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Chapter 1
Organizational Performance: IT Support and Applications
1
Learning objectives
• Characteristics of digital economy and digital enterprise• Relationship between performance, environmental
pressures, organizational responses and information technology
• Major pressures in business environment and major organizational responses to them
• Computer based information systems and information technology
• Concept of adaptive enterprise and its IT dependence • Role of IT in supporting the functional areas, public
services and specific industries
2
Digital Enterprise (Organization)
• A new business model that uses IT in a fundamental way
to accomplish one or more of three basic objectives:
– Reach and engage customers more effectively
– Boost employee productivity
– Improve operating efficiency
• It uses converged communication and computing
technologies to improve business processes
3
• The digital enterprise shifts the focus from
managing individual IT resource to
orchestrating the services and workflows
that define the business and ultimately
deliver values to customers and end users
4
Digital Economy
• Economy: The wealth and resources of a country or region,
esp. in terms of the production and consumption of goods and
services.
• A digital economy: economy based on electronic goods and
services produced by an electronic business and traded
through electronic commerce.
• Electronic business: the application of information and
communication technologies in support of all the activities of
business.
• 5
• Electronic commerce: refers to the buying and
selling of products or services over electronic
systems such as the Internet and
other computer networks.
• Economy based on digital technologies
• Also called as Internet Economy
6
• Digital networking and communication infrastructures provide
a global platform over which people and organizations
devise strategies, interact, communicate, collaborate and
search for information
• Also refers to convergence of computing and communication
technologies on the internet and other networks and
• The resulting flow of information and technology that is
stimulating electronic transactions and vast organizational
changes
7
Difference between product and service..
Product Services
Tangible Intangible
Can be bought Can be felt
Can be owned Can not be owned
Non-perishable Perishable
Non-ephemeral Ephemeral
Countable Not countable
can be inventoried Can not be inventoried
Location not important in providing product
Location is important in service design
8
Characteristics of digital economy
• Globalization
• Digital systems
• Speed
• Information overload
• Online Markets
• Digitization of products
• Business models and processes
• Innovation
• Obsolescence
• Opportunities
• Fraud
• Wars
• Organizations 9
The business environment and its impact
• Organizations aim to Improve the performance with time
• Performance level depends on
– what you do
– what others are doing
• Combination of social, legal, economic, physical and
political factors that affect business activities is termed
as business environment
10
• To succeed or to survive in the business
environment, organizations have to undertake
innovative activities or devise a competitive
strategies
• These reactions by organization are called as
critical response activities
11
• Critical response activities can be performed in some or
all of the processes in an organization
• They can be in the form of
– A reaction to a existing pressure
– An initiative to defend organization against future
pressures
– An activity that exploits the opportunity created by
changing conditions
12
Business environment impact model
13
Business environmental pressures
• Business environment in the information age places
pressures on companies
• Organizations may act reactively to the existing pressures
or proactively to an anticipated pressure
• IT is the solution to business pressures
• The three types of business pressures faced are:
– market
– technology and
– societal pressures.14
Business environmental pressures
15
Three Types of Business Pressures
• Market Pressures:
– The Global Economy and Strong Competition
– Need for real time operations
– The Changing Nature of the Workforce
– Powerful Customers
16
Market Pressures (contd..)
• Global competition for trade and for labor
– Influential force for globalization is Internet
– Trade is less constrained by traditional barriers such
as borders, language, currency
– Goods and services can be produced profitably as
dictated by the competitive advantages
17
Market Pressures (contd..)
– Labor costs differ widely from one country to other
– In western countries - $ 15 per hour + high benefits
– In developing countries - $1 per hour
– Due to low labor costs in developing countries,
companies in developed countries are moving their
manufacturing facilities to countries with low labor
cost
18
Market Pressures (contd..)
– Such global strategies require extensive
communications in several languages under several
cultural, legal and ethical conditions
– Complexity of communication may hinder the global
competition if not supported properly by IT
– Global competition is especially intensified when
governments are involved through the use of subsidies,
tax policies, import/export regulations and incentives
19
Market Pressures (contd..)
• Need for real time operations
– Companies can not afford the “information float” - time
gap between when a business event occurs and when
an information captured about that event reaches the
necessary decision makers
– High performance telecommunication technologies
should be used
– Such technologies eliminate slow, paper-based
transactions and processes20
Market Pressures (contd..)
• Changing workforce
– The workforce in developed countries is changing rapidly
and becoming more diversified
– Females, single parents, minorities and physically
challenged people work in all types of positions
– more and more workers are becoming knowledge workers
– IT enables integration of these various employees into
traditional workforce and it enables homebound people to
work from home (telecommute).
21
Market Pressures (contd..)
• Customer orientation
– As customers become more knowledgeable about the
availability and quality of products and services, customer
sophistication and expectations increase
– These expectations translate into need for organizations to
exhibit a customer orientation
– Customers want more detailed information about products and
services such as cost, warranties, financial support, quality
comparisons etc. immediately
– Internet and e-commerce has made it possible22
Market Pressures (contd..)
– Customers also want customized products with high
quality and low price
– E.g. Dell Computer
– The importance of customers has created “competition
over customers.”
– This competition forces organizations to increase efforts
to acquire and retain customers.
23
Business Pressures (Continued)
• Technology Pressures:
– Technological Innovation and Obsolescence
– Information Overload
24
Technology pressures (continued..)
• Technological innovations and obsolescence
– Organizations look for technological breakthrough that will
give them an advantage over their competitors
– New and improved technologies enable organizations to
• produce superior products,
• customize products more easily and
• quickly alter manufacturing process as the market dictates
– Continuous innovation = faster obsolescence of products,
shorter life cycles, increasing quality standards and higher
costs for investment 25
Technology pressures (continued..)
– Also advances in IT allow customers to be aware of
innovations sooner, forcing companies to respond
more quickly or risk loosing market share
– Thus organizations feel the pressure of increasing
customer expectations and an increasing ability to
respond rapidly with improved products and services
26
Technology pressures (continued..)
• Information overload
– Internet and telecommunication networks increase the
amount of information available to the organizations and
individuals
– Information and knowledge generated and stored inside
the organizations also increases exponentially
– Only some of the information is actually relevant
– The accessibility, navigation and management of
information necessary for managerial decision making is
becoming critical27
Business Pressures (Continued)
• Societal Pressures:
– Social Responsibility
– Government Regulation and Deregulation
– Protection Against Terrorist Attacks
– Ethical Issues
28
Societal Pressures (contd..)
• Social responsibility
– Social issues
• the state of the physical environment
• nondiscriminatory employment practices
• the spread of infectious diseases
– active measures to respond to social issues and contribute
towards social improvements are known as social
responsibilities
– Failure to accept social responsibilities may lead to employee
dissatisfaction and turnover, a tarnished corporate reputation
with the public.29
Societal Pressures (contd..)
• Representative major areas of social responsibility are:
– Environmental control (pollution, noise, trash removal, and
animal welfare)
– Equal opportunity (hiring of minorities, women, the elderly,
and the disabled)
– Employment and housing (the elderly, poor, teenagers,
and unskilled)
– Health, safety, and social benefits to employees (the role
of the employer versus that of the government)
– Employee education, training, and retraining 30
Societal Pressures (contd..)
• Government regulations and deregulations
– With failure to address certain social responsibility issues that
come to be important to the general public, government
sometimes steps in with regulations to protect their citizens
– Compliance with governmental regulations cost companies
money
– These additional costs are passed along to consumers in the
form of higher prices
– Make it more difficult to compete with companies from
countries that lack such regulations
31
Societal Pressures (contd..)
• Hence Business organizations sometimes lobby for the
removal of rules and regulations involving business
competition
• Such deregulation can be a blessing to one company
and curse for other
32
Societal Pressures (contd..)
• Ethical issues
– Ethics in a business context refers to standards and values for
judging whether particular conduct in a workplace is right or wrong
– Ethical issues are very important because they can damage the
image of an organization as well as destroy the morale of
employees
– What is ethical to one person/country may not seem ethical to
other person/country
– Organizations must deal with ethical issues of their employees,
customers and suppliers
33
Societal Pressures (contd..)
• The use of IT has raised many new ethical
issues
– surveillance of email
– potential attacks on privacy of millions of customers
whose data are stored in private and public database
34
Societal Pressures (contd..)
• Terrorist Attacks and Protection
– Since September 11, 2001, organizations have been under
increased pressure to protect themselves against terrorist
attacks.
– Information technology and especially intelligent systems may
make a valuable contribution in the area of protection, by
providing security systems and possibly identifying patterns of
behavior that will help to prevent terrorist attacks and cyber
attacks against organizations.
35
Business environmental pressures
36
Organizational responses
• Strategic systems
– An important response activity is to develop a corporate strategy
of how to handle the business pressures.
– Once such strategy is developed (including the supporting role
of IT), the company can develop its tactical and operational
plans as well as specific strategic IT-supported systems.
– Strategic systems provide organizations with strategic
advantages that enable them to increase their market share
and/or profit, to better negotiate with suppliers, or to prevent
competitors from entering their territory
37
• Customer focus and service
– The increased power of customers and stiff competition in many
industries and markets force organizations to adopt a customer
focused approach
– Pay more attention to customers and their preferences
– Providing mass customization
– Providing troubleshooting advice or help lines
– To communicate with existing customers via information on their
websites38
• Continuous Improvements.
– Many companies continuously conduct programs that attempt to
improve their productivity and quality and they frequently do so
with the facilitation of IT.
– Companies can increase productivity by increasing output,
reducing costs, increasing output faster than cost or combination of
both
– Examples : total quality management (TQM) and Six Sigma,
knowledge management, productivity and creativity improvements,
just-in-time (JIT) processing, improvements in decision-making
processes, change management, and customer service
improvements.39
– Just-in-time inventory approach attempts to reduce the cost and
improve workflow by scheduling materials and parts to arrive at
a workstation exactly when they are needed
– This minimizes in-process inventory and waste and saves
inventory space and cost
– TQM is a corporate wide organized effort to improve quality
wherever and whenever possible
– IT can enhance TQM by improving data monitoring, collection,
analysis and reporting
– IT can also increase speed of inspection, raise the quality of
testing and reduce the cost of various quality control activities40
– Appropriate decision making attempts to select the best or at
least a good enough alternative course of action
– Decisions require information that is timely and accurate
– IT plays a major role in providing such information as well as in
supporting difficult decision making process
– The underlying purpose of IT support in continuous improvement
is
(1) to monitor and analyze performance and productivity and
(2) to gather, share, and better use organizational knowledge.
41
• Restructuring Business Processes.
– continuous improvement efforts have limited effectiveness in an
environment full of strong business pressures.
– Therefore, a relatively new approach may be needed. This
approach, initially called business process reengineering (BPR),
refers to a situation in which an organization fundamentally and
radically redesigns its business processes to achieve dramatic
improvements.
– Such redesign effects a major innovation in an organization’s
structure and the way it conducts its business.
– If done on a smaller scale than corporate wide, the redesign
process may be referred to as a restructuring 42
• IT plays a major role in BPR
• It allows businesses to
– be conducted in different locations,
– provides automation,
– flexibility in manufacturing,
– quicker delivery to customers and
– supports rapid and paperless transactions among suppliers,
manufacturers and retailers
• It also reduces cycle time and time to market
43
• Make-to-Order and Mass Customization.
– A major response area is the trend to produce
customized products and services. This strategy is a
part of build-to-order.
– As customers demand customized products and
services, the business problem is how to provide
customization and do it efficiently.
– This can be done, in part, by changing manufacturing
processes from mass production to mass customization
44
• In mass production, a company produces a large
quantity of identical items.
• In mass customization, items are produced in a large
quantity but are customized to fit the desires of each
customer.
45
– IT and EC are ideal facilitators of mass customization,
– for example, by enabling interactive communication
between buyers and designers so that customers can
quickly and correctly configure the products they
want.
– Also, electronic ordering reaches the production
facility in minutes.
46
• Business Alliances
– alliances with other companies, even competitors, can be very
beneficial.
– For example, General Motors and Ford created a joint venture to
explore electronic-commerce applications
– There are several types of alliances:
• sharing resources,
• doing procurement jointly,
• establishing a permanent supplier-company relationship, and
creating joint research efforts.
– Any of these might be undertaken in response to business
pressures and usually is supported by IT.47
– One of the most interesting types of business alliance is the virtual
corporation,
– Operates through telecommunications networks, usually without a
permanent headquarters.
48
– A temporary virtual corporation is typically a joint venture in
which companies form a special company for a specific,
limited-time mission.
– A permanent virtual corporation is designed to create or
assemble productive resources rapidly or frequently, on an
ongoing basis.
– All types of business alliances can be heavily supported by
information technologies.
49
• Electronic Business and E-Commerce
– The newest and perhaps most promising business strategy that
many companies can pursue
– E-commerce is a multifaceted concept involving the exchange of
products, services, information or money with the support of
computers and networks
– It includes electronic fund transfer, between buyers and
suppliers, internet based marketing, intranet and extranet based
information networks for intra and inter-organizational support
50
Information system
• A system is a collection of elements such as people,
resources, concepts, and procedures intended to perform an
identifiable function or serve a goal.
• Systems are divided into three distinct parts: inputs,
processes, and outputs.
• They are surrounded by an environment and frequently include
a feedback mechanism that controls some aspect of the
operation.
• In addition, a human, the decision maker, is considered a part
of the system.51
• Inputs - elements that enter the system.
• Examples: raw materials entering a chemical plant,
patients admitted to a hospital, or data inputted into a
computer.
• All the elements necessary to convert or transform the
inputs into outputs are included in the system’s
processes.
52
• Outputs describe the finished products or the consequences
of being in the system.
• The connections among subsystems are the flow of
information and materials among the subsystems.
• Of special interest is the flow of information from the output
component to a control unit (or a decision maker) concerning
the system’s performance. Based on this information, which is
called feedback, the inputs or the processes may be modified.
53
• The environment of the system is composed of several
elements that lie outside it, in the sense that they are not
inputs, outputs, or processes. However, they have a
significant impact on the system’s performance and
consequently on the attainment of its goals.
54
Information systems (IS)
• IS collects, processes stores, analyzes and disseminates
information for a specific purpose
• It processes the inputs by using technology such as PCs
and produces outputs that are sent to users or other
systems via electronic mails
• A feedback mechanism that controls the operation may
be included
• Like other systems, IS also includes people, procedures
and operates within an environment55
Information systems
56
Formal and Informal IS
• Formal IS
– Include agreed upon procedures, standard inputs and
outputs and fixed definitions
– E.g. company’s accounting system
• Informal IS
– E.g. group of friends sharing information
57
Computer based Information system• An information system that uses computer technology to perform its
intended tasks• Basic components of Information system
– Hardware• Devices such as processors, monitor, keyboard
– Software• Set of programs that instruct the hardware to process data
– Database• Collection of related files, tables that stores data and associations
among them– Network
• A connecting system that permits the sharing of resources by different computers
– Procedures• The set of instructions about how to combine the above components
in order to process information and to generate the desired output– People
• Individuals who work with the system, interface with it or use its output
58
Major capabilities of computerized IS
• Perform high speed, high volume numerical computations
• Provide fast, accurate, reliable and inexpensive
communication within and between organizations any
time, any place
• Store huge amounts of information in an easy to access
yet small space
• Allow quick and inexpensive access to vast amounts of
information worldwide at any time
59
• Enable collaboration anywhere any time
• Increase effectiveness and efficiency of people working in
groups in one place or in several locations
• Vividly present the information that challenges the human
mind
• Facilitate work in hazardous environments
• Automate both semiautomatic business processes and
manually done tasks60
• Facilitate interpretation of vast amount of data
• Facilitate global trade
• Enable automation of routine decision making and facilitate
complex decision making
• Can be wireless thus supporting unique application anywhere
• Accomplish all of the above much less expensively than when
done manually
61
Information technology
• In a broad way, it is a collection of computing systems
• In its narrow definition, it refers to the technological side
of IS
• Includes hardware, software, databases, networks and
other electronic devices
• A subsystem of IS
• IT describes an organization’s collection of IS, their
users and the management that oversees them
62
Adaptive, Agile and Real time Enterprise
• Enterprise which can respond properly and in a timely
manner to changes in a business environment
• Changes can be in business models, customer services
and speed
• What is business model?
63
Business model
• A method of doing business by which a company can
generate revenue to sustain itself
• The model spells out how the company creates value in
terms of the goods and/services in the course of its
operations
64
Elements of business model
• Six elements– A description of all products and services the business
will offer– A description of business process required to make and
deliver the products and services– A description of customers to be served and the
company’s relationships with these customers– A list of resources required and the identification of which
ones are available, which are developed in-house and which will need to be acquired
– A description of the organization’s supply chain including suppliers and other business partners
– A description of the revenues expected, anticipated costs, sources of financing and estimated profitability
65
Popular business models
• 4 models
– Tendering via reverse auctions
– Affiliate marketing
– Group purchasing
– E-marketplaces and exchanges
66
Tendering via reverse auctions
• Use of tendering (bidding) system to make major
purchases
• Buyer indicates the desire to receive bids on a particular
item in request for quote (RFQ)
• Would be sellers bid on the job
• The lowest bid wins (if price is the only consideration)
• Hence the name reverse auction
67
Affiliate marketing
• An arrangement in which marketing partners place a
banner add for a company on their website
• Every time customer clicks on the banner, moved to the
advertiser’s web site and makes a purchase there
• Advertiser pays 3 to 15% commission to the host site
68
Group purchasing
• Pay less per units when buying more units
• Using concept of e-commerce and group purchasing, purchase
orders of many buyers are aggregated and get a discount
• Electronic aggregation- a third party finds the individuals or SMEs
(Small Medium Enterprises) that want to buy the same product
• Then aggregates their small orders and then negotiates for the
best deal
• More is the number of joined groups, larger the aggregated
quantity and lower the price paid
69
E-marketplaces and exchanges
• an Internet-based environment that brings together business-
to-business buyers and sellers so that they can trade more
efficiently online.
• Three types:
– Independent: public environments seek simply to attract buyers and
sellers to trade together;
– consortium-based: sites are established on an industry-wide basis,
typically when a number of key buyers in a particular industry get
together; and
– Private: e-marketplaces are established by a particular organization to
manage its purchasing alone.70
• Introduce operating efficiencies to trading
• If well organized and managed, they can provide
benefits to both buyers and sellers
71
Process of becoming an adaptive organization
• Recognizing the environmental and organizational
changes as quickly as they occur or even before they
occur
• Deals with changes properly and correctly
• Becoming a digital and agile enterprise
• Does not wait for competitors to introduce change
• Change your information system quickly
• follow as many response activities as possible 72
Benefits of adaptive enterprise
• Increased business agility– Able to identify and quickly respond to challenges and
opportunities– Adapt to changing business models, market demands
• Reduced risk– Allows more successful deployment of new solutions and
support business changes
• Improved quality of service– Assures appropriate levels of availability, response time and
performance
• Improved total cost of ownership– Reduces the cost of infrastructure management, enables more
choices that can lower the cost
73
Real time on-demand IT support
• Real time IS- provides real time access to data
• E.g. salesperson can check whether the product is in
inventory
• To implement real time enterprise, companies must
design IS that
– support all relevant business processes
– Are tightly integrated
– Are available all the times
74