CHAPTER ONE INFORMATION SYSTEMS IN BUSINESS

The Role of IT in Business Technology is everywhere Watch CNBC and you will see the importance of technology in business Look at productivity articles in the Wall Street Journal Listen to Ben Bernanke speak A basic understanding of technology is a requirement of any business person

UPS – An Example Synchronizing the World of commerce About 14.0 million packages per day in 2012 generating $51.5 billion in revenue for the year 101,000 vehicles 5620 Aircraft (14 hubs)

UPS Technology UPS.com processes 18 million package transactions daily All package tracking is visible from one Web site SCM Technology contributed over 9 Billion in revenue in 2012 Current technology investment is about 1.6 billion

Common IT Goals (1) Reduce costs Online transactions and statements Online content management Improve customer satisfaction Self-service applications and CRM Develop customer loyalty Rewards and loyalty programs Interactive marketing

Common IT Goals (2) Create a competitive advantage Amazon’s recommendations UPS shipment tracking Possess competitive intelligence Streamline and improve the supply chain Electronic data interchange Just-in-time production Growth in new and existing markets Clicks and bricks

Information Technology Defined The field concerned with managing information is called information technology Management information systems are a business function just as marketing is a business function

Information Technology (Terms) Data are raw facts A transaction, bank deposit, etc. Information is produced from raw data To be useful, information must be put in the hands of the person that needs it Information must appear in a useful form Timely, relevant, ACTIONABLE

Information Technology (Terms) Business intelligence refers to using technology to make better (fact based) decisions Involves the use of complex analytical tools More later in the business intelligence chapter

Information Technology (Terms) Knowledge refers to the experience and expertise of individuals and organization

Common Organizational Units Accounting Finance HR Sales and marketing Operations management Supply chain management Management information systems

Management Information Systems and the Organization Information must be shared and processed across functional units as business processes Sales quotation (vendor) (Marketing) Purchase order (customer) Shipping documents (vendor) (SCM) Invoice (vendor) (Accounting) Payment (customer)

IT Roles (History) Historically, IT was viewed as a necessary evil IT did not make a profit or contribute to an organization’s bottom line IT was just a cost center IT was not a strategic part of the organization In some cases IT has evolved into a profit center

IT Roles Strategic-level IT positions are becoming commonplace Chief Information Officer Chief Technology Officer Chief Knowledge Officer Chief Data Officer Chief Security Officer

Organizational Cultures and IT Information Discovery Seek radical new ways to do business Information Inquiring Understand trends and align business with them Information Sharing These cultures are not mutually exclusive Dysfunctional organizations?

The IT Dilemma IT must understand user and business needs Many failed IT projects are caused by human and organizational factors rather than technical factors Hershey (ERP) United’s baggage system at DIA

Success Metrics for IT Executives

Benchmarking Use quantitative metrics to assess efficiency of hardware and software Efficiency benchmarks Transaction processing benchmarks Raw performance benchmarks

Competitive Forces Models These model apply not only to IT but business in general Michael Porter’s Five Forces Model Value chain analysis Generic strategies

Porter’s Five Forces Model (Illustration)

Porter’s Five Forces Model (1) Buyer power Reduce buyer power through loyalty programs Frequent flyer Gaming rewards Increase switching costs Supplier power The inverse of buyer power Enhance through B to B exchanges Reverse auctions – Clients competitively bid down cost of goods or services

Five Forces Model (2) Substitution threat High when there are many buyer choices Amazon vs. Barnes and Noble Lower when switching costs are high Threat of new entrants High when it’s easy to enter a market UPS / FedEx have a low threat Competition rivalry Groceries and other commoditized items

Porter’s Three Business Strategies

Cost leadership Lower costs through information technology Hyundai Broad differentiation Audi Focused strategy in narrow markets Porsche

Value Chain Analysis Value chain views an organization as a group of processes Each process adds value to a product or service Wal-Mart's supply chain adds value to the organization by reducing cost IT systems support this activity Divide activities into support activities and primary activities

Value Chain (Primary Activities) Activities vary based on what the organization produces Supply chain optimization Warehousing / delivery Manufacturing Materials requirements planning Process control Marketing CRM systems Customer service CRM systems

Value Chain (Support Activities) Activities related to the business itself Managing human resources Infrastructure Technology development (It’s a primary activity for Google, Twitter, Facebook)