chapter 1: information systems in business

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved

CHAPTER 1

INFORMATION SYSTEMS IN BUSINESS

Opening CaseApple – Merging

Technology, Business, and Entertainment

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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


SECTION 1.1

INFORMATION SYSTEMS IN BUSINESS

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LEARNING OUTCOMES

1. Describe the functional areas of a business and why they must work together for the business to be successful

2. Explain information technology’s role in business and how you measure success

3. Compare management information systems (MIS) and information technology (IT) and define the relationships among people, information technology, and information

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LEARNING OUTCOMES

4. Compare the responsibilities of a chief information officer (CIO), chief technology officer (CTO), chief security officer (CSO), chief privacy officer (CPO), and chief knowledge officer (CKO)

5. Explain the gap between IT and the business, along with the primary reason this gap exists

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INFORMATION TECHNOLOGY’S ROLE IN BUSINESS

• Information technology is everywhere in business

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Information Technology’s Impact on Business Operations

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• Organizations typically operate by functional areas or functional silos

• Functional areas are interdependent

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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 of business success and innovation

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• 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

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• When beginning to learn about information technology it is important to understand the following:– Information – IT resources– IT cultures

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Information

• Data - raw facts that describe the characteristic of an event

• Information - data converted into a meaningful and useful context

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IT Resources

• People use

• Information technology to work with

• Information

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IT Cultures

• Organizational information cultures include:– Information-functional culture – Information-sharing culture – Information-inquiring culture – Information-discovery culture

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ROLES AND RESPONSIBILITIES IN IT

• Information technology is a relatively new functional area, having only been around formally for around 40 years

• Recent IT strategic positions include:– Chief Information Officer (CIO)– Chief Technology Officer (CTO)– Chief Security Officer (CSO)– Chief Privacy Officer (CPO)– Chief Knowledge Office (CKO)

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• 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

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• Average CIO compensation by industry

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• What concerns CIOs the most

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• 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

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• Skills pivotal for success in executive IT roles

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The Gap Between Business Personnel and IT Personnel

• 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

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Improving Communications

• Business personnel must seek to increase their understanding of IT

• IT personnel must seek to increase their understanding of the business

• It is the responsibility of the CIO to ensure effective communication between business personnel and IT personnel

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MEASURING INFORMATION TECHNOLOGY’S SUCCESS

• Key performance indicator (KPI) – measures that are tied to business drivers

• Metrics are detailed measures that feed KPIs

• Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals

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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

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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

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Benchmarking – Baselining Metrics

• E-governement benchmarks

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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

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• Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include:– Usability– Customer satisfaction– Conversion rates– Financial

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• 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)

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OPENING CASE QUESTIONSApple - Merging Technology, Business and Entertainment

1. What might have happened to Apple if its top executives had not supported investment in iPods?

2. Formulate a strategy for how Apple can use efficiency IT metrics to improve its business

3. Formulate a strategy for how Apple can use effectiveness IT metrics to improve its business

4. Why would it be unethical for Apple to sell its iTunes customer information to other businesses?

5. Evaluate the effects on Apple’s business if it failed to secure its customer’s information and it was accidentally posted to an anonymous Web site


SECTION 1.2

BUSINESS STRATEGY

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LEARNING OUTCOMES

6. Explain why competitive advantages are typically temporary

7. List and describe each of the five forces in Porter’s Five Forces Model

8. Compare Porter’s three generic strategies

9. Describe the relationship between business processes and value chains

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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

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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

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THE FIVE FORCES MODEL – EVALUATING BUSINESS SEGMENTS

• Porter’s Five Forces Model determines the relative attractiveness of an industry

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Buyer Power

• Buyer power – high when buyers have many choices of whom to buy from and low when their choices are few

• One way to reduce buyer power is through loyalty programs– Loyalty program – rewards customers

based on the amount of business they do with a particular organization

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Supplier Power• Supplier power – high when buyers have

few choices of whom to buy from and low when their choices are many– Supply chain – consists of all parties involved in

the procurement of a product or raw material

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Supplier Power

• Organizations that are buying goods and services in the supply chain can create a competitive advantage by locating alternative supply sources (decreasing supplier power) through B2B marketplaces– Business-to-Business (B2B) marketplace –

an Internet-based service that brings together many buyers and sellers

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Supplier Power

• Two types of business-to-business (B2B) marketplaces– Private exchange – a single buyer posts its

needs and then opens the bidding to any supplier who would care to bid

– Reverse auction – an auction format in which increasingly lower bids are solicited from organizations willing to supply the desired product or service at an increasingly lower price

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Threat of Substitute Products or Services

• 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– Switching cost – costs that can make

customers reluctant to switch to another product or service

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Threat of New Entrants

• 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– Entry barrier – a product or service feature

that customers have come to expect from organizations in a particular industry and must be offered by an entering organization to compete and survive

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Rivalry Among Existing Competitors

• Rivalry among existing competitors – high when competition is fierce in a market and low when competition is more complacent

• Although competition is always more intense in some industries than in others, the overall trend is toward increased competition in just about every industry

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THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS

• Organizations typically follow one of Porter’s three generic strategies when entering a new market– Broad cost leadership– Broad differentiation– Focused strategy

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THE THREE GENERIC STRATEGIES – CREATING A BUSINESS FOCUS

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Value Creation• Once an organization chooses its

strategy, it can use tools such as the value chain to determine the success or failure of its chosen strategy– 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

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Value CreationValue Chain

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Value Creation• Value chains with Porter’s Five Forces

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OPENING CASE QUESTIONSApple - Merging Technology, Business and Entertainment6. Did Apple gain a competitive advantage from its decision

to invest in an online music business?

7. How can Apple use environmental scanning to gain business intelligence?

8. Using Porter’s Five Force Model, analyze Apple’s buyer power and supplier power

9. Which of the three generic strategies is Apple following?

10. Which of Porter’s Five Forces did Apple address through its introduction of the iPod?

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CLOSING CASE ONESay “Charge It” with Your Cell Phone

1. Do you view this technology as a potential threat to traditional telephone companies? If so, what counterstrategies could traditional telephone companies adopt to prepare for this technology?

2. Using Porter’s Five Forces describe the barriers to entry for this new technology

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CLOSING CASE ONESay “Charge It” with Your Cell Phone

3. Which of Porter’s three generic strategies is this new technology following?

4. Describe the value chain of using cell phones as a payment method

5. What types of regulatory issues might occur due to this type of technology?

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CLOSING CASE TWOInnovative Business Managers

1. Choose one of the companies listed above and explain how it could use a CIO, CTO, and CPO to improve business

2. Why is it important for all of DreamWorks’ functional business areas to work together? Provide an example of what might happen if the DreamWorks marketing department failed to work with its sales department

3. Why is information technology important to an organization like the Boston Red Sox? Every organization needs information to remain

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CLOSING CASE TWOInnovative Business Managers

4. Which of Porter’s Five Forces is most important to Home Depot’s business?

5. Which of the three generic strategies is PepsiCo following?

6. Explain the value chain and how a company like GE can use it to improve operations

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CLOSING CASE THREEThe World is Flat – Thomas Friedman

1. Do you agree or disagree with Friedman’s assessment that the world is flat? Be sure to justify your answer

2. What are the potential impacts of a flat world for a student performing a job search?

3. What can students do to prepare themselves for competing in a flat world?

4. Identify a current flattener not mentioned on Friedman’s list

chapter 1: information systems in business

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