Download Managing in the Digital World

Chapter 4
Information Systems Investment &
Strategic Advantage
“The most important discoveries
of the next 50 years are likely to
be ones of which we cannot now
even conceive.”
Sir John Maddox, 1999
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-1
Learning Objectives
1) Discuss how organizations can use information systems
for automation, organizational learning, and strategic
advantage.
2) Describe how to formulate and present the business
case for an information system.
3) Explain why and how companies are continually looking
for innovative ways to use information systems for
competitive advantage.
4) Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-2
Valuing Information Systems
•
•
Information systems can have strategic
value to an organization
Information systems can be used in three
ways to add value to an organization:
1.
2.
3.
Automating
Informating
Strategizing
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-3
IS for Automating: Doing Things Faster
• With automation,
tasks can be
completed:
o Faster
o Cheaper
o More accurately
o With greater
consistency
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-4
Automating: Example
• Loan processing comparison for 3 methods
(from the moment the customer takes the
application until the applicant is notified of
decision)
o Manual loan process—25 to 40 days
o Technology-supported process—5 to 20 days
o Fully automated process—1 hour to 15 days
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-5
IS for Organizational Learning: Doing
Things Better
• Information
systems can also
be used to:
o Learn about
processes
o Improve
processes
o Support
organizational
learning
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-6
Informating: Example
• Computer-based
loan system
identifies peak times
during the year
when specific loans
are processed
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-7
IS for Supporting Strategy: Doing Things
Smarter
• IS used to gain
or sustain
competitive
advantage
o Turning benefits
of automating
and informating
into strategic
advantage
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-8
Strategizing: Five Types of Organizational
Strategies
• Organizational
strategies define
the way in which
a company plans
to gain/sustain
competitive
advantage
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic
Management: Concepts and Cases, 8th ed. (Homewood, III.:
Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-9
Overall Low Cost Leadership
Strategy
• Offer best prices
•
in the industry or
product/service
category
Broad focus
o Wal-Mart
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic
Management: Concepts and Cases, 8th ed. (Homewood, III.:
Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-10
Broad Differentiation Strategy
• Offer better
•
products/services
than competitors
Broad Focus
o Nordstrom
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic
Management: Concepts and Cases, 8th ed. (Homewood, III.:
Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-11
Focused Low-Cost Strategy
• Offer best prices
•
in the industry or
product/service in
specific category
Focus on niche
o Dell
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic
Management: Concepts and Cases, 8th ed. (Homewood, III.:
Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-12
Focused Differentiation Strategy
• Offer better
•
products/services
than competitors
Focus on niche
o Apple
• High-quality
computers
• Home and
educational
markets
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic
Management: Concepts and Cases, 8th ed. (Homewood, III.:
Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-13
Best-Cost Provider Strategy
• Provide products
of reasonably
good quality at
competitive
prices
o Target
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic
Management: Concepts and Cases, 8th ed. (Homewood, III.:
Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-14
Sources of Competitive Advantage
Best-made product on the market
Superior customer service
Achieving lower costs than rivals
Having proprietary manufacturing technology
Having shorter lead times in research and
development projects
6. Having a well-known brand name and
reputation
7. Giving customers more value for their money
1.
2.
3.
4.
5.
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-15
Competitive Advantage
• Manager use value chain Analysis
•
to
identify opportunities to use information
systems for competitive advantage?
Look at organization as big input/output
process
• Porter’s Value Chain
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-16
Value Chain Analysis
• Tool used by managers to identify
opportunities for gaining competitive advantage
o Analyzing an organization activities to determine
where value added to product & cost incurred
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-17
IS and Value Chain Analysis
• Information systems use in adding value:
o Use of Internet
o Use of Extranet/Intranet
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-18
Learning Objectives
1. Discuss how organizations can use information
systems for automation, organizational learning, and
strategic advantage.
2. Describe how to formulate and present the
business case for an information system.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations
can leverage digital technologies to provide free goods
and services to customers as a business strategy for
gaining a competitive advantage.
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-19
What Dose Making the Business Case for an IS Mean?
Making the Business Case for an IS
• Identification of benefits that the
•
•
proposed information system will bring to
the organization
o Automating benefits
o Informating benefits
Lawyers defense
o Strategic benefits
People ask for justification, quantifying
why they should spend on IS
Presenting the value provided by IS
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-20
Productivity Gains
• Easy to identify costs with developing an
•
IS
Difficult to identify productivity gains
o There are limitation to productivity gains with
development of an IS
• Why hasn’t productivity increased at the
rate of IS investments?
o IS may have increased productivity, but
other forces simultaneously may work to
reduce it
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-21
The Productivity Paradox
• Information systems may be used
in unintended ways, employees spending
time on
o Web surfing
o Junk mail
o Games
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-22
Measurement Problems
• IS Benefits
difficult to
quantify
o Wrong things
measured
• efficiency vs.
effectiveness
• Example: ATM
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-23
Time Lags
• Benefits do not
always occur at
the same time IS
is implemented
o Some IS/IT
implementation
requires people to
gain experience
o System must be
integrated with
existing systems
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-24
Redistribution
•
•
IS may be beneficial for
individual firms but not for a
particular industry
IS may redistribute the
pieces of the pie rather than
make the pie bigger
o Increases in market share
come at the expense of the
competitors’ market share
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-25
Mismanagement
• Bad business
model cannot be
overcome by
good information
system
o IS implementation
poorly, or as a
temporary fix
o Creation of
unanticipated
bottlenecks
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-26
Making a Successful Business Case
• Difficult to quantify
benefits of IS
• Money doesn’t grow
on trees
• Need to make a
strong business
case & managers
arguments are
o Based on: (3Fs)
• Faith
• Fear
• Facts
Fiction
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-27
Arguments Based on Faith
• Arguments based on
beliefs about:
o Organizational
strategy
o Competitive
advantage
o Industry forces
o Customer perceptions
• Example: Procter &
Gamble
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-28
Arguments Based on Fear
• Arguments based on
the notion that if
system is not
implemented:
o Company loses to a
competitor
o Goes out of business
• Example:
Automotive industry
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-29
Factors in IS Investment Decisions
•
Often
considered
when
presenting
arguments
based on
fear
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-30
Porter’s Five Forces Model
• Framework
used to
analyze
competition
within an
industry
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-31
Arguments Based on Fact
• Arguments based
on:
o Data
o Quantitative
analysis
o Indisputable
factors
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-32
Arguments Based on Fact (cont’d)
• Primary tools:
o Cost-benefit analysis
• Identify costs
• Identify benefits
• Contrast expected costs and benefits
o Weighted multicriteria analysis
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-33
Cost-Benefit Analysis
• Identifying costs
o Total cost of ownership (TCO)
• Cost of acquisition
• Cost of use
• Cost of maintenance
o Recurring vs. nonrecurring costs
o Tangible vs. intangible costs
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-34
Cost-Benefit Analysis (cont’d)
• Identifying Benefits
o Tangible benefits
• 5 percent increase in sales
• Reduction of order entry errors
o Intangible benefits
• Improvement to customer service
• Improvement in overall perception of a firm
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-35
Cost-Benefit Analysis (cont’d)
• Contrasts total expected tangible costs
with total tangible benefits
o Break-even analysis—identifies the point
when tangible costs equal tangible benefits
o Net-present-value analysis—identifies the
present value of future cash flows
• Comparing computing investment
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-36
Comparing computing investment
• Weighted Multicriteria Analysis
o Method used for deciding between alternative IS
investments or alternatives of the same system
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-37
Presenting the Business Case
• Persuade decision makers in the firm
o Know the audience
o Identify stakeholder groups
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-38
Presenting the Business Case (cont’d)
• Convert benefits to monetary terms
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-39
Presenting the Business Case (cont’d)
• Devise proxy variables
o Used when clear-cut assessment is not possible
• Measures of perceived value of change to the
organization
• Measure what is important to management
o Case becomes more meaningful
o Focus on senior management’s “hot button” issues
• Hot issues for the senior managers could be the cycle time
(how long it takes to process an order), customer
feedback…etc
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-40
Assessing Value for IS Infrastructure
Howard Rubin, president of Meta group argued
that , when assessing IS value
• Present holistic view
o Economic value (contribution)
o Architectural value (ability to extend infrastructure)
o Operational value (measure the cost of not investing)
o Regulatory and compliance value (measure the
impact)
• View IS as asset rather than necessary expense
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-41
Learning Objectives
1. Discuss how organizations can use information
systems for automation, organizational learning, and
strategic advantage.
2. Describe how to formulate and present the
business case for an information system.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations
can leverage digital technologies to provide free goods
and services to customers as a business strategy for
gaining a competitive advantage.
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-42
Valuing Innovations
• Which new technology will make or break your
business?
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-43
Successful Innovation Is Difficult
• Innovation is often fleeting
o The advantages gained from innovations are often
short lived
 Innovation is often risky
 Sometimes even superior
products can lose the race

Blu-ray vs. HD DVD
 Innovation choices are often difficult
 Foreseeing the future is not always possible

In 1994 the Internet was not given much attention
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-44
Organizational Requirements for Innovation
Competitive environments require that organizations
must remain at the cutting edge their use of IS
• Process requirements—the organization has to
be willing to do whatever it takes to implement the
change
• Resource requirements—need to have the
human capital necessary for successful deployment of
the system
• Risk tolerance requirements—organizational
members must have appropriate tolerance of risk and
uncertainty
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-45
Predicting the Next New Thing
• Deciding which innovations to adopt is very
difficult
 Diffusion of
Innovations

Classic view
of adoption of
innovations
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-46
The Innovator’s Dilemma
• Disruptive innovations
o New technologies, products, or services that
eventually surpass dominant technologies
Online vs. brick-and-mortar retailing
Automobiles vs. horses
CDs vs. records
MP3 vs. CDs
o Undermine effective management practices
•
•
•
•
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-47
Disruptive Innovations
• 1970s:
•
•
mid- and highperformance
users were bulk
of the market
Digital
Equipment
Company
(DEC) tried to
sell to those
markets
Microcomputers
seen as “toys”
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-48
Disruptive Innovations (cont’d)
•
•
1980s:
Microcomputers
focusing on lowperformance
users’ needs
Ignored by DEC
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-49
Disruptive Innovations (cont’d)
• 1990s:
•
Growing
performance of
Microcomputers,
meeting midperformance
users’ needs
DEC lost biggest
market segment
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-50
Disruptive Innovations (cont’d)
• Today, micro-
•
•
computers
meeting entire
market’s needs
DEC out of
business
Next disruptive
innovation: 3G
and 4G mobile
phones?
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-51
The Innovator’s Solution
•
Christensen outlines a process—
disruptive growth engine—that helps
organizations respond to disruptive
innovations more effectively
1. Start early
2. Executive leadership
3. Build a team of expert innovators
4. Educate the organization
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-52
Implementing the Innovation Process
• E-Business
Innovation
Cycle
o The model
holds that the
key to success
is the extent of
IS use in timely
and innovative
ways
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-53
E-Business Innovation Cycle
Choosing Enabling/Emerging Technologies
 Organization first
jobs, groups and
Process that all
devoted to looking
for emerging IT
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-54
E-Business Innovation Cycle (cont’d)
Matching Technologies to Opportunities
 Most promising
new technology
matched with
current economic
opportunities
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-55
E-Business Innovation Cycle (cont’d)
Executing Business Innovation for Growth
 Stage at which
the change is
actually
implemented
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-56
E-Business Innovation Cycle
(cont’d)
Assessing Value
 Value created
for customers
and internal
operations
assessed
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-57
Three Ways to Think About Investments
in Disruptive Innovations
• Put technology ahead of strategy
o Technology is so important to success it needs to
be considered first.
o Strategy is developed afterwards.
• Put technology ahead of marketing
o Rapid development of technology makes it
impossible for people to know what they want.
• Innovation is continuous
o New technologies are constantly being developed.
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-58
Learning Objectives
1. Discuss how organizations can use information
systems for automation, organizational learning, and
strategic advantage.
2. Describe how to formulate and present the
business case for an information system.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations
can leverage digital technologies to provide free goods
and services to customers as a business strategy for
gaining a competitive advantage.
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-59
Freeconomics
• FREECONOMICS—The leveraging of
digital technologies to provide free goods
and services to customers as a business
strategy for gaining competitive
advantage
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-60
How Does Freeconomics Work (for Yahoo!)
• From Yahoo! free
e-mail service
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-61
The Freeconomic Value Proposition
What a business
provides to a
customer and
what that
customer is
willing to pay for
that product or
A broad ecosystem of many
service
participants
•
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-62
Approaches for Applying Freeconomics
• Advertising
• Freemium
• Cross-Subsidies
• Zero Marginal
•
•
Cost
Labor Exchange
Gift Economy
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-63
END OF CHAPTER CONTENT
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
3-64
Opening Case: Managing in the Digital World:
TiVo
• Unprecedented control
over television viewing
o Automatic recording of
o
o
o
o
o
favorite shows
Scheduling using the Web
Pause a show and
resume it later
Search by actors or a type
of a show
View photos on your TV
Burn DVDs
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-65
The IT Department Often Knows
• Strategies to grapple with ethical
decisions
o IT equipment and data use policy
• Whistle-blower provision
o Report violations, then let company handle it
o IT professionals should develop “Code of
Ethics”
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-66
Rootkits: Sony’s Secret
• Sony BMG Music Entertainment was
using “rootkit” to copyright protect CDs
o Rootkit was installed on users’ hard drives
without their knowledge
o Left computers vulnerable to malicious
intruders—Trojan horses used
o Rootkit was discontinued and uninstall
instructions were given to affected
customers
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-67
Microsoft’s Bill Gates and Paul Allen
• Both dropped out of college
•
•
•
to run Micro-Soft in 1975
Partnership with IBM to
install MS-DOS on all PCs
set the stage
Gates’ worth—$58 Billion
Allen’s worth—$16.8 Billion
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-68
Who Is Sharing Files?
Active consumers
Accustomed to on-demand lifestyle
Informed about current events
Internet is primary source
Conversations focused on tech gadgets, car
accessories, home theater setups
Many were Mac users
Gamers
Frustrated with music and entertainment
industries for punishing them
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-69
For Sale by Owner: Your Company’s
Name.com
• Domainers—buy and sell domain names
o 2006—$9 billion business
o 2009—projected to be worth $23 billion
• Ad space renting
o Domainer registers URL such as Amazon.com
o Webpage with advertisements is displayed
o Search engine owner pays money to the domainer
for each click on an ad
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-70
What Were You Thinking? Brain Sensor
Research for Market Research
• EmSense
o EEG sensor headset
o Data on EEG, monitors breathing and heart
rate, head motion, blink rate, and skin
temperature. Moreover, the company has
also devised algorithms that translate
physiological data from the sensors into
information about emotions that marketers
can use.
• Game designers can tell when players
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-71
Photo Industry
• In only four years (2002-2006) photography
moved from film to digital
o Canon, Konica Minolta no longer make film models
o Nikon makes two film models:
• One for professional photographers
• One for beginners
• Business models changed rapidly
o Digital technology was a disruptive innovation for
the photo industry
Dr. Ali Zolait - Information Systems Today: Managing in the
Digital World
4-72