Chapter 1


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Chapter 1

  1. 1. Chapter 1Organizational Performance: IT Support and Applications 1
  2. 2. 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
  3. 3. 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
  4. 4. • 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
  5. 5. 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•
  6. 6. • 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
  7. 7. • 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 7 organizational changes
  8. 8. Difference between product and service..Product ServicesTangible IntangibleCan be bought Can be feltCan be owned Can not be ownedNon-perishable PerishableNon-ephemeral EphemeralCountable Not countablecan be inventoried Can not be inventoriedLocation not important in providing Location is important in service designproduct 8
  9. 9. Characteristics of digital economy• Globalization• Digital systems• Speed• Information overload• Online Markets• Digitization of products• Business models and processes• Innovation• Obsolescence• Opportunities• Fraud• Wars 9•
  10. 10. 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
  11. 11. • 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
  12. 12. • 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
  13. 13. Business environment impact model 13
  14. 14. 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
  15. 15. Business environmental pressures 15
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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
  20. 20. 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 processes 20
  21. 21. 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 21 people to work from home (telecommute).
  22. 22. 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 possible 22
  23. 23. 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
  24. 24. Business Pressures (Continued)• Technology Pressures: – Technological Innovation and Obsolescence – Information Overload 24
  25. 25. 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
  26. 26. 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
  27. 27. 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 27 is becoming critical
  28. 28. Business Pressures (Continued)• Societal Pressures: – Social Responsibility – Government Regulation and Deregulation – Protection Against Terrorist Attacks – Ethical Issues 28
  29. 29. 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
  30. 30. 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) 30 – Employee education, training, and retraining
  31. 31. 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
  32. 32. 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
  33. 33. 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
  34. 34. 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
  35. 35. 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
  36. 36. Business environmental pressures 36
  37. 37. 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
  38. 38. • 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 websites 38
  39. 39. • 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
  40. 40. – 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 activities 40
  41. 41. – 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
  42. 42. • 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
  43. 43. • 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
  44. 44. • 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
  45. 45. • 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
  46. 46. – 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
  47. 47. • 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
  48. 48. – One of the most interesting types of business alliance is the virtual corporation,– Operates through telecommunications networks, usually without a permanent headquarters. 48
  49. 49. – 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
  50. 50. • 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
  51. 51. 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 51 a part of the system.
  52. 52. • 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
  53. 53. • 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
  54. 54. • 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
  55. 55. 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 environment 55
  56. 56. Information systems 56
  57. 57. 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
  58. 58. 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
  59. 59. 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
  60. 60. • 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 tasks 60
  61. 61. • 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
  62. 62. 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
  63. 63. 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
  64. 64. 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
  65. 65. 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
  66. 66. Popular business models• 4 models – Tendering via reverse auctions – Affiliate marketing – Group purchasing – E-marketplaces and exchanges 66
  67. 67. 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
  68. 68. 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
  69. 69. 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
  70. 70. 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 70 organization to manage its purchasing alone.
  71. 71. • Introduce operating efficiencies to trading• If well organized and managed, they can provide benefits to both buyers and sellers 71
  72. 72. 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
  73. 73. 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
  74. 74. 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