Part IIT in the Organization

This part includes the first three chapters of the text. Its basic objective is to provide a both a strong foundation for understanding what is meant by information technology and the business side of managing it. Each chapter introduces new concepts, terms, and terminology and uses practical examples to illustrate them.

Part I explains information technology in the context of organizations and their use of it. It focuses on business pressures and the strategies used to counter them, especially through the use of Web-based strategic information systems. It contains three chapters:

Chapter 1 provides an overview of the emerging digital economy, the pressures in the business environment, and the critical response activities that organizations take to counter the pressures. Information systems are viewed as systems that support the critical response activities of organizations, such as increasing productivity, increasing speed, and improving customer service. A foundation for understanding what is meant by “information technology” is established, and new innovations are discussed.

Questions for Review

1. Define an information system and list its major components.

An information system is a mechanism for acquiring, storing, processing, and communicating data into information to support organizational decision making and control. The system accepts inputs (data entry), processes them into a useful form through the use of computers, and delivers outputs (reports, calculations). In a computer-based information system, hardware, software, database management systems, networks, standard procedures, and people comprise the components of the system. In some information systems, not all of these components may be present; for example, in a small system with a single computer, it may not be necessary to be connected to a network.

2. Define digital economy and list its major characteristics.

The digital economy is an economic system (a way of doing business and making transactions) based on digital (or computer-based) technologies. The key to these systems are reliable, rapid telecommunications systems which include Internet service, corporate intranets and extranets, value-added networks, and so on. The digital economy is global and, in many respects, borderless, allowing people and organizations from around the world to share knowledge, interact, and collaborate.

3. Define a business model by giving an example of one.

A business model is the method of doing business by which a company can sustain itself by generating revenue through the sale of some service or product. The business model determines

how a company makes money by specifying where it is positioned in the value chain. The manner in which these products are sold and the way payment is received are standardized, but product offerings may differ across countries. Business models in the digital economy include the name-your-own-price or demand collection systems (priceline.com), reverse auctions (hedgehog.com), affiliated marketing (linkshare.com), group purchasing (enqwest.com), and e-marketplaces(bebann.com), and exchanges (orbitz.com). Traditional e-business models include auctions (ebay.com) and virtual marketplaces or cybermalls (amazon.com, bcybermall.com)

4. What are the major pressures in the business environment?

The major types of pressures are market pressures, technology pressures, technological pressures, physical pressures, and societal and political pressures. Market pressures include the move toward globalization and strong competition, for instance, the effects of free trade agreements (NAFTA, European Union) and of regional currency fluctuations (Asian currency crisis of the late 1990s). The changing nature of the workforce and suppliers and the effects of changing customer tastes are also market pressures. Lowered trade barriers for new entrants have produced a number of acceptable substitutes for products.

Technology pressures include the speed with which technology becomes obsolete and new technologies come to market. Knowledge workers are faced with avalanches of information leading to information overload. Customers have higher expectations in terms of levels of service, forcing an organization to expend more energy and resources to obtain new customers while delivering up greater customer service to retain existing customers.

Societal pressures include social responsibility, governmental regulations at the local, state, national, and international level, and ethical norms. The latter can be a distinct problem to the global organization, as ethics can be a regional phenomenon. For example, bribery, while a commonplace and acceptable method of doing business in many parts of the world, is a criminal action in the United States. Further complicating social responsibilities are questions surrounding pollution, equal employment opportunities, education, and marketing.

Legal pressures fluctuate with the passage of laws by the various authorities and their representative agencies, as well as with the decisions of judges in trial courts. Truth in advertisements, health and safety requirements, pollution standards, and tariff rates all must be considered. Government regulation and deregulation can rewrite the face of an industry.Political pressures seem to overlap a number of societal and legal pressures but may also include community service activities and community development. In view of the recent emphasis on anti-terrorism, there has been a fever of nationalism across the world.

5. List the major critical response activities used by organizations.

An organization uses critical response activities to respond to environmental pressures that threaten to de-stabilize the organization. The major response activities employed are strategic systems, continuous improvement efforts, business process reengineering (BPR), business alliances, and electronic commerce. These allow an organization to improve quality, manage large amounts of information, reduce cost of development, increase productivity, reduce training

cycle time, enhance customer service, improve decision-making processes, and widen access to information.

6. Define information technology.

Information technology refers to the technical (as opposed to the social) side of an information system including hardware, software, networks, and other devices.

7. What is a virtual corporation?

A virtual corporation is a temporary network of companies in the form of a joint venture or a strategic alliance, which is linked by information technology in order to explore applications that will reap mutual benefits. It allows suppliers and customers to be linked to the business through telecommunications and computer technologies, giving them access to knowledge, workers, and external capabilities.

8. Define mobile computing and m-commerce.

Mobile computing refers to the multiple forms of mobile devices (PDAs, cell phones, laptops, BlackBerry) that can be employed, usually through wireless networks. M-commerce is the conduction of business through use of wireless devices and includes operations involving application vendors, wireless service providers, and systems integrators, as well as payment transactions and purchases.

9. Define corporate portals.

A corporate portal, or an enterprise information portal, is a model that emphasizes the exploitation of a company's information resources, serving as a single gateway to a company's knowledge base for employees, customers, business partners, and the general public. Data reserved for employees is accessed through the use of a password.

10. Describe mass customization.

In mass customization, a company produces items in large quantities but adapts each item to fit the desires of each customer. A good example of this is Dell Computer, who builds your computer after order placement.

11. What are Moore’s Law and Metcalfe’s Law?

Moore’s Law states that the processing power of silicon chips will double every 18 months with vast increases in computing power and sharp declines in cost.

Metcalfe’s Law states that the value of a network grows roughly in line with the square of the number of users.

12. What is cycle-time reduction? Why is it so important?

Cycle-time reduction is where a user or company focuses on one activity or process and attempts to reduce the period of time that they had previously used to complete the same activity. For example, a company that can reduce the time it takes to bring a product to market, to process a transaction, or to handle a customer question, can save money and be more effective and efficient, providing a competitive advantage.

13. Define Web services.

Web services provide a framework for dynamic, machine-to-machine interactions. They are self-contained, modular applications that are located on, and published over, a network.

14. Describe the major capabilities of IT.

The major capabilities of IT include the possibilities for improving productivity, enhancing the quality of product development or service, assisting in decision-making processes, attaining a strategic advantage over competitors, allowing for greater differentiation, and aiding in greater product and market focus.

15. Define optical networks and network storage.

High-speed networking technologies that allow the transmission of voice, data, and video through fiber optic cables in the form of pulses of light are known as optical networks. These networks may be both synchronous (SONET, SDH) and asynchronous.Network storage is the method by which you store data for your organization. Older, but still needed data will be retained on additional hard drive systems (RAID), in tape libraries, in data warehouses, or through external storage methods. The latter two are remote data centers established specifically for this storage, often operated by other companies, and are accessed through the company intranet or through the Internet.

16. Describe a Simputer (Network computer).

The Simputer is a low-cost, mass-access portable alternative to PCs that includes a smart card reader, has internal storage available through a smart card, which will allow sharing of the device (each person would have their own smart card), and employs Informational Markup Language.

17. Define the Internet, an intranet, and an extranet.

The Internet is a network that connects hundreds of thousands of computer networks worldwide. Participating computer systems are called nodes and can include stand-alone computers, local area networks, databases, and mainframes. An intranet is an internet within an organization and is usually password protected. An intranet is useful for disseminating corporate information and knowledge. An extranet is the combination of an intranet with the Internet, to service both an organization and their customers and suppliers.

18. Define networked computing and networked organizations.

Networked computing is emerging as the standard computing environment for business, home, and government alike. It connects several computers and various electronic devices by a telecommunications network. In networked organizations, on the other hand, various business components within an organization are integrated into a network to provide support to the entire organization.

19. Describe pervasive computing.Strongly associated with m-commerce and wireless networks is pervasive computing, in which computation becomes part of the environment. The computer devices (personal computer, personal digital assistant, game player) through which we now relate to computation will occupy only a small niche in this new computational world. Our relationship to pervasive computing will differ radically from our current relationship with computers. In pervasive computing, computation will be embodied in many things, not in what we now know as computers (e.g., RFID).

Questions for Discussion

1. Discuss the motivation for becoming an e-business.

In today’s global economy every Mom and Pop business has a web presence. As companies search to differentiate themselves and to focus on products and markets, it has become a necessity to expand onto the Internet and to offer goods and services to a wider market.

Conducting business over electronic channels has been around for decades (EDI), but modern applications range from informational sites to online sales. Companies searching for new customers, more discriminating customers, or simply more exposure have found a vigorous and active outlet in the Internet. Personalization has allowed greater flexibility and opened even more venues, while the potential of reaching most of the world’s citizens is an exciting possibility.

2. Review the examples of the new versus the old economy cases. In what way did IT make the difference?

In the photography example, IT reduced cycle-time for the customer (no waiting for a roll of film to be finished, then processed and delivered). IT allowed the customer to customize their own products and to select which items to keep and which to discard without having to pay for their own processing. Cost is reduced, quality can be improved depending upon customer expertise and the tools they have at hand, and the speed of the process is increased.

The immigration case is a great example of how technology can speed the processing system. I travel frequently between the United States and Australia and have been delighted that it now takes me under a minute to pass through customs in Australia with their use of a face recognition system, something that is particularly appreciated at the end of a fourteen-hour flight. The palm print biometrics systems used at many laboratories and the fingerprint identification systems used by many corporations to access computers has added greatly to security. ATM machines in some cities are currently experimenting with eye (iris) identification systems.

In the commercial photos example, IT sped up the time spent to complete the process of supplying photographs to advertisers (from four to six weeks to about a week) and allowed a reduction from $80 per picture for processing to $50 per picture. Cost, quality, speed, and customer service are all improved.

The card system employed by the New York Transit Authority, and those in many other systems, are less expensive, require less maintenance, and are generally easier to use than the tokens. As the book points out, many countries are now employing the same cards for use in telephone booths and food machines.

3. Explain why IT is a business pressure and also an enabler of response activities that counter business pressures.

Boyett and Boyett (1995) maintained that in order to survive or to succeed in a dynamic world, companies must not only take traditional actions such as lowering costs, but also must undertake innovative activities such as changing structure or processes. Business pressures are forces that create pressure on organizations’ operations. The successful application of IT can provide a competitive advantage for one organization (for example, Amazon.com), while forcing another organization to radically alter the way it tries to compete (Borders.com, BarnesAndNoble.com).

4. Why is m-commerce perceived as being able to increase EC applications?

Mobile commerce (m-commerce) can increase IT applications, since users will no longer be required to be sitting in front of a computer that is hard-wired to the Internet or to the corporate intranet. Users can access the information and programs they need remotely using wireless technology. Hence, the demands on IT will increase along with a corresponding demand increase for IT applications.

5. Explain why the cost-performance ratio of IT will improve by a factor of 100, while performance is expected to improve by a factor of only 50.

In about 10 years, a computer will cost the same as it costs today but will be about 50 times more powerful in terms of processing speed, memory, and so on. At the same time, labor costs could double, so the cost-performance ratio of computers versus manual work will improve by a factor of 100. This means that computers will have increasingly greater comparative advantage over people in performing a single task.

6. Is IT a strategic weapon or a survival tool? Discuss.

Students should be aware of the situation with Microsoft and how the rest of the industry opposes its strategic advantage. IT, when applied to this case, can be viewed both as a strategic weapon and a survival tool. In the case of many small companies, a website may be their only tool for survival. In terms of their large competitors, it is a strategic weapon with which they can defeat their competitors.

7. It is said that networked computing changes the way we live, work, and study. Why?

This is the age of networked computing. It is used to power the Internet, to send e-mail, and to manage daily affairs. We are all cognizant that information superhighways and e-commerce have altered the lives of a great number of people living on this planet. It is only natural to state that networked computing has changed, and will continue to change, the way we live, work and study. Students use the Web to ask questions of the instructor, to download assignments to check grades, and to obtain information for research papers. People use the Web daily to get the news, to buy goods and services, and to carry on their daily lives.

8. Relate cycle-time reduction to improved performance.

Cycle-time improvement may increase performance, but only if the improvement in cycle time directly relates to a better product or increased product demand. If an organization decreases the cycle time for Product A when there is no increase in demand for the product in the marketplace, then all the organization has accomplished is to increase their inventory of Product A. Increasing inventory does not increase revenue; sales increase revenue. On the other hand, if market demand is not yet satisfied, or if the company is bringing a new or an improved product to market, then reducing cycle time can produce improved performance in the form of increased sales.

9. Distinguish between network computers and networked computing.

Network computers are thin client systems that offer enterprise consumers a low-cost solution to desktop computing over a network. The concept is similar to the dumb terminals attached to mainframes, since they do not have the ability to store software programs or information permanently. Users download what they need from a centralized computer via an organization’s intranet or by means of an Internet connection. The networked computer still encompasses client-server computing. As a result, we may consider the network computers as part of networked computing.

Networked computing are client/server computer systems. Clients (computers) are linked via the organization’s intranet or through the Internet to servers. These computers have hard drives capable of storing programs and information permanently but may place information on the server to make it easier to share with other users. The computers may also download software programs as necessary from the server, so that they do not have to use hard drive space for programs not needed at the time. The domain of networked computing includes distributed computing, the Internet, the intranet, e-commerce, EDI, or simply e-mail.

10. Why is the Internet said to be the creator of new business models?

The Internet challenges the economic, social, political, physical and technological foundations of the old economy. A new generation of entrepreneurs is using the digital economy to find new ways to attracting customers and suppliers, as well as disseminating information to new sources and finding new markets for their goods and services. Most of these business models are not new. Indeed, many (bartering, exchanges, auctions) have been around since before the advent of money. They should be viewed, instead, as alternative ways of conducting business, locating the best quality product, and finding the best price. By providing a location for these entrepreneurs to “set-up-shop’ and by providing buyers with an easy method for locating and transacting business with these sellers, the Internet is helping to create new business models. Since every business and organization now has the potential to reach the entire world, the Internet has opened new doors and created a rapidly changing marketplace.

11. Explain why mass customization is desirable.

Mass customization is desirable because it provides each customer with the product that best suits their needs and wants. This approach is analogous to the contractor who will build a home from a given set of diagrams but will make small changes based upon the needs of the purchaser. A product that best matches the needs of the customer has a much better chance of being sold.

12. Discuss why some information systems fail.

Information systems can fail because companies do not know how to properly make use of and distribute the information that is collected. Knowledge workers must insure against information overload, while securing proper distribution of reports and documents in order to aid in executive and management decisions.

Information systems can also be unsuccessful because they are too difficult to use, either due to the actual functionality of the system or to improper training of the users. Additionally, it is necessary to convince management to support the use of the system.The rapidly changing field of available technologies can also lend themselves to the failure of systems. Technology becomes obsolete quickly, and easier to use devices are constantly being created.

13. Discuss the potential impact of utility computing.

According to Bill Gates, utility computing is computing that is as available, reliable,and secure as electricity, water services, and telephony (Gates, public speech,January 2003). The vision behind utility computing is to have computing resources flow like electricity on demand from virtual utilities around the globe—always onand highly available, secure, efficiently metered, priced on a pay-as-you-use basis,dynamically scaled, self-healing, and easy to manage. In this setting, enterpriseswould plug in, turn on the computer, and (it is hoped) save lots of money. IBM(On-Demand project), HP, Microsoft, Oracle, Sun Microsystems, SAP and othermajor software companies are backing the idea (see Cone, 2001).

14.Discuss the ethics related to use of RFID tags.

An ethical issue related to the use of RFID is what happens to the tags. If they are not removedafter you pay, it is theoretically possible for someone to track your whereabouts,which many consider an invasion of privacy. But removing these tags costs moneyand takes time, an added burden to retailers. Pending legislation in Massachusettsis attempting to force retailers to remove the tags. Pending legislation in Californiatries to limit the information placed on RFIDs to ensure privacy.