CHAPTER ONE

INFORMATION SYSTEMS IN BUSINESS

The Role of IT in Business

Technology is everywhere Watch CNBC and you will see the

importance of technology in business Look at productivity articles in the Wall

Street Journal Listen to Ben Bernanke speak

A basic understanding of technology is a requirement of any business person

UPS – An Example

Synchronizing the World of commerce

About 14.0 million packages per day in 2012 generating $51.5 billion in revenue for the year

101,000 vehicles 5620 Aircraft (14 hubs)

UPS Technology

UPS.com processes 18 million package transactions daily

All package tracking is visible from one Web site

SCM Technology contributed over 9 Billion in revenue in 2012

Current technology investment is about 1.6 billion

Common IT Goals (1)

Reduce costs Online transactions and statements Online content management

Improve customer satisfaction Self-service applications and CRM

Develop customer loyalty Rewards and loyalty programs Interactive marketing

Common IT Goals (2)

Create a competitive advantage Amazon’s recommendations UPS shipment tracking

Possess competitive intelligence Streamline and improve the supply

chain Electronic data interchange Just-in-time production

Growth in new and existing markets Clicks and bricks

Information Technology Defined

The field concerned with managing information is called information technology

Management information systems are a business function just as marketing is a business function

Information Technology (Terms)

Data are raw facts A transaction, bank deposit, etc.

Information is produced from raw data To be useful, information must be put in

the hands of the person that needs it Information must appear in a useful

formTimely, relevant, ACTIONABLE

Information Technology (Terms)

Business intelligence refers to using technology to make better (fact based) decisions Involves the use of complex analytical

tools More later in the business intelligence

chapter

Information Technology (Terms)

Knowledge refers to the experience and expertise of individuals and organization

Common Organizational Units

Accounting Finance HR Sales and marketing Operations management

Supply chain management Management information systems

Management Information Systems and the Organization

Information must be shared and processed across functional units as business processes Sales quotation (vendor) (Marketing) Purchase order (customer) Shipping documents (vendor) (SCM) Invoice (vendor) (Accounting) Payment (customer)

IT Roles (History)

Historically, IT was viewed as a necessary evil IT did not make a profit or contribute to

an organization’s bottom line IT was just a cost center IT was not a strategic part of the

organization In some cases IT has evolved into a

profit center

IT Roles

Strategic-level IT positions are becoming commonplace Chief Information Officer Chief Technology Officer Chief Knowledge Officer Chief Data Officer Chief Security Officer

Organizational Cultures and IT

Information Discovery Seek radical new ways to do business

Information Inquiring Understand trends and align business

with them Information Sharing These cultures are not mutually

exclusive

Dysfunctional organizations?

The IT Dilemma

IT must understand user and business needs

Many failed IT projects are caused by human and organizational factors rather than technical factors Hershey (ERP) United’s baggage system at DIA

Success Metrics for IT Executives

Benchmarking

Use quantitative metrics to assess efficiency of hardware and software

Efficiency benchmarks Transaction processing benchmarks

www.tpc.org Raw performance benchmarks

www.spec.org

Competitive Forces Models

These model apply not only to IT but business in general Michael Porter’s Five Forces Model Value chain analysis Generic strategies

Porter’s Five Forces Model (Illustration)

Porter’s Five Forces Model (1)

Buyer power Reduce buyer power through loyalty

programsFrequent flyerGaming rewards Increase switching costs

Supplier power The inverse of buyer power Enhance through B to B exchanges Reverse auctions – Clients competitively

bid down cost of goods or services

Five Forces Model (2)

Substitution threat High when there are many buyer

choicesAmazon vs. Barnes and Noble

Lower when switching costs are high Threat of new entrants

High when it’s easy to enter a market UPS / FedEx have a low threat

Competition rivalry Groceries and other commoditized

items

Porter’s Three Business Strategies

Porter’s Three Business Strategies

Cost leadership Lower costs through information

technology Hyundai

Broad differentiation Audi

Focused strategy in narrow markets Porsche

Value Chain Analysis

Value chain views an organization as a group of processes Each process adds value to a product or

serviceWal-Mart's supply chain adds value to the

organization by reducing cost IT systems support this activity

Divide activities into support activities and primary activities

Value Chain (Primary Activities)

Activities vary based on what the organization produces Supply chain optimization

Warehousing / delivery Manufacturing

Materials requirements planningProcess control

MarketingCRM systems

Customer serviceCRM systems

Value Chain (Support Activities)

Activities related to the business itself Managing human resources Infrastructure Technology development (It’s a primary

activity for Google, Twitter, Facebook)