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

Information Technology’s Impact on Business Operations Describe a few of the types of IT services each business function might be receiving from IT 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 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 Businesses can be divided into separate departments by function. Not all companies are structured this way. The manager of each department is responsible for that department’s performance. “Functional Silos” is jargon you should know.

Information Technology’s Impact on Business Operations Organizations typically operate by functional areas or functional silos Functional areas are interdependent It is important for your students to understand that functional areas are anything but independent, in fact, they are interdependent Why are functional areas interdependent? Departments cannot operate in isolation, they require information from around the organization to operate Why must sales and marketing work with operations? To know what is available for sale including overstocked items and understocked items More importantly, why do they fail to cooperate? Office politics plays a big role. Managers are responsible for their department’s success, not for the success of the organization.

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 enabler (or disabler) of business success and innovation IT does not equal or represent business success and innovation, it is simply an enabler of business success and innovation Will spending large amounts of money on IT guarantee automatic success? Spending large amounts of money on IT will not guarantee an organization automatic success Organizations need to allocate resources on the right types of IT that correctly support their business operations to be successful

INFORMATION TECHNOLOGY BASICS Management information systems (MIS) – the 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 Most organizations have an IT department that is responsible for performing the MIS function This is similar to an organization having an Accounting department that is responsible for performing the accounts payable and accounts receivable functions

Information Data - raw facts that describe the characteristic of an event Information - data converted into a meaningful and useful context Noise – an overload of information What are some examples of each? When you get overloaded with information, is it still information?

IT Resources People use Information technology to work with What is useful about this slide? Not much. You need people who are trained to use the hardware and software You need hardware and software You need raw data and information to be processed. Is this always true?

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 The CIO typically reports directly to the Chief Executive Officer (CEO) CIOs must possess a solid and detailed understanding of every aspect of an organization coupled with tremendous insight into the capability of IT CIOs must have strong business skills and strong IT skills Can you name any famous CEOs? Jack Welch, General Electric (retired) Jeff Bezos, Amazon.com Bill Gates, Microsoft Michael Dell, Dell computers Can you name any famous CIOs? Most students will be familiar with many famous CEOs but not CIOs, CPOs, CSOs, CKOs, or CTOs

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 Definitions for the quiz

ROLES AND RESPONSIBILITIES IN IT Brief Summary (CInformationO) Ensure strategic alignment (CTechnologyO) Proper equipment/software (CSecurityO) Protect from viruses & hackers (CPrivacyO) restrict access to private info (CKnowledgeO) databases and AI systems The important thing is to note that there are five basic functions

ROLES AND RESPONSIBILITIES IN IT What concerns CIOs the most Enhancing customer satisfaction is the number one concern for many CIOs This will be surprising to most students since they expect the CIO to be primarily concerned with technology Why are CIOs concerned with customer satisfaction? Any surprises here? What is the source of these numbers?

ROLES AND RESPONSIBILITIES IN IT Average CIO compensation by industry Is this more or less than you thought a CIO would make? Do you think these salaries will increase or decrease in the future? Why are there such large differences? What causes them?

ROLES AND RESPONSIBILITIES IN IT Skills pivotal for success in executive IT roles Presentation skills are vital in management. IT is no exception. Look how low technical proficiency is valued. I wonder what is the source of this “information”. Can this kind of thing even be measured?

Why we need MIS majors 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 MIS Majors bridge the gap. IT personnel have their own vocabularies consisting of acronyms and technical terms Business personnel have their own vocabularies based on their experience and expertise To have effective communications, the business personnel must understand IT, and the IT personnel must understand business. The authors likes to use the word “must”

Improving Communications Business personnel must seek to increase their understanding of IT –Why? IT personnel must seek to increase their understanding of the business – Why? It is the responsibility of the CIO to ensure effective communication between business personnel and IT personnel The book makes a lot of blanket assertions like this. Do you agree or disagree?

MEASURING INFORMATION TECHNOLOGY’S SUCCESS Key performance indicator (KPI) – measures that are tied to business drivers What is an example of a business driver? Metrics are detailed measures (numbers) that feed KPIs Performance metrics can measure both efficiency and effectiveness. How would you define success in relation to an IT system? How do you feed KPIs?

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

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 How would you determine if the system was performing faster or slower than expected if there were not any benchmarks? They could not, it would impossible to determine Quality control is the field that uses this the most. Edward Deming and Philip Crosby are pioneers in this field. We will talk about Edward Deming later on.

Benchmarking – Baselining Metrics E-governement benchmarks What types of things might e-governement efficiency and effectiveness measure? 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 The United States ranks first in terms of e-government efficiency 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

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 Efficiency metrics monitor technology Efficiency metrics are easier to measure and monitor than effectiveness metrics Throughput - the amount of information that can travel through a system at any point Transaction speed - the amount of time a system takes to perform a transaction System availability - the number of hours a system is available for users Information accuracy - the extent to which a system generates the correct results when executing the same transaction numerous times Web traffic - includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a Web page Response time - the time it takes to respond to user interactions such as a mouse click

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 Effectiveness metrics are more difficult to measure and monitor, for example, how do you measure customer satisfaction? Usability - The ease with which people perform transactions and/or find information. A popular usability metric on the Internet is degrees of freedom, which measures the number of clicks required to find desired information. Customer satisfaction - Measured by such benchmarks as satisfaction surveys, percentage of existing customers retained, and increases in revenue dollars per customer. Conversion rates - The number of customers an organization “touches” for the first time and persuades to purchase its products or services. This is a popular metric for evaluating the effectiveness of banner, pop-up,and pop-under ads on the Internet. Financial - Such as return on investment (the earning power of an organization’s assets), cost-benefit analysis (the comparison of projected revenues and costs including development, maintenance, fixed, and variable), and break-even analysis (the point at which constant revenues equal ongoing costs).

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) Purely from an efficiency IT metric point of view, security generates some inefficiencies From an organization’s business strategy point of view, security should lead to increases in effectiveness. Is this true?

The Interrelationships of Efficiency and Effectiveness IT Metrics Reality usually involves tradeoffs. Ideally, an organization should operate in the upper right-hand corner, BUT NEVER WILL. Operating in the upper left-hand corner or the lower right-hand corner may be in line with an organization's particular strategies No organization would want to operate in the lower left-hand corner

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 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. A first mover advantage is temporary unless it leads to adoption of your product/service as a standard.

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 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 Technology has the opportunity to play an important role in environmental scanning For example, Frito-Lay, a premier provider of snack foods such as Cracker Jacks and Cheetos, 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. Frito-Lay uses this information to gain business intelligence on everything from how well competing products are selling to the strategic placement of its own products. You don’t need IT to do this. In the late 1850’s American Express sold their freight business to Wells Fargo. They knew the railroad was going to put both companies out of business. Wells Fargo leaders were thrilled to get a monopoly.

THE FIVE FORCES MODEL – EVALUATING BUSINESS SEGMENTS Porter’s Five Forces Model determines the relative attractiveness of an industry Buyer power – high when buyers have many choices of whom to buy from and low when their choices are few Supplier power – high when buyers have few choices of whom to buy from and low when their choices are many 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 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 Rivalry among existing competitors – high when competition is fierce in a market and low when competition is more complacent

BCG Model uses metrics Market growth (High - Low) Relative market share. (High – Low) Invest in companies that are high in both The lack of metrics is actually a strength of the Five forces model. You can write an analysis and then you are covered in case anything goes wrong. Often the boss will have a pet project. You can write an analysis to justify your boss’ ideas. You can’t fudge the data as easily with the BCG Model.

THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS Organizations typically follow one of Porter’s three generic strategies Broad cost leadership Broad differentiation Focused strategy Broad strategies reach a large market segment Focused strategies target a niche market Focused strategies concentrate on either cost leadership or differentiation

THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS This Porter model doesn’t cover all business situations, particularly E business. Where do you classify Ebay, Google, Yahoo, Amazon? What about Microsoft, Comcast, and other monopolies? Location based businesses – barbers, childcare, car washes, etc Can you think of other exceptions? Where would you classify these businesses?

Value Creation Once an organization chooses its strategy, it can use tools such as the value chain. 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 To create a competitive advantage, the value chain must enable the organization to provide unique value to its customers Examining the organization as a value chain determines which activities add value for customers The organization can then focus specifically on those activities

Value Creation Value Chain 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 key point here is the metrics. Why do you think some of these percentages are so high and others are so low? What is the source of these numbers?