1MANAGING THE DIGITAL FIRMChapter This lecture is based on materials in Essentials of Management Information Systems by Laudon and Laudon 5/e and the summary slides available on their website. However, some material herein also represents the perspective of Gregory Rose of Washington State University. Where materials are taken verbatim from the Laudon and Laudon slides, they represent the views of the book and are copyrighted by the authors and the publisher. Where the sequence or content differ, the content is considered the work of Gregory Rose with all copyrights reserved.

What is the role of information systems in todays competitive business environment?What exactly is an information system? What do managers need to know about information systems?How are information systems transforming organizations and management?How has the Internet and Internet technology transformed business?Essentials of Management Information SystemsChapter 1 Managing the Digital FirmOBJECTIVES- at the end of this lecture, we should be able to answer the following

Essentials of Management Information SystemsChapter 1 Managing the Digital FirmThe New Role: The Widening Scope of Information SystemsTOWARD THE DIGITAL FIRM: THE NEW ROLE OF CBISs IN ORGANIZATIONSRelativeimportance---------------Area of impactWhat happened!

Non-existent in 1940s due to technologyExpensive in 1950s-1970sAffordable in 1980s but not unequivocally valuable until 1990s - WHY?Coincided with four radical worldwide changes that have altered the business environment:Emergence of the Global EconomyTransformation of Industrial EconomiesTransformation of the Business EnterpriseThe Emerging Digital FirmWill talk about each of these in details later (write these down). But first, what do CBIS do that enabled theseEssentials of Management Information SystemsChapter 1 Managing the Digital FirmWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Computers (and computer systems) are great at four things (write these down):Storage and retrieval of data Distribution of digital contentEnabling and enforcing standardization of processAutomation (most effectively of tedious tasks or those too complex to be done reliably by humans)Can automate whenever you see a patternLets look at each of the 4 changes in the business environment and discuss how these radical changes may have been enabled by CBISbut first an overview of how radical change occursEssentials of Management Information SystemsChapter 1 Managing the Digital FirmComputer-Based Information System (CBIS)WHY (COMPUTER-BASED) INFORMATION SYSTEMS?

S1S2S3S4Pattern:Phase:Stages of Innovation Resulting from Discontinuous Tech Change (DTC).Happens when limits in base technologies are overcome, causing an innovation wave.fluidStage:transitionspecificAdapted from Lambe and Speckman (1997).

Product ExplorationProduct ExploitationProcess ExplorationProduct ExploitationProcess ExploitationRadical Product Innovation dominantRadical Process Innovation dominantIncremental Product and Process Innovation dominant

Each Discontinuous Tech Change (DTC) wave moves along until the nextlimits in base technologies are overcome, causing the next wave.Adapted from Lambe and Speckman (1997).

Cumulative research effortPerformanceDTC1 (Mainframes)DTC2 (Personal Computers)DTC3 (Local Area Networks)DTC4 (Internet Computing)Here is an example of innovation for computer-based innovations. Cumulative research effort is within a domain. So this diagram would bethe same for any innovation domain such as metallurgy or electronics.

First of 4 changes: Emergence of the Global EconomyManagement and control in a global marketplace helped by IT because distributed, fast, real-time or asynchronous, rich interface, reduced media breaksGlobal work groupsAllows low marginal cost competition in world markets24x7 point of contactGlobal delivery systems of digital productsHow did 4 things computers do well enable this? (e.g. what was possible before computers & what limits do they overcome to allow innovation?)Essentials of Management Information SystemsChapter 1 Managing the Digital FirmThe Competitive Business Environment and the Emerging Digital FirmWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Essentials of Management Information SystemsChapter 1 Managing the Digital FirmSecond Change: Transformation of Industrial Economies WHY (COMPUTER-BASED) INFORMATION SYSTEMS?

2. Transformation of Industrial EconomiesKnowledge- and information-based economies in developed world Knowledge: a central productive and strategic assetHigh margin & tougher to replicateMarked by time-based competition, shorter product life, and turbulent environmentLow-knowledge jobs more commodity-like and mostly fled to LDCsAllows some poorer economies to leapfrog in status (e.g., Finland, India and Ireland)How did 4 things computers do well enable this? (e.g. what was possible before computers & what limits do they overcome to allow innovation?)Essentials of Management Information SystemsChapter 1 Managing the Digital FirmThe Competitive Business Environment and the Emerging Digital FirmWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Third Change: Transformation of the Business EnterpriseIT accommodates management in orgs that are:FlatteningDecentralizingFlexibleLocation independentAnd striving for:Low transaction and coordination costs; empowerment; collaborative work and teamworkHow did 4 things computers do well enable this? (e.g. what was possible before computers & what limits do they overcome to allow innovation?)Essentials of Management Information SystemsChapter 1 Managing the Digital FirmThe Competitive Business Environment and the Emerging Digital FirmWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Essentials of Management Information SystemsChapter 1 Managing the Digital FirmTOWARD THE DIGITAL FIRM: THE NEW ROLE OF CBISs IN ORGANIZATIONSBenefits of media break reduction and subsequent automation. There are negative consequences too. We will look at this with the Cisco case next week.

Fourth Change: Emergence of the Digital FirmWe talk about digital firms in this class. The book doesnt provide a definition of digital and it should. Basically, digital firms use digital networks throughout their processes. Digital networks send digital information across them.For purposes of understanding what it is to be a digital firm, please consider the definition on the following two slides from Whatis.com (source http://whatis.techtarget.com/definition/0,,sid9_gci211948,00.html)Essentials of Management Information SystemsChapter 1 Managing the Digital FirmThe Competitive Business Environment and the Emerging Digital FirmWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Digital describes electronic technology that generates, stores, and processes data in terms of two states: positive and non-positive. Positive is expressed or represented by the number 1 and non-positive by the number 0. Thus, data transmitted or stored with digital technology is expressed as a string of 0's and 1's. Each of these state digits is referred to as a bit (and a string of bits that a computer can address individually as a group is a byte). Essentials of Management Information SystemsChapter 1 Managing the Digital FirmDigital Defined:WHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Prior to digital technology, electronic transmission was limited to analog technology, which conveys data as electronic signals of varying frequency or amplitude that are added to carrier waves of a given frequency. Broadcast and phone transmission has conventionally used analog technology. Digital technology is primarily used with new physical communications media, such as satellite and fiber optic transmission. A modem is used to convert the digital information in your computer to analog signals for your phone line and to convert analog phone signals to digital information for your computer. Essentials of Management Information SystemsChapter 1 Managing the Digital FirmDigital definition continued:WHY (COMPUTER-BASED) INFORMATION SYSTEMS?

With that in mind - Fourth Change: Emergence of the Digital FirmOne with almost no media breaks in, within, or outDigitally-enabled relationships with customers, suppliers, and employeesCore business processes accomplished via digital networksDigital management of key corporate assetsRapid sensing and responding to environmental changesEssentials of Management Information SystemsChapter 1 Managing the Digital FirmThe Competitive Business Environment and the Emerging Digital FirmWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Truly digital firm is one that uses Web and Internet-based tools and protocols to create a firm without media breaksBook says: all significant business processes and relationships with customers, suppliers, and employees are digitally enabled, and key corporate assets are managed through digital meansThat is extreme. Subset of digital firm is electronic business that reduces media breaks and uses those tools and protocolsEssentials of Management Information SystemsChapter 1 Managing the Digital FirmTo Be a Digital FirmTOWARD THE DIGITAL FIRM: THE NEW ROLE OF CBISs IN ORGANIZATIONS

Essentials of Management Information SystemsChapter 1 Managing the Digital FirmTOWARD THE DIGITAL FIRM: THE NEW ROLE OF CBISs IN ORGANIZATIONSHow did 4 things computers do well enable this? (e.g. what was possible before computers & what limits do they overcome to allow innovation?)

An information system is a set of interrelated components that collect (or retrieve), process, store, and distribute information to support decision making, and control in an organization. It can also generate product in an information services firm for others to use in decision making and control.

Essentials of Management Information SystemsChapter 1 Managing the Digital FirmI have made the case why CBISs are important.So, what exactly is an Information System?WHY (COMPUTER-BASED) INFORMATION SYSTEMS?

INPUTOUTPUTPROCESSEssentials of Management Information SystemsChapter 1 Managing the Digital FirmThe three activities in an information systemWHY (COMPUTER-BASED) INFORMATION SYSTEMS?(Feedback enables modification of input stage)

Essentials of Management Information SystemsChapter 1 Managing the Digital FirmISs serve the firm within and outwardlyWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

That was a summary of what Information Systems are in general. And not all ISs are computerized. But Computer-Based Information System (CBIS) are what we cover in this course

So what are they?Essentials of Management Information SystemsChapter 1 Managing the Digital FirmWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Finally: Definition of CBIS and what they do:CBISs are formal systemsFixed definitions of data, proceduresCollecting, storing, processing, disseminating, using dataBut they are indeed also computerizedso they take advantage of the 4 things computers do wellAre technology-enabled organizational and management solutions to challenges posed by the environment. Automated support for input, processing, and output of business processes.

Essentials of Management Information SystemsChapter 1 Managing the Digital FirmWHY (COMPUTER-BASED) INFORMATION SYSTEMS?

Conclusion:IT went from obscure luxury for only largest organizations to mainstream and mission critical across entire enterpriseYou will need to adopt and manage this resource regardless of your disciplineNext week we talk about all the ways IT can support functionality of the firmConsider it a menu from which your firm could shopThen we will talk about how to buy off the menu with a finite budgetEssentials of Management Information SystemsChapter 1 Managing the Digital FirmCHARACTERISTICS OF (COMPUTER-BASED) INFORMATION SYSTEMS?

1MANAGING THE DIGITAL FIRMChapter