Chapter 1

Chapter 1
Information Technology
in the Digital Age
Learning Objectives
Describe the characteristics of the digital economy.
Recognize the relationships between business pressures,
organizational responses, and information systems.
Identify the major pressures in the business environment &
describe the major organizational responses to them.
Describe the role of I.T. in organizational activities.
Define computer-based information systems & I.T.
List the essentials of networked computing & Web-based
Case: BMS enters the Digital Economy
 Bristol-Myers Squibb (BMS) is a leading manufacture of
pharmaceutical drugs, beauty and infant-food products.
 They were struggling to stay ahead in the new digital
 BMS initiated multiple Web-based projects, overhauled its
management structure, revamped its procurement and supply
chain processes, and expanded its myriad of Web sites.
 BMS experienced over $100 million in annual savings just
from e-procurement.
Lessons from the Case
 Global competition drives even large corporations to find
ways to reduce costs, increase productivity and improve
customer service.
 These efforts are best achieved by using Web-based
 The major initiatives that BMS embarked upon were:
Reduce costs by introducing an e-procurement system.
Increase sales by utilizing the Web.
Improve relationships with employees & customers.
1.1 Doing Business in the Digital Economy
 Electronic commerce (EC) is the use of Web-based
systems to support buying, selling, and customer service.
 Click-and-mortar companies add some EC activities to
their regular business.
 Networked computing connects several computers and
other electronic devices via telecommunication networks.
 Internet, Intranet, Extranet
 Information technology (IT) refers to the collection of
computer systems used by an organization.
IT in Business Activities
Capabilities of IS (table 1.1)
Benefits of IS
Improving productivity
Reducing cost
Improving decision making
Enhance customer relationship
Developing new strategic applications
The Digital Economy
 The digital economy refers
to an economy that is based
on digital technologies,
including digital
communication networks,
computers, and software.
 The digital economy is also
sometimes called the
Internet economy, the New
economy, or the Web
Old vs. New Economy: Photography
Old Economy
 You buy film at the store, insert it
into your camera & take pictures.
 Once you complete the film,
sometimes weeks or months after
you began the roll, you take it to
the store for processing.
 Go back to the store and pay for
enlargements and duplications.
 Send photos to family and friends.
New Economy
 Use a digital camera that can also
take videos. No film is needed, and
no processing required. You can
see the results immediately &
enlarge & print photos quickly.
 If your digital camera is connected
to a wireless device (such as a
palmtop computer or a cell phone)
take pictures and see them within a
few seconds.
Digital Economy Business Models
 Business Model:
 A method of doing business
 Spell out how to add value
 Name-Your-Own-Price. Pioneered by, this
model allows customers to state a price they are willing to
pay for a product or service.
Digital Economy Business Models (cont.)
 Dynamic Brokering. In the digital age customers can
specify requirements for a service or a product. These
specifications are broadcast over the Internet
(“Webcasted”) to service providers in an automatic
invitation to submit bids.
 Reverse Auctions. Electronic reverse auctions are
fast, they reduce administrative costs by as much as
85 %, & products’ prices can be 5 - 20 % lower.
 Affiliate marketing is an arrangement in which
marketing partners place a banner of a company, such as, on their Web site.
Digital Economy Business Models (cont.)
 Group Purchasing. Anyone can pay less per
unit when buying more units. Discounts are
usually available for quantity purchases.
 E-marketplaces and Exchanges. Since
1999, thousands of electronic marketplaces,
of different varieties, have sprung up.
2.1 Major Business Pressures
Market Pressures
 Global Economy &
Strong Competition.
Global competition is
intensified as governments
become involved through
the use of subsidies, tax
policies, import/export
regulations & incentives.
Rapid and inexpensive
communication and
transportation modes
increase the magnitude of
international trade even
Market Pressures
 Changing Nature of
the Workforce.
The workforce is
becoming more diversified,
with more females, single
parents, minorities, and
handicapped persons
working in all types of
 Powerful
Consumer sophistication
& expectations increase
as customers become
more knowledgeable
about the availability and
quality of products and
Technology Pressures
 Technological
Innovation &
 Information
Some of today’s state-ofthe-art products may be
obsolete tomorrow.
The amount of
information available on
the Internet more than
doubles every year.
Thus, technology
accelerates the competitive
The management of
information is critical.
Societal Pressures (cont.)
 Social Responsibility.
Issues range from the
environment to education.
 Government
Regulation issues involve
health, safety,
environmental control, and
equal opportunity.
 Government
Deregulation. Deregulation
can be a blessing to one
company but a curse to
another company.
 Ethical Issues.
Business ethics relates to
standards of right and wrong
in business practices.
Organizational and societal impact
Organizational Responses
 Organizations need to respond to business, societal and
technical pressures with critical response activities.
 A typical industry-level response to the digital economy is
disintermediation, or the elimination of intermediary
 Organizations can also take proactive measures, to create a
change in the market place.
e.g., exploiting opportunities created by external pressures.
Organizations’ Major Responses
 Strategic systems for
competitive advantage
 Continuous improvement
 Business process
reengineering (BPR)
 Business alliances
 Electronic commerce
Organizations’ Major Responses
 Strategic Systems provide organizations with strategies to
increase their market share, better negotiate with suppliers,
or stop competitors. (e.g. Federal Express’s overnight
delivery sys)
 Continuous Improvement Efforts aim to improve a
company’s productivity and quality. Examples include:
Improved productivity
Just-in-time (JIT)
Total quality management
Knowledge management
 Managing enterprise data
 Innovation and creativity
 Change management
 Customer service
Organizations’ Major Responses
 Business Process Reengineering refers to the
introduction of a major innovation in an organization’s
structure & the way it conducts business.
The major areas in which IT supports BPR are the
Reducing cycle time and time to market.
Empowerment of employees and collaborative work.
Customer-focused approach and CRM.
Restructuring and team-based structure.
Organizations’ Major Responses
 Business Alliances. Many companies realize that
alliances with other companies, even competitors,
can be very beneficial.
Temporary joint venture = companies form a special
company for a specific, limited-time mission.
 Electronic Commerce. Doing business
electronically is the newest and perhaps most
promising strategy that many companies can
Case: IT Shortens Time to Market
 In order to assure quality, and minimize risk, the FDA requires
companies to conduct extensive research & testing, which can
take up to 10 years.
 Several software companies enable document scanning into
databases that saves hours in research time.
 The database is indexed and includes full-text-search and
retrieval programs.
 The time to market of a new drug has been reduced by up to a
year, saving hundreds of lives.
Information Systems
 Information systems (IS) collect, process, store,
analyze, and disseminate information for a
specific purpose.
 Information Systems are comprised of;
inputs (data, instructions)
outputs (reports, calculations)
feedback mechanisms that controls the operation
an environment that it works within
Computer-Based Information System
A computer-based
information system (CBIS)
is an information system
that uses computer
technology to perform
some or all of its intended
Components of Information Systems
 Hardware is a set of devices
such as processor, monitor,
keyboard, and printer.
 Software is a set of programs
that enable the hardware to
process data.
 Database is a collection of
related files, tables, relations,
and so on, that stores data.
 Network is a connecting system
that permits the sharing of
resources between computers.
 Procedures are the set of
instructions about how to
combine the above components.
 People are those individuals
who work with the system or use
its output.
Case: Managing Accounting Across Asia
 Le Saunda Holding Company (Hong Kong) is a shoe manufacturer that
manages 32 subsidiaries in four Asian countries.
 Their financing and cash flow is a very complex process.
 To cope with the rapid growth of the company, a sophisticated accounting
software package was installed.
 The system is much more reliable & internal/ external auditing is easier.
 All these improvements have led to a substantial growth in revenue and
profits for the firm.
Case: the US Presidential Election 2000
 In addition to the various success stories, IT involves a number of
failures, with the most famous being the Presidential Election of
 20-to-30 year old machines were used to count votes and
generated the greatest election confusion ever encountered.
 How can such election confusion be avoided in the future?
Perhaps the solution lies in digital-age voting machines, which
displays a person’s vote on a computer screen and asks them to
verify their choice.
General Technological Trends
General trends within computing systems include the following:
 Cost Performance Ratio
 Object-Oriented
Environment & Document
 Intranets and Extranets
 Networked Computing
 Corporate Portals
 Mobile Commerce
 The Networked Enterprise
 Integrated Home
 Optical Networks
 The Internet
Cost Performance Ratio
 Cost Performance Ratio: Improvement by a Factor
of at Least 100.
In about 10 years, a computer will cost the same as
its costs today but will be about 50 times more
Moore’s Law:
Gordon Moore, the co-founder of Intel, predicted in 1965
that the processing power of silicon chips would double
every 18 months.
Object-Oriented Environments
 An object-oriented environment is an innovative way of
programming and using computers that is expected to
significantly reduce the cost of both building and
maintaining information systems.
 Object technology enables the development of selfcontained units of software that can be shared,
purchased, and/or reused.
 The increased use of multimedia and object-oriented
systems makes electronic document management one
of the most important topics of IT.
Network Computing
Network technology enables users to reach other users
and access databases anywhere in the organization.
 Metcalfe’s Law: Robert Metcalfe, a pioneer of computer
networks, claims that the value of a network grows roughly
in line with the square of the number of its users.
 Kelly’s Extension: The value of the Internet is much larger,
according to Kelly (1999). On the Internet we can make
multiple simultaneous connections between groups of
M-commerce (mobile commerce) refers to the conduct of
e-Commerce via wireless devices. It is the commercial
application of mobile computing which is based on wireless
 There is an increased interest in m-commerce because the
number of mobile devices is projected to top 1 billion by
Location-based commerce (L-commerce) is an application
of m-commerce that offers customers the location
information of anything they want to purchase.
Network Computers & Home Computing
 The Network Computer, first introduced in 1997, does
not have a hard drive. Instead, it is served by a central
computing station, and temporarily receives and can
use applications and data stored elsewhere on the
 Integrated Home Computing. Soon, home computing,
television, telephone, home security systems, and
other devices will be integrated and managed in one
Smart appliances refer to home appliances that are
connected to the Internet.
The Internet, Intranets & Extranets
 The Internet. From about 50 million Internet users in 1997,
there could be as many as 750 million by 2007.
 Intranets utilize information technology to provide
organizations with internal communication systems.
 Extranets combine intranets with the Internet to create a
powerful interorganizational systems for collaboration.
Corporate Portals, Networked Enterprises
& Optical Networks
 A corporate portal refers to a company’s Web site that is used
as a gateway to the corporate data, information, and knowledge.
 The Networked Enterprise. The various components just
described can be integrated together into an enterprise wide
network extended to all business partners.
 Optical Networks are high capacity telecommunication
networks that convert signals in the network and transmit these
over fiber optic filaments.
Why Learn about IT?
 Being IT Literate On the Job & Off
 Finding Employment Opportunities in IT
 Future Organizational Leadership
 Using IT to Become a Millionaire
Plan of the Book
Part I: IT in the Organization
Part II: The Web Revolution
Part III: Organizational Applications
Part IV: Managerial and Decision Support Systems
Part V: Implementing and Managing IT
Managerial Issues
 How can we recognize the
opportunities for using IT and
Web-based systems?
 How important is IT? In
some cases, IT is the only
approach that can help
 Who is going to build,
operate, and maintain the
information systems?
How much IT? IT
does not come free,
but not having it may
be much costlier.
Managerial Issues (cont.)
 Is the situation going to
change? Yes, the
pressures will be stronger
as time passes & the IT
role will be even more
 What about ethics and
social issues? The
implementation of IT
involves many ethical and
social issues.
 What about Globalization?
Globalization opens many
opportunities, ranging from
selling products and
services online, to
conducting joint ventures or
investing in them.
 How can an organization
transform itself to the digital