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Chapter 2 is about gaining competitive advantage through information systems (it’s the chapter’s title).
This assignment is designed to help the student understand the value of keeping current with popular business trends for IT. A study of these business trends can provide information regarding the value and/or use of particular information systems in the pursuit of competitive advantage.
Do the following for the Chapter 2 assignment:
• List the top ten business trends for IT.
• For each trend, describe why businesses are focusing upon that trend.
• Specify the trend you consider to be the most important, and briefly (one or two sentences) state your reason(s).
The information for the first two bullets can be found on the internet. You must cite your source.
Chapter 1
We start with the rise of the information age, how it builds on the prior ages, and current information age trends of significance.
Our learning objective for this section is for you to be able to describe, in your own words, the characteristics of the information age we live in.
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Information Systems Today
Learning Objective: Describe the characteristics of the digital world and the advent of the Information Age.
Evolution of Globalization
Define globalization, describe how it evolved over time, and describe the key drivers of globalization.
Information Systems Defined
Explain what an information system is, contrasting its data, technology, people, and organizational components.
IS Ethics
Describe how computer ethics impact the use of information systems and discuss the ethical concerns associated with information privacy and intellectual property.
The Dual Nature of Information Systems
Describe the dual nature of information systems in the success and failure of modern organizations.
Introduction
In this chapter, we examine information systems, and the role of information systems as we moved into and progress through the digital age. Special attention is given to globalization and ethics.
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Table of Contents
Early Computer Information Technology
Introduction
The Three Waves of Change
Knowledge Worker and Knowledge Society
Early Computer Information Technology
Five IT Megatrends in the Information Age
Mobile Computing
Social Media
The Internet of Things (IoT)
Cloud Computing
Big Data
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Early Information Technology
Introduction
The following slides provide a brief and selective overview of early computer information technology and how it was used. This can help one to learn about:
The rapidity at which technologies evolve or are replaced
The manner in which information technology has evolved
The manner in which companies have used computers
These three issues provide background and context for some of the issues in this class.
They also show that the transition between Toffler’s 2nd and 3rd waves took time, and occurred at different rates for differing groups.
We start with relevant definitions and then proceed to early computer information technology
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The Three Waves of Change
The Third Wave by Alvin Toffler describes three phases or “waves of changes”.
First wave
A civilization based
on agriculture and
handwork
Relatively primitive
stage
Lasted thousands
of years
Luddites opposed
technology.
1-5
Each age has enabled the age that followed.
The Agricultural age provided the time and resources necessary for people to stay in one location and invent machines.
The Three Waves of Change (cont’d)
Second wave
The Industrial Revolution
Began at the end of the 18th century and lasted about 150 years
Third wave
The Information Age
Information becomes the currency
1-6
The printing press gave birth to the information age.
Since the late 1950s, most countries have been transitioning to into the third wave
The Industrial Revolution provided the tools, such as the printing press, necessary to replicate information and widely disseminate it in a low cost manner.
Information Systems Today
The Knowledge Worker
Term coined by Peter Drucker in 1959
An individual who is relatively well educated and who creates, modifies, and/or synthesizes knowledge as a fundamental part of a job
Knowledge Society
New Economy/Digital World
Digital Divide—those with access to information technology have great advantages over those without access.
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Five IT Megatrends in the Information Age
The current confluence of emerging technologies and social events has created five significant trends that business managers need to manage and understand if they don’t want to be left behind:
Mobile computing
Social media
The Internet of Things
Cloud computing
Big Data
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Mobile Computing
Many believe that we’re living in a post-PC era.
In the developing world mobile devices often leapfrog traditional PCs.
Implications:
Increased collaboration
The ability to manage business in real time
New ways to reach customers
Mobile Computing is becoming pervasive, and many people are constantly connected to the digital world.
In developing nations, there is often a jump directly to mobile technologies, which avoids the high-cost infrastructure of traditional land based phone systems.
This can lead to both opportunities and challenges both for managers and for marketers.
Employees can conduct business almost anytime, anywhere.
Customers have their phones with them 24/7, allowing them to be reached throughout the day, wherever they may be.
This trend facilitates the increasing “consumerization of IT.”
It also leads to security issues, as managers need to deal with employers’ preference of “bring your own device” (BYOD).
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Social Media
Over 1.28 billion (and growing) Facebook users share status updates or pictures with friends and family
Organizations use social media to encourage employee collaboration or to connect with their customers
Social media has emerged as a dominant force in online socialization.
Examples: Facebook for friends and families, Google+ for “social circles.”
Businesses can leverage social media to communicate with customers
Business intelligence can be conducted, mining social media sites for good and bad sentiment toward a business and the factors driving it.
Chapter 5 focuses on social media.
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The Internet of Things
Devices have embedded computers and sensors, enabling connectivity over the Internet
By 2008, more devices were connected to the Internet than people living on earth
The Internet of everything?
Lots of physical objects (such as computer, sensors, or motors) are interconnected and automatically share data over the Internet.
Examples include:
Monitoring home temperatures while on vacation
Alerting drivers of parking spaces and traffic volumes
Cardiac monitors alerting physicians of potential health risks
Smart cities, smart homes, and e-health
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Cloud Computing
Web technologies enable using the Internet as the platform for applications and data
Many regard cloud computing as the beginning of the “fourth wave”
Applications that used to be installed on individual computers are increasingly kept in the cloud
e.g., Gmail, Google Docs, Google Calendar
Cloud computing is really about sharing technology resources and taking the pain out of using and sharing data and applications.
A major advantage is backup and reliability. If your computer breaks, you haven’t lost your data.
Also, you can access your files from any computer. For example, have you ever used Dropbox?
It requires connectivity to function, so the constant connectivity we see at work and play is a key enabler.
Mobile computing has further added to the value of the cloud metaphor.
It is discussed in greater depth in Chapter 3.
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Big Data
IDC estimated that in 2011, 1.8 zettabytes of data were generated and consumed
How much is 1.8 zettabytes? It is 1.8 trillion gigabytes, or the equivalent of 57 billion 32GB iPads (IDC, 2011)
This number is forecast to grow by 50 times by 2020
Companies in the Information Age economy are creating value not from people, but from data.
On an average day, people create 25 million trillion bytes of data
Businesses continue to gather ever larger quantities of data as they seek to have the proper data to manage their business effectively and efficiently.
This presents new opportunities if it can be properly analyzed and mined for information.
This data is often unstructured, such as natural language postings about a business.
The resources required to mine Big Data pose tremendous challenges for business.
Big Data is a key part of “business intelligence,” discussed in more detail in Chapter 6.
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Chapter 1
Globalization is next. We will look at the key factors enabling globalization and at outsourcing. Our learning objective for this section is for you to be able to describe globalization, key enablers, outsourcing, and information systems outsourcing.
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The Rise of the Information Age
Describe the characteristics of the digital world and the advent of the Information Age.
Evolution of Globalization
Learning Objective: Be able to define globalization, describe how it evolved over time, and describe key globalization drivers.
Information Systems Defined
Explain what an information system is, contrasting its data, technology, people, and organizational components.
IS Ethics
Describe how computer ethics impact the use of information systems and discuss the ethical concerns associated with information privacy and intellectual property.
The Dual Nature of Information Systems
Describe the dual nature of information systems in the success and failure of modern organizations.
Table of Contents
Key Driving Impacts of Globalization
Outsourcing
Opportunities of Operating in the Digital World
Challenges of Operating in the Digital World
1-15
Key Driving Impacts of Globalization
Economic change
International trade, global finance, labor outsourcing
Cultural change
Multiculturalism from media, international travel, ethnic foods
Technological change
Computing and communication platforms, global patent and copyright laws
The following slides focus upon the issues of:
Outsourcing
Globalization Opportunities
Globalization Challenges
With the opening up of China, markets have opened up for businesses.
Evolution of technology has had a tremendous impact on global opportunities.
The Internet and the invention of the Web browser created a new standard for sharing information over a network in a simple fashion everyday people could readily grasp.
Falling telecommunication costs have enabled new types of communication and collaboration at very low cost.
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Outsourcing
Outsourcing: moving of business processes or tasks to another company
Outsourcing is when you take business process currently being performed internally by your company and have another company do them instead.
Outsourcing is typically driven by cost reduction, and is undertaken when another company can perform a process at a lower cost than yours.
Outsourcing doesn’t automatically imply moving work overseas.
The decline in telecommunication costs has significantly reduced the expenses in moving processes to businesses that are overseas.
Overseas companies may enjoy multiple competitive advantages, including lower labor costs.
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Key Reasons for Outsourcing
To reduce or control costs
To free up internal resources
To gain access to world-class capabilities
To increase the revenue potential of the organization
To reduce time to market
To increase process efficiencies
To be able to focus on core activities
To source specific capabilities or skills
In addition to the help information systems give to outsourcing other business processes, information system processes are also subject to outsourcing.
Information systems outsourcing is done for the same reasons for as other business processes.
The prime driver for information systems outsourcing is also cost reduction, just like for other types of outsourcing.
Other drivers include outsourcing to more effective companies and allowing a business to focus on its core business activities.
Outsourcing will be explored in more detail in Chapter 9
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Opportunities of Operating in the Digital World
Falling Transportation Costs
Shipping a bottle of wine from Australia to Europe costs only a few cents
Falling Telecommunication Costs
These have helped create shared perspectives of behavior, desirable goods, and even forms of government
Reaching Global Markets
Accessing a Global Labor Pool
Highly skilled or low-cost labor pools exist in many countries that are now economically accessible
The emerging digital world creates many opportunities for companies to reduce costs through information-system-driven efficiencies and access to lower-cost labor. At the same time, companies can reach broader markets and sell products around the world, driven in part by falling transportation costs, which are also being driven down through information systems technology.
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Challenges of Operating in the Digital World
Government
Political instability
Regulatory: taxes/tariffs, import/export restrictions
Geo-economic
Time zones, infrastructure
Workforce: welfare, demographics, expertise
Cultural
Working with, providing services to
There are new challenges to operating in the digital world as well as new opportunities. In addition to the expected challenges of culture, varying worker demographics, and political instability, there are additional challenges as different countries pass varying information system regulatory controls affecting privacy, standards, information ownership, and information censorship.
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Chapter 1
As we discuss information systems its important to know what they are, and what they aren’t. The learning objective for this section is for you to be able to explain what an information system is, including the components. A key part of this is the element of data, and the difference between data, information, and knowledge.
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The Rise of the Information Age
Describe the characteristics of the digital world and the advent of the Information Age.
Evolution of Globalization
Define globalization, describe how it evolved over time, and describe the key drivers of globalization.
Information Systems Defined
Learning Objective: Explain what an information system is, contrasting its data, technology, people, and organizational components.
IS Ethics
Describe how computer ethics impact the use of information systems and discuss the ethical concerns associated with information privacy and intellectual property.
The Dual Nature of Information Systems
Describe the dual nature of information systems in the success and failure of modern organizations.
Information Systems
Information systems use information technology to collect, create, and distribute useful data
Information technology:
Hardware, software, telecommunications
The terms information systems and information technology are often used interchangeably.
Information systems are used for many business purposes: sales, marketing, production, financial analysis, human resources, etc.
The term IS also refers to a career field that involves applying information technology to solving organizational problems.
Information technology is discussed in more detail in Chapter 3.
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Table of Contents
Important Definitions: IS and IT
Data
IS Professional Core Competencies
Organizations: The Context of Information Systems
Data is the focus of this section. Other topics are touched on lightly as some of them are covered more extensively later on.
1-23
Data: The Root and Purpose of Information Systems
Alone, raw data are not very useful
When processed into information, data become useful
When information is understood and used for decisions, it becomes knowledge
Data are the raw feedstock of information systems. Data are the raw information that we capture every day.
Once data are processed and analyzed, the data become information. Even this isn’t enough to make decisions with.
To make decisions, we need to understand the context of the information and the environment in which we want to use it.
Knowledge is the ability to understand information, form opinions, and make decisions or predictions based on the information.
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IS Professional Core Competencies
1-25
Technical competency
Hardware, software, networking
Business competency
Business integration, managing people and projects, social skills, verbal and written communication
Systems competency
Systems integration, development methodologies, critical thinking, problem solving
Technical competency involves an understanding of the “nuts and bolts.” IS professionals are not necessarily experts in the nuts and bolts, but know enough to be able to apply them to practical problem solving. Business competency is what separates IS professionals from mere techies. Although technical positions are often outsourced, it is much harder to outsource business savvy. Systems competency also separates good IS professionals from technicians, as it involves an understanding of how technology integrates with organizations, people, and society.
Organizations: The Context of Information Systems
1-26
Organizations use information systems to:
be more productive and profitable
gain competitive advantage
reach more customers
improve service to their customers
Information systems don’t exist in a vacuum, they exist in the context of varying types of organizations. Information systems play multiple roles in organizations, ranging from automating business processes and driving down costs to reaching new customers and better servicing existing ones.
Types of Information Systems
Transaction processing system (TPS)
Management information system (MIS)
Decision support system (DSS)
Intelligent system
Business intelligence system
Office automation system
Collaboration system
Knowledge management system
Social software
Geographic information system (GIS)
Functional area information system
Customer relation management (CRM) system
Enterprise resource planning system (ERP)
Supply chain management system
Electronic commerce system
Table 1.7 gives a breakdown of these different categories of information systems.
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Chapter 1
Information systems hold great promise for organizations, but also pose significant risks. The learning objective for this section is for you to be able to describe the dual nature of information systems, how they may help and how they may harm.
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The Rise of the Information Age
Describe the characteristics of the digital world and the advent of the Information Age.
Evolution of Globalization
Define globalization, describe how it evolved over time, and describe the key drivers of globalization.
Information Systems Defined
Explain what an information system is, contrasting its data, technology, people, and organizational components.
IS Ethics
Describe how computer ethics impact the use of information systems and discuss the ethical concerns associated with information privacy and intellectual property.
The Dual Nature of Information Systems
Learning Objective: by able to describe the dual nature of information systems in the success and failure of modern organizations.
Information Systems for Competitive Advantage
–But with a Risk
IS gone awry–American Airlines computer glitch
Caused 700 delayed flights, 125K affected passengers, FAA flight halt, public apology from CEO
IS done right–FedEx tracking system
Continuous update and fine-tuning provides high-quality package tracking and enables FedEx to become a global leader in express transportation, handling 25% of all package deliveries
Firms of all types and sizes can use information systems to gain or sustain a competitive advantage over their rivals
Whether it is a small mom-and-pop boutique or a large government agency, every organization can find a way to use information technology to beat its rivals
Like FedEx, many organizations are leveraging information systems to do business more effectively and efficiently. This may simply improve the bottom line, or may give a significant business advantage to organizations and allow them to have an edge over their competitors. This type of leverage can be applied by organizations of all sizes and industries.
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IS Ethics
IS Ethics are a critical part of managing information systems. The learning objective for this section is for you to be able to discuss the ethical concerns of information systems in general and particularly with respect to privacy and intellectual property.
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The Rise of the Information Age
Describe the characteristics of the digital world and the advent of the Information Age.
Evolution of Globalization
Define globalization, describe how it evolved over time, and describe the key drivers of globalization.
Information Systems Defined
Explain what an information system is, contrasting its data, technology, people, and organizational components.
IS Ethics
Learning Objective: Describe how computer ethics impact the use of information systems and discuss the ethical concerns associated with information privacy and intellectual property.
The Dual Nature of Information Systems
Describe the dual nature of information systems in the success and failure of modern organizations.
Table of Contents
IS Ethics Introduction
Privacy
Accuracy
Property
Accessibility
The Digital Divide
1-31
IS Ethics Introduction
Computer ethics describes the “moral issues and standards of conduct as they pertain to the use of information systems”
Collecting and analyzing user data may have negative impacts
Social decay
Increased consumerism
Loss of privacy
The definition of computer ethics is “moral issues and standards of conduct as they pertain to the use of information systems”.
There is a growing concern in society about computer ethics which is driven in part by growing concerns regarding individual privacy and how organizations will use the information they have lacking any code of conduct or effective regulation.
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Privacy, Accuracy, Property,
and Accessibility Introduced
Privacy: What information should you have to reveal online or in the workplace?
Accuracy: Are the data regarding individuals accurate? Can individuals access their data and verify the accuracy thereof? What are the impacts of inaccuracies?
Property: Company owns the data/databases kept on individuals, and can sell the information as long as it doesn’t violate stated privacy policies when gathering the data
Accessibility: This circles back to the digital divide—who has access to information, and the skills to leverage it?
Richard Mason wrote a classic article in 1986 describing emerging concerns in four key areas, which goes by the acronym PAPA.
Privacy
Accuracy
Property
Accessibility
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Privacy
Privacy on the Web
Who owns the computerized information about people? Answer: the company that maintains the database of customers is free to sell it…within limits
E-mail Privacy
Legally, there is no right to e-mail privacy
Electronic Communications Privacy Act (ECPA), passed in 1986, protects phone conversations,
but not e-mail
Protecting your privacy
U.S FTC Fair Information Practice Principles: notice/awareness, choice/consent, access/participation, integrity/security, enforcement/redress
Companies operating in the online world are not required by law to respect your privacy. In other words, a vendor can track what pages you look at, what products you examine in detail, which products you choose to buy, what method of payment you choose to use, and where you have the product delivered. After collecting all that information, unscrupulous vendors can sell it to others, resulting in more direct-mail advertising, electronic spam in your e-mail inbox, or calls from telemarketers.
Is this ethical? Do we have any real privacy rights?
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Information Privacy
What information should you have to reveal?
Information you might want to keep private:
Social security number
Medical history
Family history
Identity theft
Fastest growing “information” crime
Biometrics for better protection
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Information Accuracy
Ensuring of the authenticity and fidelity of information
High costs of incorrect information
Banks
Hospitals
Example: a software error in a radiation therapy device caused massive overexposure, causing multiple deaths and injuries
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Intellectual Property
Copying digital music is almost effortless
In many non-Western societies, using someone else’s work is considered praise for the creator
Using another’s work without purchase or attribution has significant legal and ethical ramifications
Intellectual Property is creating new ethical challenges as digital media can be copied endlessly with no loss of quality. However, many of the individuals who create intellectual property have a legal right to be the sole source for sales and are compensated for their creative work by receiving payment for each copy sold. This creates an ethical dilemma for individuals who own copies of the work and feel they should be able to use it as they see fit, including the duplication of it for a friend.
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Information Accessibility
Who has the right to monitor the information?
Electronic Communications Privacy Act (ECPA) offers far stronger support for voice mail than for e-mail communications.
The need for a code of ethical conduct
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The Digital Divide
Many people are being left behind in the information age
Strong linkage between computer literacy and a person’s ability to compete in the information age
People in rural communities, the elderly, people with disabilities, and minorities lag behind national averages for Internet access and computer literacy
The challenges in overcoming the digital divide are even greater in developing countries
As information technology becomes more pervasive, the fundamental skills necessary to access and use it are becoming essential to success in business. When some people are left behind, either by choice or through lack of opportunity, it makes it difficult for them to achieve economic success.
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Chapter 2
Valuing Innovations
Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
Business Models in the Digital World
Describe how information systems support business models used by companies operating in the digital world.
Enabling Organizational Strategy Through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic advantage.
1
Introduction
In this chapter, we examine the strategic use of information systems, which enables organizations to gain or sustain competitive advantage.
This examination includes a look at the role of information systems in each of the levels of an organization, their role in international business strategies, and the on-going need to innovate using information systems.
1-2
Each age has enabled the age that followed.
The Agricultural age provided the time and resources necessary for people to stay in one location and invent machines.
Table of Contents
Organizational Decision-Making Levels
Operational Level
Managerial Level
Executive Level
Organizational Functional Areas
Competitive Advantage
ISs Providing Business Value
Pursuit of Competitive Advantage (organizational strategy types & sources of competitive advantage)
Competitive Forces
Value Chain Analysis
Choosing the Right IT & ISs
1-3
Organizational
Decision-Making Levels
Executive/Strategic Level
Upper Management
Managerial/Tactical Level
Middle Management
Operational Level
Operational Employees, Foremen, Supervisors
The Organizational Decision-Making Levels slides simply follow the chapter. They are included because they provide foundational knowledge for slides that follow.
Most businesses have three levels of management, with one or more layers of managers in each level.
The executive management includes top tier management focused on long-term strategic business decisions such as how to compete, price versus quality, and what countries to do business in.
Middle or tactical management is focused on running the organization to meet the strategic goals, and typically has a management timeframe of 3 to 12 months. Typical decisions might include where additional stores in existing markets should be opened.
Operational employees and management perform the day-to-day work of the organization, making decisions on a day-by-day basis.
A shift manager at a Wal-Mart would be Operational Management, while a Store manager at a Wal-Mart would be at the lowest level of Middle or Tactical Management.
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Operational Level
Day-to-day business processes
Interactions with customers
Decisions:
structured,
recurring, and
Often automated using IS.
IS used to:
optimize processes, and
understand causes of performance problems.
1-5
Operational information systems primarily focus on process automation. This can include automating routine activities as well as automating and optimizing structured decisions (such as employee scheduling).
Managerial Level
Functional managers
Monitor and control operational-level activities
Focus: effectively utilizing and deploying resources
Goal: achieving strategic objectives
Managers’ decisions
Semistructured
Moderately complex
Time horizon of few days
to few months
IS can help with:
performance analytics (dashboards),
predictive analysis, and
providing key performance indicators (KPI).
1-6
Information systems at the Managerial, or Tactical level are focused on helping middle management exercise control more efficiently and effectively and on helping them make semi-structured decisions with better input and resources.
Executive Level
The president, CEO, vice presidents, board of directors
Decisions
Unstructured
Long-term strategic issues
Complex and nonroutine
problems
with long-term ramifications
IS is used to:
obtain aggregate summaries of trends and projections, and
provide KPIs across the organization.
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Information systems at the Executive level are focused on helping executing managers understand the current business status through:
executive information systems that often show aggregate business performance data, and
through tools to support executing decision making such as forecasting and planning tools.
Organizational Functions and Functional Levels
Notice how various types of information systems match up with the organizational decision-making levels.
Accounting Information Systems, for example, are found at all
levels; however, different accounting functions are performed at each level.
Organizations are organized along Functional boundaries as well as along managerial levels, and managers within each function at each organizational level have unique information system needs.
8
Major IS Tasks:
Business Value Added
Automating: Doing Things Faster
Organizational Learning: Doing Things Better
Supporting Strategy: Doing Things Smarter
As an employee, think about
the information systems you
use, and which category each
falls into.
Many employees resist
strategic (strategizing) ISs
because they tend to be more complex and prone to problems; however, they can add substantial business value.
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Pursuit of Competitive Advantage
Best-made product
Superior customer service
Lower costs than rivals
Proprietary manufacturing technology
Shorter development/test lead times
Well-known brand name
More value for the money
1-10
Notice the examples in the book. Each of the large companies, follow one organizational strategy type.
When a company does or is perceived by customers to do something distinctively better then the competition, it has a competitive advantage based on that distinctive feature.
Many firms seek unique positioning to increase the marketability of their products. Information systems that help a firm achieve a distinct position can help create competitive advantage.
10
Identifying Where to Compete: Analyzing Competitive Forces
Companies need to understand the forces acting within the industry and on their organization. Michael Porter created a framework for this in 1979 that is still widely used to this day.
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Using IS to Combat
Competitive Forces
Competitive Force Implication for Firm Potential Use of Information Systems
Rivals within your
industry Competition in price, product distribution, and service Reduce costs, use the Internet to increase service
New entrants Reduced prices and market share Inventory control to manage excess capacity, Internet to differentiate products
Customers’ bargaining power Reduced prices, demand for better quality and service CRM to improve service, CAD/CAM
Suppliers’ bargaining power Increased costs and reduced quality Use internet to work with new distant suppliers
Threat of substitute products Decreased market share, customer loss Better assess customer needs, use CAD to design better products
Information Systems can help offset many competitive forces, such as Computer Aided Design and Manufacturing to help firms meet customer demands when customers have a high degree of bargaining power.
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Identifying How to Compete: Analyzing the Value Chain
Value chain analysis can highlight opportunities in which information systems implementation can make an organization more effective and efficient, and secure a competitive advantage.
By identifying your cost structure at each level of the value chain and benchmarking against your competitors you can identify changes that will enhance your performance.
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The Technology/Strategy Fit
There are never enough resources to implement every possible IS improvement
Therefore, organizations try to maximize business/IT alignment
This means matching the IT investment to the company’s strategy
e.g., don’t invest in IS that maximizes product differentiation if your company’s strategic focus is on being a low-cost leader
Companies that focus on the improvements and business process management that help their value creation strategy the most will see the greatest competitive benefit
It is important that when firms are choosing technologies to implement they make sure the technologies support the business strategies already in place.
While many projects may appear to be justified, limited resources require careful selection.
By making sure that the projects selected are focused on helping the company meet its core business objectives, a company can help ensure that the projects are adding value.
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Assessing Value for the IS Infrastructure
Economic Value
Direct financial impact
Architectural Value
Extending business capabilities today and in the future
Operational Value
Enhancing ability to meet business requirements
Regulatory and Compliance Value
Complying with regulatory requirements
Information systems add value to companies in several ways.
There are both direct financial impacts, and indirect impacts such as enabling an organization to make changes in the future or strengthening the business processes so organizations are readily able to meet business requirements without having to constantly make exceptional efforts. Finally there is the value of meeting current and future regulatory requirements.
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Choosing the Right IT & ISs
A company that wants to invest in the right IT and ISs can use the various models and analyses in this section to choose wisely.
Business strategy
comes first
Then figure out which IT and ISs to invest in
It is important that when firms are choosing technologies to implement they make sure the technologies support the business strategies already in place.
While many projects may appear to be justified, limited resources require careful selection.
By making sure that the projects selected are focused on helping the company meet its core business objectives, a company can help ensure that the projects are adding value.
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Chapter 2
Valuing Innovations
Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
Business Models in the Digital World
Describe how information systems support business models used by companies operating in the digital world.
Enabling Organizational Strategy Through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic advantage.
17
Table of Contents
Introduction
Business Models
Components and E-Business Revenue of a Business Model
Freeconomics
International Business Strategies
1-18
Business Models
in the Digital World
1-19
A business model reflects the following:
What does a company do?
How does a company uniquely do it?
In what way (or ways) does the company get paid for doing it?
What are the key resources and activities needed?
What are the costs involved?
How a company answers these questions dictates:
what industry the company is competing in,
how competitive it is in that industry,
what if any competitive advantage the company enjoys, and
how profitable the company is or can be.
Components and E-business Revenue of a Business Model
1-20
Components
Customer segments
Value proposition
Channels
Customer relationships
Revenue streams
Key resources
Key activities
Key partners
Cost structure
Revenue Model
Affiliate marketing
Subscription
Licensing
Transaction fees and Brokerage
Traditional sales
Web advertising
A business model is a summary of a business’s strategic direction that outlines how the objectives will be achieved; a business model specifies the value proposition, as well as how a
company will create, deliver, and capture value. Each component plays a critical role in shaping all aspects of the business.
The most important ingredient for any organization is determining how to generate revenue. A revenue model describes how the firm will earn revenue, generate profits, and produce
a superior return on invested capital.
Freeconomics
Freeconomics—The leveraging of digital technologies to provide free goods and services to customers as a business strategy for gaining competitive advantage.
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While someone gets something for free in Freeconomics, that doesn’t mean no one is paying for anything. There are multiple approaches to making freeconomics work, many of which result in significant profits for successful companies. The classic example is online search engines. The functionality of the search engines is given to users for free, but the use of the search engine Web site gives the search engine companies the opportunity to sell advertising to companies. The sale of advertising by the search engine can be particularly valuable because the advertising shown can be targeted based on the content of the desired search, making it more relevant for the user exposed to it.
Applying Freeconomics in the Digital World
Approach What it Means Examples
Advertising Free services are provided to customers & paid for by a third party ▪ Yahoo!’s banner ads
▪ Google’s pay-per-click
Freemium Basic services are free, a premium is charged for special features ▪ Skype
▪ Dropbox.com
Cross subsidies Sale price of one item is reduced in
order to sell something else of value ▪ Free cell phone with two-year contract
Zero Marginal Cost Products are distributed to customers without an appreciable cost to anyone ▪ iTunes music distribution
▪ Software distribution
▪ YouTube Video content
Labor Exchange The act of customers using free services creates value ▪ Yahoo! Answers
▪ Answers.com
Gift Economy People participate and collaborate
to create value for Everyone ▪ Open source software
▪ Wikipedia
There are multiple ways companies implement Freeconomics, many of which still drive revenue.
Advertising is very common, such as the search engine example from the previous slide.
Cross subsidies allow one item to be given away or sold at a reduced price to drive sales of another item.
Some items have no additional cost to duplicate, such as digital music, allowing companies to give them away without incurring expense.
There are also freeconomics at play in the gift economies and labor exchanges, where people participate for various reasons which are not monetarily based.
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International Business Strategies
in the Digital World
There are four international business strategies
Home Replication Strategy
Multidomestic Strategy
Global Strategy
Transnational Strategy
Each has pros and cons in terms of complexity, cost benefits, local responsiveness, and control
The four different types of international business strategy are Home Replication, Global, Multidomestic, and Transnational. These strategies are designed to address different needs for local responsiveness, simplicity, and cost minimization. We will discuss each of them in depth in the next four slides.
International Business Strategies
in the Digital World
As you go through the various international business strategies, think about them from an IT perspective
Think about the strategies in terms of data
Where is the data collected?
What data is transferred to the home location?
How much data is transferred to the home location?
Think about the uniformity of information systems in use
For example, a company that employs a centralized strategy will be more likely to use the same information systems at each location
Home-Replication Strategy
Focused domestically, homogenous markets
International business an extension of home business
Focus on core home market competencies
Inability to react to local market conditions
Domestic systems, limited communication, local databases
The home replication strategy is essentially focused on making products for the domestic market, and then selling them as exports to anyone who wants to buy them internationally regardless of how the products may or may not be suited for that different market.
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Global Business Strategy
Centralized organization with standardized offerings across markets
Strengths: standardized product offerings allow achieving economies of scale
Weakness: inability to react to local market conditions
Appropriate use: homogeneous markets
Centralized systems, networks and data sharing between home office and subsidiaries
When companies are pursuing a Global business strategy, their products are deliberately developed for a global market.
This is differs from the home-replication strategy, where products are developed for the home market then offered up for export.
In the global strategy the product is intended for a global audience and designed to appeal across the global audience.
This requires subsidiaries providing extensive feedback to the home office to ensure an understanding of how the product is being received.
This strategy doesn’t allow for localization of the product to appeal to specific markets, the focus is rather a global product appealing across many markets.
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Multidomestic Business Strategy
Federation of associated business units; decentralized
Strengths: ability to quickly react to local conditions
Weakness: differing product offerings limit economies of scale, and limited inter-unit communication limits knowledge sharing
Appropriate use: very heterogeneous markets
Decentralized systems, bidirectional communications, local databases
Multidomestic companies take a decentralized approach to running different subsidiary locations. Each location typically has a great deal of latitude in meeting local market needs. While multidomestic companies can successfully operate in very different cultures, there tends to be little sharing of lessons learned and best practices throughout the company, resulting in inefficiencies. The information systems of multidomestic companies also tend to be run by individual IS departments within each subsidiary.
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Transnational Business Strategy
Some aspects centralized, others decentralized; integrated network
Strengths: can achieve benefits of multidomestic and global strategies
Weakness: difficult to manage; very complex
Appropriate use: integrated global markets
Distributed/shared systems, enterprise-wide linkages, common global data resources
Transnational companies take a federated approach to management, meaning some aspects of the company are centralized, while other aspects are decentralized. What portions of the company are centralized and which are decentralized is based on what approach is necessary to maximize the return on shareholder investment, with products requiring significant localization to be successful often decentralized, while products or business functions that gain efficiencies from economies of scale and standardization being centralized. Different parts of the company may even be centralized in different countries to take advantage of cost savings. The Transnational strategy is sophisticated and complex, requiring extensive information sharing between different subsidiaries as well as between each subsidiary and the home location or locations. This communication is facilitated by information systems and the Internet.
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Chapter 2
Enabling Organizational Strategy Through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic advantage.
Business Models in the Digital World
Describe how information systems support business models used by companies operating in the digital world.
Valuing Innovations
Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
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Table of Contents
The Need for Constant Innovation
Successful Innovation is Difficult
Organizational Requirements for Innovation
Apple
Predicting the Next Big Thing
The Classic Model
Disruptive Innovations
The Innovator’s Solution
Implementing the Innovation Process
Three Ways to Think About Investments in Disruptive Innovations
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The Need for Constant IS Innovation
“The most important discoveries of the next 50 years are likely to be ones of which we cannot now even conceive” John Maddox
Transformation Technologies are difficult or even impossible to see coming
Think of the Internet in 1999
Many of the critical discoveries in the next 50 years will be in areas we don’t see coming
If a company wants to stay ahead of the competition, it needs to stay on top of the changing environment.
This can require constant innovation, as the technologies in the world we live in keep changing in new and unexpected ways.
Just as many companies in 1999 couldn’t conceive of the Internet as it is today, we may be unable to conceive of how the Internet will look in 2020 or 2025.
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Successful Innovation Is Difficult
Innovation Is Often Fleeting
The pace of change is fast
Smart rivals quickly adopt any advantage
Innovation Is Often Risky
Competing Technologies result in a winner and a looser (e.g.: Blu-Ray and HD DVD)
Innovation Choices Are Often Difficult
It is impossible to pursue all opportunities
It is hard to predict which opportunities will lead to success
Innovation can bring great rewards, but it typically isn’t easy. Some innovations only give a short term advantage, readily copied by competitors once they see it works. And when there are competing technologies, there is no guarantee that the one a company chooses to embrace will become the market standard, making large investments risky. Finally, companies often have to choose a limited set of options to pursue out of a wealth of opportunities. Resources are constrained, time is limited, and the information about the different options is imperfect.
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Organizational Requirements
for Innovation
Process Requirements
Focus on success over other objectives
Resource Requirements
Employees with knowledge, skill, time & resources
Partner with appropriate requirements
Risk Tolerance Requirements
Tolerance for risk
Tolerance for failure
Innovation isn’t something every company can do. The company has to have an organization and process that allows innovation to move forward and not get caught up in office politics and competing agendas. If a company decides to pursue innovation, it either needs the resources in-house or needs to contract with a partner that has the appropriate resources. Finally, a company that doesn’t allow risk taking and the occasional failure will punish people who try to take risks and innovate, and will soon stifle any possibility of innovation.
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Predicting the Next New Thing
Many innovations can be copied
Limited time span of any advantage
May become a requirement for staying competitive
Some innovations deliver longer advantages
Unique customer service based on customer data
High levels of customer investment in proprietary systems – high switching costs
Technologies that are very difficult to copy
It is difficult to predict the next innovation that will provide a long term competitive advantage, but there are a few things to keep in mind. Innovations based on a purchased technology can often be purchased by competitors, and those based on a developed technology can be imitated or copied. To provide long term advantage the innovation needs to form the basis for or incorporate something that competitors can’t readily acquire or develop. This could be something based on customer data that competitors can’t readily acquire, such as unique customer service. Sometimes a company can develop a technology that customers buy into and then are locked into with high switching costs. While this can be effective, some customers will view it as a trap and avoid it. Finally, companies can develop sophisticated technologies that are very difficult to copy or have a very high cost to duplicate. All of these can result in a company having a long term competitive advantage.
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Predicting the Next New Thing
Deciding which innovations to adopt is very difficult.
Diffusion of Innovation
Classic view of adoption of innovations
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Typical innovations are often slow to take off, then are rapidly adopted, and finally there is a long tail of late adopters who slowly change over. The innovators may be adopting technology just to see if it’s beneficial, while the majority are adopting it to take advantage of its benefits, and the laggards are slow to adopt despite the benefits they would see. While many technologies go through this cycle, disrupting innovations, discussed next, are different.
The Innovator’s Dilemma
Disruptive innovations
New technologies, products, or services that eventually surpass dominant technologies
Undermine
effective
management
practices
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Disruptive Innovations can completely replace the technology they are disrupting, and a failure to recognize that a disruptive innovation is changing the market can easily lead to a companies demise. With a disruptive innovation, companies may not be given the opportunity to be laggards.
In many different industries the capabilities of the lowest performing category of the market improve faster then the needs of the lowest need users. This is especially true in the computing industry, where the capabilities of computer systems continues to increase at a breakneck pace. When the lowest performing technology that is useful becomes powerful enough, it starts to meet the needs of additional users, and can often replace higher cost technology options. Thus Microcomputers pushed id-range computers out of the workplace, but some midrange computers pushed high-end computers out as well. The lowest performing technology that is useful may now itself be threatened by other technologies that couldn’t meet the needs of users in a segment before, but which now can. Cell phones and tablet computers are now powerful enough to be a disruptive technology threatening microprocessor-based computers.
The Innovator’s Solution
Christensen outlines a process—disruptive growth engine—that helps organizations respond to disruptive innovations more effectively.
Start early.
Executive leadership.
Build a team of expert innovators.
Educate the organization.
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Implementing the
Innovation Process
E-Business Innovation Cycle
The key to success is the extent of IS use in timely and innovative ways.
Based on: Wheeler (2002)
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The e-business innovation cycle is based on choosing technologies, matching them to opportunities, and executing against the opportunity. After each execution there is an assessment phase where learning occurs, and then the process stares again.
The most difficult part of the cycle is in Choosing the enabling/emerging technologies, which can be exceptionally difficult. Matching the selection with business opportunities is the next most difficult phase.
Three Ways to Think About Investments in Disruptive Innovations
Put technology ahead of strategy.
Technology is so important to success, it needs to be considered first.
Strategy is developed afterwards.
Put technology ahead of marketing.
Rapid development of technology makes it impossible for people to know what they want.
Innovation is continuous.
New technologies are constantly being developed.
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