8. information technology sya - feb 2014

8/12/2019 8. Information Technology SYA - Feb 2014

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THEROLESOFINFORMATION

TECHNOLOGYINBUSINESS

Syaiful Ali, MIS., PhD.

GBEIT

MM FEB UGM Yogyakarta - 2013

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OUTLINE

IT Investments

Roles of IT in Business

Basic Concepts in IT

IT Trends and their impacts on Business Business Processes and IT

Managing and Governing IT

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IT has become more pervasive

- IT is not used only by back-office workers, but also front-line workers

- More and more employees are reliant upon IT for accomplishing their work

activities

Business managers, not just IT managers, are responsible for ITinvestments and effective system utilization

IT expenditure represents a significant level of corporate

resource. Global ICT spending in 2010 was more than $3.6 Trillion.

It will grow to $4.5 trillion in 2012 (WITSA, 2010).

IT INVESTMENTS

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INFORMATIONTECHNOLOGYCAPITALINVESTMENT

Information technology capital investment, defined as hardware,software, and communications equipment, grew from 32 percentto 52 percent of all invested capital between 1980 and 2009.

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Growing interdependence between ability to useinformation technology and ability to implementcorporate strategies and achieve corporate goals

Business firms invest heavily in information systemsto achieve six strategic business objectives:

1. Operational excellence

2. New products, services, and business models3. Customer and supplier intimacy

4. Improved decision making

5. Survival

THEROLEOFINFORMATIONSYSTEMSINBUSINESSTODAY

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New products, services, and businessmodels:

Business model: describes how companyproduces, delivers, and sells product or service tocreate wealth

Information systems and technology a majorenabling tool for new products, services, business

modelsExamples: Apples iPod, iTunes, iPhone, iPad,

Googles Android OS, and Netflix


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Customer and supplier intimacy:

Serving customers well leads to customersreturning, which raises revenues and profits

Example: High-end hotels that use computers totrack customer preferences and use to monitorand customize environment

Intimacy with suppliers allows them to providevital inputs, which lowers costs

Example: J.C.Penneys information system which

links sales records to contract manufacturer


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Improved decision making

Without accurate information:

Managers must use forecasts, best guesses, luck

Leads to: Overproduction, underproduction of goods and services

Misallocation of resources

Poor response times

Poor outcomes raise costs, lose customers Example: Verizons Web-based digital dashboard to

provide managers with real-time data on customercomplaints, network performance, line outages, etc.


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Survival

Information technologies as necessity of business

May be:Industry-level changes, e.g. Citibanks

introduction of ATMs

Governmental regulations requiring record-

keeping

Examples: Toxic Substances Control Act, Sarbanes-

Oxley Act


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BASICCONCEPTSINIT

What is a system?

Information System: The collection of IT, procedures, and

people responsible for the capture, movement, management, and

distribution of data and information

System: A set of interrelated components that must worktogether to achieve some common purpose


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THE SYSTEMS VIEW

The term System is used to refer to something broader than an

information system:

Systems thinking is:- A discipline for seeing wholes

- A framework for seeing interrelationships rather than things

- An antidote to feeling of helplessness when dealing with complexity

A systems perspective is useful for understanding the

relationships among business units and organizational events.

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THE SYSTEMS VIEW

Each piece needs to be well-designed, but the pieces also needto work well together

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Information system:

Set of interrelated components

Collect, process, store, and distribute information

Support decision making, coordination, and control

Information vs. data

Data are streams of raw facts

Information is data shaped into meaningful form

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Three activities of information systemsproduce information organizations need

1. Input: Captures raw data from organization orexternal environment

2. Processing: Converts raw data into meaningfulform

3. Output: Transfers processed information topeople or activities that use it

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Feedback:

Output returned to appropriate members oforganization to help evaluate or correct input stage

Computer/Computer program vs. informationsystem

Computers and software are technical foundation and

tools, similar to the material and tools used to build ahouse

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PERSPECTIVESONINFORMATIONSYSTEMS

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InformationSystems AreMore ThanComputers

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Organizational dimension of informationsystems

Hierarchy of authority, responsibilitySenior management

Middle management

Operational management

Knowledge workers

Data workers

Production or service workers

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Levels in a Firm

Business organizations arehierarchies consisting ofthree principal levels:senior management,middle management, andoperational management.Information systems serveeach of these levels.Scientists and knowledgeworkers often work withmiddle management.

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Organizational dimension of informationsystems (cont.)

Separation of business functions

Sales and marketing

Human resources

Finance and accounting

Manufacturing and production

Unique business processes Unique business culture

Organizational politics


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Management dimension of informationsystems

Managers set organizational strategy forresponding to business challenges

In addition, managers must act creatively:

Creation of new products and services

Occasionally re-creating the organization

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Technology dimension of informationsystems

Computer hardware and software Data management technology

Networking and telecommunications technology

Networks, the Internet, intranets and extranets,World Wide Web

IT infrastructure: provides platform that system isbuilt on


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TRENDSINIT

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RECENT INFORMATION TECHNOLOGY

TRENDS

Computer Hardware: Faster, Cheaper, Mobile

- Computers have become smaller and faster

- Hardware prices have dropped

- High growth in small, mobile devices for communications and

access to the Internet

Microcomputers

(1970s)

IBM PersonalComputer

(1981)

Personal DigitalAssistants [PDAs]

introduced

(early 1990s)

Laptop Computersoutsell desktops

(2005)

Smart Phonesintroduced

(2007)

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TRENDS

Computer Software: Integrated, Downloadable, Social

Integrated

- Standardization has enabled more integration

- Many standards are just de facto standards (Microsoft Windows, Office, InternetExplorer)

- Many companies have benefitted from Enterprise Systems investments (e.g.,

electronic health records in hospitals)

Enterprise Systems:

Software packages with integrated modules that pass

common business transactions across groups,

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TRENDS

Computer Software: Integrated, Downloadable, Social

Downloadable

- Bit-size software programs for smart phones downloadable from App stores

- Download speeds have increased so that even large files can be downloaded by

users

Social

- Growth of Web 2.0 (social media) applications (such as Facebook, LinkedIn)

- Used by companies for marketing and branding activities

- Collaboration tools connect employees across distance


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TRENDS

Computer Networks: High Bandwidth, Wireless and

Cloudy

- High demand for high speed Internet access

- Wireless technologies to replace hardwired lines; support for

mobile devices anytime/anywhere

- Use of Internet to access remote hosts, data storage, and other

IT capabilities from the Cloud

ARPANET created

(late 1960s)

Introduction of theWorld Wide Web

(early 1990s)

Consumer high-speed Internet

connections widelyavailable

(early 2000s)

Number of Internetusers tops 1 billion

(2005)

Wireless Internetaccess common in

many locations

(today)

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Technology drivers of IT evolution

Moores law and microprocessing power

Computing power doubles every 18 monthsNanotechnology:

Shrinks size of transistors to size comparable to size of

a virus

Law of Mass Digital StorageThe amount of data being stored each year

doubles

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Technology drivers of IT evolution (cont.)

Metcalfes Law and network economics

Value or power of a network grows exponentiallyas a function of the number of network members

As network members increase, more peoplewant to use it (demand for network access

increases)

IT Infrastructure

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Technology drivers of IT evolution (cont.)

Declining communication costs and theInternet

An estimated 1.5 billion people worldwidehave Internet access

As communication costs fall toward a very

small number and approach 0, utilization ofcommunication and computing facilitiesexplodes

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EXPONENTIAL DECLINES IN INTERNET COMMUNICATIONS COSTS

One reason for the growth in the Internet population is the rapid decline in Internetconnection and overall communication costs. The cost per kilobit of Internet access hasfallen exponentially since 1995. Digital subscriber line (DSL) and cable modems nowdeliver a kilobit of communication for a retail price of around 2 cents.

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BUSINESSPROCESSESANDIS

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Business processes:

Workflows of material, information, knowledge

Sets of activities, steps

May be tied to functional area or be cross-functional

Businesses: Can be seen as collection of

business processesBusiness processes may be assets or

liabilities

Business Processes and Information Systems

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Examples of functional business processes

Manufacturing and production

Assembling the product

Sales and marketing

Identifying customers

Finance and accounting

Creating financial statements Human resources

Hiring employees


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The Order Fulfillment Process

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Information technology enhances businessprocesses in two main ways:

1. Increasing efficiency of existing processes

Automating steps that were manual

2. Enabling entirely new processes that arecapable of transforming the businesses

Change flow of informationReplace sequential steps with parallel steps

Eliminate delays in decision making


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Transaction processing systems

Perform and record daily routine transactionsnecessary to conduct business

Examples: sales order entry, payroll, shipping

Allow managers to monitor status of operationsand relations with external environment

Serve operational levels Serve predefined, structured goals and decision

making

Types of Information Systems

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A Payroll TPS

A TPS for payroll

processing captures

employee payment

transaction data

(such as a time card).

System outputsinclude online and

hard-copy reports for

management and

employee paychecks.

FIGURE 2-2

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Management information systems

Serve middle management

Provide reports on firms currentperformance, based on data from TPS

Provide answers to routine questions with

predefined procedure for answering them

Typically have little analytic capability


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How Management Information Systems Obtain Their Data from the Organizations TPS

In the system illustrated by this diagram, three TPS supply summarizedtransaction data to the MIS reporting system at the end of the time period.Managers gain access to the organizational data through the MIS, which

provides them with the appropriate reports.

FIGURE 2-3

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Sample MIS Report

This report, showing summarized annual sales data, was produced by theMIS in Figure 2-3.

FIGURE 2-4

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Decision support systems Serve middle management

Support non-routine decision making

Example: What is impact on production schedule ifDecember sales doubled?

Often use external information as well from TPS andMIS

Model driven DSS

Voyage-estimating systems

Data driven DSS

Intrawests marketing analysis systems


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Voyage-Estimating Decision Support System

This DSS operates on a powerful PC. It is used daily by managers who must develop bids on shippingcontracts.

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Business intelligence

Class of software applications

Analyze current and historical data to findpatterns and trends and aid decision-making

Used in systems that support middle and

senior managementData-driven DSS

Executive support systems (ESS)


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Executive support systems

Support senior management

Address non-routine decisions

Requiring judgment, evaluation, and insight

Incorporate data about external events (e.g. new taxlaws or competitors) as well as summarizedinformation from internal MIS and DSS

Example: Digital dashboard with real-time view offirms financial performance: working capital, accountsreceivable, accounts payable, cash flow, and inventory


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Enterprise applications

Systems for linking the enterprise

Span functional areas

Execute business processes across firm

Include all levels of management

Four major applications:

Enterprise systems

Supply chain management systems

Customer relationship management systems

Knowledge management systems


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INFORMATIONSYSTEMS,

ORGANIZATIONSANDSTRATEGY

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Economic impacts

IT changes relative costs of capital and the costs ofinformation

Information systems technology is a factor ofproduction, like capital and labor

IT affects the cost and quality of information andchanges economics of information

Information technology helps firms contract in sizebecause it can reduce transaction costs (the cost ofparticipating in markets)

Outsourcing

How Information Systems Impact Organizations and Business Firms

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Transaction cost theory

Firms seek to economize on transactioncosts (the costs of participating in markets)

Vertical integration, hiring more employees,buying suppliers and distributors

IT lowers market transaction costs for a firm,

making it worthwhile for firms to transactwith other firms rather than grow thenumber of employees


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Agency theory:

Firm is nexus of contracts among self-interestedparties requiring supervision

Firms experience agency costs (the cost ofmanaging and supervising) which rise as firmgrows

IT can reduce agency costs, making it possible forfirms to grow without adding to the costs ofsupervising, and without adding employees


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Organizational and behavioral impacts

IT flattens organizations

Decision making pushed to lower levels

Fewer managers needed (IT enables fasterdecision making and increases span of control)

Postindustrial organizations

Organizations flatten because in postindustrial

societies, authority increasingly relies onknowledge and competence rather than formalpositions


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Organizational resistance to change

Information systems become bound up inorganizational politics because they influence

access to a key resource information

Information systems potentially change anorganizations structure, culture, politics, and

work

Most common reason for failure of large projectsis due to organizational and political resistance tochange


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Why do some firms become leaders in their industry?

Michael Porters competitive forces model

Provides general view of firm, its competitors, andenvironment

Five competitive forces shape fate of firm

1. Traditional competitors

2. New market entrants3. Substitute products and services

4. Customers

5. Suppliers

Using Information Systems to Achieve Competitive Advantage

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PORTERS COMPETITIVE FORCES MODEL

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Traditional competitors

All firms share market space with competitors whoare continuously devising new products, services,

efficiencies, switching costs

New market entrants

Some industries have high barriers to entry, e.g.computer chip business

New companies have new equipment, youngerworkers, but little brand recognition


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Substitute products and services

Substitutes customers might use if your pricesbecome too high, e.g. iTunes substitutes for CDs

Customers Can customers easily switch to competitors

products? Can they force businesses to compete onprice alone in transparent marketplace?

Suppliers Market power of suppliers when firm cannot raise

prices as fast as suppliers


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Four generic strategies for dealingwith competitive forces, enabled byusing IT

Low-cost leadership

Product differentiation

Focus on market niche Strengthen customer and supplier

intimacy


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Low-cost leadership

Produce products and services at a lower price thancompetitors while enhancing quality and level of

service Examples: Wal-Mart

Product differentiation

Enable new products or services, greatly changecustomer convenience and experience

Examples: Google, Nike, Apple


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The Internets impact on competitive advantage

Transformation, destruction, threat to someindustries

E.g. travel agency, printed encyclopedia, newspaper

Competitive forces still at work, but rivalry moreintense

Universal standards allow new rivals, entrants to

market

New opportunities for building brands and loyalcustomer bases


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Business value chain model

Views firm as series of activities that add value toproducts or services

Highlights activities where competitive strategies canbest be applied

Primary activities vs. support activities

At each stage, determine how information systems

can improve operational efficiency and improvecustomer and supplier intimacy

Utilize benchmarking, industry best practices


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Investing in information technology does notguarantee good returns

Considerable variation in the returns firmsreceive from systems investments

Factors:

Adopting the right business model Investing in complementary assets (organizational

and management capital)

Perspectives on Information Systems

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Complementary assets:

Assets required to derive value from a

primary investment Firms supporting technology investments

with investment in complementary assetsreceive superior returns

E.g.: invest in technology and the people tomake it work properly


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Complementary assets include:

Organizational assets, e.g.

Appropriate business model

Efficient business processes

Managerial assets, e.g.

Incentives for management innovation

Teamwork and collaborative work environments

Social assets, e.g.

The Internet and telecommunications infrastructure

Technology standards


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The Interdependence Between Organizations and Information


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The Interdependence Between Organizations and InformationTechnology

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THE SYSTEMS VIEW

Leavitt Diamond tells us that: If one component is changed, the others will likely be affected as

well

Example: New software

- Business processes need to be redesigned

- Organizational structures might need to be modified

- People have to be trained


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Management and governance

Who controls IT infrastructure?

How should IT department be organized?

Centralized

Central IT department makes decisions

Decentralized

Business unit IT departments make own decisions

How are costs allocated between divisions,departments?

Management Issues

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Making wise IT investments

Amount to spend on IT is complex questionRent vs. buy, outsourcing

Total cost of ownership (TCO) modelAnalyzes direct and indirect costs

Hardware, software account for only about 20% of TCO

Other costs: Installation, training, support, maintenance,infrastructure, downtime, space and energy

TCO can be reduced through use of cloud services,greater centralization and standardization of hardwareand software resources

Management Issues

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The End

8. information technology sya - feb 2014

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