Chap002 (Management Information System)
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Chap002 (Management Information System)
- 1. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 1 I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien C h a p t e r 2 Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. Competing with Information Technology
- 2. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 2 • Identify several basic competitive strategies and explain how they can be used to confront the competitive forces faced by a business. • Identify several strategic uses of information technology and give examples of how they give competitive advantages to business. • Identify several strategic uses of Internet technologies for electronic business and commerce, and give examples of each. Chapter Objectives
- 3. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 3 • Give examples of how business process reengineering involves the strategic use of information technology. • Identify how total quality management differs from business process reengineering in its use of information technology. • Identify how information technology can be used to help a company be an agile competitor, or to form a virtual company to meet strategic business opportunities Chapter Objectives
- 4. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 4 • Explain how knowledge management systems can help a business build a knowledge-creating company. Chapter Objectives
- 5. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 5 The Competitive Environment Threat of New Entrants Rivalry Among Existing Competitors Bargaining Power of Customers Bargaining Power of Suppliers Threat of Substitutes
- 6. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 6 Fundamental Competitive Strategies Differentiation StrategiesDifferentiation Strategies Innovation StrategiesInnovation Strategies Growth StrategiesGrowth Strategies Alliance StrategiesAlliance Strategies Cost Leadership StrategiesCost Leadership Strategies
- 7. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 7 Strategic Uses of Information Technology Improving Business Process Promote Business Innovation Locking in Customers and Suppliers Use IT to reduce costs of doing business •Use IT to improve quality •Use IT to link business to customers and suppliers Use IT to create new products or services Enhance Efficiency Create New Business Opportunities Maintain Valuable Customers and Relationships Strategy IT Role Outcome
- 8. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 8 Strategic Uses of Information Technology Raise Barriers to Entry Build a Strategic IT Platform Build a Strategic Information Base Increase amount of investment or complexity of IT needed to compete Use IT to provide information to support firm’s competitive strategy Leverage investment in IS resources from operat- ional uses to strategic uses Increase Market Share Create New Business Opportunities Enhance Organizational Collaboration Strategy IT Role Outcome
- 9. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 9 Strategic Positioning of Internet Technologies Global Market Penetration E-Commerce Website Value-added IT Services Product and Services Transformation E-Business; Extensive Intranets and Extranets Cost and Efficiency Improvements E-Mail, Chat Systems Performance Improvements in Business Effectiveness Intranets and Extranets Strategy Solution Low High High CustomerCompetitionConnectivity E-Business Processes Connectivity Internal Drivers ExternalDrivers
- 10. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 10 The Value Chain Administrative Coordination & Support Services Human Resource ManagementHuman Resource Management Technology DevelopmentTechnology Development Procurement of ResourcesProcurement of Resources Inbound Logistics Inbound Logistics OperationsOperations Outbound Logistics Outbound Logistics Marketing and Sales Marketing and Sales Customer Service Customer Service CompetitiveAdvantage
- 11. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 11 The Internet Value Chain Marketing and Product Research Sales and Distribution Support and Customer Feedback Data for market research, establishes consumer responses •Access to customer com- ments online •Immediate re- sponse to customer problems •Low cost distribution •Reaches new customers •Multiplies contact points Enhance Efficiency Create New Business Opportunities Maintain Valuable Customers and Relationships Internet Capability Benefits to Company Opportunity for Advantage
- 12. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 12 Customer-Focused E-Business Let customers place orders thru distribution partners Transaction Database Link Employees and distribution partners Let customers check order history and delivery status Let customers place orders directly Customer Database Build a community of customers, employees, and partners Give all employees a complete view of customers
- 13. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 13 Business Reengineering and Quality Management Business Quality Improvement Business Quality Improvement Business Reengineering Business Reengineering DefinitionDefinition TargetTarget Potential Payback Potential Payback RiskRisk What Changes?What Changes? Primary Enablers Primary Enablers Incrementally Improving Existing Processes Incrementally Improving Existing Processes Radically Redesigning Business Systems Radically Redesigning Business Systems Any ProcessAny Process Strategic Business Processes Strategic Business Processes 10%-50% Improvements10%-50% Improvements 10-Fold Improvements10-Fold Improvements LowLow HighHigh Same Jobs - More EfficientSame Jobs - More Efficient Big Job Cuts; New Jobs; Major Job Redesign Big Job Cuts; New Jobs; Major Job Redesign IT and Work SimplificationIT and Work Simplification IT and Organizational Redesign IT and Organizational Redesign
- 14. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 14 The Customer- Focused Agile Competitor Leverage the Impact of People and IS Resources AccessibilityDeliveryTimeCustomer’s timetomarket Anticipation of future needs Customization Conformance Costof Transaction Costof Value-added Services Give Customers Solutions to Problems Give Customers Solutions to Problems Cooperate with Business Partners and Competitors Cooperate with Business Partners and Competitors Organize to Master Change Organize to Master Change
- 15. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 15 Borderless Technology Excellence Trust-Based Adaptability Opportunism Six Characteristics of Virtual Companies Virtual Corporations
- 16. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 16 Knowledge Management Systems Solution Knowledge Development Engineers Technical Support Staff Product Managers Other Vendors Customers The Internet Intranet
- 17. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 17 FirmFirm EnvironmentEnvironment PerformancePerformance • Size • Geographical scope • Product scope • Organization structure • Technological resources • Knowledge resources •Creating switching costs •Exploiting knowledge •Developing response strategies •Managing risks Key Factors for Sustaining Strategic Success
- 18. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 18 • Information systems can play several strategic roles in business. • The Internet, intranets, extranets, and other Internet-based technologies can be used strategically for E-Business and E-Commerce. • A key strategic use of Internet technologies is to build an E-Business which develops its business value by making customer value its strategic focus. Chapter Summary
- 19. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 19 • IT is a key ingredient in reengineering business operations, by enabling radical changes to business processes that dramatically improve their efficiency and effectiveness. • IT can be strategically used to improve the quality of business performance. • A business can use IT to help it become an agile company, that can respond quickly to changes in its environment. Chapter Summary (cont)
- 20. Irwin/McGraw-Hill Copyright © 2001, The McGraw-Hill Companies, Inc. All rights reserved. I n t r o d u c t i o n t o I n f o r m a t i o n S y s t e m s Tenth EditionJames A. O’Brien 20 Chapter Summary (cont) • Forming virtual companies has become an important competitive strategy in today’s dynamic global market. • Lasting competitive advantages today can only come from innovative use and management of organizational knowledge by knowledge creating companies and learning organizations. • Successful strategic information systems are not easy to develop and implement. They may require major change in how businesses operate.
Editor's Notes
- A firm can survive in the long run if it successfully develops strategies to confront five generic competitive forces that operate in the firm's relevant environment. What are some of these competitive forces? Threat of New Entrants. Many threats to long-term survival come from companies that do not yet exist or have a presence in a given industry or market. The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors. Teaching Tip: This is especially true as the effects of globalization increase the likelihood that previously "domestic only" competition will encounter new international competitors. Bargaining Power of Suppliers. Suppliers with access to key or limited resources, or who dominate their industries, may exert undue influence on the firm. Many firms seek to reduce their dependence on a single firm to limit the suppliers' bargaining power. Rivalry Among Existing Firms. In mature industries, existing competitors are not much of a threat: typically each firm has found its "niche". However, changes in management, ownership, or "the rules of the game" can give rise to serious threats to long-term survival from existing firms. Teaching Tip: For example, the airline industry faces serious threats from airlines operating in bankruptcy, who do not pay on the debts while slashing fares against those healthy airlines who do pay on debt. Bargaining Power of Customers. Customers can grow large and powerful as a result of their market share. For example, Wal-Mart is the largest customer for consumer package goods and often dictates terms to the makers of those goods -- even a giant like Procter & Gamble. Threat of Substitutes. To the extent that customers can use different products to fulfill the same need, the threat of substitutes exists. Teaching Tips This slide relates to the material on p. 50.
- Companies may counter the competitive forces they face with one or more of five competitive strategies: Cost Leadership Strategies. This involves becoming a low-cost producer of products and services in the industry. Such firms can also help their suppliers or customers reduce costs. Differentiation Strategies. This involves making the products of the firm distinct from those of the competition in the marketplace. Differentiation variables valued by the market reduce the threat of substitution. Innovation Strategies. This involves finding new ways of doing business. This may involve developing new products, entry into new markets or radical change in business processes for production or distribution. Growth Strategies. This involves significantly expanding a company's capacity to produce goods and services, expanding into global markets, diversifying into new products or services, or integrating into related products and services. Alliance Strategies. This involves forming new business relationships or new ways of doing business with existing suppliers, customers, consultants, or even competitors. Such linkages may include mergers, acquisitions, joint ventures, or "virtual companies" (the pooling of resources on a per project basis). Teaching Tips This slide relates to the material on pp. 50-51.
- How can IT be used strategically? Improving Business Processes. IT can help make a firm’s operational processes substantially more efficient and its managerial processes much more effective. Besides reducing costs, improvements to business processes can help improve quality and customer service, and promote development of innovative products. Promote Business Innovation. IT can be used to develop unique products and services, or processes. This in turn can create new business opportunities and enable a firm to expand into new markets or into new segments of existing markets. Locking in Customers and Suppliers. IT can also allow a business to lock in customers and suppliers by using technology to build valuable new relationships with them. This can deter both customers and suppliers from abandoning a firm for its competitors or convince a supplier or firm into accepting less-profitable relationships. Creating Switching Costs. IT can be used to build switching costs into relationships between a firm and its customers or suppliers by providing mutually beneficial services that make it costly for a customer or firm to switch to a competitor. Teaching Tips This slide relates to material on pp. 54-57. Incorporate the real world examples provided in the text in discussion.
- Raising Barrier to Entry. By increasing the amount of investment or complexity of the technology required to compete in an industry, a firm can erect barriers that would discourage or delay other companies from entering a market. Leveraging a Strategic IT Platform. Investing in IT enables a firm to build a strategic IT platform that allows it to take advantage of strategic opportunities and develop new products and services that would not be possible without strong IT capability. Developing a Strategic Information Base. IT can allow firms to develop a strategic information base that can be used to support the firm’s competitive strategies. Teaching Tips This slide relates to material on pp. 58-59. Incorporate the real world examples provided in the text in discussion.
- For Internet technologies to be used strategically applications must be correctly positioned. The strategic positioning matrix shown can be used to help a company optimize the strategic impact of Internet Technologies. The matrix recognizes two major drivers: Internal Drivers. The amount of connectivity, collaboration and use of IT within a firm. External Drivers. The amount of connectivity, collaboration and use of IT by customers, suppliers, business partners, and competitors. Cost and Efficiency Improvements. When there is a low amount of connectivity, collaboration and use of IT within the company and by customers and competitors, a firm should focus on improving efficiency and lowering costs by using Internet technologies to enhance communications between the company and its customers and suppliers. Performance Improvement in Business Effectiveness. When there is a high amount of internal connectivity, but external connectivity by customers and competitors is still low, a firm should focus on using Internet technologies like intranets and extranets to make major improvements in business effectiveness. Global Market Penetration. When there is a high degree of connectivity by customers and competitors and low internal connectivity, a firm should focus on developing Internet-based applications to optimize interactions with customers and build market share. Product and Service Transformation. When a company and its customers, suppliers, and competitors are extensively networked, Internet technologies should be used to develop and deploy products and services that strategically reposition it in the marketplace. Teaching Tips This slide corresponds to Figure 2.4 on p. 52 and relates to material on pp. 52-54.
- The Value Chain Concept, developed by Michael Porter, is useful for helping you to decide when and how to apply the strategic capabilities of IT. The Concept views a firm as a series, or chain, of basic activities that add value to a firm’s products and services, and thus add a margin of value to the firm. In this way some activities are seen as primary processes, while others are seen as support processes that provide direction and support for the specialized work of primary activities. Thus, the framework highlights where competitive strategies can best be applied in a business. For each activity, the role of strategic information systems (SIS) can contribute significantly to that activity’s contribution to the value chain. For example: Administrative Coordination & Support Services. The key role of SIS here is in enterprise communication and collaboration. Human Resources Management. SIS role: Career development Intranet for employees. Technology Development. SIS role: Computer-Aided Design Extranets with partners. Procurement of Resources. SIS role: E-Commerce Extranet with suppliers. Primary Activities. These activities directly contribute to the transformation process of the organization. Inbound Logistics. SIS role: Automated Warehousing, JIT. Operations. SIS role: Computer-Aided Manufacturing. Outbound Logistics. SIS role: Online Data Entry. Marketing and Sales. SIS role: Interactive Targeted Marketing. Customer Service. SIS role: Customer Relationship Management. Teaching Tips This slide corresponds to Figure 2.9 on p. 61 and relates to the material on p. 59.
- The Value Chain Model can also be used to strategically position a company’s Internet-based applications to gain competitive advantage. The Internet Value Chain Model shown outlines several ways that a company’s Internet connections with its customers could provide business benefits and opportunities for competitive advantage. The model suggests that company-managed newsgroups and chat rooms can be used to support market research, product development and direct sales. Likewise a company’s Internet-enabled connection with its suppliers can be used to support online shipping and scheduling. Multimedia catalogs can also be used to support E-Commerce. All together the model indicates how Internet technologies might be applied to help a firm gain competitive advantage in the marketplace. Teaching Tips This slide relates to the material on pp. 64-67.
- There are other key strategies enabled by IT that can be used to enable a business to become successful and to maintain their success. These will be discussed on the next slides. A key strategy for becoming a successful E-Business is to maximize customer value. This strategic focus on customer value recognizes that quality rather than price becomes the primary determinant in a customer’s perception of value. A Customer-Focused E-Business, then, is one that uses Internet technologies to keep customer loyal by anticipating their future needs, responding to concerns, and providing top quality customer service. As the slide indicates, such technologies like intranets, the Internet, and extranet websites create new channels for interactive communications within a company, with customers, and with suppliers, business partners, and others in the external business environment. Thereby, encouraging cross-functional collaboration with customers in product development, marketing, delivery, service and technical support. A successful Customer-Focused E-Business attempts to ‘own’ the customer's total business experience through such approaches as: Letting the customer place orders directly, and through distribution partners Building a customer database that captures customers' preferences and profitability, and allowing all employees access to a complete view of each customer. Teaching Tip: Encourage your students to describe the characteristics of a profitable customer. What makes a particular customer valuable to a specific business? Letting customers check order, history and delivery status Nurturing an online community of customers, employees, and business partners. Teaching Tips This slide corresponds to Figure 2.10 on p. 61 and relates to the material on pp. 59-61.
- One of the most important competitive strategies today is business process reengineering (BPR) most often simply called reengineering. Reengineering is more than automating business processes to make modest improvements in the efficiency of business operations. Reengineering is a fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service. BPR combines a strategy of promoting business innovation with a strategy of making major improvements to business processes so that a company can become a much stronger and more successful competitor in the marketplace. However, while many companies have reported impressive gains, many others have failed to achieve the major improvements they sought through reengineering projects. Business quality improvement is a less dramatic approach to enhancing business success. One important strategic thrust in this area is called Total Quality Management (TQM). TQM emphasizes quality improvement that focuses on the customer requirements and expectations of products and services. This may involve many features and attributes, such as performance, reliability, durability, responsiveness etc. TQM uses a variety of tools and methods to provide: More appealing, less-variable quality of products or services Quicker less-variable turnaround from design to production and distribution Greater flexibility in adjusting to customer buying habits and preferences Lower costs through rework reductions, and non-value-adding waste elimination. Teaching Tips This slide corresponds to Figure 2.16 on p. 68 and relates to the material on pp. 68-72.
- Agility in competitive performance is the ability of a business to prosper in rapidly changing, continually fragmenting global markets for high-quality, high-performance, customer-configured products and services. Agile companies depend heavily on information technology to support and manage business processes. The four fundamental strategies of agile competition are: Enrich Customers. Agile companies enrich customers with solutions to their problems. Long term value-added products and services succeed when they solve problems based on customer needs. As conditions change, the agile competitor establishes a relationship based on the ability and willingness to change to meet new customer problem situations. Cooperate. Agile companies cooperate to enhance competitiveness. This means internal cooperation and, where necessary, cooperation with competitors in order to bring products and services to market more quickly. Organize. Agile companies organize to master change and uncertainty. This is a key component of agile competition because it seeks development of the anticipation and rapid response to changing conditions, not an attempt to stifle change itself. Leverage People and Information. Agile companies leverage the impact of people and information by nurturing an entrepreneurial spirit and providing incentives to employees to exercise responsibility, adaptability, and innovation. The Free.Perfect.Now model developed by AVNET Marshall embodies these principles into a succinct model for serving its customers in the most agile and responsive way. Free Dimension. Emphasizes that most customers want the lower cost for value received, but are willing to pay more for a value-added service. Perfect Dimension. Emphasizes that products and services should not only be defect free, but should be enhanced by customization, added features and should further anticipate future customer needs. Now Dimension. Emphasizes that customers want 24x7 accessibility to products and services, short delivery times, and consideration of the time-to-market for their own products. Teaching Tips This slide corresponds to Figure 2.22 on p.74 and relates to the material on pp. 63-74.
- A Virtual Company (also called a virtual corporation or virtual organization) is an organization that uses information technology to link people, assets, and ideas. People and corporations are forming virtual companies in order to take advantage of strategic opportunities that require time, people competencies and information technologies resources that may not exist within a single company. By making strategic alliances with other companies and quickly forming a virtual company of all-star partners, the virtual company is best able to assemble the components needed to provide a world-class solution for customers and capture the opportunity. To succeed the virtual company must possess six characteristics: Adaptability: Able to adapt to a diverse, fast-changing business environment. Virtual companies must further reduce concept-to-cash time through sharing. Opportunism: Created, operated, and dissolved to exploit business opportunities when they appear. They must gain access to new markets and share market or customer loyalty, while increasing facilities and market coverage. Excellence: Possess all-star, world-class excellence in the core competencies that are needed. These competencies must be seamlessly linked through the use of Internet technologies. Technology: Provide world-class information technology and other required technologies in all customer solutions. They must migrate from selling products to selling solutions. Borderless: Easily and transparently synthesize the competencies and resources of business partners into integrated customer solutions. Trust-Based: Members are trustworthy and display mutual trust in their business relationships. They must be willing to share infrastructures and risks. Teaching Tips This slide relates to the material on pp. 74-75.
- Knowledge Management has become one of the major strategic uses of information technology. Knowledge Management Systems (KMS) are systems that are used to manage organizational learning and business know-how. The goal of knowledge management systems is to help knowledge workers create, organize, and make available important business knowledge, whenever, and wherever its needed. Such knowledge may include explicit knowledge like reference works, formulas, and processes, or tacit knowledge like “best practices”, and fixes. Internet and intranet technologies, along with such other technologies like GroupWare, data mining, and online discussion groups are used by KMS to collect, edit, evaluate and disseminate knowledge within the organization. Knowledge management systems are sometimes called adaptive learning systems, because they create cycles of organizational learning called adaptive learning loops, which allow the knowledge company to continually build and integrate knowledge into business processes, products, and services. Thereby, helping the company to become a more innovative, agile provider of goods and services. Teaching Tips This slide corresponds to Figure 2.25 on p.78 and relates to the material on pp. 76-77.
- Sustained success in using information technology strategically depends upon three sets of factors: The Environment. A major factor of the environment is the structure of the industry. Competitive restrictions and unique situations are environmental factors that involve political and regulatory restrictions all the way to wide-open competition. Foundation Factors. Unique industry position, alliances, assets, technological resources, and expertise are foundation factors that can give a company a competitive edge in a market. Management Actions and Strategies. Management alone is responsible for the successful development and implementation of plans. It must have the vision and planning abilities necessary to adapt information technology to the specific needs of the company in its particular situation. Teaching Tips This slide corresponds to Figure 2.26 on p.79 and relates to the material on pp. 77-78.