Chapter 1

Chapter 1

Organizational Performance: IT Support and Applications

1

Learning objectives

• Characteristics of digital economy and digital enterprise• Relationship between performance, environmental

pressures, organizational responses and information technology

• Major pressures in business environment and major organizational responses to them

• Computer based information systems and information technology

• Concept of adaptive enterprise and its IT dependence • Role of IT in supporting the functional areas, public

services and specific industries

2

Digital Enterprise (Organization)

• A new business model that uses IT in a fundamental way

to accomplish one or more of three basic objectives:

– Reach and engage customers more effectively

– Boost employee productivity

– Improve operating efficiency

• It uses converged communication and computing

technologies to improve business processes

3

• The digital enterprise shifts the focus from

managing individual IT resource to

orchestrating the services and workflows

that define the business and ultimately

deliver values to customers and end users

4

Digital Economy

• Economy: The wealth and resources of a country or region,

esp. in terms of the production and consumption of goods and

services.

• A digital economy: economy based on electronic goods and

services produced by an electronic business and traded

through electronic commerce.

• Electronic business: the application of information and

communication technologies in support of all the activities of

business.

• 5

• Electronic commerce: refers to the buying and

selling of products or services over electronic

systems such as the Internet and

other computer networks.

• Economy based on digital technologies

• Also called as Internet Economy

6

• Digital networking and communication infrastructures provide

a global platform over which people and organizations

devise strategies, interact, communicate, collaborate and

search for information

• Also refers to convergence of computing and communication

technologies on the internet and other networks and

• The resulting flow of information and technology that is

stimulating electronic transactions and vast organizational

changes

7

Difference between product and service..

Product Services

Tangible Intangible

Can be bought Can be felt

Can be owned Can not be owned

Non-perishable Perishable

Non-ephemeral Ephemeral

Countable Not countable

can be inventoried Can not be inventoried

Location not important in providing product

Location is important in service design

8

Characteristics of digital economy

• Globalization

• Digital systems

• Speed

• Information overload

• Online Markets

• Digitization of products

• Business models and processes

• Innovation

• Obsolescence

• Opportunities

• Fraud

• Wars

• Organizations 9

The business environment and its impact

• Organizations aim to Improve the performance with time

• Performance level depends on

– what you do

– what others are doing

• Combination of social, legal, economic, physical and

political factors that affect business activities is termed

as business environment

10

• To succeed or to survive in the business

environment, organizations have to undertake

innovative activities or devise a competitive

strategies

• These reactions by organization are called as

critical response activities

11

• Critical response activities can be performed in some or

all of the processes in an organization

• They can be in the form of

– A reaction to a existing pressure

– An initiative to defend organization against future

pressures

– An activity that exploits the opportunity created by

changing conditions

12

Business environment impact model

13

Business environmental pressures

• Business environment in the information age places

pressures on companies

• Organizations may act reactively to the existing pressures

or proactively to an anticipated pressure

• IT is the solution to business pressures

• The three types of business pressures faced are:

– market

– technology and

– societal pressures.14


15

Three Types of Business Pressures

• Market Pressures:

– The Global Economy and Strong Competition

– Need for real time operations

– The Changing Nature of the Workforce

– Powerful Customers

16

Market Pressures (contd..)

• Global competition for trade and for labor

– Influential force for globalization is Internet

– Trade is less constrained by traditional barriers such

as borders, language, currency

– Goods and services can be produced profitably as

dictated by the competitive advantages

17


– Labor costs differ widely from one country to other

– In western countries - $ 15 per hour + high benefits

– In developing countries - $1 per hour

– Due to low labor costs in developing countries,

companies in developed countries are moving their

manufacturing facilities to countries with low labor

cost

18


– Such global strategies require extensive

communications in several languages under several

cultural, legal and ethical conditions

– Complexity of communication may hinder the global

competition if not supported properly by IT

– Global competition is especially intensified when

governments are involved through the use of subsidies,

tax policies, import/export regulations and incentives

19


• Need for real time operations

– Companies can not afford the “information float” - time

gap between when a business event occurs and when

an information captured about that event reaches the

necessary decision makers

– High performance telecommunication technologies

should be used

– Such technologies eliminate slow, paper-based

transactions and processes20


• Changing workforce

– The workforce in developed countries is changing rapidly

and becoming more diversified

– Females, single parents, minorities and physically

challenged people work in all types of positions

– more and more workers are becoming knowledge workers

– IT enables integration of these various employees into

traditional workforce and it enables homebound people to

work from home (telecommute).

21


• Customer orientation

– As customers become more knowledgeable about the

availability and quality of products and services, customer

sophistication and expectations increase

– These expectations translate into need for organizations to

exhibit a customer orientation

– Customers want more detailed information about products and

services such as cost, warranties, financial support, quality

comparisons etc. immediately

– Internet and e-commerce has made it possible22


– Customers also want customized products with high

quality and low price

– E.g. Dell Computer

– The importance of customers has created “competition

over customers.”

– This competition forces organizations to increase efforts

to acquire and retain customers.

23

Business Pressures (Continued)

• Technology Pressures:

– Technological Innovation and Obsolescence

– Information Overload

24

Technology pressures (continued..)

• Technological innovations and obsolescence

– Organizations look for technological breakthrough that will

give them an advantage over their competitors

– New and improved technologies enable organizations to

• produce superior products,

• customize products more easily and

• quickly alter manufacturing process as the market dictates

– Continuous innovation = faster obsolescence of products,

shorter life cycles, increasing quality standards and higher

costs for investment 25


– Also advances in IT allow customers to be aware of

innovations sooner, forcing companies to respond

more quickly or risk loosing market share

– Thus organizations feel the pressure of increasing

customer expectations and an increasing ability to

respond rapidly with improved products and services

26


• Information overload

– Internet and telecommunication networks increase the

amount of information available to the organizations and

individuals

– Information and knowledge generated and stored inside

the organizations also increases exponentially

– Only some of the information is actually relevant

– The accessibility, navigation and management of

information necessary for managerial decision making is

becoming critical27

Business Pressures (Continued)

• Societal Pressures:

– Social Responsibility

– Government Regulation and Deregulation

– Protection Against Terrorist Attacks

– Ethical Issues

28

Societal Pressures (contd..)

• Social responsibility

– Social issues

• the state of the physical environment

• nondiscriminatory employment practices

• the spread of infectious diseases

– active measures to respond to social issues and contribute

towards social improvements are known as social

responsibilities

– Failure to accept social responsibilities may lead to employee

dissatisfaction and turnover, a tarnished corporate reputation

with the public.29


• Representative major areas of social responsibility are:

– Environmental control (pollution, noise, trash removal, and

animal welfare)

– Equal opportunity (hiring of minorities, women, the elderly,

and the disabled)

– Employment and housing (the elderly, poor, teenagers,

and unskilled)

– Health, safety, and social benefits to employees (the role

of the employer versus that of the government)

– Employee education, training, and retraining 30


• Government regulations and deregulations

– With failure to address certain social responsibility issues that

come to be important to the general public, government

sometimes steps in with regulations to protect their citizens

– Compliance with governmental regulations cost companies

money

– These additional costs are passed along to consumers in the

form of higher prices

– Make it more difficult to compete with companies from

countries that lack such regulations

31


• Hence Business organizations sometimes lobby for the

removal of rules and regulations involving business

competition

• Such deregulation can be a blessing to one company

and curse for other

32


• Ethical issues

– Ethics in a business context refers to standards and values for

judging whether particular conduct in a workplace is right or wrong

– Ethical issues are very important because they can damage the

image of an organization as well as destroy the morale of

employees

– What is ethical to one person/country may not seem ethical to

other person/country

– Organizations must deal with ethical issues of their employees,

customers and suppliers

33


• The use of IT has raised many new ethical

issues

– surveillance of email

– potential attacks on privacy of millions of customers

whose data are stored in private and public database

34


• Terrorist Attacks and Protection

– Since September 11, 2001, organizations have been under

increased pressure to protect themselves against terrorist

attacks.

– Information technology and especially intelligent systems may

make a valuable contribution in the area of protection, by

providing security systems and possibly identifying patterns of

behavior that will help to prevent terrorist attacks and cyber

attacks against organizations.

35


36

Organizational responses

• Strategic systems

– An important response activity is to develop a corporate strategy

of how to handle the business pressures.

– Once such strategy is developed (including the supporting role

of IT), the company can develop its tactical and operational

plans as well as specific strategic IT-supported systems.

– Strategic systems provide organizations with strategic

advantages that enable them to increase their market share

and/or profit, to better negotiate with suppliers, or to prevent

competitors from entering their territory

37

• Customer focus and service

– The increased power of customers and stiff competition in many

industries and markets force organizations to adopt a customer

focused approach

– Pay more attention to customers and their preferences

– Providing mass customization

– Providing troubleshooting advice or help lines

– To communicate with existing customers via information on their

websites38

• Continuous Improvements.

– Many companies continuously conduct programs that attempt to

improve their productivity and quality and they frequently do so

with the facilitation of IT.

– Companies can increase productivity by increasing output,

reducing costs, increasing output faster than cost or combination of

both

– Examples : total quality management (TQM) and Six Sigma,

knowledge management, productivity and creativity improvements,

just-in-time (JIT) processing, improvements in decision-making

processes, change management, and customer service

improvements.39

– Just-in-time inventory approach attempts to reduce the cost and

improve workflow by scheduling materials and parts to arrive at

a workstation exactly when they are needed

– This minimizes in-process inventory and waste and saves

inventory space and cost

– TQM is a corporate wide organized effort to improve quality

wherever and whenever possible

– IT can enhance TQM by improving data monitoring, collection,

analysis and reporting

– IT can also increase speed of inspection, raise the quality of

testing and reduce the cost of various quality control activities40

– Appropriate decision making attempts to select the best or at

least a good enough alternative course of action

– Decisions require information that is timely and accurate

– IT plays a major role in providing such information as well as in

supporting difficult decision making process

– The underlying purpose of IT support in continuous improvement

is

(1) to monitor and analyze performance and productivity and

(2) to gather, share, and better use organizational knowledge.

41

• Restructuring Business Processes.

– continuous improvement efforts have limited effectiveness in an

environment full of strong business pressures.

– Therefore, a relatively new approach may be needed. This

approach, initially called business process reengineering (BPR),

refers to a situation in which an organization fundamentally and

radically redesigns its business processes to achieve dramatic

improvements.

– Such redesign effects a major innovation in an organization’s

structure and the way it conducts its business.

– If done on a smaller scale than corporate wide, the redesign

process may be referred to as a restructuring 42

• IT plays a major role in BPR

• It allows businesses to

– be conducted in different locations,

– provides automation,

– flexibility in manufacturing,

– quicker delivery to customers and

– supports rapid and paperless transactions among suppliers,

manufacturers and retailers

• It also reduces cycle time and time to market

43

• Make-to-Order and Mass Customization.

– A major response area is the trend to produce

customized products and services. This strategy is a

part of build-to-order.

– As customers demand customized products and

services, the business problem is how to provide

customization and do it efficiently.

– This can be done, in part, by changing manufacturing

processes from mass production to mass customization

44

• In mass production, a company produces a large

quantity of identical items.

• In mass customization, items are produced in a large

quantity but are customized to fit the desires of each

customer.

45

– IT and EC are ideal facilitators of mass customization,

– for example, by enabling interactive communication

between buyers and designers so that customers can

quickly and correctly configure the products they

want.

– Also, electronic ordering reaches the production

facility in minutes.

46

• Business Alliances

– alliances with other companies, even competitors, can be very

beneficial.

– For example, General Motors and Ford created a joint venture to

explore electronic-commerce applications

– There are several types of alliances:

• sharing resources,

• doing procurement jointly,

• establishing a permanent supplier-company relationship, and

creating joint research efforts.

– Any of these might be undertaken in response to business

pressures and usually is supported by IT.47

– One of the most interesting types of business alliance is the virtual

corporation,

– Operates through telecommunications networks, usually without a

permanent headquarters.

48

– A temporary virtual corporation is typically a joint venture in

which companies form a special company for a specific,

limited-time mission.

– A permanent virtual corporation is designed to create or

assemble productive resources rapidly or frequently, on an

ongoing basis.

– All types of business alliances can be heavily supported by

information technologies.

49

• Electronic Business and E-Commerce

– The newest and perhaps most promising business strategy that

many companies can pursue

– E-commerce is a multifaceted concept involving the exchange of

products, services, information or money with the support of

computers and networks

– It includes electronic fund transfer, between buyers and

suppliers, internet based marketing, intranet and extranet based

information networks for intra and inter-organizational support

50

Information system

• A system is a collection of elements such as people,

resources, concepts, and procedures intended to perform an

identifiable function or serve a goal.

• Systems are divided into three distinct parts: inputs,

processes, and outputs.

• They are surrounded by an environment and frequently include

a feedback mechanism that controls some aspect of the

operation.

• In addition, a human, the decision maker, is considered a part

of the system.51

• Inputs - elements that enter the system.

• Examples: raw materials entering a chemical plant,

patients admitted to a hospital, or data inputted into a

computer.

• All the elements necessary to convert or transform the

inputs into outputs are included in the system’s

processes.

52

• Outputs describe the finished products or the consequences

of being in the system.

• The connections among subsystems are the flow of

information and materials among the subsystems.

• Of special interest is the flow of information from the output

component to a control unit (or a decision maker) concerning

the system’s performance. Based on this information, which is

called feedback, the inputs or the processes may be modified.

53

• The environment of the system is composed of several

elements that lie outside it, in the sense that they are not

inputs, outputs, or processes. However, they have a

significant impact on the system’s performance and

consequently on the attainment of its goals.

54

Information systems (IS)

• IS collects, processes stores, analyzes and disseminates

information for a specific purpose

• It processes the inputs by using technology such as PCs

and produces outputs that are sent to users or other

systems via electronic mails

• A feedback mechanism that controls the operation may

be included

• Like other systems, IS also includes people, procedures

and operates within an environment55

Information systems

56

Formal and Informal IS

• Formal IS

– Include agreed upon procedures, standard inputs and

outputs and fixed definitions

– E.g. company’s accounting system

• Informal IS

– E.g. group of friends sharing information

57

Computer based Information system• An information system that uses computer technology to perform its

intended tasks• Basic components of Information system

– Hardware• Devices such as processors, monitor, keyboard

– Software• Set of programs that instruct the hardware to process data

– Database• Collection of related files, tables that stores data and associations

among them– Network

• A connecting system that permits the sharing of resources by different computers

– Procedures• The set of instructions about how to combine the above components

in order to process information and to generate the desired output– People

• Individuals who work with the system, interface with it or use its output

58

Major capabilities of computerized IS

• Perform high speed, high volume numerical computations

• Provide fast, accurate, reliable and inexpensive

communication within and between organizations any

time, any place

• Store huge amounts of information in an easy to access

yet small space

• Allow quick and inexpensive access to vast amounts of

information worldwide at any time

59

• Enable collaboration anywhere any time

• Increase effectiveness and efficiency of people working in

groups in one place or in several locations

• Vividly present the information that challenges the human

mind

• Facilitate work in hazardous environments

• Automate both semiautomatic business processes and

manually done tasks60

• Facilitate interpretation of vast amount of data

• Facilitate global trade

• Enable automation of routine decision making and facilitate

complex decision making

• Can be wireless thus supporting unique application anywhere

• Accomplish all of the above much less expensively than when

done manually

61

Information technology

• In a broad way, it is a collection of computing systems

• In its narrow definition, it refers to the technological side

of IS

• Includes hardware, software, databases, networks and

other electronic devices

• A subsystem of IS

• IT describes an organization’s collection of IS, their

users and the management that oversees them

62

Adaptive, Agile and Real time Enterprise

• Enterprise which can respond properly and in a timely

manner to changes in a business environment

• Changes can be in business models, customer services

and speed

• What is business model?

63

Business model

• A method of doing business by which a company can

generate revenue to sustain itself

• The model spells out how the company creates value in

terms of the goods and/services in the course of its

operations

64

Elements of business model

• Six elements– A description of all products and services the business

will offer– A description of business process required to make and

deliver the products and services– A description of customers to be served and the

company’s relationships with these customers– A list of resources required and the identification of which

ones are available, which are developed in-house and which will need to be acquired

– A description of the organization’s supply chain including suppliers and other business partners

– A description of the revenues expected, anticipated costs, sources of financing and estimated profitability

65

Popular business models

• 4 models

– Tendering via reverse auctions

– Affiliate marketing

– Group purchasing

– E-marketplaces and exchanges

66

Tendering via reverse auctions

• Use of tendering (bidding) system to make major

purchases

• Buyer indicates the desire to receive bids on a particular

item in request for quote (RFQ)

• Would be sellers bid on the job

• The lowest bid wins (if price is the only consideration)

• Hence the name reverse auction

67

Affiliate marketing

• An arrangement in which marketing partners place a

banner add for a company on their website

• Every time customer clicks on the banner, moved to the

advertiser’s web site and makes a purchase there

• Advertiser pays 3 to 15% commission to the host site

68

Group purchasing

• Pay less per units when buying more units

• Using concept of e-commerce and group purchasing, purchase

orders of many buyers are aggregated and get a discount

• Electronic aggregation- a third party finds the individuals or SMEs

(Small Medium Enterprises) that want to buy the same product

• Then aggregates their small orders and then negotiates for the

best deal

• More is the number of joined groups, larger the aggregated

quantity and lower the price paid

69

E-marketplaces and exchanges

• an Internet-based environment that brings together business-

to-business buyers and sellers so that they can trade more

efficiently online.

• Three types:

– Independent: public environments seek simply to attract buyers and

sellers to trade together;

– consortium-based: sites are established on an industry-wide basis,

typically when a number of key buyers in a particular industry get

together; and

– Private: e-marketplaces are established by a particular organization to

manage its purchasing alone.70

• Introduce operating efficiencies to trading

• If well organized and managed, they can provide

benefits to both buyers and sellers

71

Process of becoming an adaptive organization

• Recognizing the environmental and organizational

changes as quickly as they occur or even before they

occur

• Deals with changes properly and correctly

• Becoming a digital and agile enterprise

• Does not wait for competitors to introduce change

• Change your information system quickly

• follow as many response activities as possible 72

Benefits of adaptive enterprise

• Increased business agility– Able to identify and quickly respond to challenges and

opportunities– Adapt to changing business models, market demands

• Reduced risk– Allows more successful deployment of new solutions and

support business changes

• Improved quality of service– Assures appropriate levels of availability, response time and

performance

• Improved total cost of ownership– Reduces the cost of infrastructure management, enables more

choices that can lower the cost

73

Real time on-demand IT support

• Real time IS- provides real time access to data

• E.g. salesperson can check whether the product is in

inventory

• To implement real time enterprise, companies must

design IS that

– support all relevant business processes

– Are tightly integrated

– Are available all the times

74

Chapter 1

Business

electronic business

business activities

business processes

theactivities of business

digital economy economy

new business model

digital technologies

global economy