Management Information Systems managing the digital firm

Learning Objectives Web Link Video Management Wrap-up Information Systems in the Enterprise Case Study: Fast Fashion, Hot Systems Section 2.1: Major Types of Systems in Organizations Di

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Learning Objectives Web Link Video Management Wrap-up

Managing the Digital Firm

Case Study: DaimlerChrysler’s Agile Supply Chain

Section 1.1: Why Information Systems?

Why Information Systems Matter How Much Does IT Matter?

Why IT Now? Digital Convergence and the Changing Business Environment

Section 1.2: Perspectives on Information Systems

What Is an Information System?

Window on Organizations:Cemex: A Digital Firm in the Making

Window on Technology: UPS Competes Globally with Information Technology

It Isn’t Just Technology: A Business Perspective on Information Systems Dimensions of Information Systems

Section 1.3: Contemporary Approaches to Information Systems

Technical Approach Behavioral Approach Approach of This Text: Sociotechnical Systems

Section 1.4: Learning to Use Information Systems: New Opportunities with Technology

The Challenge of Information Systems: Key Management Issues Integrating Text with Technology: New Opportunities for Learning

Learning Supplements

Make IT Your Business Summary

Key Terms Review Questions Discussion Questions

Application Software Exercise: Database Exercise: Adding Value to Information for Management

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Information Systems in the Enterprise Case Study: Fast Fashion, Hot Systems

Section 2.1: Major Types of Systems in Organizations

Different Kinds of Systems Four Major Types of Systems Relationship of Systems to One Another

Section 2.2: Systems from a Functional Perspective

Sales and Marketing Systems Manufacturing and Production Systems

Window on Organizations: Product Life Cycle Management Systems: Faster Products, Faster Processes

Finance and Accounting Systems Human Resources Systems

Section 2.3: Integrating Functions and Business Processes: Introduction to Enterprise Applications

Business Processes and Information Systems Systems for Enterprise-Wide Process Integration Overview of Enterprise Applications

Window on Technology: Haworth Overhauls Supply Chain Management

Section 2.4: Management Opportunities, Challenges, and Solutions

Opportunities Management Challenges Solution Guidelines

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Application Software Exercise: Spreadsheet Exercise: Improving Supply Chain

Management Dirt Bikes U.S.A.: Analyzing Financial Performance Electronic Business Project: Planning Transportation Logistics Group Project: Describing Management Decisions and Systems Case Study: Snyder’s of Hanover: New Systems for an Old Family Company

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Information Systems, Organizations, Management, and Strategy Case Study: Gallo Winery Leads by Blending Business with Technology

Section 3.1: Organizations and Information Systems

Section 3.3: The Impact of IT on Management Decision Making

How IT Affects Management Decision Making The Role of Managers in Organizations Models of Decision Making

Implications for the Design and Understanding of Information Systems

Section 3.4: Information Systems and Business Strategy

Business-Level Strategy: The Value Chain Model

Window on Technology: Hotel Loyalty Programs Become Competitive Weapons

Firm-Level Strategy and Information Technology Industry-Level Strategy and Information Systems: Competitive Forces and Network Economics

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Application Software Exercise: Database Exercise: Using a Database for Strategic

Business Development Dirt Bikes U.S.A.: Performing a Competitive Analysis for Dirt Bikes Electronic Commerce Project: Configuring and Pricing an Automobile Group Project: Identifying Opportunities for Strategic Information Systems Case Study: Can Albertsons Trounce Wal-Mart with Advanced Information Technology?

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The Digital Firm: Electronic Business and Electronic Commerce Case Study: Corrugated Supplies: The Internet Helps a Small Company Act Big

Section 4.1: Electronic Business, Electronic Commerce, and the Emerging Digital Firm

Internet Technology and the Digital Firm New Business Models and Value Propositions

Section 4.2: Electronic Commerce

Categories of Electronic Commerce Customer-Centered Retailing Business-to-Business Electronic Commerce: New Efficiencies and Relationships

Electronic Commerce Payment Systems

Window on Technology: Volkswagen Revs Up Its B2B Network

Section 4.3: Electronic Business and the Digital Firm

How Intranets Support Electronic Business Intranet Applications for Electronic Business

Window on Organizations: CARE’s Humanitarian Intranets Business Process Integration

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Application Software Exercise: Spreadsheet Exercise: Analyzing a Dot-Com Business

Dirt Bikes U.S.A.: Developing an E-Commerce Strategy Electronic Commerce Project: Comparing Online Storefront Hosting Services Group Project: Performing a Competitive Analysis of E-Commerce Sites Case Study: Can the Music Industry Change Its Tune?

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Ethical and Social Issues in the Digital Firm Case Study: “Attention Shoppers: Background Checks for Sale”

Section 5.1: Understanding Ethical and Social Issues Related to Systems

A Model for Thinking About Ethical, Social, and Political Issues Five Moral Dimensions of the Information Age

Key Technology Trends That Raise Ethical Issues

Section 5.2: Ethics in an Information Society

Basic Concepts: Responsibility, Accountability, and Liability Ethical Analysis

Professional Codes of Conduct Some Real-World Ethical Dilemmas

Section 5.3: The Moral Dimensions of Information Systems

Information Rights: Privacy and Freedom in the Internet Age Property Rights: Intellectual Property

Accountability, Liability, and Control System Quality: Data Quality and System Errors

Window on Technology: When Software Kills: What Happened at Panama’s National Cancer Institute

Quality of Life: Equity, Access, and Boundaries

Window on Management: Can the Spamming Monster Be Tamed?

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Application Software Exercise: Word Processing and Web Page Development Tool

Exercise: Creating a Simple Web Site

Dirt Bikes USA: Developing a Web Site Privacy Policy Electronic Commerce Project: Using Internet Newsgroups for Online Market Research Group Project: Developing a Corporate Ethics Code

Case Study: Security Versus Privacy: Does Terrorism Change the Debate?

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IT Infrastructure and Platforms Case Study: Hong Kong’s New World Telecommunications Prospers with a New IT Infrastructure

Section 6.1: IT Infrastructure

Defining IT Infrastructure Levels of IT Infrastructure Evolution of IT Infrastructure: 1950–2005 Technology Drivers of Infrastructure Evolution

Section 6.2: Infrastructure Components

Computer Hardware Platforms Operating System Platforms Enterprise Software Applications Data Management and Storage Networking/Telecommunications Platforms Internet Platforms

Consulting and System Integration Services

Section 6.3: Contemporary Hardware Platform Trends

The Integration of Computing and Telecommunications Platforms Grid Computing

On-Demand Computing (Utility Computing) Autonomic Computing

Window on Management: On-Demand Computing at Qantas Airways and Ford Motor Company Europe

Edge Computing

Section 6.4: Contemporary Software Platform Trends

The Rise of Linux and Open-Source Software Java Is Everywhere

Window on Technology: Two Canadian Cities Go for Linux Software for Enterprise Integration

Software Outsourcing

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Application Software Exercise: Spreadsheet Exercise: Evaluating Computer Hardware

and Software Options Dirt Bikes USA: Analyzing the Total Cost of Ownership (TCO) of Desktop Software Assets

Electronic Business Project: Planning and Budgeting for a Sales Conference Group Project: Evaluating Server Operating Systems

Case Study: 99 Cents Only Stores: IT Infrastructure on a Budget

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IT Infrastructure and Platforms Case Study: Better Data Help Virgin Mobile Australia Win the Customer Wars

Section 7.1: Organizing Data in a Traditional File Environment

File Organization Terms and Concepts Problems with the Traditional File Environment

Section 7.2: The Database Approach to Data Management

Database Management Systems Types of Databases

Window on Organizations: A Database Helps P&G Manage Product Information

Section 7.3: Creating a Database Environment

Designing Databases Distributing Databases Ensuring Data Quality

Section 7.4: Database Trends

Multidimensional Data Analysis Data Warehouses and Data Mining

Window on Technology: Large Data Warehouses: When Bigger Is Better

Databases and the Web

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Application Software Exercise: Database Exercise: Building a Relational Database for

a Small Business Dirt Bikes U.S.A.: Redesigning the Customer Database Electronic Commerce Project: Searching Online Databases Group Project: Creating Company-Wide Data Standards Case Study: Database Woes Plague Homeland Security and Law Enforcement

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Telecommunications, Networks, and the Internet Case Study: Okanagan-Skaha School District Does More with Less Using Networking and the Internet

Section 8.1: Telecommunications and Networking in Today’s Business World

The Business Telecommunications Environment Networking and Communications Trends

The Business Value of Telecommunications and Networking

Section 8.2: Contemporary Networking Infrastructure

Networks and Corporate Infrastructure Key Digital Networking Technologies Physical Transmission Media

Types of Networks Broadband Network Services and Technologies

Section 8.3: The Internet

Internet Addressing, Architecture, and Governance Internet Services

The Internet and Business Value The World Wide web

Intranets and Extranets Next-Generation Networks and Internet2

Section 8.4: Technologies and Tools for Communication and E-Business

E-Mail, Chat, Instant Messaging, and Electronic Discussions Groupware, Teamware, and Electronic Conferencing

Internet Telephony

Window on Organizations: Internet Telephones: Why Not?

Virtual Private Networks

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Window on Management: Monitoring Employees on Networks:

Unethical or Good Business?

Application Software Exercise: Spreadsheet Exercise: Analyzing Web Site Visitors

Dirt Bikes U.S.A.: Using Internet Tools to Increase Efficiency and Productivity Electronic Commerce Project: Using Web Search Engines for Business Research Group Project: Identifying Strategic Opportunities for Networking Technology Case Study: Can REI Climb Higher with Networking and the Internet?

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The Wireless Revolution Case Study: The Boston Public Library Goes Wireless

Section 9.1: The Wireless Computing Landscape

The Wireless Revolution Business Value of Wireless Networking Wireless Transmission Media and Devices Cellular Network Standards and Generations Mobile Wireless Standards for Web Access

Section 9.2: Wireless Computer Networks and Internet Access

Bluetooth Wi-Fi WiMax and EV-DO

Window on Management: Wi-Fi: Starbuck’s Solution to Go

Section 9.3: M-Commerce and Mobile Computing

M-Commerce Services and Applications Accessing Information from the Wireless Web Digital Payment Systems and M-Commerce M-Commerce Challenges

Section 9.4: Wireless Technology in the Enterprise

Wireless Applications for Customer Relationship Management Wireless Supply Chain Management and Radio Frequency Identification (RFID)

Wireless in Health Care Wireless Sensor Networks and Pervasive Computing

Window on Organizations: Does RFID Threaten Privacy?

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Application Software Exercise: Spreadsheet Exercise: Comparing Wireless Services

Dirt Bikes U.S.A.: Determining the Cost of RFID Systems Electronic Business Project: Identifying Wi-Fi Hotspots for Nomadic Computing Group Project: Comparing Mobile Internet Access Systems

Case Study: UPS versus FedEx: Two Competitors, Two Wireless Strategies

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Security and Control Case Study: Wesfarmers Outsources to a Managed Security Service

Section 10.1: System Vulnerability and Abuse

Why Systems Are Vulnerable Malicious Software: Viruses, Worms, Trojan Horses, and Spyware Hackers and Cybervandalism

Computer Crime and Cyberterrorism Internal Threats: Employees

Software Vulnerability

Section 10.2: Business Value of Security and Control

Window on Technology: The Rush to Patch Legal and Regulatory Requirements for Electronic Records Management Electronic Evidence and Computer Forensics

Section 10.3: Establishing a Management Framework for Security and Control

Types of Information Systems Controls Risk Assessment

Security Policy Ensuring Business Continuity The Role of Auditing in the Control Process

Section 10.4: Technologies and Tools for Security and Control

Window on Management: Deutsche Bank Ties Business Continuity Planning to the Business

Access Control Firewalls, Intrusion Detection Systems, and Antivirus Software Securing Wireless Networks

Encryption and Public Key Infrastructure Ensuring Software Reliability

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Application Software Exercise: Spreadsheet Exercise: Performing a Security Risk

Assessment Dirt Bikes USA: Developing a Disaster Recovery Plan Electronic Business Project: Evaluating Security Outsourcing Services Group Project: Analyzing Security Vulnerabilities

Case Study: Royal Bank of Canada’s Software Woes

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Enterprise Applications and Business Process Integration Case Study: PNC Bank on Enterprise Applications

Section 11.1: Enterprise Systems

What Are Enterprise Systems?

How Enterprise Systems Work Business Value of Enterprise Systems

Section 11.2: Supply Chain Management Systems

The Supply Chain Information and Supply Chain Management Supply Chain Management Applications Supply Chain Management and the Internet Business Value of Supply Chain Management Systems

Section 11.3: Customer Relationship Management Systems

Customer Relationship Management and Partner Relationship Management Customer Relationship Management Applications

Operational and Analytical CRM Business Value of Customer Relationship Management Systems

Section 11.4: Enterprise Integration Trends

Extending Enterprise Software

Window on Organizations: CRM Drives Sales at Mercedes and Saab Service Platforms and Business Process Management

Opportunities Management Challenges

Window on Management:Why Novartis Backed Off from Enterprise Software

Solution Guidelines

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Application Software Exercise: Database Exercise: Managing Customer Service

Requests Dirt Bikes USA: Identifying Supply Chain Management Solutions Electronic Business Project: Evaluating Supply Chain Management Services Group Project: Analyzing Enterprise Process Integration

Case Study: Can Information Systems Restore Profitability to Restoration Hardware?

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Managing Knowledge in the Digital Firm Case Study: Cott Struggles to Manage Unstructured Information

Section 12.1: The Knowledge Management Landscape

Important Dimensions of Knowledge Organizational Learning and Knowledge Management The Knowledge Management Value Chain

Types of Knowledge Management Systems

Section 12.2: Enterprise-Wide Knowledge Management Systems

Structured Knowledge Systems Semistructured Knowledge Systems Knowledge Network Systems

Window on Management: An Enterprise-Wide Knowledge Management System Pays Off for Cuatrecasas

Supporting Technologies: Portals, Collaboration Tools, and Learning Management Systems

Section 12.3: Knowledge Work Systems

Knowledge Workers and Knowledge Work Requirements of Knowledge Work Systems

Window on Organizations: The U.S Navy Creates the World’s Largest Classroom

Examples of Knowledge Work Systems

Section 12.4: Intelligent Techniques

Capturing Knowledge: Expert Systems Organizational Intelligence: Case-Based Reasoning Fuzzy Logic Systems

Neural Networks Genetic Algorithms Hybrid AI Systems Intelligent Agents

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Application Software Exercise: Expert System Exercise: Building a Simple Expert

System for Retirement Planning Dirt Bikes USA: Identifying Opportunities for Knowledge Management Electronic Commerce Project: Using Intelligent Agents for Comparison Shopping Group Project: Rating Knowledge Network Systems

Case Study: Can Knowledge Management Systems Help Pfizer

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Enhancing Decision Making for the Digital Firm Case Study: Daimler’s Bremen Plant Optimizes Deliveries with a DSS

Section 13.1: Decision Making and Decision-Support Systems

Business Intelligence and Decision Support Business Value of Improved Decision Making Business Decision Making and the Decision-Making Process Trends in Decision Support and Business Intelligence

Section 13.2: Systems for Decision Support

The Difference between MIS and DSS Types of Decision-Support Systems

Window on Technology: Harrah’s Finds Diamonds in the Data Mine Components of DSS

Business Value of DSS Web-Based Customer Decision-Support Systems

Window on Management: GIS Help the Elderly in Sweden

Section 13.3: Group Decision-Support Systems

What Is a GDSS?

Overview of a GDSS Meeting Business Value of GDSS

Section 13.4: Executive Support in the Enterprise

The Role of Executive Support Systems in the Firm Business Value of Executive Support Systems Executive Support Systems and the Digital Firm

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Application Software Exercise: Spreadsheet Exercise: Performing Break-Even Analysis

and Sensitivity Analysis Dirt Bikes USA: Analyzing the Impact of Component Price Changes Electronic Commerce Project: Using a Web-Based DSS for Retirement Planning Group Project: Designing a University GDSS

Case Study: Optimizing Operations at UPS

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Redesigning the Organization with Information Systems Case Study: Australia’s Victoria Country Fire Authority Responds with New Systems

Section 14.1: Systems as Planned Organizational Change

Linking Information Systems to the Business Plan Establishing Organizational Information Requirements Systems Development and Organizational Change

Section 14.2: Business Process Reengineering and Process Improvement

Business Process Reengineering Steps in Effective Reengineering Process Improvement: Business Process Management, Total Quality Management, and Six Sigma

Section 14.3: Overview of Systems Development

Systems Analysis Systems Design Completing the Systems Development Process Modeling and Designing Systems: Structured and Object-Oriented Methodologies

Section 14.4: Alternative Systems-Building Approaches

Traditional Systems Life Cycle Prototyping

End-User Development Application Software Packages and Outsourcing

Window on Technology: New Systems Keep Elie Tahari a Top Fashion Innovator

Window on Organizations: Wall Street Firms Grapple with Build Versus Buy

Solution Guidelines

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Application Software Exercise: Database Exercise: Designing a Customer System for

Auto Sales Dirt Bikes USA: Designing an Employee Training and Skills Tracking System Electronic Business Project: Redesigning Business Processes for Web Procurement Group Project: Preparing Web Site Design Specifications

Case Study: Blue Rhino Slows Down to Get Ahead

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Understanding the Business Value of Systems and Managing Change Case Study: HSBC Malaysia: Master of Change Management

Section 15.1: Understanding the Business Value of Information Systems

Traditional Capital Budgeting Models Case Example: Capital Budgeting for a New Supply Chain Management System

Strategic Considerations Information Technology Investments and Productivity

Section 15.2: The Importance of Change Management in Information Systems Success and Failure

Information Systems Problem Areas

Window on Organizations: What’s Wrong with Quixtar.com?

Change Management and the Concept of Implementation Causes of Implementation Success and Failure

Window on Management: The Navy/Marine Corps Intranet Turns into a Battleground

Change Management Challenges for Business Process Reengineering, Enterprise Applications, and Mergers and Acquisitions

Section 15.3: Managing Implementation

Controlling Risk Factors Designing for the Organization

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Application Software Exercise: Spreadsheet Exercise: Capital Budgeting for a New

CAD System Dirt Bikes USA: Analyzing the Return on a New System Investment Electronic Business Project: Buying and Financing a Home

Group Project: Identifying Implementation Problems CaseStudy: Can the IRS Modernize Its Systems?

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Managing International Information Systems Case Study: Dräger Safety Creates a Global Supply Chain

Section 16.1: The Growth of International Information Systems

Developing an International Information Systems Architecture The Global Environment: Business Drivers and Challenges State of the Art

Section 16.2: Organizing International Information Systems

Global Strategies and Business Organization Global Systems to Fit the Strategy

Reorganizing the Business

Section 16.3: Managing Global Systems

A Typical Scenario: Disorganization on a Global Scale Global Systems Strategy

Section 16.4: Technology Issues and Opportunities for Global Value Chains

Technology Challenges of Global Systems Managing Global Software Development

Window on Management: Getting Systems to Work in China—Slowly

Window on Organizatoins: Offshore Outsourcing: Good or Bad?

Solution Guidelines

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Application Software Exercise: Database and Web Page Development Tool Exercise:

Building a Job Database and Web Page for an International Consulting Firm Dirt Bikes USA: Expanding International Sales

Electronic Business Project: Conducting International Marketing and Pricing Research Group Project: Identifying Information Technology for Global Business Strategies Case Study: Celanese Recentralizes with a New Enterprise System

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Chapter 1: Case Study Back to Contents

DaimlerChrysler’s Agile Supply Chain

DaimlerChrysler includes the Chrysler Group, the Mercedes and Smart Passenger Car Group, and the Commercial Vehicles unit It operates 104 plants in 37

countries, using 14,000 different suppliers and 13,000 sales outlets in 200

countries The auto industry is known for tough competition and fickle customers Survival depends on bringing new models rapidly to market as economically as

possible

DaimlerChrysler studied every step in the vehicle production and sales

process, starting with the first stage of vehicle design and ending with its service and repair It then built a series of information systems that automate and

streamline all of its transactions with suppliers An Integrated Volume Planning

system gathers sales data and sends them back to production planning systems and from there to suppliers so that they can adjust deliveries of parts and production to make exactly the right amount of the vehicle models that are actually selling in

dealer showrooms

A Global Supplier Portal presents a common interface and system platform that handles every type of interaction between DaimlerChrysler and its suppliers About 6,000 DaimlerChrysler suppliers registered for this portal use it to interact with DaimlerChrysler's various business groups DaimlerChrysler also uses the

portal internally to share information among different divisions and business units

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At the earliest stages of design, the Chrysler Group and 3,400 of its suppliers use a Web-enabled system called Powerway to track parts through nine quality

control "gates" before they're certified for use on production lines In the past,

quality specialists used to store thousands of pieces of paper in hundreds of binders

to deal with quality issues that surfaced with the thousands of companies that

design Chrysler's parts If a drive train was an eighth inch too short, it could take up

to three weeks to notify the supplier, fix the problem, and incorporate the corrected part back into the design process

Powerway replaces paper-based processes with digital links to supplier

systems It helps Chrysler identify potential design and engineering problems before physical parts are actually constructed, so that they can be more rapidly resolved That in turn helps Chrysler design news cars much faster-and remain competitive

Sources: Tracy Mayor, "The Supple Supply Chain," CIO Magazine, August 15, 2004; Larry Gould,

"Effectively Managing Inventory in the Supply Chain," Automotive Design & Production, www.

autofieldguide.com, accessed September 3, 2004; and www.daimlerchrysler.com, accessed

September 3, 2004.w

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Section 1.1: Full Text Chapter Contents | View Full Text | View Bullet Text

Why Information Systems Matter

How Much Does IT Matter?

Why IT Now? Digital Convergence and the Changing Business Environment

DaimlerChrysler’s information systems use both technology and knowledge of the business to enable the company and its suppliers to respond instantly to changes in the marketplace or other events These information systems give DaimlerChrysler the agility to monitor and react to data as events unfold, and they are intimately linked with systems of its suppliers and related companies Managers can “see into” these systems and, when necessary, make adjustments on the fly to keep manufacturing and delivery processes aligned with customer needs

The agility exhibited by DaimlerChrysler is part of the transformation of business firms throughout the world into fully digital firms Such digital firms use the Internet and

networking technology to make data flow seamlessly among different parts of the

organization; streamline the flow of work; and create electronic links with customers,

suppliers, and other organizations

As a manager, you’ll need to know how information systems can make your business more competitive, efficient, and profitable In this chapter we begin our investigation of

information systems and organizations by describing information systems from both technical and behavioral perspectives and by surveying the changes they are bringing to organizations and management

Why Information Systems?

We are in the midst of a swiftly moving river of technology and business innovations that is transforming the global business landscape An entirely new Internet business culture is

emerging with profound implications for the conduct of business You can see this every day

by observing how business people work using high-speed Internet connections for e-mail and information gathering, portable computers connected to wireless networks, cellular

telephones connected to the Internet, and hybrid handheld devices delivering phone,

Internet, and computing power to an increasingly mobile and global workforce

The emerging Internet business culture is a set of expectations that we all share We have all come to expect online services for purchasing goods and services, we expect our business colleagues to be available by e-mail and cell phone, and we expect to be able to communicate with our vendors, customers, and employees any time of day or night over the Internet We even expect our business partners around the world to be “fully connected.” Internet culture is global

In this text and in the business world, you’ll often encounter the term information technology Information technology (abbreviated IT) refers to all of the computer-based

information systems used by organizations and their underlying technologies Briefly,

information technologies and systems are revolutionizing the operation of firms, industries, and markets The main objective of this book is to describe the nature of this transformation and to help you as a future manager take advantage of the emerging opportunities

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Why Information Systems Matter

Let’s start by examining why information systems and information technology (IT) are so important There are four reasons why IT will make a difference to you as a manager

throughout your career

CAPITAL MANAGEMENT

Information technology has become the largest component of capital investment for firms in the United States and many industrialized societies In 2005, U.S firms alone will spend nearly $1.8 trillion on IT and telecommunications equipment and software Investment in information technology has doubled as a percentage of total business investment since 1980, and now accounts for more than one-third of all capital invested in the United States and more than 50 percent of invested capital in information-intensive industries, such as finance, insurance, and real estate

Figure 1-1 shows that between 1980 and 2003, private business investment in

information technology (hardware, software, and telecommunications equipment) grew from

19 percent to more than 35 percent of all domestic private business investment If one

included expenditures for managerial and organizational change programs and business and consulting services that are required to use this technology effectively, total information

technology expenditures would rise above 50 percent of total private business investment

FIGURE 1-1 Information technology capital investment

Information technology capital investment, defined as hardware, software, and telecommunications

equipment, expanded from 19 percent of all business investment to 35 percent during the period from 1980 to

2003

Source: Based on data in U.S Department of Commerce, Bureau of Economic Analysis, National Income and

Product Accounts, Tables 5.2 and 5.8, 2004

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As managers, many of you will work for firms that are intensively using information systems and making large investments in information technology You will certainly want to know how to invest this money wisely If you make wise choices, your firm can outperform competitors If you make poor choices, you will be wasting valuable capital This book is dedicated to helping you make wise decisions about IT and information systems

FOUNDATION OF DOING BUSINESS

In the United States over 23 million managers and over 113 million workers in the labor force rely on information systems every day to conduct business (Statistical Abstract, 2003)

In many industries, survival and even existence without extensive use of information

systems is inconceivable Obviously, all of e-commerce would be impossible without

substantial IT investments, and firms such as Amazon, eBay, Google, E*Trade, or the world’s largest online university, the University of Phoenix, simply would not exist Today’s service industries—finance, insurance, real estate as well as personal services such as travel,

medicine, and education—could not operate without IT Similarly, retail firms such as Mart and Sears and manufacturing firms such as General Motors and General Electric require

Wal-IT to survive and prosper Just like offices, telephones, filing cabinets, and efficient tall

buildings with elevators were once of the foundations of business in the twentieth century, information technology is a foundation for business in the twenty-first century

There is a growing interdependence between a firm’s ability to use information

technology and its ability to implement corporate strategies and achieve corporate goals (see Figure 1-2) What a business would like to do in five years often depends on what its

systems will be able to do Increasing market share, becoming the high-quality or low-cost producer, developing new products, and increasing employee productivity depend more and more on the kinds and quality of information systems in the organization The more you understand about this relationship, the more valuable you will be as a manager

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FIGURE 1-2 The interdependence between organizations and information systems.

In contemporary systems there is a growing interdependence between a firm’s information systems and 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.

Today’s managers have very few tools at their disposal for achieving significant gains in

productivity IT is one of the most important tools along with innovations in organization and management, and in fact, these innovations need to be linked together A substantial and growing body of research reported throughout this book suggests investment in IT plays a critical role in increasing the productivity of firms, and entire nations (Zhu et al., 2004)

For instance, economists at the U.S Federal Reserve Bank estimate that IT contributed to the lowering of inflation by 0.5 to 1 percentage point in the years from 1995 to 2000 (Greenspan, 2000)

IT was a major factor in the resurgence in productivity growth in the United States, which began in

1995 and has continued until today at an average rate of 2.7 percent, up from 1.4 percent from

1973 to 1995 (Baily, 2002) Firms that invested wisely in information technology experienced

continued growth in productivity and efficiency

STRATEGIC OPPORTUNITY AND ADVANTAGE

If you want to take advantage of new opportunities in markets, develop new products, and create new services, chances are quite high you will need to make substantial investments in IT to realize

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these new business opportunities If you want to achieve a strategic advantage over your rivals, to differentiate yourself from your competitors, IT is one avenue for achieving such advantages along with changes in business practices and management We talk more about IT contributions to

competitive strategy in Chapter 3 These advantages might not last forever, but then again most strategic advantages throughout history are short-lived However, a string of short-lived competitive advantages is a foundation for long-term advantages in business, just as is true of any athletic sport

or race.

Return to Top How Much Does IT Matter?

In May 2003, Nicholas Carr, an editor at Harvard Business Review, wrote an article titled “IT Doesn’t Matter,” which stirred significant debate in the business community Carr’s argument in a nutshell is that because every firm can purchase IT in the marketplace, because any advantage obtained by one company can easily be copied by another company, and because IT is now a commodity based on standards (such as the Internet) that all companies can freely use, it is no longer a differentiating factor in organizational performance

Carr argues that no firm can use IT to achieve a strategic edge over its competitors any more than it could with electricity, telephones, or other infrastructure Therefore, Carr concludes, firms should reduce spending on IT, follow rather than lead IT in their industry, reduce risks by preparing for computer outages and security breaches, and avoid deploying IT in new ways

Most management information system (MIS) experts disagree As we discuss later in this chapter and subsequent chapters throughout the book, research demonstrates that there is

considerable variation in firms’ ability to use IT effectively Many highly adept firms continually

obtain superior returns on their investment in IT, whereas less adept firms do not

Copying innovations of other firms can be devilishly difficult, with much being lost in the translation There is only one Dell, one Wal-Mart, one Amazon, and one eBay, and each of these firms has achieved a competitive advantage in its industry based in large part on unique ways of organizing work enabled by IT that have been very difficult to copy If copying were so easy, we would expect to find much more powerful competition for these market leaders

Although falling prices for hardware and software and new computing and

telecommunications standards such as the Internet have made the application of computers to

business much easier than in the past, this does not signal the end of innovation or the end of firms developing strategic edges using IT Far from the end of innovation, commoditization often leads to

an explosion in innovation and new markets and products For example, the abundance and

availability of materials such as wood, glass, and steel during the last century made possible a

continuing stream of architectural innovation

Likewise, the development of standards and lowering costs of computer hardware made

possible new products and services such as the Apple iPod and iTunes, the Sony Walkman portable music player, RealMedia online streaming music, and the entire online content industry Entirely new businesses and business models have emerged for the digital distribution of music, books, journals, and Hollywood films

Carr is surely correct in stating that not all investments in IT work out or have strategic

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value Some are just needed to stay in business, to comply with government reporting requirements, and to satisfy the needs of customers and vendors Perhaps the more important questions are how much does IT make a difference, and where can it best be deployed to make a competitive

difference?

We make a major effort in this book to suggest ways you as a manager and potential

entrepreneur can use information technology and systems to create differentiation from your

competitors and strategic advantage in the marketplace As we describe throughout, to achieve any measure of “success,” investment in IT must be accompanied by significant changes in business operations and processes and changes in management culture, attitudes, and behavior Absent these changes, investment in IT can be a waste of precious investor resources.

Return to Top Why IT Now? Digital Convergence and the Changing Business Environment

A combination of information technology innovations and a changing domestic and global business environment makes the role of IT in business even more important for managers than just a few years ago The Internet revolution is not something that happened and then burst, but instead has turned out to be an ongoing, powerful source of new technologies with significant business

implications for much of this century

There are five factors to consider when assessing the growing impact of IT in business firms both today and over the next ten years

These changes in the business environment, summarized in Table 1-1, pose a

number of new challenges and opportunities for business firms and their managements

TABLE 1-1 The Changing Contemporary Business Environment

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