Business Driven

Business Driven Information

Information Systems
Systems 2e
2e

CHAPTER 1

INFORMATION SYSTEMS IN
BUSINESS

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

 1-2

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

 1-4

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
 1-5

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
 1-6

INFORMATION TECHNOLOGY’S ROLE IN

BUSINESS
• Information technology is everywhere in business
• Anyone involved in business must understand
technology
 1-7

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
 1-8

Information Technology’s Impact on

Business Operations
 1-9

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
 1-10

Information Technology’s Impact on

Business Operations
 1-11

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).
 1-12

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.
 1-13

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
 1-14

INFORMATION TECHNOLOGY BASICS

• For an organization to succeed, every

department or functional area must work
together sharing common information and
not be a “silo.”
• Information technology can enable
departments to more efficiently and
effectively perform their business
operations.
 1-15

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!
 1-16

INFORMATION TECHNOLOGY BASICS

• London Heathrow—The failure

– Baggage handling system: original cost of
$500 million
– Disaster on opening day, costing $ 50 million
due to over 28,000 bags being misrouted
• FedEx—The success
– $ 38 billion family of companies—largest
express transportation company
– “Information hub for business where
managing information is the business”
 1-17

**INFORMATION TECHNOLOGY BASICS

• Nicholas Carr article—“IT 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 Lundberg—Interview with Carr
– Don Tapscott—“The 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
 1-18

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
 1-19

Top Growth Jobs - Nov 2009

http://money.cnn.com/magazines/moneymag/bestjobs/2009/jobgrowth/index.html
 1-20

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
 1-21

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
 1-22

Information
 1-23

Information
 1-24

Information
 1-25

IT Resources

• People use

• Information
technology to
work with

• Information
 1-26

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)
 1-27

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
 1-28

ROLES AND RESPONSIBILITIES IN IT

• Average CIO compensation by industry

 1-29

ROLES AND RESPONSIBILITIES IN IT

• What concerns CIOs the most

 1-30

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
 1-31

ROLES AND RESPONSIBILITIES IN IT

• Skills pivotal for success in executive IT roles

 1-32

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
 1-33

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

 1-35

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
 1-36

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 first-
mover 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?
 1-37

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 shelves—they 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
 1-38

THE FIVE FORCES MODEL –

EVALUATING BUSINESS SEGMENTS
• Porter’s Five Forces Model determines the
relative attractiveness of an industry
 1-39

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
 1-40

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
 1-41

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
 1-42

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
 1-43

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??
 1-44

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??
 1-45

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
 1-46

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
 1-47

Sample Analysis for Airline Industry

Threat of Substitute
Products or Services
High: Train, Car, Bus, Videoconference

Supplier
Buyer
Power
Power
Low: Customer
Rivalry High: Customer
have many
High Have many
airline
airline
choices
choices

Threat of New Entrants

Low: Very hard to start an airline due to FCC regulations
and large capital investments
 1-48

Sample Analysis for Milk

Threat of Substitute
Products or Services
High: Soy Milk, Rice Milk

Supplier Buyer
Rivalry Power
Power
High: Customer
Low: Customer
High have
have
many choices
many choices

Threat of New Entrants

Low: Hard to sell milk without meeting FDA regulations and
having a vast distribution network
 1-49

THE THREE GENERIC STRATEGIES –

CREATING A BUSINESS FOCUS
• Organizations typically follow one of
Porter’s three generic strategies when
entering a new market
 1-50

THE THREE GENERIC STRATEGIES –

CREATING A BUSINESS FOCUS
 1-51

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
 1-52

Value Creation
Value Chain
 1-53

Value Creation
• Primary value activities acquire raw materials and
manufacture, deliver, market, sell, and provide after-
sales 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
 1-54

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
 1-55

Value Creation
• Value chains with Porter’s Five Forces
 1-56

Value Creation
• If an organization wants to decrease its
buyer’s or customer’s power, it can
construct its value chain activity of
“service 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)