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Business Driven Information Systems 2e

CHAPTER 1 INFORMATION SYSTEMS IN BUSINESS

McGraw-Hill/Irwin

©2009 The McGraw-Hill Companies, All Rights Reserved

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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

McGraw-Hill/Irwin

©2009 The McGraw-Hill Companies, All Rights Reserved

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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 ‡ Anyone involved in business must understand technology

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Information Technology¶s Impact on Business Operations

Customer service: click-to-talk, call scripting, auto answering, call centers Finance: accounting packages, Sarbanes Oxley Sales and marketing: campaign management, customer relationship management Operations: supply chain management Human resources: software to track employees at risk of leaving

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Information Technology¶s Impact on Business Operations

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Information Technology¶s Impact on Business Operations
‡ Which types of IT services can be used to meet these types of goals?
± Reduce costs/ improve productivity: supply chain management, enterprise resource planning ± Improve customer satisfaction/loyalty: customer relationship management, loyalty programs ± Create competitive advantage: business intelligence/data warehousing ± Generate growth: sales management systems ± Streamline supply chain: demand planning software ± Global expansion: e-business

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Information Technology¶s Impact on Business Operations

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Information Technology¶s Impact on Business Operations
‡ Accounting - provides quantitative information about the finances of the business including recording, measuring, and describing financial information. ‡ Finance - deals with the strategic financial issues associated with increasing the value of the business, while observing applicable laws and social responsibilities. ‡ Human resources - includes the policies, plans, and procedures for the effective management of employees (human resources).

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Information Technology¶s Impact on Business Operations
‡ Sales - the function of selling a good or service and focuses on increasing customer sales, which increases company revenues. ‡ Marketing - the process associated with promoting the sale of goods or services. The marketing department supports the sales department by creating promotions that help sell the company¶s products. ‡ Operations management - includes the methods, tasks, and techniques organizations use to produce goods and services. Transportation (also called logistics) is part of operations management.

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Information Technology¶s Impact on Business Operations ‡ Organizations typically operate by functional areas or independent, functional silos ‡ Functional areas are interdependent
‡ they require information from around the organization to operate

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INFORMATION TECHNOLOGY BASICS ‡ For an organization to succeed, every department or functional area must work together sharing common information and not be a ³silo.´ ‡ Information technology can enable departments to more efficiently and effectively perform their business operations.

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INFORMATION TECHNOLOGY BASICS ‡ Information technology (IT) ± a field concerned with the use of technology in managing and processing information
± Employs computer-based tools that support the information and information-processing needs of an organization

‡ Information technology is an important enabler of business success and innovation. IT does not guarantee success!

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INFORMATION TECHNOLOGY BASICS ‡ London Heathrow²The failure
± Baggage handling system: original cost of $500 million ± Disaster on opening day, costing $ 50 million due to over 28,000 bags being misrouted

‡ FedEx²The success
± $ 38 billion family of companies²largest express transportation company ± ³Information hub for business where managing information is the business´

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**INFORMATION TECHNOLOGY BASICS
‡ Nicholas Carr article²³IT Doesn¶t Matter´
± IT no longer a source of advantage on the firm level ± Companies should focus IT on cost reduction and risk mitigation

‡ Many experts disagree with his arguments
± Abbie Lundberg²Interview with Carr ± Don Tapscott²³The Engine That Drives Success: The Best Companies Have the Best Business Models Because They Have the Best IT Strategies´
‡ Many successful companies use IT to support a unique business strategy

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INFORMATION TECHNOLOGY BASICS
‡ Management information systems (MIS) ± a general name for the business function and academic discipline covering the application of people, technologies, and procedures to solve business problems ‡ MIS is a business function, similar to Accounting, Finance, Operations, and Human Resources

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Top Growth Jobs - Nov 2009
http://money.cnn.com/magazines/moneymag/bestjobs/2009/jobgrowth/index.html

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INFORMATION TECHNOLOGY BASICS ‡ When beginning to learn about information technology it is important to understand the following:
± Data, information, and business intelligence ± 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
± If you were building a system to track students data might include height, name, and hair color and information might include student to professor ratio, percentage of marketing majors who are female, number of students who pass the course.

‡ Business intelligence ± applications and technologies that are used to gather, provide access to, and analyze data and information to support decision-making efforts

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Information

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Information

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Information

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IT Resources
‡ People use ‡ Information technology to work with ‡ Information

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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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ROLES AND RESPONSIBILITIES IN IT
‡ 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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ROLES AND RESPONSIBILITIES IN IT
‡ Average CIO compensation by industry

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ROLES AND RESPONSIBILITIES IN IT ‡ What concerns CIOs the most

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ROLES AND RESPONSIBILITIES IN IT
‡ 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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ROLES AND RESPONSIBILITIES IN IT ‡ 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 Communication
‡ 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

SECTION 1.2

BUSINESS STRATEGY

McGraw-Hill/Irwin

©2009 The McGraw-Hill Companies, All Rights Reserved

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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
‡ Competitive advantages are important for an organization but it is even more important to understand that they are typically temporary since competitors are quick to copy competitive advantages
± United was the first airline to offer a competitive advantage with its frequent flyer mileage (this firstmover advantage was temporary) ± Sony had a competitive advantage with its portable stereo systems (this first-mover advantage was temporary) ± Microsoft had a competitive advantage with its unique Windows operating system
‡ Does Microsoft still has a competitive advantage with its Windows operating system?

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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
‡ Frito-Lay does not just send its representatives into grocery stores to stock shelves²they carry handheld computers and record the product offerings, inventory, and even product locations of competitors. ‡ This information is used to gain business intelligence on everything from how well competing products are selling to the strategic placement of its own products.

‡ 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 buyers and sellers

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Supplier Power
‡ Two types of (B2B) marketplaces
± Private exchange ± single buyer posts needs and opens bidding to any supplier who would care to bid ± Reverse auction ±increasingly lower bids are solicited from organizations willing to supply product or service at a 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
± Switching cost ± costs that can make customers reluctant to switch to another
product or service
‡ Examples??

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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
± Entry barrier ± a product or service that customers have come to expect and must be offered to compete and survive
‡ Example of high and low??

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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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Class Exercise
‡ Choose two products to perform a Porter¶s Five Forces analysis. The two products must compete in the same market. ‡ Potential Products
± ± ± ± ± ± ± ± ± ± ± Laptop Computer and Desktop Computer PDA and Laptop Computer iPod and Walkman DVD Player and VCR Player Digital camera and Polaroid Camera Cell Phone and Blackberry PDA Coca-Cola Plastic Bottle and Coca-Cola Glass Bottle GPS Device and a Road Atlas Roller skates and Rollerblades Digital Books to Printed Books Digital Paper to Paper

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Sample Analysis for Airline Industry
Threat of Substitute Products or Services rain, ar, us, ideo onferen e

i

Supplier Power o ustom er a e m any airline oi es

Rivalry i

Buyer Power i ustom er a e m any airline oi es

o

Threat of New Entrants ery ard to start an airline due to re ulations and lar e apital in estm ents

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Sample Analysis for Milk
Threat of Substitute Products or Services High: Soy Milk Rice Milk

Supplier Power Low: Customer have many choices

Rivalry High

Buyer Power High: Customer have many choices

Threat of New Entrants Low: Hard to sell milk without meeting FDA regulations and having a vast distribution network

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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

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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

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Value Creation
Value Chain

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Value Creation
‡ Primary value activities acquire raw materials and manufacture, deliver, market, sell, and provide aftersales services ‡ Support value activities support the primary value activities ‡ Customers determine the extent to which each activity adds value to the product or service ‡ The competitive advantage is to:
± Target high value-adding activities to further enhance their value ± Target low value-adding activities to increase their value ± Perform some combination of the two

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Applying IT to the Value Chain
‡ IT can be applied to add value to both primary and support value activities
± Marketing campaign management system (primary)
‡ Target marketing campaigns more efficiently thereby helping to reduce costs ‡ Better pinpoint target market needs to help increase sales

± HR system (support)
‡ More efficiently reward employees based on performance ‡ Identify employees at risk of leaving their jobs and find additional challenges or opportunities to help retain the employees and reduce turnover costs

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Value Creation
‡ Value chains with Porter¶s Five Forces

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Value Creation
‡ If an organization wants to decrease its buyer¶s or customer¶s power, it can construct its value chain activity of ³service after the sale´ by offering high levels of quality customer service ‡ This will increase the switching costs for its customers, thereby decreasing their power (buyer power)