information tech
Lesson 1: The Information Age in Which You Live
Information Technology & Data Analytics
September 13, 2021
Information Technology & Data Analytics
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Chapter 1
The Information Age in Which You Live: Changing the Face of Business
Information Technology & Data Analytics
1. Define MIS and describe the three resources within it—people, information, and information technology.
2. Describe how to use break-even analysis to assess the financial impact of IT.
3. Describe how to use Porter’s Five Forces Model to evaluate an industry.
4. Compare and contrast Porter’s three generic strategies and the RGT framework as approaches to the development of business strategy.
STUDENT LEARNING OUTCOMES
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Information Technology & Data Analytics
Music Industry
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➢ In early 1990s, CDs had a price tag of about $15 USD (about $28USD in 2017 dollars)
➢ Up to that point, music was usually shared by recording cassettes
➢ Mp3 format was developed in 1993
➢ Hard drives in the early 1990s were about 256Mb in size. An average song is 44Mb in wav format versus 4Mb in mp3
➢ P2P systems were available already, like IRCs (Internet Relay Chat)
➢ In 1999, Napster disrupted the music business. Legal suits followed
➢ iTunes store opened in 2003 as a legal way to purchase digital music
Music Industry
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➢ Music industry switched from selling albums to selling songs
➢ It is harder for new artists to get signed by a label, but it is easier to record, publish and distribute their work
➢ Streaming services further changed the industry to subscription-based and add-supported models.
➢ Paid streaming generated $2.5 billion USD in revenue in 2016, while add-supported services brought $470 million
➢ What else has changed in the music industry with this shift on how music is distributed nowadays?
Music Industry
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➢ As revenue for distributing music has declined, live music has become the primary source of revenue for artists
➢ According the LA Times, the average concert ticket price was 2007 $61.58 USD ($72.70 today) in 2007, compared to $25.81 ($40.27 today) in 1996. The average cost in 2015 was $74.25 USD. • According to Music Business Worldwide, the average cost climbed up
to $84.40 USD, and to $96.31 by mid-2018.
➢ How has technology changed the live music business? • Online sales • Increasing demand • Booming secondary market • Flexible pricing
Live Music Industry
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The Information Age: Introduction
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➢ You live in a digital age
➢ Average American relies on more than 250 computers per day
➢ According to Time magazine, 14% of cell phone users stopped having sex to take a phone call
➢ How much do you rely on technology in your daily life?
INTRODUCTION
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Information Technology & Data Analytics
INTRODUCTION
14 Kleiner Perkins Caufield Byers (2014)
Information Technology & Data Analytics
INTRODUCTION
15 Internet Trends 2019
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➢ Management information systems (MIS) – deals with the planning for, development, management, and use of information technology to help people performs all tasks related to information processing and management.
➢ In other words, deals with how can people use different technologies to handle information to help an organization achieve its goals.
INTRODUCTION
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Information Technology & Data Analytics
➢ MIS deals with the coordination and use of 3 very important organizational resources
1. People
2. Information
3. Technology
INTRODUCTION
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The Synergy among the Three Resources of MIS
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Information Technology & Data Analytics
MIS Resources: Information, People,
and Information Technology
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Information Technology & Data Analytics
➢ Intellectual asset hierarchy – data, information, and business intelligence
➢ Data – raw facts that describe a particular phenomenon such as the current temperature, the price of movie rental, or your age
➢ Information – data that have a particular meaning within a specific context
MIS RESOURCE #1: INFORMATION
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Information Resource
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Information is often aggregated data that has meaning such as average age, youngest and oldest customer, and a histogram of customer ages
Information Technology & Data Analytics
➢ Business intelligence (BI) – collective information about…
• Customers
• Competitors
• Business partners
• Competitive environment
➢ BI is information on steroids
➢ BI can help you make important, strategic decisions
➢ Its purpose is analyze data to support better business decision making.
Information Resource
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Information Resource
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Information Technology & Data Analytics
➢ Timeliness • When you need it • Describing the right time period
➢ Location (no matter where you are)
➢ Form (audio, text, animation, etc.)
➢ Validity (credibility)
➢ Lack of any of the above can create GIGO (garbage-in, garbage-out) in a decision-making process
Information Resource – Quality Attributes
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Information Resource – Organizational Perspective
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➢ Upward – describes state of the organization based on transactions
• Information granularity – extent of detail
➢ Downward – strategies, goals, and directives that originate at a higher level and are passed to lower levels
➢ Horizontal – between functional business units and work teams
➢ Outward/inward – from and to customers, suppliers, etc.
• No organization is an island
Information Resource – Flows of Information
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Information Technology & Data Analytics
➢ Internal information – operational aspects of the organization
➢ External information – environment surrounding the organization
➢ Objective information – quantifiably describes something that is known
➢ Subjective information – describe something that is unknown
Information Resource – What It Describes
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➢ People are the most important resource in any organization, with a focus on:
• Technology literacy
• Information literacy
• Ethical responsibilities
MIS RESOURCE #2: PEOPLE
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➢ Technology-literate knowledge worker – knows how and when to apply technology
• Technology is not a panacea, it is not a one-size-fits-all
➢ Information-literate knowledge worker • Can define information needs • Knows how and where to obtain information • Understands information • Acts appropriately based on information
➢ Ethics – principles and standards that guide our behavior toward other people
People Resource
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Information Technology & Data Analytics
➢ Are the following statements ethical?
• Making copies of software you purchased to share with your friends, even charging them for the copies
• Make an extra back-up copy of your software, in case you lose the original media
• Giving the phone numbers of your friends and family to a provider in order to receive a discount.
• Sharing mp3 files with your friends from CD you ripped? • Looking at customers’ personal information?
➢ What other examples can you think of in today’s world? In social media?
Ethics
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People Resource - Ethics
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You always
want your
actions to fall
in Quadrant I
– both ethical
and legal.
Information Technology & Data Analytics
➢ Information technology (IT) – computer-based tools that people use to work with information
• Hardware (HW) – physical devices that make up a computer
• Software (SW) – set of instructions that your hardware executes to carry out a specific task for you
MIS RESOURCE #3: INFORMATION TECHNOLOGY
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Information Technology & Data Analytics
Information Technology –
Hardware
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Information Technology & Data Analytics
1. Input device – tool for entering information and commands
2. Output device – tool for see or hearing results
3. Storage device – tool for storing information
Information Technology – Hardware
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Information Technology & Data Analytics
4. CPU – hardware that interprets and executes instructions (RAM temporarily stores information and software for the CPU)
5. Telecommunications device – for sending info (modem)
6. Connecting devices – like cables, ports, etc.
Information Technology – Hardware
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Information Technology & Data Analytics
➢ Two types of software: • Application software – enables you to solve specific problems
and perform specific tasks (Word, payroll, inventory management, etc.) ▪ Middleware – software between the operating systems and
the applications or between applications, which enable communications. Example: RPC (remote procedure call), Oracle Fusion, Web Servers, Application Servers (web creation, clustering, load-balancing, etc.).
• System software – handles tasks specific to technology management (operating system, anti-virus, etc.) ▪ Operating System ▪ Utility Software ▪ Firmware – Software written to a hardware device’s
nonvolatile memory.
Information Technology – Software
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Information Technology & Data Analytics
Financial Impact of Information Technology
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Information Technology & Data Analytics
➢ Regardless of the resource, you must always assess its financial impact
• ROI = Net Income1 / Investment
• Cost, revenue
➢ Many times, you will do so using break-even analysis
➢ IT can definitely impact break-even analysis
FINANCIAL IMPACT OF INFORMATION TECHNOLOGY
39 1Net income = (gross profit – investment)
Information Technology & Data Analytics
➢ Consider and chart the following financial information:
• Fixed costs – costs you incur even if you don’t sell anything
▪ Rent, wages, utilities, insurance
• Variable costs – costs you incur when you sell something (COGS = Cost of Goods Sold)
▪ Materials, labor
• Revenue – how much you sell one unit for
Break-Even Analysis
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Information Technology & Data Analytics
➢ Assume online movie poster business:
• $1,500 → online store, domain name registration, search engine placement (fixed costs)
• $6 → $4 to buy poster from supplier and $2 to ship to customer (variable costs)
• $9 → price at which you sell a move poster
➢ Break-even point (in units) = 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
𝑀𝑎𝑟𝑔𝑖𝑛 =
$1500
$3 = 500 units
➢ Break-even point (in dollars) = 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
𝑀𝑎𝑟𝑔𝑖𝑛 𝑟𝑎𝑡𝑖𝑜 =
$1500
33.33% = $4,500
Break-Even Analysis Example
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Break-Even Analysis Example
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Information Technology & Data Analytics
➢ Organizations have the financial and operational goal to not have fixed costs. Examples of how technology can help reducing them:
• Digital storefronts – no physical retail space
• Telecommuting – fewer expenses related to office space
• VoIP – using the Internet for phone calls
• Cloud computing – Reduces cost of ownership
• Open Source Software – Apache, Ubuntu, MySQL, Open Office
Reducing Fixed Costs with IT
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Reducing Fixed Costs with IT
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Information Technology & Data Analytics
➢ Virtual goods – because they are digital, there is no cost to duplicate and sell again and again
➢ Crowdsourcing – use non-paid non-employees to create value
• Waze, EBay, Airbnb, Uber, Seamless, Task Rabbit
Reducing Variable Costs with IT
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Reducing Variable Costs with IT
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➢ Recommendation engines – to drive complementary sales
➢ Long-tail economics – to sell products/services that are too expensive for physical stores to carry
• Physical stores only carry what they can sell large amounts of because of fixed costs
Increasing Revenue with IT
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Information Technology & Data Analytics
Industry Impact of Information Technology
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➢ Business Strategy drives technology decisions, not the reverse.
➢ To assess technology and the competitive advantage it can yield, many people choose to use Michael Porter’s Five Forces Model.
➢ Porter’s Five Forces Model identifies five competitive forces that affect every industry, in order to determine its weaknesses and strengths.
INDUSTRY IMPACT OF INFORMATION TECHNOLOGY
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Information Technology & Data Analytics
➢ Porter’s Five Forces Model helps business people understand the relative attractiveness of an industry and the industry’s competitive pressures in terms of:
1. Buyer power
2. Supplier power
3. Threat of substitute products or services
4. Threat of new entrants
5. Rivalry among existing competitors
INDUSTRY IMPACT OF INFORMATION TECHNOLOGY
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PORTER’S FIVE FORCES MODEL
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➢ Buyer power – high when buyers have many choices and low when their choices are few
➢ Competitive advantages are created to get buyers to stay with a given company (reduce buyer power):
• Netflix – set up and maintain your movie list
• Airlines – frequent flyer program
• Apple iTunes – buy/manage your music
• Dell – customize computer purchases
Buyer Power
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Information Technology & Data Analytics
➢ Competitive advantage – providing a product or service in a way that customers value more than what the competition is able to do
➢ First-mover advantage – significant impact on gaining market share by being the first to market with a competitive advantage
➢ No competitive advantages are ever permanent
➢ Organizations must constantly innovate
Buyer Power
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➢ Supplier power – high when buyers have few choices and low when choices are many
➢ The opposite of buyer power
➢ Patents, trademarks, acquisitions, mergers, organizations
Supplier Power
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➢ Threat of substitute products and services – high when there are many alternatives for buyers and low when there are few alternatives
➢ Switching costs can reduce this threat
➢ Switching cost – a cost that makes buyers reluctant to switch to another product/service • Cell providers long term contracts • Bundled shipping costs • Loyalty programs
Threat of Substitute Products and Services
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Information Technology & Data Analytics
➢ Threat of new entrants – high when it is easy for competitors to enter the market and low when entry barriers are significant
➢ Entry barrier – product or service feature that customers have come to expect and that must be offered by an entering organization
• Banking – need to offer ATMs, online bill pay, FICO score, etc.
• Airlines – free food, blankets, luggage
• Entertainment – Triple Play packages
Threat of New Entrants
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Information Technology & Data Analytics
➢ Rivalry among existing competitors – high when competition is fierce and low when competition is more complacent
➢ General trend is toward more competition in almost all industries
➢ IT has certainly intensified competition in all sectors of business
• Target and Walmart electronic communications with providers, supply chains, pricing, online sales.
Rivalry Among Existing Competitors
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Information Technology & Data Analytics
Strategic Impact of Information Technology
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Information Technology & Data Analytics
➢ Porter identified three generic business strategies for beating the competition
1. Overall cost leadership
2. Differentiation
3. Focus
STRATEGY IMPACT OF INFORMATION TECHNOLOGY
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Information Technology & Data Analytics
➢ Overall cost leadership – offering the same or better quality product or service at a price that is less than what any of the competition is able to do
• Walmart (Always Low Prices, Every Day Low Prices)
• Dell – a computer the way you want it at an affordable price
• Hyundai and Kia – reliable low-cost cars
• Grocery stores – high-volume, low-margin
• Amazon – competitive pricing and free shipping
Overall Cost Leadership
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Information Technology & Data Analytics
➢ Differentiation – offering a product or service that is perceived as being “unique” in the marketplace • Still need to be concerned about pricing, but not the primary concern.
• Bentley, Audi, Mercedes-Benz – luxury cars
• Volvo, Audi, Mercedes-Benz and Michelin – safety
• Lund’s & Byerly’s – high-end grocery store – ▪ Food Emporium, Whole Foods
• Apple
Differentiation
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Information Technology & Data Analytics
➢ Focus – focusing on offering products or services:
• To a particular segment or buyer group
• Within a segment of a product line
• To a specific geographic market
➢ Still while focused, the company will need to compete on price and differentiation
➢ Examples: • Restaurants • Physician offices • Legal offices
Focus
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Information Technology & Data Analytics
➢ Run-grow-transform (RGT) framework – approach the allocation in terms of percentages of IT dollars on various types of business strategies
• Allows to view the bigger organizational picture
• Allows to better determining the use of IT
Run-Grow-Transform (RGT) Framework
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Information Technology & Data Analytics
➢ How will you allocate IT dollars to:
• Run – optimizing execution of existing processes ▪ Seeks organizational growth by offering products and
services faster and cheaper than the competition
• Grow – increasing market share, products, and service offerings ▪ Seeks organizational growth by taking market share from the
competition
• Transform – innovating business processes, products, and/or services ▪ Seeks organizational growth through new and different
means
RGT Framework
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RGT Framework
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➢ Run = overall cost leadership
➢ Grow = focus and differentiation
➢ Transform = (new) differentiation
Porter and RGT
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Information Technology & Data Analytics
1. Define MIS and describe the three resources within it—people, information, and information technology.
2. Describe how to use break-even analysis to assess the financial impact of IT.
3. Describe how to use Porter’s Five Forces Model to evaluate an industry.
4. Compare and contrast Porter’s three generic strategies and the RGT framework as approaches to the development of business strategy.
STUDENT LEARNING OUTCOMES
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Questions?
Thank you!