E-Business Applications

What is an Information System?

Any organized combination of people, hardware, software, communications networks, and data resources that stores, retrieves, transforms, and disseminates information in an organization.

Types of Information Technologies

• Computer Hardware Technologiesincluding microcomputers, midsize servers, and large mainframe systems, and the input, output, and storage devices that support them

• Computer Software Technologiesincluding operating system software, Web browsers, software productivity suites, and software for business applications like customer relationship management and supply chain management

Types of Information Technologies

• Telecommunications Network Technologiesincluding the telecommunications media, processors, and software needed to provide wire-based and wireless access and support for the Internet and private Internet-based networks

• Data Resource Management Technologiesincluding database management system software for the development, access, and maintenance of the databases of an organization

Roles of IS in Business

What is E-Business?

Definition:

• The use of Internet technologies to work and empower business processes, electronic commerce, and enterprise collaboration within a company and with its customers, suppliers, and other business stakeholders.

• An online exchange of value.

Electronic Commerce: Definitions and Concepts

• EC organizationsbrick-and-mortar organizationsOld-economy organizations (corporations) that perform most of their business off-line, selling physical products by means of physical agentsvirtual (pure-play) organizationsOrganizations that conduct their business activities solely onlineclick-and-mortar (click-and-brick) organizationsOrganizations that conduct some e-commerce activities, but do their primary business in the physical world

Electronic Commerce: Definitions and Concepts

• Where EC is conductedelectronic market (e-marketplace)An online marketplace where buyers and sellers meet to exchange goods, services, money, or informationinterorganizational information systems (IOSs)Communications system that allows routine transaction processing and information flow between two or more organizationsintraorganizational information systemsCommunication systems that enable e-commerce activities to go on within individual organizations

Benefits of EC

• Global Reach• Cost Reduction• Supply Chain

Improvements• Extended Hours• Customization• New Business Models• Vendors’ Specialization• Rapid Time-to-Market

• Lower Communication Costs

• Efficient Procurement• Improved Customer

Relations• Up-to-Date Company

Material• No City Business

Permits and Fees• Other Benefits

Benefits to Organizations

Benefits of EC

• Ubiquity• More Products and

Services• Customized Products

and Services• Cheaper Products and

Services

• Instant Delivery• Information Availability• Participation in

Auctions• Electronic Communities• No Sales Tax

Benefits to Consumers

Benefits of EC

• Benefits to Society– Telecommuting– Higher Standard of Living– Homeland Security– Hope for the Poor– Availability of Public Services

Exhibit 1.7 Limitations of EC

Value Chain (Michael Porter, 1985)

• A series of linked activities or processes in

an organization

• IT can improve these processes

Strategic AnalysisThis is all about the analysing the strength of businesses' position and understanding the important external factors that may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including:

Five Forces Analysis - a technique for identifying the forces which affect the level of competition in an industryPEST Analysis - a technique for understanding the "environment" in which a business operatesScenario Planning - a technique that builds various credible views of possible futures for a business Market Segmentation - a technique which seeks to identify similarities and differences between groups of customers or usersSWOT Analysis - a useful summary technique for summarising the key issues arising from an assessment of a businesses "internal" position and "external" environmental influences.

The Value Chain• A framework for identifying core

competencies– Inside the firm– In the supply chain

• Can be used to– Identify strengths and weaknesses– Identify sources of competitive advantage– Identify market opportunities

The Value Chain

InboundLogistics Operations

OutboundLogistics

Marketing & Sales CustomerService

Soundness ofmaterial andinventorycontrolsystems

Efficiency ofraw materialwarehousingactivities

Productivity ofequipmentcompared tothat of keycompetitors

Appropriateautomation ofproductionprocesses

Effectivenessof productioncontrol systemsto improvequality andreduce costs

Efficiency ofplant layoutand work-flowdesign

Timeliness andefficiency ofdelivery offinished goodsand services

Efficiency offinished goodswarehousingactivities

Effectiveness ofmarket research toidentify customersegments & needs

Innovation in sales& promotion

Evaluation ofalternatedistributionchannels

Motivation andcompetence of salesforce

Development ofimage of quality anda favorablereputation

Extent of brandloyalty amongcustomers

Extent of marketdominance withinthe market segmentor overall market

Means to solicitcustomer inputfor productimprovements

Promptness ofattention tocustomercomplaints

Appropriatenessof warranty andguaranteepolicies

Quality ofcustomereducation andtraining

Ability toprovidereplacement partsand repair service

Primary Activities and Factors for Assessment

FirmInfrastructure

HumanResource

TechnologyDevelopment

Procurement

Capability toidentify newproduct marketopportunities andpotentialenvironmentalthreats

Quality of thestrategic planningsystem to achievecorporate objectives

Coordination andintegration of allvalue chainactivities

Ability to obtainrelatively low costfunds for capitalexpenditures andworking capital

Timely & accurateinformation ongeneral andcompetitiveenvironments

Effectiveness ofprocedures forrecruiting,training, andpromoting alllevels ofemployees

Appropriatenessof reward systems

Relations withtrade unions

Levels ofemployeemotivation andjob satisfaction

Success of R&Dactivities in leadingto product andprocess innovations

Quality of workingrelationship betweenR&D personnel andother departments

Timeliness oftechnologydevelopmentactivities in meetingcritical deadlines

Qualifications &experience oflaboratorytechnicians andscientists

Ability of workenvironment toencourage creativityand innovation

Development ofalternate sources forinputs to minimizedependence on asingle supplier

Procurement of rawmaterials on timelybasis at lowestpossible cost and atacceptable levels ofquality

Development forcriteria for lease-vs.-buy decisions

Good, long-termrelationships withsuppliers

Secondary Activities and Factors for Assessment

Technologies in the Value Chain

INBOUNDLOGISTICS

OPERATIONS OUTBOUNDLOGISTICS

MARKETING AND SALES

SERVICE

PROCUREMENT

TECHNOLOGY DEVELOPMENT

HUMAN RESOURCE

MANAGEMENT

FIRM INFRASTRUCTURE

Information System Technology

Planning and Budgeting TechnologyOffice Technology

Training TechnologyMotivation Research

Information Technology

Product TechnologyComputer-Aided DesignPilot Plant Technology

•Diagnostic and Testing Technology•Communications Technology•Information Technology

•Transportation Technology•Material Handling Technology•Storage and Preservation Technology•Communication System Technology•Testing Technology•Information Technology

Information Systems TechnologyCommunication System TechnologyTransportation System Technology

Software Development ToolsInformation Systems Technology

•Basic Process Technology•Materials Technology•Machine Tools Technology•Materials Handling Technology•Packaging Technology•Testing Technology•I/nformation Tech.

•Transportation Technology•Material Handling Technology•Packaging Technology•Communications Technology•Information Technology

•Multi-Media Technology•Communication Technology•Information Technology

The Internet Value Chain

Marketing andProductResearch

Sales andDistribution

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

EnhanceEfficiency

Create NewBusiness Opportunities

Maintain ValuableCustomers and Relationships

InternetCapability

Benefitsto

Company

Opportunityfor

Advantage

Strategic Positioning of Internet Technologies

Global MarketPenetration

E-Commerce WebsiteValue-added IT Services

Product and ServicesTransformation

E-Business; ExtensiveIntranets and Extranets

Cost andEfficiency Improvements

E-Mail, Chat Systems

Performance Improvements inBusiness Effectiveness

Intranets and Extranets

Strategy

Solution

Low

High

High

Cu

sto

me

r C

om

pe

titio

n C

onn

ect

ivi ty

E-Business Processes Connectivity

Internal Drivers

Ex

tern

al D

rive

rs

Customer-Focused E-Business

Let customersplace orders thrudistributionpartners

TransactionDatabase

Link Employees and distributionpartners

Let customers check order history and delivery status

Let customers place orders directly

CustomerDatabase

Build acommunityof customers,employees,and partners

Give allemployees acomplete viewof customers

Porter’s Five Competitive Forces

Porter 5 forces analysis The Porter 5 forces analysis is a framework for business management developed by Michael Porter in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the attractiveness of a market. It is also known as FFF (Fullerton's Five Forces).

A graphical representation of Porters Five Forces

Turning threats into advantage

• Organisations within the same industry:– Have same suppliers as rivals– Have same customers as rivals– Face same threats of

• New products being developed• New firms/ organisations starting up in

competition

• Awareness of this can help organisations:– Improve its competitive position– Make it less vulnerable to attack

Firm-Level Strategy:Core Competencies

• Core Competencies – an activity in which the firm excels– Created based on experience and research– Ex., best logistics, best customer service, best

optic technology manufacturer

• Buyer Power

• Supplier Power

• Threat of Substitutes

• Threat of New Entrants

• Rivalry among Firms

Industry-Level Strategy:Five Forces Model (Michael Porter, 1980)

Five Forces Model

Porter’s model

• Allows the development of a competitive strategy

• Suggests 5 main forces may be decisive in helping shape the outcome:– Suppliers– New Entrants– Substitutes– Buyers– Industrial competitors

The Power of Suppliers

• Using the models of market structures developed in Unit 4 assess whether the supplier of your main input has more market power than your organisation.– Are they the only suppliers of the input?– How many other potential suppliers exist?– Is the input more homogeneous than unique?– Are there any substitutes available?– Would there be switch costs?– On a spectrum of 1-10 where does you bargaining power

lie relative to your main supplier?

The Power of Customers

• Customers bargaining power increases if……….– they buy in large volumes

– the product is homogeneous

– there are many more suppliers

– product represents a substantial fraction of their total costs• Do you have many customers, a few or one (ie monopsony)?

• In the light of the above assess the bargaining power of your main customers.

• How does this affects the behaviour of your organisation?

The threat of substitute products

• Substitutes often come into the market rapidly,

especially when high profits are being made ie high

profits act as an incentive to develop substitutes. Watch

R&D.

• Equally in the public sector governments eager to cut cost will look for substitute services eg increasing shift towards voluntary sector provision.

The threat of substitute products

• How many substitute products/services have appeared in your industry in the last 5 years?

• What are they? How different are they?• Were they introduced by your organisation or others?• Which organisation in your industry does the most

Research and Development? • What happens to price, profits and market share when

substitutes are introduced?

• Assess the potential threat!!!

Threat of new entrants• New entrants bring increased capacity to the industry and are

often backed by substantial resources eg Virgin • New entrants can be deterred by ‘barriers to entry’

(Remember in the theory of perfect competition there are no barriers to entry).– The main barriers are………

• Economies of scale

• Patents

• Product differentiation

• Capital requirements – both financial and specialist equipment

• Skills

• Access to distribution channels

• Reaction/strategic decisions of incumbents (eg all undercut new entrant)

• Government policy (eg statuary monopoly – but remember these can be relaxed to allow new entrants)

Threat of new entrants

• When was the last time a new entrant entered your market?

• Was it a surprise or in response to changes in the market, expiry of a patent, or changes in government policy eg deregulation?

• Are they still there?• How did they affect the existing participants?• Using the above information plus your knowledge of

barriers, (overleaf) assess the potential threat of new entry!!!!

Five Competitive Strategies• Cost Leadership

– Become low-cost producers– Help suppliers or customers reduce costs– Increase cost to competitors– Example, Priceline uses online seller bidding so buyer

sets the price

• Differentiation Strategy– Develop ways to differentiate a firm’s products from its

competitors– Can focus on particular segment or niche of market– Example, Moen uses online customer design

Competitive Strategies (cont.)

• Innovation Strategy– Find new ways of doing business

• Unique products or services• Or unique markets• Radical changes to business processes to alter the fundamental

structure of an industry

– Example, Amazon uses online full-service customer systems

• Growth Strategy– Expand company’s capacity to produce– Expand into global markets– Diversify into new products or services – Example, Wal-Mart uses merchandise ordering by global

satellite tracking

Competitive strategies (cont.)

• Alliance Strategy– Establish linkages and alliances with

• Customers, suppliers, competitors, consultants and other companies

– Includes mergers, acquisitions, joint ventures, virtual companies

– Example, Wal-Mart uses automatic inventory replenishment by supplier

Competitive Forces and Strategies

Using IT for these strategies

Dealing with current rivals

• Tactics amongst rivals include……..– price competition

– product introduction

– advertising/marketing

– after-sales service

Competitive Strategy Examples

Advantage vs. Necessity

• Competitive Advantage – developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces

• Competitive Necessity – products, services, processes, or capabilities that are necessary simply to compete and do business in an industry

The Five Forces Model explains factors that determine competitiveness. The five forces model is used to determine the relative attractiveness of an industry. Examples of using the Five Forces Model include:

•Buyer Power – there is lots of competition among hotels given the huge number of hotels available in most markets. Many hotel chains have followed the airline idea of loyalty programs which give points for each stay.

•Supplier Power – to decrease supplier power is to locate alternative sources of supply. The business to business marketplace on the Internet can do this. Information is power.

•Threat of substitute products or services – business professionals can be threatened when new technology is used – tax preparer or financial services professional can be replaced by simple software packages for tax preparation or financial planning

•Threat of new entrants – many dotcoms fell victim to this. An entry barrier can be used to make it more difficult for competitors to jump into the business.

•Rivalry among existing competitors – IT can help make companies more efficient

Five Forces Model

Business Process Reengineering

• Called BPR or Reengineering– Fundamental rethinking and radical redesign– Of business processes– To achieve improvements in cost, quality,

speed and service

• Potential payback high

• Risk of failure is also high

How BPR differs from business improvement

A cross-functional process

Reengineering order management

Agility• Agility is the ability of a company to prosper

– In a rapidly changing, continually fragmenting

– Global market for high-quality, high-performance, customer-configured products and services

• An agile company can make a profit with– Broad product ranges

– Short model lifetimes

– Mass customization• Individual products in large volumes

How IT helps a company be agile

Virtual Company

• A virtual company uses IT to link– People, – Organizations, – Assets,– And ideas

• Creates interenterprise information systems – to link customers, suppliers, subcontractors and

competitors

A virtual company

Strategies of virtual companies

Knowledge Creation

• Knowledge-creating company or learning organization– Consistently creates new business knowledge– Disseminates it throughout the company– And builds in the new knowledge into its

products and services

Two kinds of knowledge

• Explicit knowledge– Data, documents and things written down or

stored on computers

• Tacit knowledge– The “how-to” knowledge which reside in

workers’ minds

• A knowledge-creating company makes such tacit knowledge available to others

Knowledge issues

• What is the problem with organizational knowledge being tacit?

• Why are incentives to share this knowledge needed?

Knowledge management techniques

Source: Adapted from Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age (New York: McGraw-Hill, 2001), p.70.

Lecture 1 - End of Presentation