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OUTLINE
IT Investments Roles of IT in Business Basic Concepts in IT IT Trends and their impacts on Business Business Processes and IT Managing and Governing IT
IT INVESTMENTS
IT is not used only by back-office workers, but also front-line workers More and more employees are reliant upon IT for accomplishing their work activities
Business managers, not just IT managers, are responsible for IT investments and effective system utilization IT expenditure represents a significant level of corporate resource.
Global ICT spending in 2010 was more than $3.6 Trillion. It will grow to $4.5 trillion in 2012 (WITSA, 2010).
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Information technology capital investment, defined as hardware, software, and communications equipment, grew from 32 percent to 52 percent of all invested capital between 1980 and 2009.
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interdependence between ability to use information technology and ability to implement corporate strategies and achieve corporate goals firms invest heavily in information systems to achieve six strategic business objectives:
1. 2. 3. 4. 5.
Business
Operational excellence New products, services, and business models Customer and supplier intimacy Improved decision making Survival
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Operational
excellence:
profitability Information systems, technology an important tool in achieving greater efficiency and productivity Walmarts RetailLink system links suppliers to stores for superior replenishment system
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New
Customer
Serving customers well leads to customers returning, which raises revenues and profits Example: High-end hotels that use computers to track customer preferences and use to monitor and customize environment Intimacy with suppliers allows them to provide vital inputs, which lowers costs Example: J.C.Penneys information system which links sales records to contract manufacturer
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decision making
Overproduction, underproduction of goods and services Misallocation of resources Poor response times
Example: Verizons Web-based digital dashboard to provide managers with real-time data on customer complaints, network performance, line outages, etc.
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Survival
Information technologies as necessity of business May be: Industry-level changes, e.g. Citibanks introduction of ATMs Governmental regulations requiring recordkeeping
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BASIC CONCEPTS IN IT
What is a system?
System: A set of interrelated components that must work together to achieve some common purpose
Information System: The collection of IT, procedures, and people responsible for the capture, movement, management, and distribution of data and information
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The term System is used to refer to something broader than an information system:
A systems perspective is useful for understanding the relationships among business units and organizational events.
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Each piece needs to be well-designed, but the pieces also need to work well together
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Information
system:
Set of interrelated components Collect, process, store, and distribute information Support decision making, coordination, and control
Information
vs. data
Data are streams of raw facts Information is data shaped into meaningful form
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Three
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Feedback:
Output returned to appropriate members of organization to help evaluate or correct input stage
Computer/Computer
system
Computers and software are technical foundation and tools, similar to the material and tools used to build a house
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Organizational
dimension of information
systems
Hierarchy of authority, responsibility Senior management Middle management Operational management Knowledge workers Data workers Production or service workers
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Organizational
systems (cont.)
dimension of information
Management
dimension of information
systems
Managers set organizational strategy for responding to business challenges In addition, managers must act creatively: Creation of new products and services Occasionally re-creating the organization
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Technology
dimension of information
systems
Computer hardware and software Data management technology Networking and telecommunications technology Networks, the Internet, intranets and extranets, World Wide Web IT infrastructure: provides platform that system is built on
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TRENDS IN IT
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Microcomputers (1970s)
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Integrated
- Standardization has enabled more integration - Many standards are just de facto standards (Microsoft Windows, Office, Internet Explorer) - Many companies have benefitted from Enterprise Systems investments (e.g., electronic health records in hospitals)
Enterprise Systems: Software packages with integrated modules that pass common business transactions across groups, divisions, and geographic locations in real time
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Downloadable
-
Bit-size software programs for smart phones downloadable from App stores Download speeds have increased so that even large files can be downloaded by users
Social
-
Growth of Web 2.0 (social media) applications (such as Facebook, LinkedIn) Used by companies for marketing and branding activities Collaboration tools connect employees across distance
(early 1990s)
(2005)
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Technology
drivers of IT evolution
Moores law and microprocessing power Computing power doubles every 18 months Nanotechnology:
Law of Mass Digital Storage The amount of data being stored each year doubles
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IT Infrastructure
Technology
Metcalfes Law and network economics Value or power of a network grows exponentially as a function of the number of network members As network members increase, more people want to use it (demand for network access increases)
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Technology
Declining communication costs and the Internet An estimated 1.5 billion people worldwide have Internet access As communication costs fall toward a very small number and approach 0, utilization of communication and computing facilities explodes
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One reason for the growth in the Internet population is the rapid decline in Internet connection and overall communication costs. The cost per kilobit of Internet access has fallen exponentially since 1995. Digital subscriber line (DSL) and cable modems now deliver a kilobit of communication for a retail price of around 2 cents.
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Business
processes:
Workflows of material, information, knowledge Sets of activities, steps May be tied to functional area or be crossfunctional
Businesses:
Can be seen as collection of business processes Business processes may be assets or liabilities
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Examples
Human resources
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Information
1.
Transaction
processing systems
Perform and record daily routine transactions necessary to conduct business Examples: sales order entry, payroll, shipping Allow managers to monitor status of operations and relations with external environment Serve operational levels Serve predefined, structured goals and decision making
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Management
information systems
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FIGURE 2-3
In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system at the end of the time period. Managers gain access to the organizational data through the MIS, which provides them with the appropriate reports.
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FIGURE 2-4
This report, showing summarized annual sales data, was produced by the MIS in Figure 2-3.
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Decision
support systems
Often use external information as well from TPS and MIS Model driven DSS
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This DSS operates on a powerful PC. It is used daily by managers who must develop bids on shipping contracts.
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Business
intelligence
Analyze current and historical data to find patterns and trends and aid decision-making Used in systems that support middle and senior management
Data-driven DSS Executive support systems (ESS)
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Executive
support systems
Incorporate data about external events (e.g. new tax laws or competitors) as well as summarized information from internal MIS and DSS Example: Digital dashboard with real-time view of firms financial performance: working capital, accounts receivable, accounts payable, cash flow, and inventory
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applications
Systems for linking the enterprise Span functional areas Execute business processes across firm Include all levels of management Four major applications:
Enterprise systems Supply chain management systems Customer relationship management systems Knowledge management systems
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INFORMATION SYSTEMS,
ORGANIZATIONS AND STRATEGY
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Economic
impacts
IT changes relative costs of capital and the costs of information Information systems technology is a factor of production, like capital and labor IT affects the cost and quality of information and changes economics of information
Information technology helps firms contract in size because it can reduce transaction costs (the cost of participating in markets)
Outsourcing
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Transaction
cost theory
Firms seek to economize on transaction costs (the costs of participating in markets) Vertical integration, hiring more employees, buying suppliers and distributors IT lowers market transaction costs for a firm, making it worthwhile for firms to transact with other firms rather than grow the number of employees
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Agency
theory:
Firm is nexus of contracts among self-interested parties requiring supervision Firms experience agency costs (the cost of managing and supervising) which rise as firm grows IT can reduce agency costs, making it possible for firms to grow without adding to the costs of supervising, and without adding employees
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Organizational
IT flattens organizations Decision making pushed to lower levels Fewer managers needed (IT enables faster decision making and increases span of control) Postindustrial organizations Organizations flatten because in postindustrial societies, authority increasingly relies on knowledge and competence rather than formal positions
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Organizational
resistance to change
Information systems become bound up in organizational politics because they influence access to a key resource information Information systems potentially change an organizations structure, culture, politics, and work Most common reason for failure of large projects is due to organizational and political resistance to change
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Michael
Provides general view of firm, its competitors, and environment Five competitive forces shape fate of firm
1. 2. 3. 4.
5.
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Traditional competitors New market entrants Substitute products and services Customers Suppliers
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competitors
All firms share market space with competitors who are continuously devising new products, services, efficiencies, switching costs
New
market entrants
Some industries have high barriers to entry, e.g. computer chip business New companies have new equipment, younger workers, but little brand recognition
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Substitutes customers might use if your prices become too high, e.g. iTunes substitutes for CDs Can customers easily switch to competitors products? Can they force businesses to compete on price alone in transparent marketplace? Market power of suppliers when firm cannot raise prices as fast as suppliers
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Customers
Suppliers
Four
intimacy
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leadership
Produce products and services at a lower price than competitors while enhancing quality and level of service Examples: Wal-Mart
Product
differentiation
Enable new products or services, greatly change customer convenience and experience Examples: Google, Nike, Apple
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on market niche
Use information systems to enable a focused strategy on a single market niche; specialize Example: Hilton Hotels
Strengthen
Use information systems to develop strong ties and loyalty with customers and suppliers; increase switching costs Example: Netflix, Amazon
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Competitive forces still at work, but rivalry more intense Universal standards allow new rivals, entrants to market New opportunities for building brands and loyal customer bases
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Views firm as series of activities that add value to products or services Highlights activities where competitive strategies can best be applied
At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy Utilize benchmarking, industry best practices
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Investing
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Considerable Factors:
Complementary
assets:
primary investment Firms supporting technology investments with investment in complementary assets receive superior returns E.g.: invest in technology and the people to make it work properly
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Complementary
assets include:
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Organizations as systems
One useful framework for examining how information systems fit into organizational systems is based on the Leavitt diamond
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Management Issues
Management
and governance
Centralized
Central IT department makes decisions Business unit IT departments make own decisions
Decentralized
Management Issues
Making
wise IT investments
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The End