demonstrate how information systems help businesses use synergies, core competencies, and network-based strategies to achieve competitive advantage • Assess the challenges posed by strategic information systems and management solutions

4. Information Systems • An Information System (IS)is a collection of interrelated components that collect, process, store, and provide as output the information needed to complete a business task. Example: A payroll system, for example, collects information on employees and their work, processes and stores that information, and than produces paychecks and payroll reports for the organization. Then information is provided to manufacturing so the department can schedule production.

5. Information System (IS) versus Information Technology (IT) • IS is all the components and resources necessary to deliver information and functions to the organization • IT is hardware, software, networking and data management • In theory, IS could be paper based • But we will focus on Computer-Based Information Systems (CBIS)

6. IS Knowledge Framework for Business Professionals

7. What should a Business Professional know about IS? • Foundation Concepts: fundamental behavioral, technical, business and managerial concepts • Information Technology: Hardware, software, networks, data management and Internet-based technology • Business Applications: Major uses of the IS in the organization • Development Processes: How to plan, develop and implement IS to meet business opportunities • Management Challenges: The challenges of effectively and ethically managing IT

8. What does IS do for a business?

9. IS Function represents • Major functional area of business • Important contributor to operational efficiency, employee productivity, morale, customer service and satisfaction • Major source of information and support for effective decision making • Vital ingredient in developing competitive products and services in the global marketplace • Dynamic and challenging career opportunity • Key component of today’s networked business

10. Information systems model

11. Components of an IS • People • End users: the people who use the IS or the information from the IS • IS specialists: the people who develop and operate IS • Hardware Resources • All physical devices used in information processing • Machines, data media, peripherals • Software Resources • All information processing instructions including programs and procedures • System software, application software and procedures

12. Components of an IS (cont.) • Data Resources • Facts about the business transactions • Processed and organized information • Databases of organized data • Network Resources • Communications media • Network infrastructure: hardware and software • The Internet, intranets and extranets

13. Types of Information Systems • As far as organizations perform many different types of activity, they require several different types of information systems to support all of information needs. • The information systems found in most businesses include: • transaction processing systems • management information systems • executive information systems • decision support systems • expert systems • communication support systems, office support systems

14. Types of Information Systems • Transaction processing systems (TPS): • Itcapture and record information about the transactions that affect the organization. • A transaction occurs each time a sale is made, supplies are ordered, an interest payment is made. Usually these transactions create credit or debit entries in accounting ledgers. • This kind of ISs were among the first to be automated by computers. The modern TPS use state-of-the-art technology, for instance, in the form of on-line TPS.

15. Types of Information System • Management information systems (MIS): • MIS are systems that take information captured by TPS and produce reports that management needs for planning and controlling the business. MIS are possible because the information has been captured by the TPS and placed in organizational databases. • Executive information systems (EIS) • EIS provide information for executives to use in strategic planning. Some of the information comes from the organizational databases, but much of the information comes from external sources – news about competitors, stock market reports, economic forecasts, and so on

16. Types of Information Systems Decision support systems (DSS): • DSS allow a user to explore the impact of available options or decisions. Whereas an MIS produce reports, DSS provide an interactive environment in which decision makers can quickly manipulate data and models of business operations. A DSS has three parts. The first part is composed of a database (which may be extracted from TPS or MIS). The second part consists of mathematical or graphical models of business processes. The third part is made up of a user interface (or dialogue module) that provides a way for the decision makers to communicate with the DSS. An EIS is a DSS that allows senior management to explore data starting at a high level of aggregation and selectively drill down into specific areas where more detailed information and analysis are required.

17. Types of Information Systems • Expert systems (ES): • Itreplicate the decision-making process rather than manipulating information. If-then-else rules or other knowledge representation forms describe the way a real expert would approach situations in a specific domain of problems. Typically, users communicate with an ES through an interactive dialogue. The ES asks questions (which an expert would ask) and the end user supplies the answers. Those answers are then used to determine which rules apply, and the ES provides a recommendation based on the rules.

18. Types of Information Systems Communication support systems (CSS) • Itallow employees to communicate with each other and with customers and suppliers. Communication support now includes e-mail, fax, Internet access, and video conferencing. Office support systems (OSS): • Ithelp employees create and share documents, including reports, proposals, and memos. OSS also help to maintain information about work schedule and meetings.

19. Types of Information Systems FIGURE 1-11 Types of Information systems

20. Organisations and Information Systems • Information technology and organisations influence one another • Complex relationship influenced by organisation’s structure, business processes, politics, culture, environment, and management decisions

21. The Two-Way Relationship Between Organisations and Information Technology

22.  What is An Organisation? • Technical definition: • Stable, formal social structure that takes resources from environment and processes them to produce outputs • A formal legal entity with internal rules and procedures, as well as a social structure • Behavioral definition: • A collection of rights, privileges, obligations, and responsibilities that is delicately balanced over a period of time through conflict and conflict resolution

23. The Technical Microeconomic Definition of the Organization

24. The Technical Microeconomic Definition of the Organization • In the microeconomic definition of organisations, capital and labour are transformed by the firm through the production process into products and services (outputs to the environment). • The products and services are consumed by the environment, which supplies additional capital and labour as inputs in the feedback loop.

25. The Behavioral View of Organisations The behavioral view of organisations emphasizes group relationships, values, and structures.

26. Features of Organisations • Use of hierarchical structure • Accountability, authority in system of impartial decision making • Adherence to principle of efficiency • Other features include: Routines and business processes and organisational politics, culture, environments and structures

27. How Information Systems Impact Organisations and Business Firms • IT changes relative costs of capital and the costs of information • IT affects the cost and quality of information and changes economics of information • Information technology helps firms contract in size because it can reduce transaction costs (the cost of participating in markets) • IT lowers market transaction costs for firm, making it worthwhile for firms to transact with other firms rather than grow the number of employees

28. How Information Systems Impact Organizations and Business Firms • IT can reduce agency costs, making it possible for firms to grow without adding to the costs of supervising, and without adding employees • IT flattens organisations • Information systems can reduce the number of levels in an organisation by providing managers with information to supervise larger numbers of workers and by giving lower-level employees more decision-making authority.

29. Flattening Organisations

30. Using Information Systems to Achieve Competitive Advantage • Porter’s Competitive Forces Model • Porter’s competitive forces model contends that much of the success or failure of a business depends on its ability to respond to its external environment. • The diagram below shows four external forces that every business must contend with at one time or another.

31. Porter’s Competitive Forces Model

32. Porter’s Competitive Forces Model • A firm’s success is not predicated on how well it does internally. It must also pay attention to: • Traditional competitors: always nipping at your heals with new products and services trying to steal your customers. • New market entrants: they can easily jump into your markets and lure customers away with cheaper or better products and services. • Substitute products and services: customers may be willing to try substitute products and services if they decide your price is too high or the quality of your products and services is too low.

33. Porter’s Competitive Forces Model • Customers: they are now armed with new information resources that make it easier for them to jump to your competitors, new market entrants, or substitute products. • Suppliers: the number of suppliers used may determine how easy or difficult your business will have in controlling your supply chain. Too few suppliers and you lose a lot of control.

34. Information System Strategies for Dealing with Competitive Forces • Many companies have found that effective and efficient information systems allow them to deal with external forces in one of four ways: • Low-cost leadership, • Product differentiation, • Focus on market niche, • Strengthen customer and supplier intimacy

35. Low-cost Leadership • By using information systems to lower your operational costs you can lower your prices. • That will make it difficult for traditional competitors and new market entrants to match your prices. • This strategy works best with commodities such as computers or with household products retailers such as Wal-Mart.

36. Product Differentiation, • A very effective use of strategic information systems is to create products or services that are so different that they create barriers for the competition. • Product differentiation is at the heart of Apple Computer’s success. • Apple gets away with charging a premium price because it differentiates its products from all others.

37. Focus on Market Niche • If an organisation is in a fiercely competitive market, it can choose to focus on a very narrow segment of the market rather than a broad general audience. • A firm can gather very specific information about its customers using data mining techniques. • Then it creates a focused differentiation business strategy to market directly to those consumers. • Being able to address the needs and wants of a very small market segment is why companies are so intent on gathering consumer information from a variety of sources.

38. Strengthen Customer and Supplier Intimacy • Supply chain management (SCM) systems increase supplier intimacy while customer relationship management systems increase customer intimacy. • SCM systems create immense switching costs between a company and its suppliers because of the investment of hardware and software necessary to make the system successful. • Customer relationship management systems allow companies to learn details about customers that give them the competitive advantage over traditional competitors and new market entrants.

39. The Internet’s Impact on Competitive Advantage • The Internet allows traditional competitors to introduce new products and services and lure customers away. • It provides a low cost avenue for new market entrants. • Consumers can easily and quickly find substitute products and services through the Internet. • Customers can use information provided on the Internet to create new competition between companies while suppliers can increase their market power.

41. The Business Value Chain Model • Value chain is a network of value-creating activities in an organisation: • Primary activities • Support activities

42. Primary Activities in the Value Chain • Inbound logistics - receiving, handling raw materials and other inputs • Operations - transform or assemble materials into finished products • Outbound logistics - deliver finished products to customers • Marketing and sales - create marketing strategies and sell products or services to customers • Services - after-sale customer support

43. Support Activities in the Value Chain • Contribute indirectly to production, sale, and service of product • Procurement - finding vendors, setting up contractual arrangements, and negotiating prices • Technology development - research and development, developing new techniques, methods, and procedures • Human resources - recruiting, compensation, evaluation, and training of full-time and part-time employees • Firm infrastructure - general management, finance, accounting, legal, and government affairs

44. The Business Value Chain Model

45. Bicycle Maker’s Value Chain

46. Summary of Value Chain Primary Activities

47. Benchmarking • Benchmarking provides a way for businesses to determine how they stand up against their competitors within the same industry. • For instance, if the industry standard in producing golf clubs is ten days, Ping can benchmark their production schedule of five days and determine that they are more successful than their competitors. • They can also research the best practices of other golf club manufacturers and decide if they should fine tune their business processes

48. Extending the Value Chain: The Value Web • Value web is a collection of independent firms using highly synchronized IT to coordinate value chains to produce product or service collectively • The value web is a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand.

49. Extending the Value Chain: The Value Web

50. Synergies, Core Competencies, and Network-Based Strategies • Information systems can improve overall performance of business units by promoting synergies and core competencies • Synergie • When output of some units used as inputs to others, or organizations pool markets and expertise • Example: merger of Bank of NY and JPMorgan Chase • Purchase of YouTube by Google