lecture 4 chapter 3 information systems today: managing in the digital world 3-1
TRANSCRIPT
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LECTURE 4CHAPTER 3
Information Systems Today: Managing in the Digital World 3-1
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Information Systems Today: Managing in the Digital World 3-2
Valuing Information Systems
• Information systems can be used in three ways to add value to an organization:
1. Automating
2. Informating
3. Strategizing
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IS for Automating: Doing Things Faster
• With automation, tasks can be completed:o Faster
o Cheaper
o More accurately
o With greater consistency
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Automating: Example
• Loan processing comparison for 3 methods (from the moment the customer takes the application until the applicant is notified of decision)o Manual loan process – 25 to 40 days
o Technology-supported process – 5 to 20 days
o Fully automated process – 1 hour to 15 days
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IS for Organizational Learning: Doing Things Better
• Information systems can also be used to:o Learn about
processeso Improve
processeso Support
organizational learning
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Informating: Example
• Computer-based loan system identifies peak times during the year when specific loans are processed
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IS for Supporting Strategy: Doing Things Smarter
• IS used to gain or sustain competitive advantageo Turning benefits
of automating and informating into strategic advantage
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Strategizing: Five Types of Organizational Strategies
• Organizational strategies define the way in which a company plans to gain/sustain competitive advantage
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Overall Low Cost Leadership Strategy
• Offer best prices in the industry or product/service category
• Broad focuso Wal-Mart
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Focused Low-Cost Strategy
• Offer best prices in the industry or product/service category
• Focus on nicheo Dell
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Broad Differentiation Strategy
• Offer better products/services than the competitors
• Broad Focuso Nordstrom
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Focused Differentiation Strategy• Offer better
products/services than the competitors
• Focus on nicheo Apple
• High-quality computers
• Home and educational markets
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Best-Cost Provider Strategy
• Provide products of reasonably good quality at competitive priceso Target
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Sources of Competitive Advantage1. Best-made product on the market2. Superior customer service3. Achieving lower costs than rivals4. Having proprietary manufacturing technology5. Having shorter lead times in research and
development projects6. Having a well-known brand name and
reputation7. Giving customers more value for their money
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Competitive Advantage
• How do you identify opportunities to use information systems for competitive advantage?
• Porter’s Value Chain
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Value Chain Analysis
• Tool used by managers to identify opportunities for gaining competitive advantage
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IS and Value Chain Analysis
• Information systems use in adding value:o Use of Internet
o Use of Extranet/Intranet
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Making the Business Case for an IS
• Identification of benefits that the proposed information system will bring to the organizationo Automating benefits
o Informating benefits
o Strategic benefits
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Productivity Gains
• Easy to identify costs with developing an IS
• Difficult to identify productivity gainso There are limitation to productivity gains with
development of an IS
• Why hasn’t productivity increased at the rate of IS investments?
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The Productivity Paradox
• Information systems may be used in unintended wayso Web surfingo Junk mailo Games
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Measurement Problems
• Benefits difficult to quantifyo Wrong things
measured
•efficiency vs. effectiveness
• Example: ATM
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Time Lags
• Benefits do not always occur at the same time IS is implementedo Some IS/IT
implementation requires people to gain experience
o System must be integrated with existing systems
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Redistribution
• IS may redistribute the pieces of the pie rather than make the pie biggero Increases in market
share come at the expense of the competitors’ market share
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Mismanagement
• Bad business model can not be overcome by good information systemo IS implementation
as temporary fixo Creation of
unanticipated bottlenecks
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Making a Successful Business Case• Difficult to quantify
benefits of IS• Money doesn’t grow
on trees• Need to make a
strong business case o Based on
• Faith• Fear• Facts
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Porter’s Five Forces Model
• Framework used to analyze competition within an industry
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Arguments Based on Fact
• Arguments based on:o Data
o Quantitative analysis
o Indisputable factors
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Arguments Based on Fact (II)
• Primary tools: o Cost-benefit analysis
• Identify costs
• Identify benefits
•Contrast expected costs and benefits
o Weighted multicriteria analysis
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Cost-Benefit Analysis
• Identifying costso Total cost of ownership (TCO)
•Cost of acquisition
•Cost of use
•Cost of maintenance
o Recurring vs. Non-recurring costs
o Tangible vs. Intangible costs
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Cost-Benefit Analysis (II)
• Identifying Benefitso Tangible benefits
•5% increase in sales
•Reduction of order entry errors
o Intangible benefits
• Improvement to customer service
• Improvement in overall perception of a firm
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Cost-Benefit Analysis (III)
• Contrasts total expected tangible costs with total tangible benefitso Break-even analysis – identifies the point
when tangible costs equals tangible benefits
o Net-present value analysis – identifies the present value of future cash flows
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Weighted Multicriteria Analysis• Method used for deciding between alternative
IS investments or alternatives of the same system
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Presenting the Business Case
• Persuade decision makers in the firmo Know the audience
o Identify stakeholder groups
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Presenting the Business Case II.• Convert benefits to monetary terms
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Presenting the Business Case III.• Devise proxy variables
o Used when clear-cut assessment is not possible
• Measures of perceived value of change
• Measure what is important to managemento Case becomes more meaningful
o Focus on senior management’s “hot button” issues
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Valuing Innovations• Which new technology will make or break your
business?
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Successful Innovation is Difficult• Innovation is often fleeting
o The advantages gained from innovations are often short lived
• Innovation is often riskyo Sometimes even superior
products can lose the race
• Betamax vs. VHS tapes
• Innovation choices are often difficulto Foreseeing the future is not always possible
• In 1994 the Internet was not given much attention
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Organizational Requirements for Innovation
• Process requirements – the organization has to be willing to do whatever it takes to implement the change
• Resource requirements – need to have the human capital necessary for successful deployment of the system
• Risk tolerance requirements – organizational members must have appropriate tolerance of risk and uncertainty
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Predicting the Next New Thing• Deciding which innovations to adopt is very
difficult
• Diffusion of Innovationso Classic view
of adoption of innovations
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The Innovator’s Dilemma
• Disruptive innovations o New technologies, products, or services that
eventually surpass dominant technologies
• Online vs. brick and mortar retailing
• Automobiles vs. horses
• CDs vs. records
• MP3 vs. CDs
o Undermine effective management practices
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Disruptive Innovations• 1970s:
mid- and high-performance users were bulk of the market
• Digital Equipment Company (DEC) tried to sell to those markets
• Microcomputers seen as “toys”
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Disruptive Innovations (II)• 1980s:
Microcomputers focusing on low-performance users’ needs
• Ignored by DEC
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Disruptive Innovations (III)• 1990s:
Growing performance of Microcomputers, meeting mid-performance users’ needs
• DEC lost biggest market segment
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Disruptive Innovations (IV)• Today, micro-
computers meeting entire market’s needs
• DEC out of business
• Next disruptive innovation: 3G and 4G mobile phones?
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The Innovator’s Solution
• Christensen outlines a process – disruptive growth engine – that helps organizations respond to disruptive innovations more effectively
1. Start early
2. Executive leadership
3. Build a team of expert innovators
4. Educate the organization
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Implementing the Innovation Process
• E-Business Innovation Cycleo The key to
success is the extent of IS use in timely and innovative ways
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E-Business Innovation CycleChoosing Enabling/Emerging Technologies
• Process/ group devoted to looking for emerging IT
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E-Business Innovation CycleMatching Technologies to Opportunities
• Most promising new technology matched with current economic opportunities
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E-Business Innovation CycleExecuting Business Innovation for Growth
• Stage at which the change is actually implemented
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E-Business Innovation CycleAssessing Value
• Value created for customers and internal operations assessed
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3 Ways to Think About Investments in Disruptive Innovations• Put technology ahead of strategy
o Technology is so important to success it needs to be considered first
o Strategy is developed afterwards
• Put technology ahead of marketingo Rapid development of technology makes it
impossible for people to know what they want
• Innovation is continuouso New technologies are constantly being developed