CHAPTER 1
Information Systems
and Business
Strategy
Opening Case:
Apple – Merging
Systems, Business, and
Entertainment
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Chapter One Overview
• SECTION 1.1 – INFORMATION SYSTEMS IN
BUSINESS
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Information Systems’ Role in Business
Information Systems Basics
Roles and Responsibilities in Information Systems
Measuring Information Systems’ Success
• SECTION 1.2 – BUSINESS STRATEGY
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Identifying Competitive Advantages
The Five Forces Model – Evaluating Business Segments
Value Chain Analysis – Targeting Business Processes
The Three Generic Strategies – Creating a Business Focus
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LEARNING OUTCOMES
1.
Explain the role information systems have in business.
2.
Understand information systems basics, and the
responsibilities of senior IS personnel.
3.
Explain the importance of measuring information
systems’ success and the methods by which
information systems’ success is measured.
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LEARNING OUTCOMES
4.
5.
Explain the various ways organizations can assess
their competitive advantage (e.g. the Five Forces
Model, three generic strategies, and value chain
analysis).
Describe how business-driven information systems
can increase a company’s competitive business
strategy.
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SECTION 1.1
INFORMATION SYSTEMS
IN BUSINESS
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INFORMATION SYSTEMS’ ROLE
IN BUSINESS
• Information systems are everywhere in business
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Information Systems’ Impact on
Business Operations
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Information Systems’ Impact on
Business Operations
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Information Systems’ Impact on
Business Operations
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Information Systems’ Impact on
Business Operations
• Organizations
typically operate by
functional areas or
functional silos
• Functional areas
are interdependent
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INFORMATION SYSTEMS BASICS
• Information systems (IS) – any
computer-based tool that people use to
work with information and that supports
the information and informationprocessing needs of an organization
• An information system can be an
important enabler of business success
and innovation
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INFORMATION SYSTEMS BASICS
• Management information systems (MIS) – the
function that plans for, develops, implements,
and maintains IS hardware, software, and
applications that people use to support the
goals of an organization
• MIS is a business function, similar to
Accounting, Finance, Operations, and Human
Resources
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INFORMATION SYSTEMS BASICS
• When beginning to learn about
information systems it is important to
understand the following:
– The difference between data, information and
knowledge
– IS resources
– IS cultures
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Data – Information - Knowledge
• Data - raw facts that describe the
characteristic of an event
• Information - data converted into a
meaningful and useful context
• Knowledge - information that can be
enacted upon i.e “actionable information”
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IS Resources
• People use
Information
systems to work
with Information
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IS Cultures
• Organizational information cultures
include:
– Information-functional culture
– Information-sharing culture
– Information-inquiring culture
– Information-discovery culture
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ROLES AND RESPONSIBILITIES IN IS
• Information systems is a relatively new
functional area, having only been around
formally for about 40 years
• Recent IS strategic positions include:
– Chief Information Officer (CIO)
– Chief Technology Officer (CTO)
– Chief Security Officer (CSO)
– Chief Privacy Officer (CPO)
– Chief Knowledge Office (CKO)
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ROLES AND RESPONSIBILITIES IN IS
• Chief Information Officer (CIO) – oversees all
uses of IS and ensures the strategic alignment
of IS with business goals and objectives
• Broad CIO roles include:
– Manager – ensuring the delivery of all IS projects, on
time and within budget
– Leader – ensuring the strategic vision of IS is in line
with the strategic vision of the organization
– Communicator – building and maintaining strong
executive relationships
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ROLES AND RESPONSIBILITIES IN IS
• What concerns CIOs the most
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ROLES AND RESPONSIBILITIES IN IS
• Chief Technology Officer (CTO) – responsible for
ensuring the throughput, speed, accuracy, availability, and
reliability of IS
• Chief Security Officer (CSO) – responsible for ensuring
the security of information systems
• Chief Privacy Officer (CPO) – responsible for ensuring
the ethical and legal use of information
• Chief Knowledge Office (CKO) - responsible for
collecting, maintaining, and distributing the organization’s
knowledge
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ROLES AND RESPONSIBILITIES IN IS
• Skills pivotal for success in executive IS roles
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The Gap Between Business
Personnel and IS Personnel
• Business personnel possess expertise in
functional areas such as marketing,
accounting, and sales
• IS personnel have the technological
expertise
• This typically causes a communications
gap between the business personnel and
IS personnel
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Improving Communications
• Business personnel must seek to increase
their understanding of IS
• IS personnel must seek to increase their
understanding of the business
• It is the responsibility of the CIO to ensure
effective communication between
business personnel and IS personnel
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MEASURING INFORMATION
SYSTEMS’ SUCCESS
• Key performance indicator (KPI) – measures
that are tied to business drivers
• Metrics are detailed measures that feed KPIs
• Performance metrics fall into the nebulous area
of business intelligence that is neither
information systems, nor business centred, but
requires input from both IS and business
professionals
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Efficiency and Effectiveness
Metrics
• Efficiency IS metric – measures the
performance of the information system itself
including throughput, speed, and availability
• Effectiveness IS metric – measures the impact
IS has on business processes and activities
including customer satisfaction, conversion
rates, and sell-through increases
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Benchmarking – Baselining
Metrics
• Regardless of what is measured, how it is
measured, and whether it is for the sake of
efficiency or effectiveness, there must be
benchmarks – baseline values the system seeks
to attain
• Benchmarking – a process of continuously
measuring system results, comparing those
results to optimal system performance
(benchmark values), and identifying steps and
procedures to improve system performance
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The Interrelationships of Efficiency
and Effectiveness IS Metrics
• Efficiency IS metrics focus on information
systems and include:
– Throughput
– Transaction speed
– System availability
– Web traffic
– Response time
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The Interrelationships of Efficiency
and Effectiveness IS Metrics
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The Interrelationships of Efficiency
and Effectiveness IS Metrics
• Security is an issue for any organization offering
products or services over the Internet
• It is inefficient for an organization to implement
Internet security, since it slows down processing
– However, to be effective it must implement Internet
security
– Secure Internet connections must offer encryption
and Secure Sockets Layers (SSL denoted by the lock
symbol in the lower right corner of a browser)
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The Interrelationships of Efficiency
and Effectiveness IS Metrics
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OPENING CASE QUESTIONS
Apple - Merging Information Systems, Business and
Entertainment
1. What might have happened to Apple if its top executives
had not supported investment in iPods?
2.
Formulate a strategy for how Apple can use efficiency IS
metrics to improve its business.
3.
Formulate a strategy for how Apple can use
effectiveness IS metrics to improve its business.
4.
Why would it be unethical for Apple to sell its iTunes
customer information to other businesses?
5.
Evaluate the effects on Apple’s business if it failed to
secure its customer information and it was accidentally
posted to an anonymous Web site.
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SECTION 1.2
BUSINESS STRATEGY
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IDENTIFYING COMPETITIVE
ADVANTAGES
• To survive and thrive an organization
must create a competitive advantage
– Competitive advantage – a product or
service that an organization’s customers
place a greater value on than similar offerings
from a competitor
– First-mover advantage – occurs when an
organization can significantly impact its
market share by being first to market with a
competitive advantage
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IDENTIFYING COMPETITIVE
ADVANTAGES
• Organizations watch their competition through
environmental scanning
– Environmental scanning – the acquisition and
analysis of events and trends in the environment
external to an organization
• Three common tools used in industry to analyze
and develop competitive advantages include:
– Porter’s Five Forces Model
– Porter’s three generic strategies
– Value chains
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THE FIVE FORCES MODEL –
EVALUATING BUSINESS SEGMENTS
• Porter’s Five Forces Model determines the
relative attractiveness of an industry
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Buyer Power
• Buyer power – high when buyers have
many choices of whom to buy from and
low when their choices are few
• One way to reduce buyer power is
through loyalty programs
– Loyalty program – rewards customers
based on the amount of business they do
with a particular organization
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Supplier Power
• Supplier power – high when buyers have few
choices of whom to buy from and low when their
choices are many
– Supply chain – consists of all parties involved in the
procurement of a product or raw material
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Supplier Power
• Organizations that are buying goods and
services in the supply chain can create a
competitive advantage by locating
alternative supply sources (decreasing
supplier power) through B2B marketplaces
– Business-to-Business (B2B) marketplace –
an Internet-based service that brings together
many buyers and sellers
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Supplier Power
• Two types of business-to-business (B2B)
marketplaces
– Private exchange – a single buyer posts its
needs and then opens the bidding to any
supplier who would care to bid
– Reverse auction – an auction format in
which increasingly lower bids are solicited
from organizations willing to supply the
desired product or service at an increasingly
lower price
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Value Creation
• Once an organization chooses its
strategy, it can use tools such as the
value chain to determine the success or
failure of its chosen strategy
– Business process – a standardized set of
activities that accomplish a specific task, such
as processing a customer’s order
– Value chain – views an organization as a
series of processes, each of which adds
value to the product or service for each
customer
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Value Creation
Value Chain
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Value Creation
• Value chains with Porter’s Five Forces
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Threat of Substitute Products or
Services
• Threat of substitute products or
services – high when there are many
alternatives to a product or service and
low when there are few alternatives from
which to choose
– Switching cost – costs that can make
customers reluctant to switch to another
product or service
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Threat of New Entrants
• Threat of new entrants – high when it is
easy for new competitors to enter a
market and low when there are significant
entry barriers to entering a market
– Entry barrier – a product or service feature
that customers have come to expect from
organizations in a particular industry and
must be offered by an entering organization
to compete and survive
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Rivalry Among Existing
Competitors
• Rivalry among existing competitors –
high when competition is fierce in a
market and low when competition is more
complacent
• Although competition is always more
intense in some industries than in others,
the overall trend is toward increased
competition in just about every industry
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THE THREE GENERIC STRATEGIES –
CREATING A BUSINESS FOCUS
• Organizations typically
follow one of Porter’s
three generic
strategies when
entering a new market
– Broad cost
leadership
– Broad
differentiation
– Focused strategy
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THE THREE GENERIC STRATEGIES –
CREATING A BUSINESS FOCUS
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OPENING CASE QUESTIONS
6.
Apple - Merging Information Systems, Business
and Entertainment
Did Apple gain a competitive advantage from its
decision to invest in an online music business?
7.
How can Apple use environmental scanning to gain
business intelligence?
8.
Using Porter’s Five Force Model, analyze Apple’s buyer
power and supplier power.
9.
Which of the three generic strategies is Apple following?
10. Which of Porter’s Five Forces did Apple address
through its introduction of the iPod?
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CLOSING CASE ONE
Say “Charge It” with Your Cell Phone
1. Do you view this technology as a
potential threat to traditional telephone
companies? If so, what
counterstrategies could traditional
telephone companies adopt to prepare
for this technology?
2. Using Porter’s Five Forces describe the
barriers to entry for this new technology.
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CLOSING CASE ONE
Say “Charge It” with Your Cell Phone
3. Which of Porter’s three generic
strategies is this new technology
following?
4. Describe the value chain of using cell
phones as a payment method.
5. What types of regulatory issues might
occur due to this type of technology?
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CLOSING CASE TWO
Innovative Business Managers
1. Choose one of the companies listed above and
explain how it could use a CIO, CTO, and CPO
to improve business.
2. Why is it important for all of G.A.P. Adventures’
functional business areas to work together?
Provide an example of what might happen if the
G.A.P. Adventures marketing department failed
to work with its sales department.
3. Why are information systems important to an
organization like G.A.P. Adventures?
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CLOSING CASE TWO
Innovative Business Managers
4. Which of Porter’s Five Forces is most
important to Nike’s business?
5. Which of the three generic strategies is
PepsiCo following? Which strategy is
TransForce following?
6. Explain the value chain and how a
company like GE can use it to improve
operations.
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CLOSING CASE THREE
The World is Flat – Thomas Friedman
1. Do you agree or disagree with Friedman’s
assessment that the world is flat? Be sure to
justify your answer.
2. What are the potential impacts of a flat world for
a student performing a job search?
3. What can students do to prepare themselves for
competing in a flat world?
4. Identify a current flattener not mentioned on
Friedman’s list.
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