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Information Technology in the Digital Age

Chapter 1Chapter 1

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Learning Objectives Describe the characteristics of the digital economy.

Recognize the relationships between business pressures, organizational responses, and information systems.

Identify the major pressures in the business environment & describe the major organizational responses to them.

Describe the role of I.T. in organizational activities.

Define computer-based information systems & I.T.

List the essentials of networked computing & Web-based systems.

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Case: BMS enters the Digital Economy

Problem: Bristol-Myers Squibb (BMS) is a leading manufacture of pharmaceutical drugs,

beauty and infant-food products. They were struggling to stay ahead in the new digital economy.

Solution: BMS initiated multiple Web-based projects, overhauled its management

structure, revamped its procurement and supply chain processes, and expanded its myriad of Web sites.

Results: BMS experienced over $100 million in annual savings just from e-procurement.

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Lessons from the Case Global competition drives even large corporations to find ways to

reduce costs, increase productivity and improve customer service.

These efforts are best achieved by using Web-based systems.

The major initiatives that BMS embarked upon were:

Reduce costs by introducing an e-procurement system. Increase sales by utilizing the Web. Improve relationships with employees & customers.

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EC & Networked Computing Electronic commerce (EC) is the use of Web-based systems to

support buying, selling, and customer service.

Click-and-mortar companies add some EC activities to their regular business.

Networked computing connects several computers and other electronic devices via telecommunication networks.

Information technology (IT) refers to the collection of computer systems used by an organization.

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The Digital Economy The digital economy refers to

an economy that is based on digital technologies, including digital communication networks, computers, and software.

The digital economy is also sometimes called the Internet economy, the New economy, or the Web economy.

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Old vs. New Economy: Photography

Old Economy You buy film at the store, insert it

into your camera & take pictures. Once you complete the film,

sometimes weeks or months after you began the roll, you take it to the store for processing.

Go back to the store and pay for enlargements and duplications.

Send photos to family and friends.

New Economy Use a digital camera that can also

take videos. No film is needed, and no processing required. You can see the results immediately & enlarge & print photos quickly.

If your digital camera is connected to a wireless device (such as a palmtop computer or a cell phone) take pictures and see them within a few seconds.

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Digital Economy Business Models

Name-Your-Own-Price. Pioneered by Priceline.com, this model allows customers to state a price they are willing to pay for a product or service.

Dynamic Brokering. In the digital age customers can specify requirements for a service or a product. These specifications are broadcast over the Internet (“Webcasted”) to service providers in an automatic invitation to submit bids.

Reverse Auctions. Electronic reverse auctions are fast, they reduce administrative costs by as much as 85 %, & products’ prices can be 5 - 20 % lower.

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Digital Economy Business Models (cont.)

Affiliate marketing is an arrangement in which marketing partners place a banner of a company, such as Amazon.com, on their Web site.

Group Purchasing. Anyone can pay less per unit when buying more units. Discounts are usually available for quantity purchases.

E-marketplaces and Exchanges. Since 1999, thousands of electronic marketplaces, of different varieties, have sprung up.

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Major Business Pressures

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Market Pressures

Global Economy & Strong Competition.

Global competition is intensified as governments become involved through the use of subsidies, tax policies, import/export regulations & incentives.

Rapid and inexpensive communication and transportation modes increase the magnitude of international trade even further.

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Market Pressures (cont.)

Changing Nature of the Workforce.

The workforce is becoming more diversified, with more females, single parents, minorities, and handicapped persons working in all types of positions.

Powerful Customers.

Consumer sophistication & expectations increase as customers become more knowledgeable about the availability and quality of products and services.

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Technology Pressures Technological Innovation

& Obsolescence.

Some of today’s state-of-the-art products may be obsolete tomorrow.

Thus, technology accelerates the competitive forces.

Information Overload.

The amount of information available on the Internet more than doubles every year.

The management of information is critical.

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Societal Pressures (cont.)

Social Responsibility. Issues range from the environment to education.

Government Regulations. Regulation issues involve health, safety, environmental control, and equal opportunity.

Government Deregulation. Deregulation can be a blessing to one company but a curse to another company.

Ethical Issues. Business ethics relates to standards of right and wrong in business practices.

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Organizational Framework

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Organizational Responses Organizations need to respond to business, societal and technical

pressures with critical response activities.

A typical industry-level response to the digital economy is disintermediation, or the elimination of intermediary organizations.

Organizations can also take proactive measures, to create a change in the market place. e.g., exploiting opportunities created by external pressures.

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Organizations’ Major Responses Strategic systems for

competitive advantage

Continuous improvement efforts

Business process reengineering (BPR)

Business alliances

Electronic commerce

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Organizations’ Major Responses Strategic Systems provide organizations with strategies to increase

their market share, better negotiate with suppliers, or stop competitors.

Continuous Improvement Efforts aim to improve a company’s productivity and quality. Examples include:

Improved productivity Managing enterprise data Just-in-time (JIT) Innovation and creativity Total quality management Change management Knowledge management Customer service

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Organizations’ Major Responses Business Process Reengineering refers to the introduction of a

major innovation in an organization’s structure & the way it conducts business.

The major areas in which IT supports BPR are the following;

Reducing cycle time and time to market. Empowerment of employees and collaborative work. Customer-focused approach and CRM. Restructuring and team-based structure.

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Organizations’ Major Responses Business Alliances. Many companies realize that alliances

with other companies, even competitors, can be very beneficial.

Temporary joint venture = companies form a special company for a specific, limited-time mission.

Electronic Commerce. Doing business electronically is the newest and perhaps most promising strategy that many companies can pursue.

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Case: IT Shortens Time to Market

Problem: In order to assure quality, and minimize risk, the FDA requires companies to

conduct extensive research & testing, which can take up to 10 years.

Solution: Several software companies enable document scanning into databases that

saves hours in research time. The database is indexed and includes full-text-search and retrieval

programs.

Results: The time to market of a new drug has been reduced by up to a year, saving

hundreds of lives.

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Information Systems Information systems (IS) collect, process, store, analyze,

and disseminate information for a specific purpose.

Information Systems are comprised of; inputs (data, instructions)outputs (reports, calculations) feedback mechanisms that controls the operationan environment that it works within

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Computer-Based Information System

A computer-based information system (CBIS) is an information system that uses computer technology to perform some or all of its intended tasks.

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Components of Information Systems

Hardware is a set of devices such as processor, monitor, keyboard, and printer.

Software is a set of programs that enable the hardware to process data.

Database is a collection of related files, tables, relations, and so on, that stores data.

Network is a connecting system that permits the sharing of resources between computers.

Procedures are the set of instructions about how to combine the above components.

People are those individuals who work with the system or use its output.

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Case: Managing Accounting Across Asia

Problem: Le Saunda Holding Company (Hong Kong) is a shoe manufacturer that

manages 32 subsidiaries in four Asian countries. Their financing and cash flow is a very complex process.

Solution: To cope with the rapid growth of the company, a sophisticated accounting

software package was installed.

Results: The system is much more reliable & internal/ external auditing is easier. All these improvements have led to a substantial growth in revenue and

profits for the firm.

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Case: the US Presidential Election 2000

In addition to the various success stories, IT involves a number of failures, with the most famous being the Presidential Election of 2000.

20-to-30 year old machines were used to count votes and generated the greatest election confusion ever encountered.

How can such election confusion be avoided in the future?

Perhaps the solution lies in digital-age voting machines, which displays a person’s vote on a computer screen and asks them to verify their choice.

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General Technological Trends

Cost Performance Ratio

Object-Oriented Environment & Document Management.

Networked Computing

Mobile Commerce

Integrated Home Computing. The Internet

General trends within computing systems include the following:

Intranets and Extranets Corporate Portals

The Networked Enterprise Optical Networks

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Cost Performance Ratio Cost Performance Ratio: Improvement by a Factor of at

Least 100. In about 10 years, a computer will cost the same as its costs

today but will be about 50 times more powerful.

Moore’s Law: Gordon Moore, the co-founder of Intel, predicted in 1965 that the

processing power of silicon chips would double every 18 months.

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Object-Oriented Environments An object-oriented environment is an innovative way of

programming and using computers that is expected to significantly reduce the cost of both building and maintaining information systems.

Object technology enables the development of self-contained units of software that can be shared, purchased, and/or reused.

The increased use of multimedia and object-oriented systems makes electronic document management one of the most important topics of IT.

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Network ComputingNetwork technology enables users to reach other users and

access databases anywhere in the organization.

Metcalfe’s Law: Robert Metcalfe, a pioneer of computer networks, claims that the value of a network grows roughly in line with the square of the number of its users.

Kelly’s Extension: The value of the Internet is much larger, according to Kelly (1999). On the Internet we can make multiple simultaneous connections between groups of people.

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Mobile-Commerce M-commerce (mobile commerce) refers to the conduct of e-

Commerce via wireless devices. It is the commercial application of mobile computing which is based on wireless networks.

There is an increased interest in m-commerce because the number of mobile devices is projected to top 1 billion by 2004.

Location-based commerce (L-commerce) is an application of m-commerce that offers customers the location information of anything they want to purchase.

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Network Computers & Home Computing

The Network Computer, first introduced in 1997, does not have a hard drive. Instead, it is served by a central computing station, and temporarily receives and can use applications and data stored elsewhere on the network.

Integrated Home Computing. Soon, home computing, television, telephone, home security systems, and other devices will be integrated and managed in one unit. Smart appliances refer to home appliances that are connected to

the Internet.

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The Internet, Intranets & Extranets

The Internet. From about 50 million Internet users in 1997, there could be as many as 750 million by 2007.

Intranets utilize information technology to provide organizations with internal communication systems.

Extranets combine intranets with the Internet to create a

powerful interorganizational systems for collaboration.

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Corporate Portals, Networked Enterprises& Optical Networks

A corporate portal refers to a company’s Web site that is used as a gateway to the corporate data, information, and knowledge.

The Networked Enterprise. The various components just described can be integrated together into an enterprise wide network extended to all business partners.

Optical Networks are high capacity telecommunication networks that convert signals in the network and transmit these over fiber optic filaments.

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Why Learn about IT? Being IT Literate On the Job & Off

Finding Employment Opportunities in IT

Future Organizational Leadership

Using IT to Become a Millionaire

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Plan of the BookPart I: IT in the Organization

Part II: The Web Revolution

Part III: Organizational Applications

Part IV: Managerial and Decision Support

Systems

Part V: Implementing and Managing IT

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Managerial Issues How can we recognize the

opportunities for using IT and Web-based systems?

How important is IT? In some cases, IT is the only approach that can help organizations.

Who is going to build, operate, and maintain the information systems?

How much IT? IT does not come free, but not having it may be much costlier.

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Managerial Issues (cont.)

Is the situation going to change? Yes, the pressures will be stronger as time passes & the IT role will be even more important.

What about ethics and social issues? The implementation of IT involves many ethical and social issues.

What about Globalization? Globalization opens many opportunities, ranging from selling products and services online, to conducting joint ventures or investing in them.

How can an organization transform itself to the digital economy?