Managing the Digital Firm

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Managing the Digital Firm
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Management Information Systems Chapter 1 Managing
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OBJECTIVES

• Explain why information systems are so important
  today for business and management
• Evaluate the role of information systems in
  todays competitive business environment
• Assess the impact of the Internet and Internet
  technology on business and government

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OBJECTIVES (Continued)

• 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

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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 ITs role in operational excellence,
  better quality products, and agilitytime to
  market
• Illustrates the emerging digital firm landscape
  where information can flow seamlessly among
  business partners to create a superior customer
  experience

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WHY INFORMATION SYSTEMS?
Why Information Systems Matter
There are four reasons why IT makes a difference
to the success of a business

• Capital management
• Foundation of doing business
• Productivity
• Strategic opportunity and advantage

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WHY INFORMATION SYSTEMS?

• 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
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WHY INFORMATION SYSTEMS?

• 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

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Information Technology Capital Investment
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Foundation of doing business

• In the US over 23million managers and over 113
  million workers in labour force rely on
  information systems
• Most businesses today could not operate without
  extensive use of information systems and
  technologies.
• IT can increase market share.
• IT can help a business become a high-quality,
  low-cost producer.

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WHY INFORMATION SYSTEMS?
Foundation of doing business

• 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

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The Interdependence between Organizations
and Information Systems
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Productivity

• 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.

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WHY INFORMATION SYSTEMS?
Strategic Opportunity and Advantage

• 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.

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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.

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Strategic Opportunity and Advantage

• 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.

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WHY INFORMATION SYSTEMS?
How Much Does IT Matter?

• 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.

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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.

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WHY INFORMATION SYSTEMS?
Why IT Now? Digital Convergence and the Changing
Business Environment
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.
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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

• Internet growth and technology convergence
• Transformation of the business enterprise

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

• Growth of a globally connected economy
• Growth of knowledge and information-based
  economies
• Emergence of the digital firm

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The Internet and Technology Convergence

• 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.

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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.

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Transformation of the Business Enterprise

• 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.

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WHY INFORMATION SYSTEMS?

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

Transformation of the Business Enterprise
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Transformation of the Business Enterprise

• Flattening

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• Location independence
• Low transaction and coordination costs
• Empowerment
• Collaborative work and teamwork

Transformation of the Business Enterprise
(Continued)
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Globalization

• 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.

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WHY INFORMATION SYSTEMS?
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
  marketplace, obtaining price and quality
  information reliably 24 hours a day

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Globalization

• Global workgroups
• Global delivery systems

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Rise of the Information Economy

• 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

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• Knowledge and information-based economies
• New products and services, Dow Jones News
  Service, and America Online
• Knowledge- and information-intense products,
  computer games
• Knowledge as a central productive and strategic
  asset

Rise of the Information Economy
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The Growth of the Information Economy
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.
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Emergence of the Digital Firm

• 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 societythe fully digital firm
• A digital firm
• Digitally-enabled relationships with customers,
  suppliers, and employees

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Emergence of the Digital Firm

• Digitally enabled relationships with customers,
  suppliers, and employees
• Core business processes(The unique ways in which
  organizations coordinate and organize work
  activities, information, and knowledge to produce
  a product or service) accomplished via digital
  networks
• Digital management of key corporate assets

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WHY INFORMATION SYSTEMS?

• Rapid sensing and responding to environmental
  changes
• Seamless flow of information within the firm, and
  with strategic partners
• For managers of digital firms, information
  technology is not simply an enabler, but rather
  it is the core of the business and the primary
  management tool.

Emergence of the Digital Firm (Continued)
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The Emerging Digital Firm
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PERSPECTIVES ON INFORMATION SYSTEMS
What Is an Information System?
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
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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

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Data and Information
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Activities in an Information System
Captures 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
INPUT
PROCESS
Output that is returned to appropriate members of
the organization to help them evaluate or correct
the input stage
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Functions of an Information System
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Computer-Based Information System (CBIS)

• Rely on computer hardware and software
• Processing and disseminating information
• Fixed definitions of data and procedures
• Collecting, storing, and using information

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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.

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A Business Perspective on Information Systems
Information systems are more than just
technology. Businesses invest in IS in order to
create value and increase profitability.

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

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A Business Perspective on Information Systems
(Continued)

• Based on information technology but also require
  significant investment in organizational and
  management changes and innovations
• IS create value primarily by changing business
  processes and management decision making.

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Business information value chain

• 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

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The Business Information Value Chain
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Information Systems Are More than Computers
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PERSPECTIVES ON INFORMATION SYSTEMS

• Information systems literacy Broad-based
  understanding of information systems that
  includes behavioral knowledge about
  organizations, management and individuals using
  information systems as well as technical
  knowledge about computers
• Computer literacy Knowledge about information
  technology, focusing on understanding how
  computer technologies work
•  

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Dimensions of Information Systems

• 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.
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The Organization

• 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 Organizations structures
  reveal a clear-cut division of labor. Experts are
  employed and trained for different business
  functions

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The Organization

• Key Elements of an organization are
• People Managers, knowledge workers, data
  workers, production or service workers
• Structure Organization chart , groups of
  specialists, products, geography

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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.
• CultureEach 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.

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Major Business Functions Rely on Information
Systems

• major business functions (specialized tasks
  performed by business organizations) rely on
  Information Systems
• Sales and marketing
• Manufacturing
• Finance
• Accounting
• Human resources

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Management

• 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.

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Management

• Managers are
• Sense makers
• Decision makers
• Planners
• Innovators of new processes
• Leaders set agendas

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• 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 firms daily
  activities
• Each level of management has different
  information needs and information system
  requirements.

Management
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Management
Managers who can understand the role of
information systems in creating business value
are the key ingredient to success with systems,
and cannot easily be replicated by your
competitors.
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The Technology Dimension of Information Systems
Information technology is one of the tools
managers use to cope with change

• Hardware Physical equipment
• Software Detailed preprogrammed instructions
• Storage Physical media for storing data and the
  software

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The Technology Dimension of Information Systems
(Continued)

• Communications technology Transfers data from
  one physical location to another
• Networks Links computers to share data or
  resources

Managers need to know enough about information
technology to make intelligent decisions about
how to use it for creating business value.
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Complementary Assets and Organizational Capital

• Complementary assets
• New business processes
• Management behavior
• Organizational culture
• Training

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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
  

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Variation in Returns on Information Technology
Investment
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.
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CONTEMPORARY APPROACHES TO INFORMATION SYSTEMS

• 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.

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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.

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CONTEMPORARY APPROACHES TO INFORMATION SYSTEMS

• Technical Approach
• Behavioural Approach

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Sociotechnical Systems

• Optimize systems performance
• Technology and organization
• Organizations mutually adjust to one another
  until fit is satisfactory

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CONTEMPORARY APPROACHES TO INFORMATION SYSTEMS
A Sociotechnical Perspective on Information
Systems