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Chapter 1
Introduction to Information Technology Turban, Rainer and Potter John Wiley & Sons, Inc.Copyright 2005
THE ORGANIZATION IN THE DIGITAL ECONOMY
Chapter 1
The IT- Based Organization in the Digital Economy
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Chapter Outline
Doing Business in the Digital Economy Business Pressures, Organizational
Responses, and IT Support Competitive Advantage and Strategic
Information Systems Strategic Information Systems: Examples Why Should you Learn About Information
Technology?
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Learning Objectives
Describe The characteristics of the digital economy and e-business.
Discuss the relationships among business pressures, organizational responses, and information systems.
Describe strategic information system (SISs) and how information technology helps companies improve their competitive positions.
Describe Porter’s competitive force model
Describe 12 strategies that companies can use to achieve competitive advantage in their industries.
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Doing Business in the Digital Economy
Concluding business in the digital economy using Web-based systems on the Internet and other electronic networks.
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Networked Computing
e-business/ e-commerce the conducting of business functions (e.g., buying and selling goods and services, servicing customers, collaborating with business partners) electronically, in order to enhance an organization’s operations.
The infrastructure for e-business is network computing, which connects computers and other electronic devices via telecommunication networks.These computers may be connected to the global networked environment, known as the internet, or to its counter part within organizations, called an intranet, many companies link their intranet to those of their business partners over networks called extranets.
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Information Technology
The collection of computing systems used by an organization
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Major Capabilities of Information System
Perform high-speed, high-volume, numerical computation. Provide fast, accurate, and inexpensive communication within
and between organizations. Automate both semiautomatic business processes and manual
tasks. Store huge amounts of information in an easy-to-access, yet
small space. Allow quick and inexpensive access to vast amount of
information, worldwide. Facilitate the interpretation of vast amounts of data Enable communication and collaboration anywhere, any time. Increase the effectiveness and efficiency of people working in
groups in one place or in several locations, anywhere. Facilitate work in hazardous environment .
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Digital Economy
An economy based on digital technologies, including communication networks (the Internet , intranets, and extranets), computers, software, and other related technologies; also sometimes called the Internet economy, the new economy, or the Web economy .
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Digital networking and communications infrastructures includes:
A vast array of digitizable product -data bases, news and information, books, magazines, TV and radio programming , movies, electronic games, musical CDs, and software- which are delivered over the digital infrastructure any time, anywhere in the world
Consumers and firm conducting financial transaction digitally-through digital currencies or financial tokens carried via networked computers and mobile devices
Physical goods such as home appliances and automobiles that are embedded with microprocessors and networking capabilities.
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The New Economy VS. The Old Economy
Example Old New
Buying and selling text book
Visit the bookstore Visit web site for publishers and retailers
Registering for classes Walk around campus to Departments, Registrar’s office, etc.
Access campus web site
Photography Buy film, use camera, take picture, take it for processing
Use digital camera
Paying for Gasoline Fill up your car, go inside, pay cash or credit card
Use speed pass token wave over the sensor and go
Paying the Transportation Pay cash, metal tokens Metro cards electronic cards
Paying for goods Visit store, take the item, pay , go Use self – service kiosks
Supplying commercial photos
Use newspapers, paper, catalog or on line
Use hub-like supply chain with digitized picture
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Business Model in the Digital Economy
The Internet is revolutionizing the economic, societal, and technological foundations of the old economy. Organization are developing new models for business, the economy, and government
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Changing a linear supply chain to a hub
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Business Model
A method of doing business by which a company can generate revenue to sustain itself; spells out how the company adds value to its products or services.
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Five Representative Business Models of the Digital Age.
Name- your- Own- Price: allow the buyer to state a price he or she is willing to pay for a specific product or service.
Bidding Using Reverse Auctions: Via a request for quote, the buyer indicates a desire to receive bids on a particular item, and would-be sellers bid on the job
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Five Representative Models cont…
Affiliate Marketing: Marketing partners place a banner ad for a company on their Web site
Group Purchasing: The purchase orders of many buyers are aggregated, a small business, or even an individual, can get a discount
E-Marketplace: Markets in which buyers and sellers negotiate online
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1-2 Business Pressures, Organizational Responses, and IT Support Business Pressure , The business
environment is the combination of social, legal, economic, physical, and political factors that affect business activities. Significant changes in any of these factor are likely to create business pressure on organization . Three Types of business pressures that
organizations face- market, technology, and societal pressures .
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IT support for organizational responses
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The Three Types of Business Pressure
Market Pressure: The global economy and strong competition
free trade & varying labor costs The changing nature of the workforce
Diverse workforce with more women, minorities & disabled Powerful customers.
Internet has made customers more informed & demanding e.g. customer demand for customizable product (e.g. nike)
Technology Pressures: Technological Innovation and Obsolescence Information Overload.
Societal Pressure: Social responsibility (education, digital divide) Government regulation and Deregulation Spending for social programs Protection Against Terrorist Attacks (cyberattack, reserves) Ethical Issues (email privacy, databases)
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Customer Relationship Management
An enterprise wide effort to acquire and retain customers, often supported by IT
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Build- to- order
The strategy of producing customized products and services.
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Mass customization
Production process in which items are produced in a large quantity but are customized to fit the desires of each customers.
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Virtual corporation
A business that operates through telecommunications networks, usually without a permanent headquarters, to produce a product or service.
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1.3 Competitive advantage and SIS
Competitive Advantage: An advantage over competitors in some measure such as cost, quality, or speed, leads to control of a market and to larger- than average profits.
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Strategic Information Systems (SISs)
Systems that help an organization gain a competitive advantage through their contribution to the strategic goals of an organization and /or their ability to significantly increase performance and productivity.
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Competitive forces model
A business framework, devised by Michael Porter, for analyzing competitiveness by reorganization five major forces that could endanger a company’s position.
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Porter’s five forces Model
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Potter’s competitive forces model
Threat of entry of new competitors (esp. intermediaries)
Bargaining power of suppliers (supply chain integration, digital exchanges)
Bargaining power of customers Threat of substitute products or services (esp.
information-based or digitizable industries) Rivalry among existing firms in industry
(destructive price competition)
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Strategies for competitive advantage
1. Cost-leadership (e.g. Wal-mart)2. Differentiation (e.g. southwest airlines)3. Niche (e.g. dogtoys.com)4. Growth (e.g. web-based selling)5. Innovation (e.g. Citibank & ATM’s)6. Alliances (e.g. amazon & toysRus, Star)7. Operational effectiveness strategies (Delta)8. Customer orientation9. Time (customer response, time to market)10. Entry-barriers (patents, good service)11. Lock in customers or suppliers (freq fly, e-procure)12. Increase switching costs
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