chapter fourteen information technology for business strategy and electronic commerce

Chapter FourteenChapter Fourteen

Information Technology for Business Strategy and Electronic Commerce

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Chapter Outline

• Information Technology to Support Business Strategy

• Intranets, Extranets, and Electronic Commerce

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Strategy Concepts

• Managers need to understand the environment before deciding how best to use information technology.

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Strategy Concepts

• A competitive forces model is used to understand environmental influences affecting the organization.

• The model includes five external threats.

• Managers can develop a better strategy by identifying the interaction of these factors in their industry.

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Types of Strategies

• A strategy is an organization’s intention to pursue a set of activities over the long term to attain its goals.

• There are three basic strategies:– Cost leadership– Differentiation– Innovation.

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Cost Leadership Strategy

• Used when managers want to provide high-quality products at the lowest cost in the industry.

• Company may also help customers and suppliers reduce their costs.

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Differentiation Strategy

• Used when managers focus on developing superior products that are particularly valued by customers and are perceived as different from competitors’ products.

• May include novel design features which are useful to customers.

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Innovation Strategy

• The focus is on finding new ways to restructure business processes for developing, producing or distributing products.

• Company may enter new market, expand into global markets, or diversify.

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Focus on Time: Quick Response Strategy

• Company may provide products or services faster than competitors.

• Company responds to customer demands more quickly.– Some companies have reduced

time required to design and manufacture a product by 50%.

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Strategic Information Systems

• An information system crucial to the company’s competitive success.

• Information technology (IT) is valuable when it can be used to create market barriers.

• Information technology can create switching costs for customers or suppliers.

• IT can change the balance of power in supplier relationships.

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Strategic Information Systems

• Information technology can create new products and services.

• IT allows product customization.

• Information technology can change the basis of competition in the industry.

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Information Technology Supports Value Chain Model

• Managers must decide where in the value chain information technology can be used to support the company’s competitive strategy.

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Information Technology Supports Value Chain Model

• Particular value chain activities can be streamlined or redesigned to enhance and reduce cost.

• Managers can improve performance by improving efficiency or effectiveness.

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Competing on Efficiency

• There are at least five ways information technology can improve efficiency:– Empowering people– Eliminating waste– Using the best known way to do the work– Automating work– Integrating value chain activities within the

company and with other organizations.

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Competing on Effectiveness

• Help the customer purchase the product.• Assure that the product fits the

customer’s needs.• Make the product easier to

use.• Make the product easier

to maintain.

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Interorganizational Information Systems

• An interorganizational information system uses information technology to enable a company to share data and exchange transactions with other companies electronically.

• A business alliance is a cooperative arrangement between two or more businesses with complementary capabilities.

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Business Alliances

• Calyx & Corolla’s product delivery is based on organizing and maintaining a network of business relationships rather than on manufacturing or service capabilities.

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Electronic Data Interchange

• EDI is the direct, computer-to-computer exchange of standardized, common business transaction documents such as purchase orders and invoices between business partners, suppliers, and customers.

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Electronic Data Interchange

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Electronic Data Interchange

• 92% of companies surveyed recently had EDI links with their customers.

• 81% had EDI links with their suppliers.

• Lack of compatible standards among EDI systems requires modification of many EDI systems before they can communicate with one another.

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International Information Systems

• Any information system that supports international business activities is called an international information system.

• Networks and telecommunications technology have made it economically feasible for more companies to do business internationally.

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International Information Systems

There are four basic configurations for a company to operate internationally:– Multinational– Global– Transnational– Exporting and

importing.

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Issues in Developing an International Information System

• Some companies do not allow personal data about employees to leave the country.

• Some countries have nonexistent or poorly enforced software copyright laws.

• Some countries have poorly maintained and aging telecommunications infrastructures.

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Intranets, Extranets, and Electronic Commerce

• Electronic commerce (e-commerce) is sharing business information, maintaining business relationships, and conducting business transactions through the use of telecommunications networks.

• E-commerce is more than technology.

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How the Internet Is Changing Business

• It is estimated that $8 billion worth of business was conducted over the Internet in 1997.

• It is estimated that this number will grow to $333 billion by 2002.

• Companies can reduce infrastructure costs.• Companies can save transaction costs.

– Banking transaction costs 60 cents with an ATM, versus 13 cents on the Internet.

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Stages of Using the Internet for Business

• Phase one: The company adopts email as a communication tool.

• Phase two: The company creates a public Web site.

• Phase three: The company develops a private intranet.

• Phase four: The company uses the Internet to conduct business transactions with customers, suppliers and other organizations.

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Intranets to Support Internal Business Processes

• Using Internet technology as the basis of information system design has several benefits:– Platform neutrality– Open standards– Reduction in hardware and software costs– Ease of installation– Minimal user training– Dramatic improvement in company communications.

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Characteristics of an Intranet

• Network - LAN or WAN• Computer(s) with

server software• Computer(s) with client

software• Communications

software (e.g. TCP/IP)• Firewall software

protects against unauthorized users.

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How an Organization Can Use an Intranet

• Companies can provide access to important information.

• Intranets facilitate teamwork and collaboration.

• Firms use intranets to conduct internal business transactions.

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Extranets to Connect Business Alliances

• An extranet is a private interorganizational information system connecting the intranets of two or more companies in a business alliance.

• Secure private networks are expensive but secure.

• Public networks are inexpensive but insecure.• Virtual private networks are economical and

moderately secure.

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Secure Private Network

• Intranets are connected physically with private leased telephone lines.

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Public Network

• Relatively inexpensive with low security, protected only by firewalls and user login procedures.

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Virtual Private Network

• Relatively economical and good security because data are coded.

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How Businesses Use Extranets

• Increasing the speed of business-to-business transactions

• Reducing errors on intercompany transactions

• Reducing costs of telecommunications

• Increasing the volume of business with partners

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How Businesses Use Extranets

• Exchanging business-to-business documents (similar to EDI)

• Checking on inventory and order status from suppliers

• Collaborating with business partners on joint projects.

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Connecting With Customers on the Internet

• A customer with Internet access can use a Web browser to conduct an entire purchasing transaction on-line.

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Characteristics of Effective Internet Sites

• Offer high-speed transactions

• Have a large, up-to-date product selection

• Are easy to use

• Allow secure transactions

• Provide after-sale features.

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Connecting to the Internet

• Companies may need to:– Increase size and

speed of the network’s internal cabling

– Install additional servers and routers

– Install Web server software.

• The Internet service provider (ISP) chosen should provide high-quality, reliable Internet connections at reasonable cost.

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Business Issues Relevant to the Web Site

• Is the Web site helping meet corporate goals?• How should the content be designed so a

user can find desired information easily?• How will interactive features be used to

provide feedback about the site, including suggestions for improvement?

• Should the company host its Web site or contract with another company?

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Ethical Issues of Electronic Commerce

• It is recommended that companies publish their electronic commerce policy on their Web site, including the following:– A clear, explicit statement of the organization’s

privacy policy– A policy statement addressing situations in which

a person’s permission must be secured before that person’s ID, photo, ideas, or communications are used or transmitted

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Ethical Issues of Electronic Commerce

– A clear statement of how the company will inform customers of the intended uses of personal information gathered during an on-line transaction

– A statement that addresses issues of ownership with respect to network postings and communications

– A policy stating how the company monitors user behaviors on the Web site, and when such information might be used by the company.

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After reading this chapter, you should be able to:

• List several strategies business organizations use to succeed in a competitive environment

• Discuss how a business organization can use information technologies to counter competitive forces in the environment

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After reading this chapter, you should be able to:

• Describe how a business organization can use information technologies to compete effectively by improving efficiency and by improving its products and services

• Describe the characteristics of information systems that support business-to-business arrangements, nationally and internationally

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After reading this chapter, you should be able to:

• Describe electronic commerce and the phases a company goes through using the Internet for business

• Describe the purpose, characteristics, and uses of intranets and extranets

• Describe the use of public Web sites for supporting business-customer transactions