1.1 © 2006 by prentice hall modified by nooran alsalman 1 chapter managing the digital firm

1.1© 2006 by Prentice Hall Modified By Nooran Alsalman

1Chapter

Managing the Digital Managing the Digital FirmFirm

Managing the Digital Managing the Digital FirmFirm


OBJECTIVES

Management Information SystemsManagement Information SystemsChapter 1 Managing the Digital FirmChapter 1 Managing the Digital Firm

• Explain why information systems are so important today for business and management

• Evaluate the role of information systems in today’s competitive business environment

• Assess the impact of the Internet and Internet technology on business and government


• Define an information system from both a technical and business perspective and distinguish between computer literacy and information systems literacy

• Identify the major management challenges to building and using information systems

OBJECTIVES (Continued)




DaimlerChrysler Case

• DaimlerChrysler includes Chrysler Group, the Mercedes and Smart Passenger Group

• Challenge: 104 plants, 37 countries, 14,000 suppliers• Solutions: Integrated Volume Planning System connects

demand side of business with suppliers, reducing inventories.• Powerway helps 3,400 suppliers track parts and quality,

reducing errors.• Demonstrates IT’s role in operational excellence, better

quality products, and agility–time to market• Illustrates the emerging digital firm landscape where

information can flow seamlessly among business partners to create a superior customer experience


WHY INFORMATION SYSTEMS?


• Capital managementCapital management

• Foundation of doing businessFoundation of doing business

• ProductivityProductivity

• Strategic opportunity and advantageStrategic opportunity and advantage

Why Information Systems Matter Why Information Systems Matter

There are four reasons why IT makes a difference to the There are four reasons why IT makes a difference to the success of a business:success of a business:



• IT is the largest single component of capital investment in the United States.

• About $1.8 trillion is spent each year by American businesses.

• Managers and business students need to know how to invest this capital wisely.

• The success of your business in the future may well depend on how you make IT investment decisions.

Capital Management: Capital Management:



INFORMATION TECHNOLOGY (IT)REFERS TO ALL OF THE COMPUTER BASED INFORMATION SYSTEMS USED BY

ORGANISATION

Information technology capital investment, defined as hardware software and

telecommunication equipment expanded from 19% in 1980 to 35% in 2003





Information Technology Capital Investment Information Technology Capital Investment

Figure 1-1




• In the US over 23million managers and over 113 In the US over 23million managers and over 113 million workers in labour force rely on information million workers in labour force rely on information systemssystems

• Most businesses today could not operate without Most businesses today could not operate without extensive use of information systems and extensive use of information systems and technologies.technologies.

• IT can increase market share.IT can increase market share.

• IT can help a business become a high-quality, IT can help a business become a high-quality, low-cost producer.low-cost producer.

Foundation of doing business:Foundation of doing business:



• IT is vital to the development of new products. IT is vital to the development of new products.

• Examples• Amazon

• eBay

• Online Universities

• There is growing interdependency between Businesses strategies and the use of IT



Foundation of doing business:Foundation of doing business:



The Interdependence between Organizations andThe Interdependence between Organizations andInformation Systems Information Systems

Figure 1-2




• IT is one of the most important tools managers have to increase productivity and efficiency of businesses.

• According to the Federal Reserve Bank, IT has reduced the rate of inflation by 0.5 to 1% in the last decade. For firms this means IT is a major factor in reducing costs.

• It is estimated that IT has increased productivity in the economy by about 1% in the last decade. For firms this means IT is a major source of labor and capital efficiency.


Productivity:



• If a business wants to take advantage of new opportunities in the markets, develop new product or create a new service chances are quite high that they will need to invest heavily in IT

• Create competitive advantage: IT makes it possible to develop competitive advantages.


Strategic Opportunity and Advantage:


• New Business Models: Dell Computer has built its competitive advantage on an IT enabled build-to-order business model that other firms have not been able to imitate.






• Create new services: eBay has developed the largest auction trading platform for millions of individuals and businesses. Competitors have not been able to imitate its success.

• Differentiate yourself from your competitors: Amazon has become the largest book retailer in the United States on the strength of its huge online inventory and recommender system. It has no rivals in size and scope.





• In may 2003 Nicholas Carr has written that whatever advantages firms build using IT can be easily copied by competitors.

• This view is not supported by the evidence: Amazon, eBay, Dell, Wal-Mart and Apple's iTunes are just a few firms that have built and maintained technology-based advantages.

How Much Does IT Matter?




• Commoditization of technology( availability and prices decreases) is typically leading to innovation and new business models, products and services not a signal to the end of innovation.

• Competitive advantage derives not from the technology, but on how businesses use the technology.

• Innovations in business processes, management and organization are not easily copied from one firm to another there is only one Dell.

How Much Does IT Matter?



A combination of IT innovations and the changing domestic and the global business environment makes the role of IT in business even more important for managers than just a few years ago.

Why IT Now? Digital Convergence and the Changing Business Environment





• Internet growth and technology convergence

• Transformation of the business enterprise

Why IT Now? Digital Convergence and the Changing Business Environment

Growing impact of IT in business firms can be assessed from the following five factors:




• Growth of a globally connected economy

• Growth of knowledge and information-based economies

• Emergence of the digital firm


Why IT Now? Digital Convergence and the Changing Business Environment (Continued)



• Growth of the Internet: 120 million online in the United States, 500 million global users

• The Internet is bringing about a convergence of telecommunications and computing: VoIP telephones.


The Internet and Technology Convergence:



• Growth in e-business, e-commerce, and e-government

• Internet is bringing about rapid changes in markets and market structure: financial services and banking such as eTrade.com.

• The Internet is making many traditional business models obsolete: the corner music store and video store.


The Internet and Technology Convergence:


The traditional business firm was a hierarchical, centralized, structured arrangement of specialists that typically relied on a fixed set of standard operating procedures to deliver a mass-produced product (or service).

The new manager appeals to the knowledge, learning, and decision making of individual employees to ensure proper operation of the firm. Once again, information technology makes this style of management possible.

Transformation of the Business Enterprise:





• Decentralization

• Flexibility• Companies can use communications technology to Companies can use communications technology to

organize in more flexible ways, increasing their ability organize in more flexible ways, increasing their ability to sense and respond to changes in the marketplace to sense and respond to changes in the marketplace and to take advantage of new opportunities. and to take advantage of new opportunities. Information systems can give both large and small Information systems can give both large and small organizations additional flexibility to overcome some organizations additional flexibility to overcome some of the limitations posed by their size.of the limitations posed by their size.




•Flattening






• Location independence

• Low transaction and coordination costs

• Empowerment

• Collaborative work and teamwork


Transformation of the Business Enterprise (Continued):


• Foreign trade, both exports and imports, accounts for a little more than 25 percent of the goods and services produced in the United States, and even more in countries such as Japan and Germany.

• The success of firms today and in the future depends on their ability to operate globally Via a global IS.



Globalization:



• Management and control in a global marketplace• IS provides: communication and analytical power

to conduct trade and manage businesses globally . Communicating with distributors and suppliers, Operating 24 hours a day in different national environments

• Competition in world markets• Customers now can shop in a worldwide Customers now can shop in a worldwide

marketplace, obtaining price and quality marketplace, obtaining price and quality information reliably 24 hours a dayinformation reliably 24 hours a day


Globalization:


• Global workgroups

• Global delivery systems



Globalization:


• Knowledge and information work now account for a significant 60 percent of the American gross national product and nearly 55 percent of the labor force.

• Knowledge- and information-based economies, Sales, education, healthcare, banks, insurance firms, and law firms

• Manufacturing has been moving to low-wage countries



Rise of the Information Economy:



• Knowledge and information-based economies

• New products and services, Dow Jones News Dow Jones News Service, and America Online Service, and America Online

• Knowledge- and information-intense products, Knowledge- and information-intense products, computer gamescomputer games

• Knowledge as a central productive and strategic asset


Rise of the Information Economy:



The Growth of the Information Economy

Figure 1-3


Source: U.S. Department of Commerce, Bureau of the Census, Statistical Abstract of the United States, 2003, Table 615; and Historical Statistics of the United States, Colonial Times to 1970, Vol. 1, Series D, pp. 182-232.


The intensive use of information technology in business firms since the mid-1990s, coupled with

equally significant organizational redesign, created the conditions for a new phenomenon in

industrial society—the fully digital firm A digital firm

• Digitally-enabled relationships with customers, suppliers, and employees



Emergence of the Digital Firm:



• Digitally enabled relationships with customers, suppliers, and employees

• Core business processes(Core business processes(The unique ways in which The unique ways in which organizations coordinate and organize work organizations coordinate and organize work activities, information, and knowledge to produce a activities, information, and knowledge to produce a product or serviceproduct or service) accomplished via digital ) accomplished via digital networksnetworks

• Digital management of key corporate assets


Emergence of the Digital Firm:



• Rapid sensing and responding to environmental changes

• Seamless flow of information within the firm, and with strategic partners

• For managers of digital firms, information For managers of digital firms, information technology is not simply an enabler, but rather it is technology is not simply an enabler, but rather it is the core of the business and the primary the core of the business and the primary management tool.management tool.


Emergence of the Digital Firm (Continued):



The Emerging Digital Firm The Emerging Digital Firm

Figure 1-4



PERSPECTIVES ON INFORMATION SYSTEMS


What Is an Information System?

Technology perspective:Technology perspective: A set of interrelated

components that collect (or retrieve), process, store,

and distribute information to support decision

making and control in an organization




What is an Information System? (Continued)

• Data: Streams of raw facts representing events such as business transactions

• Information: Clusters of facts meaningful and useful to human beings in the processes such as making decisions




Data and Information

Figure 1-5


INPUT OUTPUTPROCESS

FEEDBACK

Activities in an Information SystemCaptures or collects

raw data from within

the organization or

from its external

environment

Converts this raw input into

a meaningful form.

Transfers the processed

information to the people

who will use it or to the

activities for which it will

be used

Output that is

returned to

appropriate

members of the

organization to help

them evaluate or

correct the input

stage






Functions of an Information System

Figure 1-6



• Rely on computer hardware and software Rely on computer hardware and software

• Processing and disseminating informationProcessing and disseminating information

• Fixed definitions of data and proceduresFixed definitions of data and procedures

• Collecting, storing, and using informationCollecting, storing, and using information


Computer-Based Information System (CBIS)


Difference Between Computer/Program and IS

• There is difference between a computer and a computer program on the one hand and an information system on the other.

• Computers and related software programs are the technical foundation, the tools and materials, of modern information systems.



• Information systems are an organizational Information systems are an organizational and management solution to business and management solution to business challenges that arise from the business challenges that arise from the business environment.environment.


Information systems are more than just technology. Businesses invest in IS in order to create value and increase profitability.

A Business Perspective on Information Systems



• Based on information technology but also require Based on information technology but also require significant investment in organizational and significant investment in organizational and management changes and innovationsmanagement changes and innovations

• IS create value primarily by changing business IS create value primarily by changing business processes and management decision making. processes and management decision making.


A Business Perspective on Information Systems (Continued)


• From a business perspective, information systems are part of a series of value adding activities, transforming and distributing information that managers can use to improve decision making enhancing organisational performance and increase profitability



Business information value chain




The Business Information Value Chain

Figure 1-7




Information Systems Are More than Computers

Figure 1-8



• Information systems literacy:Information systems literacy: Broad-based Broad-based understanding of information systems that includes understanding of information systems that includes behavioral knowledge about organizations, behavioral knowledge about organizations, management and individuals using information management and individuals using information systems as well as technical knowledge about systems as well as technical knowledge about computerscomputers

• Computer literacy:Computer literacy: Knowledge about information Knowledge about information technology, focusing on understanding how technology, focusing on understanding how computer technologies workcomputer technologies work




Three Important Dimensions of Information Systems

• Organizations

• Managers

• Technology


You will need to understand and balance these dimensions of information systems in order to create business value.

Dimensions of Information Systems


• An organization coordinates work through a structured hierarchy and formal, standard operating procedures. The hierarchy arranges people in a pyramid structure of rising authority and responsibility. An Organization’s structures reveal a clear-cut division of labor. Experts are employed and trained for different business functions

The Organization





Key Elements of an organization are:Key Elements of an organization are:• People:People: Managers, knowledge workers, data Managers, knowledge workers, data

workers, production or service workersworkers, production or service workers

• Structure:Structure: Organization chart , groups of Organization chart , groups of specialists, products, geographyspecialists, products, geography


The Organization


• Operating procedures: Standard operating procedures (SOP, rules for action)

• Politics: Different levels and specialties in an organization create different interests and points of view. These views often conflict.

• Culture:Each organization has a unique culture, or fundamental set of assumptions, values, and ways of doing things, that has been accepted by most of its members.



The Organization



• major major business functionsbusiness functions ( (specialized tasks performed specialized tasks performed by business organizationsby business organizations) r) rely on Information Systems

• Sales and marketingSales and marketing

• ManufacturingManufacturing

• FinanceFinance

• AccountingAccounting

• Human resourcesHuman resources


Major Business Functions Rely on Information Systems


• Managers perceive business challenges in the environment. They set the organizational strategy for responding and allocating the human and financial resources to achieve the strategy and coordinate the work.

Management





Managers are:

• Sense makersSense makers

• Decision makersDecision makers

• PlannersPlanners

• Innovators of new processesInnovators of new processes

• Leaders: set agendasLeaders: set agendas


Management


Levels:• Senior managers: make long-range strategic

decisions about products and services

• Middle managers: Carry out the programs and plans of senior management

• Operational managers: monitor the firm’s daily activities

Each level of management has different information needs and information system

requirements.



Management




Managers who can understand the role of Managers who can understand the role of information systems in creating business value are information systems in creating business value are the key ingredient to success with systems, and the key ingredient to success with systems, and cannot easily be replicated by your competitors.cannot easily be replicated by your competitors.

Management



• Hardware:Hardware: Physical equipment Physical equipment

• Software:Software: Detailed preprogrammed instructions Detailed preprogrammed instructions

• Storage:Storage: Physical media for storing data and the Physical media for storing data and the softwaresoftware


Information technology is one of the tools managers Information technology is one of the tools managers use to cope with change:use to cope with change:

The Technology Dimension of Information Systems



• Communications technology:Communications technology: Transfers data Transfers data from one physical location to anotherfrom one physical location to another

• Networks:Networks: Links computers to share data or Links computers to share data or resourcesresources


The Technology Dimension of Information Systems (Continued)

Managers need to know enough about information Managers need to know enough about information technology to make intelligent decisions about how to technology to make intelligent decisions about how to use it for creating business value.use it for creating business value.



Complementary assets:

• New business processes

• Management behavior

• Organizational culture

• Training


Complementary Assets and Organizational Capital



• Supportive business culture that values efficiency and effectiveness

• Efficient business processes, decentralization of authority

• Highly distributed decision rights

• A strong information system (IS) development team


Organizational capital:




Variation in Returns on Information Technology Investment

Figure 1-9

Source: Based on Erik Brynjolfsson and Lorin M. Hitt, “Beyond Computation: Information Technology, Organizational Transformation and Business Performance.” Journal of Economic Perspectives 14, no. 4 (Fall 2000). Used with permission of the American Economic Association.


• Sociologists: how groups and organizations shape the development of systems and also how systems affect individuals, groups, and organizations.

• Psychologists :how human decision makers perceive and use formal information. Economists :what impact systems have on control and cost structures within the firm and within markets.

CONTEMPORARY APPROACHES TO INFORMATION SYSTEMS




• Computer science: is concerned with establishing theories of computability, methods of computation, and methods of efficient data storage and access.

• Management science: emphasizes the development of models for decision-making and management practices.

• Operations research: focuses on mathematical techniques for optimizing selected parameters of organizations such as transportation, inventory control, and transaction costs.





• Technical Approach

• Behavioural Approach







Sociotechnical Systems

Optimize systems performance:

• Technology and organization

• Organizations mutually adjust to one another until fit is satisfactory




A Sociotechnical Perspective on Information Systems

Figure 1-11