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MIS and Business Operations

Problems w/ Textbook?

• Case 1 due Sunday via email at 24:00. (keep copy of sent messages, cases received after 24:00 are penalized 10% with 10%/day thereafter)

• See session 1 notes for case instructions.• Bring hard copy to class on Monday for

discussion purposes.• Bring Laptop to Class on Thursday with MS

Access on it if you have one.

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Articles?

How businesses use information

systems.

How businesses use information

systems.

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Operational Goal of Business Information Systems

Get data and process it into information to enable decision-making and/or communication to the right intelligent agent at the right time to enable effective, efficient and fast activities.

Information system technology, agents and activities that do not add value are WASTE

Intelligent Agents UsingK, C, S & T

To TransformB

Material Information

Energy

Material Information

Energy

Example: Women soldering stuff onto circuit boards –Mostly material transformation into a saleable good

Example: Tax consulting in an officeMostly information transformation: a saleable service

Waste

Activity/ActionWorkflow In Workflow Out

A

Business Activities are Intelligent agents using Knowledge, Capability, Skill & Technology, to

transform material, information & energyinto higher value material, information & energy.

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Start

B C D

E F

Business PROCESSES are Coordinated Sets of Activities

Linked by Workflows of Material, INFORMATION, and/or Energy

End

Quasar's PTH assembly comprise of highly skilled operators. They are initially and periodically trained by IPC on contemporary soldering methods. As well as undergoing internal training and evaluation. www.quasar-eng.com

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In-class discussion• Think of making dinner at home for your family.

• What are the workflows of material, energy and material that are inputs to this activity?

• What knowledge, capability/skill and technology do you use in performing this activity?

• What are the material, energy and information outflows of this activity? (i.e. product?)

• How much waste is produced? – of what types?

• What information makes this activity more effective, efficient or fast? How do you get this information?

• What decisions do you have to make?

Michael Porter has defined 5 primary value-adding activities (processes) in a firm that he called the VALUE CHAIN.

We’ve defined effective business operations as those adding customer value. From this perspective, market/customer information flows are the most important information flows in a business. What product is selling/can be sold at what price should motivate what we do.

MARKET

Marketing/ Sales/

Payment

Distribution

Service

Sourcing Production

VALUE

Material and/or Information FlowMARKET

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Management is a secondary (support) activity from Porter’s perspective• Porter defines ▫ 1) administration and financial management, ▫ 2) human resource management, ▫ 3) technology management, R&D, and ▫ 4) contracting and procurement

as SECONDARY/SUPPORT activities

• Managerial activities:▫ Add value through improving/enabling long and short

term primary activities▫ Managerial activities that don’t add value are WASTE

Business Model = Value Chain

• A business model is the system a firm uses to source, produce, sell, distribute - and get paid for - goods and services: in other words, a firm’s value chain.

• We will use the terms interchangeably.

• The design and organization of a firm’s business model/value chain is one place where the art and science of management add value

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How information systems can enhance business processes

• Increased effectiveness through improved market/customer information flows

• Remember must be processed and communicated to appropriate agent where it becomes knowledge, improved capacity to act.

• Knowing more about our CUSTOMERS provides the potential to:

• Increase value-added (ZARA is great example)

• Reduce WASTED effort and materials

How information systems can enhance business processes

• More customer/supplier communication and involvement

• Personalized web portals, feedback

• Integration into supply chain and customer relations management information systems

• May provide sense of engagement/loyalty

• May induce switching costs

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How information systems can enhance business processes

• Improve managerial decision-making and control communication

• Quicker managerial response?

• Improved coordination of activities?

Agents and activities for which responsible

Inputs Outputs

Feedback Info. Systems

ManagerDecides

ControlInfo. Systems

How information systems can enhance business activities/processes

• Can support entirely new value chain/ business models.

• Online marketing and sales

• Digital payment

• Production/delivery/distribution of digital products

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• Increasing efficiency/speed through transforming/eliminating certain processes

• Automation/INFOMATION: Infomation is automation of information/communication processes: i.e. a call stacker

• Moving from paper to electronic transactions

• Moving from people to computer processed transactions

• Watch for the tradeoff between effective versus efficient processes (i.e., computer answering systems are cheaper but may tick off customers)

How information systems can enhance business processes

• Increasing efficiency/speed through transforming/eliminating certain processes

• Enforcing process standardization & reducing variation when IS processes are embedded in business process

• Change information flows replacing sequential steps with parallel simultaneous steps

• Eliminating delays in process links/WIP handoffs

How information systems can enhance business processes

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Port

er’s

Val

ue C

hain

Examples of information systems enhancing value chain activities

In-class activity

• Analyze the value chain of a package delivery service like DHL.

• What information systems do you think make DHL more effective, efficient and fast?

• Describe the system elements of the “signature for receipt system.”

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• Firm is nexus of contracts among self‐interested agents requiring supervision. 

• Agency costs rise as firms take on more employees.  

• IS’s enables firm to economize on managers through more efficient decision making, coordination and communication (increasing span of control).  This allows firms to grow revenues while maintaining the same size. 

• Also IS’s (expert systems) can move  decision making down to the operations level,  EMPOWERING production staff

• Two ways IS’s flattens organizations

Agency Theory

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• Firms seek to economize on cost of participating in market (transaction costs)

• This logic tends to move activities into the firm to save transaction costs; vertical and horizontal integration.

• IT lowers market transaction costs for firm, making it worthwhile for firms to transact with other firms rather than grow the number of employees. Another way IT flattens organizations

• Outsourcing

• Supply chain management

• Partnership

Transaction Cost Theory

• Information systems become bound up in organizational politics because they influence access to a key resource – information

• Information systems potentially change an organization’s structure, culture, politics, work, and division of labor

• Most common reason for failure of large projects is due to organizational and political resistance to change

Organizational Resistance to Change

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Sustainable Competitive Advantage

• Firms strategize to obtain sustainable competitive advantage: financial performance that consistently outperforms industry averages

• Achieving sustainable competitive advantage is not easy

▫ Rapid emergence of new products and new competitors

▫ New competitors and copycat products cutting costs, prices and increasing features that may benefit customers but erode profits industry-wide

Resource-based view of sustainable competitive advantage

• If a firm is to sustain competitive advantage, it must control an exploitable resource, or set of resources, that have four critical characteristics

Valuable

Rare

Imperfectly imitable

Non-substitutable

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Technology-enabled effectiveness: necessary, but not sufficient• Operational effectiveness is critical, but not sufficient

enough to yield sustainable competitive advantage

▫ Technology itself is often very easy to replicate, but it is essential to creating and enabling imitation resistant value chains that are defensibly different and can be quite difficult for others to copy

• Fast follower problem: Exists when rivals watch and learn from pioneers successes and failures, then enter the market quickly with a comparable or superior product at a lower cost before the first mover can dominate

• Especially problematic with new, smaller startup firms

▫ Microsoft M&As are frequent and constant

Sources of potentiallysustainable competitive advantage1. Imitation resistant value-chain/business model2. Product differentiation3. Brand (a proxy for quality that inspires trust) based on customer

experience and marketing4. Economies of scale and scope5. Network effects6. Knowledge/Data7. Switching costs8. Control of distribution channels9. Patents & Copyrights

• BUT, NOTHING LASTS FOREVER: The only constant is change, so in the long run, agility and innovation may be the only sustainable competitive advantage

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What firms need is: Strategy

• Strategic positioning: Performing different activities from those of rivals, or the same activities in a different way

Porter’s 5 competitive forces strategic framework• Forces acting on a firm’s competitive position.

2.Existing

Competitor Rivalry

Firm

5. Threat of

Substitutes

3.Supplier

Power

1.Customer

Power

4.Threat of

New Entrants

Market

Power is a function of information about options and dependencies

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Market Forces

• Substitutes provide similar product value via a different business model/value-chain, often using different technologies.▫ The web is enabling a lot of these

• Barriers to Entry are obstacles in the path of New Market Entrants that make it difficult to enter a given market.▫ The web is reducing some of these

Switching costs and Data• Switching costs: Exist when consumers incur an

expense to move from one product or service to another

• Sources of switching costs:▫ Learning costs▫ Information and data▫ Financial commitment▫ Contractual commitments▫ Search costs▫ Loyalty programs

• Data can be a particularly strong switching cost for firms leveraging technology

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Strategic Decision: When to buy/outsource vs. develop systems in-house?

• Firms can buy/outsource services/systems

▫ Supply chain management (SCM)

▫ Customer relationship management (CRM)

▫ Enterprise resource planning software (ERP)

• Potential danger

▫ If a firm adopts software that changes a unique process into a generic one, it may have co-opted a key source of competitive advantage particularly if other firms can buy the same stuff

The WWW’s impact on markets

• The world wide web has become a huge, near universal global communications network with

• Universal standards

• Media Richness

• Interactivity

• Information density

• a huge set of marketing/sales/service channels

• a huge distribution channel for digital products

And it is relatively

inexpensive!

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The internet’s impact on markets

1. Increasing product availability and pricing information (Price Transparency) to buyers and sellers

• prices where multiple sellers and few buyers

• prices where multiple buyers and few sellers

2. search and transaction costs

3. menu/cataloging costs

4. intermediaries and distributors for some products

• Encyclopedias, music, movies, books

5. Enabling secondary markets, resale: Ebay

6. Social networking has increased the speed and scope of word of mouth advertising (word of web advertising)

The world wide web in 2012www.internetworldstats.com. Copyright © 2000 - 2010, Miniwatts Marketing Group. All rights reserved worldwide. Accessed 8/18/2010

World Region

Popul’nMillions

Internet Users

Millions

User % ofPop.

% User Growth2000-12

% of WorldUsers

Africa 1,073 167 15.6 3607 7.0Asia 3,922 1077 27.5 842 44.8Europe 821 519 63.2 393 21.5Middle East

224 90 40.2 2,640 3.7

NorthAmerica

348 274 78.6 153 11.4

Latin America

594 255 42.9 1,311 10.6

Oceania 36 24 67.6 219 1.0WORLD 7,018 1,967 34.3 566 100.0

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E-Commerce: Digital Products and Markets