information system on global businesses today

1.1 © 2010 by Prentice Hall

11ChapterChapter

Information Systems Information Systems in Global Business in Global Business

TodayToday

Information Systems Information Systems in Global Business in Global Business

TodayToday


The Role of Information Systems in Business Today

• How information systems are transforming business• Increase in wireless technology use, Web sites

• Shifts in media and advertising

• New federal security and accounting laws

• Globalization opportunities• Internet has drastically reduced costs of operating on

global scale

• Presents both challenges and opportunities e.g. cost reduction, worldwide market place.

• Information systems enable globalization

Management Information SystemsManagement Information SystemsChapter 1 Information Systems in Global Business TodayChapter 1 Information Systems in Global Business Today




Information Technology Capital InvestmentInformation Technology Capital Investment

Figure 1-1

Information technology investment, defined as hardware, software, and communications equipment, grew from 32% to 51% between 1980 and 2008.Source: Based on data in U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, 2008.


Business Processes and Information Systems

• Business processes:• set of logically related task and behavior that organization develop overtime to

produce specific business result and the unique manner in which these activities co ordained and organized

• Refers to the unique way in which organization co ordinate work, information, knowledge and the way in which management chooses to co ordinate the work

• Workflows of material, information, knowledge, Sets of activities, steps

• e.g developing a new product, generating & fullfilling a order, hiring employee, creating marketing plan

• May be tied to functional area or be cross-functional

• Businesses: Can be seen as collection of business processes

• Business processes may be assets or liabilities

• Manufacturing and productio e.g,Assembling the product

• Sales and marketing e.g ,Identifying customers

• Finance and accounting e.g Creating financial statements

• Human resources e.g Hiring employees

Management Information SystemsManagement Information SystemsChapter 2 Global E-Business: How Businesses Use Information SystemsChapter 2 Global E-Business: How Businesses Use Information Systems


The Order Fulfillment ProcessThe Order Fulfillment Process

Figure 2-1

Fulfilling a customer order involves a complex set of steps that requires the close coordination of the sales, accounting, and manufacturing functions.

Business Processes and Information Systems

Management Information SystemsManagement Information SystemsChapter 2 Global E-Business: How Businesses Use Information SystemsChapter 2 Global E-Business: How Businesses Use Information Systems


• In the emerging, fully digital firm• Significant business relationships are digitally enabled and mediated• Core business processes are accomplished through digital networks• Key corporate assets (intellectual property, core competencies(Activity for

which firm is world-class leader.Relies on knowledge, experience, and sharing this across business units) financial and human assets) are managed digitally

• Any piece of information available anywhere anytime

• Digital firms offer greater flexibility in organization and management

• Time shifting, space shifting• Response to environment more rapidly than traditional firme.g. Toyota company, Cisco systems and dell computers are close

to digital companyAccenture company is fully digital company



• Service industries including personal services ,retail firms, manufacturing companies rely on information technology.

• Information technology instead of building, telephone line. filing cabinet, elevators foundation of Business

• Growing interdependence between ability to use information technology and ability to implement corporate strategies and achieve corporate goals

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

• Operational excellence• New products, services, and business models• Customer and supplier intimacy• Improved decision making• Competitive advantage• Survival




• Operational excellence:• Improvement of efficiency to attain higher profitability• Information systems, technology an important tool in achieving greater

efficiency and productivity• Wal-Mart’s RetailLink system links suppliers to stores for superior

replenishment system• $379 billion sales that is one tenth of retail sales in USA

• Sales of wall mart is $28 per square foot but other has$23 or $10

New products, services, and business models:• Business model: describes how company produces, delivers, and sells

product or service to create wealth• Information systems and technology is a major enabling tool for new

products, services, business models• Examples: Apple’s inc transformed old business model instead of

tapes,reocords and CD to iPod, iTunes, and iPhone• Netflix’s cahnged their tradnitional DVD rental to Internet-based DVD rentals




•Customer and supplier intimacy:• Serving customers well leads to customers returning, which

raises revenues and profits• Example:The mandarin hotel in Manhattan & other High-end

hotels that use computers to track customer preferences and use to monitor and customize environment

• The hotel analyze the customer data to identify best customer & develop individualized marketing campaign based on digital profile.

• Intimacy with suppliers allows them to provide vital inputs, which lowers costs

• Example: J.C.Penney’s information system which links sales records to contract manufacturer in Hong Kong TAL Apparel ltd.TAL run number through a computer model & decide how many shirts to make.TAL directly sends by passing retailers warehouse.




• 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: Verizon’s Web-based digital dashboard to provide

managers with real-time data on customer complaints, network performance, line outages, storm damaged lines etc.By using IS manager can immediately allocate resources and inform customers




• Competitive advantage• Delivering better performance• Charging less for superior products• Responding to customers and suppliers in real time• All lead to higher sales and higher profits than others• Example: Toyota and TPS (Toyota Production System) enjoy a considerable

advantage over competitors – information systems are critical to the implementation of TPS, IS help Toyota to implement TPS and make vehicle based on customer ordered. Wal mart enjoing such benefit over other

• Survival• Information technologies as necessity of business• May be:

• Industry-level changes, e.g. Citibank’s introduction of ATMs due to introduction of ATM by HSBC in 1987

• DBBL ATM, Automation of Nationalized bank• Governmental regulations requiring record-keeping

• Examples: Toxic Substances Control Act 1976, Sarbanes-Oxley Act 2002





The Interdependence Between Organizations and The Interdependence Between Organizations and Information TechnologyInformation Technology

In contemporary systems there is a growing interdependence between a firm’s information systemsand its business capabilities. Changes in strategy, rules, and business processes increasingly require changes in hardware, software, databases, and telecommunications. Often, what the organization would like to do depends on what its systems will permit it to do. Figure 1-2


• 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

Perspectives on Information Systems



• Information system: Three activities produce information organizations need

• Input: Captures raw data from organization or external environment• Processing: Converts raw data into meaningful form• Output: Transfers processed information to people or activities that

use it• Feedback:

• Output returned to appropriate members of organization to help evaluate or correct input stage

• Computer/Computer program vs. information system

• Computers and software are technical foundation and tools, similar to the material and tools used to build a house






An information system contains information about an organization and its surrounding environment. Three basic activities—input, processing, and output—produce the information organizations need. Feedback is output returned to appropriate people or activities in the organization to evaluate and refine the input. Environmental actors, such as customers, suppliers, competitors, stockholders, and regulatory agencies, interact with the organization and its information systems.

Figure 1-4

Functions of an Information SystemFunctions of an Information System




Using information systems effectively requires an understanding of the organization, management, and information technology shaping the systems. An information system creates value for the firm as an organizational and management solution to challenges posed by the environment.

Figure 1-5

Information Systems Are More Than ComputersInformation Systems Are More Than Computers


• Organizational dimension of information systems• IS is the intergal part of the organization

• The key elements of an organization are its:• People, Structure. Business processes. Politics.Culture• Hierarchy of authority, responsibility

• Senior management: Responsible for long rang decision• Middle management: Carries out the program and plan of senior management. • Operational management: responsible for monitoring the daily activities.• Knowledge workers: design product &services &create new knowledge• Data workers: assist the paper work at all levels• Production or service worker: produce the product and deliver the services• Information system automate many business process. e.g granting loan or how

customer willl be billed.• Parts of culture should be embedded in IS e,g UPS service customer first

included in Package tracking systems• IS come out of this cauldron of differing perspective, conflicts ,compromises

and agreement





Business organizations are hierarchies consisting of three principal levels: senior management, middle management, and operational management. Information systems serve each of these levels. Scientists and knowledge workers often work with middle management.

Figure 1-6

Levels in a FirmLevels in a Firm


• Organizational dimension of information systems (cont.)

• Separation of business functions• Sales and marketing• Human resources• Finance and accounting• Manufacturing and production

• Unique business processes• Unique business culture• Organizational politics




• Management dimension of information systems• Managers set organizational strategy for responding to business

challenges• In addition, managers must act creatively:

• Creation of new products and services• responsibility is to create work driven by new knowledge and IS• Occasionally re-creating the organization• Information technology can play powerful role in helping manager

design and deliver new products and services &redirecting and redesigning the organization

• Technology dimension of information systems

• 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 is built on



Why do some firms become leaders within their industry?

• In search engine Google is leader, In Online retailer Amazon is leader In automotive Toyota is leader, In online music Apples is leader.

• They are successful and make loads of money. They could easily rest on their laurels, kick back, and relax. If they are so successful, why do they keep working so hard to continually introduce new products and services and improve the old ones? Because someone, somewhere, is trying to take their place and become the new giant. These companies must constantly work to keep their competitive advantage and they are using information systems to do so.

Using Information Systems to Achieve Competitive Advantage

Management Information SystemsManagement Information SystemsChapter 3 Information Systems, Organizations, and StrategyChapter 3 Information Systems, Organizations, and Strategy


• Michael Porter’s competitive forces model• Provides general view of firm, its competitors, and

environment• Porter’s competitive forces model contends that much of

the success or failure of a business depends on its ability to respond to its external environment.

• Five competitive forces shape fate of firm• Traditional competitors • New market entrants • Substitute products and services• Customers• Suppliers


Porter’s Competitive Forces ModelPorter’s Competitive Forces Model

Figure 3-10

In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry’s environment: new market entrants, substitute products, customers, and suppliers.




• Traditional competitors• All firms share market space with competitors who

are continuously devising new products, services, efficiencies, attract customers by new product & increase switching costs

• New market entrants • Some industries have high barriers to entry, e.g. computer chip

business, huge capital required• New companies have several advantages e.g. locked into

plant and equipment, hire younger employee they are more hungry

• disadvantage for new companies: depending on outside for financing, less experienced labor &little brand recognition




• Substitute products and services• Substitutes customers might use if your prices

become too high, e.g. internet telephone for traditional telephone, iTunes substitutes for CDs, fiber optic for cable TV line

• Customers • Can customers easily switch to competitor’s

products? Can they force businesses to compete on price alone in transparent marketplace where there is little product differentiation? All prices are known instantly.

• E.g. online new books/ used books




• Suppliers• Market power of suppliers when firm cannot

raise prices as fast as suppliers.The different supplier has, the greater control it can exercise over supplier.e.g. manufacturer of laptop pc have multiple supplier such as keyboard, hard drive

Complementary :Power, vigor and competetence of coplementors

• Number of complementors boosts demand and profit for the company.

• Eg. Supply of high quality software increase the demand of pc.


How can the firm use information systems for counteract some of these forces? How do you prevent substitutes and inhibit new market entrants?Many companies have found that effective and efficient information.

•Four generic strategies for dealing with competitive forces, enabled by using IS

• Low-cost leadership

• Product differentiation

• Focus on market niche

• Strengthen customer and supplier intimacy




• Low-cost leadership• produce products and services at a lower price than

competitors while enhancing quality and level of service.

• E.g. Wal-Mart over head cost is 16.6% while the etail industry average overhead cost 20.7%, Dell, Hypercity use JDA software for advanced store replenishment that increase ROI 25-30%

• Efficient customer response systems provide a company and its suppliers with an integrated view of customers. These systems provide instantaneous information to the company and its suppliers. Every staff member can have access to the information in the system to help reduce costs and prices well below that of the competition. Processes such as supply replenishment are automated between companies and suppliers. When products reach a certain re-order point, the system automatically sends a message to the supplier who can quickly send out new stock. These systems help companies achieve low-cost leadership in their industry.




• Enable new products or services, greatly change customer convenience and experience

• E.g. Google (Google maps), Apple(iPhone,ipod video player,smartphone),Dell inc sells directly to customers(toll free telephone call),Tajlands End use electronic systems.

Apple uses product differentiation to help market its iPod and online music system to a broad swath of the population and create barriers that its competitors are having difficulty overcoming. People like to feel that they are unique individuals with their own needs and desires. One of the best strategies for dealing with competitors is to offer customers exactly what they want, when they want it, and how they want it.The Internet provides a new outlet for mass customization by allowing customers to order one-of-a-kind products.

Product differentiation


• Focus on market niche• Serve narrow target market better than competitor ( Zoom

by City cell)

• Information systems enable firm to analyze customers buying pattern, tastes, preference so that they can campaign in a smaller market

• Use information systems to enable a focused strategy on a single market niche; specialize.

• E.g. Hilton hotel use ONQ to collect information. types of holiday, Auto nation mines customer data to determine which models and options they are most likely to buy.

• Identify profitable customer revenue increased from 41% to 61%




• Use information systems to develop strong ties and loyalty with customers and suppliers;

• Chrysler corporation use information system to facilitate direct access to customer in supplier to production schedule even permit the supplier how and when to ship the supplier. increase switching costs. E.g., Amazon keep track of user preferences for book and CD purchase & recommend others., Tata motors provide direct access by supplier.

• Implementing these competitive strategies requires precise coordination of people, technology and the organization. A company can pursue one or more of these strategies but cannot isolate any of the three dimensions of an information system. They must all work in concert together to have any hope of success

Strengthen customer and supplier intimacy’


• Of course the Internet has turned many traditional management practices to dust. Customers have access to much more information and data than they ever did before. They can compare product prices across hundreds of companies with a few clicks. Before the Internet, customers may have had access to a limited number of retailers. Through the Internet, they now have access to hundreds of retailers open 24 hours a day. Once retailers had only local competition. Now they have to compete with other retailers located halfway around the world.

• Transformation, destruction, threat to some industries

• First wave: Books, music and air travel .

• Second wave: Telephone services, movie, television, jewelery real state, hotels, bill payments and software

• Competitive forces still at work, but rivalry more intense

• Universal standards of intenet, allow new rivals, entrants to market

• New opportunities for building brands and loyal customer bases eg

• e-bay,overstock.com,amazon.com,google.

• The Internet’s impact on competitive advantage



• Business perspective on information systems:• Information system is instrument for creating value• Investments in information technology will result in superior

returns:• Productivity increases• Revenue increases• Superior long-term strategic positioning

• e.g IS for analyzing supermarket checkout can increase firm profitability

• There are three ways an information system can add value to a business:

• Help managers make better decisions

• Help make business processes more efficient

• Increase profitability

Primary purpose is to contribute to corporate value.




•Business information value chain• Raw data acquired and transformed through stages

that add value to that information• Value of information system determined in part by

extent to which it leads to better decisions, greater efficiency, and higher profits

•Business perspective: Calls attention to organizational and managerial nature of information systems






From a business perspective, information systems are part of a series of value-adding activities for acquiring, transforming, and distributing information that managers can use to improve decision making, enhance organizational performance, and, ultimately, increase firm profitability.

Figure 1-7

The Business Information Value ChainThe Business Information Value Chain


• Business value chain model

• Views firm as series of activities that add value to products or services

• Highlights activities where competitive strategies can best be applied & where information systems are most likely to have a strategic impact.

• Primary activities vs. secondary activities

• At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy

• Utilize benchmarking, industry best practices

• By effectively using an information system in a strategic role at any, or preferably all, levels of the organization, a digital firm can provide more value in their products than the competition. If they can’t provide more value, then the strategic information system should help them provide the same value but at a lower price.



The Value Chain ModelThe Value Chain Model

Figure 3-11

This figure provides examples of systems for both primary and support activities of a firm and of its value partners that can add a margin of value to a firm’s products or services.




• Network-based strategies• The availability of internet and networking

technologies take advantage of firm’s abilities to network with each other

• Include use of:

• Network economics

• Virtual company model

• Business ecosystems




• Network economics• Traditional economics: Law of diminishing returns

• The more any given resource is applied to production, the lower the marginal gain in output, until a point is reached where the additional inputs produce no additional outputs

• Network economics:• Marginal cost of adding new participant almost zero, with

much greater marginal gain

• Value of community grows with size eg-bay,ivillage

• More people offering the product on ebay site the more valuable the ebay site because more products are listed.

• Value of software grows as installed customer base grows




• Virtual company strategy• Virtual company uses networks to link people,assets,ideas to ally

with other companies to create and distribute products without being limited by traditional organizational boundaries or physical locations.One company can use the capabilities of other without being physically tied to that company.

• E.g.Fashion companies Guess,levi strauss & Reebok depends onLi fung. Li Fung manages production, shipment of garments for major fashion companies, outsourcing all work to over 7,500 suppliers in 37 countries

• Companies are no longer tied to suppliers and business partners located in specific geographical areas but can find the best service provider or business partner around the world.




• Business ecosystems• Porters model confines the marketplace in one industry.Instead of participating one indurty,firms are

aware to participate in industry sets

• Business ecosystems is another term that loosely coupled but interdependent network of supplier,distributors,outsourcing firms,traportation services and technology manufacrer.

• The idea is to drive down the cost of supplies and make the entire industry more efficient. While things haven’t gone as smoothly as originally hoped for, the idea has been planted and is now spreading to other industries.

• Main difference with value web that cooperatin takes places many industries rather than many firms

• Industry sets of firms providing related services and products

• Microsoft platform used by thousands of firms for their own products

• Wal-Mart’s order entry and inventory management system

• Keystone firms: Dominate ecosystem and create platform used by other firms

• Niche firms: Rely on platform developed by keystone firm

• Individual firms can consider how IT will enable them to become profitable niche players in larger ecosystems

• E.g. mobile internet platform:Device makers(LG,motorola)Wireless telecommunication frim(AT&T,verizon,independent software applications providers(ring tone,games)internet service provider




An Ecosystem Strategic ModelAn Ecosystem Strategic Model

Figure 3-13

The digital firm era requires a more dynamic view of the boundaries among industries, firms, customers, and suppliers, with competition occurring among industry sets in a business ecosystem. In the ecosystem model, multiple industries work together to deliver value to the customer. IT plays animportant role in enabling a dense network of interactions among the participating firms.




• Investing in information technology does not guarantee good returns

•Considerable variation in the returns firms receive from systems investments

•Factors: • Adopting the right business model• Investing in complementary assets (organizational

and management capital)




•Complementary assets: • Assets required to derive value from a primary

investment• Firms supporting technology investments with

investment in complementary assets receive superior returns

• E.g.: invest in technology and the people to make it work properly




• Complementary assets include: • Organizational investments, e.g.

• Appropriate business model• Efficient business processes• Decentralized authority• Strong IS development team

• Managerial investments, e.g.• Incentives for management innovation• Teamwork and collaborative work environments• Strong senior management support

• Social investments, e.g.• The Internet and telecommunications infrastructure• Technology standards• Technology and service firm to assist implementation


information system on global businesses today

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