Business Driven Information Systems 2e CHAPTER 1 INFORMATION SYSTEMS IN BUSINESS

Chapter One Overview SECTION 1.1 – INFORMATION SYSTEMS IN BUSINESS Information Technology’s Role in Business Information Technology Basics Roles and Responsibilities in Information Technology Measuring Information Technology’s Success SECTION 1.2 – BUSINESS STRATEGY Identifying Competitive Advantages The Five Forces Model – Evaluating Business Segments The Three Generic Strategies – Creating a Business Focus Value Chain Analysis – Targeting Business Processes

INFORMATION SYSTEMS IN BUSINESS SECTION 1.1 INFORMATION SYSTEMS IN BUSINESS

LEARNING OUTCOMES Describe the functional areas of a business and why they must work together for the business to be successful Explain information technology’s role in business and how you measure success Compare management information systems (MIS) and information technology (IT) and define the relationships among people, information technology, and information

LEARNING OUTCOMES Compare the responsibilities of a chief information officer (CIO), chief technology officer (CTO), chief security officer (CSO), chief privacy officer (CPO), and chief knowledge officer (CKO) Explain the gap between IT and the business, along with the primary reason this gap exists

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

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

Information Technology’s Impact on Business Operations

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

Information Technology’s Impact on Business Operations

Information Technology’s Impact on Business Operations Accounting - provides quantitative information about the finances of the business including recording, measuring, and describing financial information. Finance - deals with the strategic financial issues associated with increasing the value of the business, while observing applicable laws and social responsibilities. Human resources - includes the policies, plans, and procedures for the effective management of employees (human resources).

Information Technology’s Impact on Business Operations Sales - the function of selling a good or service and focuses on increasing customer sales, which increases company revenues. Marketing - the process associated with promoting the sale of goods or services. The marketing department supports the sales department by creating promotions that help sell the company’s products. Operations management - includes the methods, tasks, and techniques organizations use to produce goods and services. Transportation (also called logistics) is part of operations management.

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

INFORMATION TECHNOLOGY BASICS For an organization to succeed, every department or functional area must work together sharing common information and not be a “silo.” Information technology can enable departments to more efficiently and effectively perform their business operations.

INFORMATION TECHNOLOGY BASICS Information technology (IT) – a field concerned with the use of technology in managing and processing information Employs computer-based tools that support the information and information-processing needs of an organization Information technology is an important enabler of business success and innovation. IT does not guarantee success!

INFORMATION TECHNOLOGY BASICS London Heathrow—The failure Baggage handling system: original cost of $500 million Disaster on opening day, costing $ 50 million due to over 28,000 bags being misrouted FedEx—The success $ 38 billion family of companies—largest express transportation company “Information hub for business where managing information is the business”

**INFORMATION TECHNOLOGY BASICS Nicholas Carr article—“IT Doesn’t Matter” IT no longer a source of advantage on the firm level Companies should focus IT on cost reduction and risk mitigation Many experts disagree with his arguments Abbie Lundberg—Interview with Carr Don Tapscott—“The Engine That Drives Success: The Best Companies Have the Best Business Models Because They Have the Best IT Strategies” Many successful companies use IT to support a unique business strategy

INFORMATION TECHNOLOGY BASICS Management information systems (MIS) – a general name for the business function and academic discipline covering the application of people, technologies, and procedures to solve business problems MIS is a business function, similar to Accounting, Finance, Operations, and Human Resources

Top Growth Jobs - Nov 2009 http://money. cnn

INFORMATION TECHNOLOGY BASICS When beginning to learn about information technology it is important to understand the following: Data, information, and business intelligence IT resources IT cultures

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 and information might include student to professor ratio, percentage of marketing majors who are female, number of students who pass the course. Business intelligence – applications and technologies that are used to gather, provide access to, and analyze data and information to support decision-making efforts

Information

Information

Information

IT Resources People use Information technology to work with

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)

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

ROLES AND RESPONSIBILITIES IN IT Average CIO compensation by industry

ROLES AND RESPONSIBILITIES IN IT What concerns CIOs the most

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

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

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

Improving Communication 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

SECTION 1.2 BUSINESS STRATEGY

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

IDENTIFYING COMPETITIVE ADVANTAGES Competitive advantages are important for an organization but it is even more important to understand that they 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? Competitive advantages are important for an organization It is even more important to understand that competitive advantages are typically temporary since competitors are quick to copy competitive advantages Can you list a few companies that achieved success through 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? Perhaps – primarily due to its first-mover advantage since it is difficult to switch operating systems and users face interoperability if they are using different operating systems at the same organization. How many students in your class are currently using Windows? What are the competitors to Windows? Linux and Macintosh Why are there only three primary competitors in this large operating system market? What would happen if you had 50 different operating systems to choose from? Issues with interoperability How many different types of Microsoft Office would be required to support all 50 different operating systems? 50

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

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

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

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

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 buyers and sellers

Supplier Power Two types of (B2B) marketplaces Private exchange – single buyer posts needs and opens bidding to any supplier who would care to bid Reverse auction –increasingly lower bids are solicited from organizations willing to supply product or service at a lower price

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 Switching cost – costs that can make customers reluctant to switch to another product or service Examples??

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 Entry barrier – a product or service that customers have come to expect and must be offered to compete and survive Example of high and low??

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

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

Sample Analysis for Airline Industry

Sample Analysis for Milk Threat of Substitute Products or Services High: Soy Milk, Rice Milk Buyer Power High: Customer have many choices Supplier Power Low: Customer have many choices Rivalry High Threat of New Entrants Low: Hard to sell milk without meeting FDA regulations and having a vast distribution network

THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS Organizations typically follow one of Porter’s three generic strategies when entering a new market

THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS

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

Value Creation Value Chain

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 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

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 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

Value Creation Value chains with Porter’s Five Forces

Value Creation If an organization wants to decrease its buyer’s or customer’s power, it can construct its value chain activity of “service after the sale” by offering high levels of quality customer service This will increase the switching costs for its customers, thereby decreasing their power (buyer power) If an organization wants to decrease its buyer’s or customer’s power, it can construct its value chain activity of “service after the sale” by offering high levels of quality customer service This will increase the switching costs for its customers, thereby decreasing their power (buyer power)