CASE ASSIGNMENT DUE IN 48 HOURS

Week 1: Information Systems in Organizations

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What does a business know about itself?  Or its competitors? How can a company leverage information technology to improve its position in the marketplace?

This week, you will learn how businesses develop their strategies for improving their position in the marketplace and how information systems can be used to improve that competitive advantage. We begin our study of "Information Systems in Organizations" with developing an understanding of the business environment. We will use the term business to represent a variety of organizational types: government entities, nonprofit organizations, educational institutions, and general businesses, both large and small. The concepts apply in all of those environments.

As you approach each week's work, you should read the assigned items in the order presented. They are grouped by topic to aid your understanding of the topic and to prepare you to demonstrate your learning when it comes time to complete the quizzes and assignments.

There are a number of resources provided to help you understand this week's concepts and to prepare you to complete the first assignment, which will be due next week. You will want to come back to these resources when you begin work on the Stage 1 assignment. In preparation for the assignments, you should read the Case Study and all four staged assignments (locations provided below) to gain an overall understanding of what is expected throughout the course and what the final product of your efforts will be.

By the end of Week 1, you will be able to:

· recognize business strategy

· describe competitive advantage and how it is evaluated

· recognize how information systems can provide businesses with competitive advantage

· identify the major components of an information system

Before beginning the week’s readings and assignments, you should review:

· The Overview (at the top of list on the left side of your screen)

· The Course Schedule (module listed on the left side of your screen)

· The Syllabus (module listed on the left side of your screen)

This week you will complete the following:

· Read Introduction to Information Systems in Organizations

· Read What is an Information System?

· Read Business Strategy

· Read Does IT Matter?

· Read How Organizations Use Information Systems Strategically

· Read Globalization and the Digital Divide

· Participate in the Discussions, as assigned

· Complete Quiz 1

· Read the Case Study, located in Course Resources (module on the left)

· Review the four staged assignments to gain an understanding of the Business Analysis and System Recommendation (BA&SR) document you will be creating in this course.

Learning Resource

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Introduction to Information Systems in Organizations

As the course catalogue describes IFSM 300, this is an "overview of information systems, their role in organizations, and the relationship between information systems and the objectives and structure of an organization." Information systems collect, organize, process, and make available or distribute data. The systems involve people, technology, and processes. Students in this class come from a variety of different majors and disciplines; however, in today's business and personal world, each of us is impacted by information systems on a regular basis.

Many of you have been or will be involved in a project where processes are analyzed in anticipation of incorporating or revising an information technology solution to increase productivity and meet business needs. Even as a user within a functional department (human resources, marketing, finance, etc.), you may be asked to test systems to ensure they meet business requirements or otherwise be involved in technology implementation. There may be a specific role or position of business analyst that can exist in a functional department, or an Information Technology department, and is tasked with this type of work. In addition, you may be inputting data into an information system and receiving information from a system as part of your job responsibilities. Whatever your specific role is, understanding how businesses use information technology effectively is a critical skill in today’s business world.

IT management must be sensitive to the business and its needs, rather than being in awe of or driven by technology. Conversely, business managers must be aware that systems can and should be used in the business to solve problems and improve the various functions, and that the advice of IT management is essential to the success of the business. This also implies that business managers should be conversant with IT terminology and its possible uses if they are going to achieve the maximum benefits of IT systems. It is in the best interests of the organization that both business managers and IT managers recognize each other's importance and strengths in maximizing systems' effectiveness in solving problems. This will ultimately lead to better business solutions enabled by IT that will lead to achievement of business goals and strategic objectives.

There is a clear relationship between information (derived from raw data), information technology (the computer-based tools used to work with information), and people (you). What is critical to keep in mind is that they all contribute (together) to supporting and improving business processes to achieve business success. Investments in technology and information systems are worthless if they do not support or contribute to the business's success. The processes are the business activities of the organization. In order for those processes to work, information is needed. Information, therefore, becomes the lifeblood of the organization. It is one of the most important assets in an organization, and the primary way that people get information is through information technology. Information technology in and of itself is not useful unless it delivers the right information to the right people at the right time. Since people, information, and information technology (in that order of priority) are inextricably linked, if one fails, they all fail.

So, we will begin our study of "Information Systems in Organizations" with developing an understanding of the business environment. We will use the term business to represent a variety of organizational types: government entities, nonprofit organizations, educational institutions, and general businesses, both large and small. The concepts apply in all of those environments. As you approach each week's work, you should read the assigned items in the order presented. They are grouped by topic to aid your understanding of the topic and to prepare you to demonstrate your learning when it comes time to complete the assignments.

© 2021 University of Maryland Global Campus

What Is an Information System?

Introduction

If you are reading this, you are most likely taking a course in information systems, but do you even know what the course is going to cover? When you tell your friends or your family that you are taking a course in information systems, can you explain what it is about? Sometimes when students are asked what they think an information system is, they give answers such as "computers," "databases," or "Excel." These are good answers, but definitely incomplete ones. The study of information systems goes far beyond understanding some technologies. Let’s begin our study by defining information systems.

Defining Information Systems

Almost all programs in business require students to take a course in something called information systems. But what exactly does that term mean? Let’s take a look at some of the more popular definitions, first from Wikipedia and then from a couple of textbooks:

· "Information systems (IS) is the study of complementary networks of hardware and software that people and organizations use to collect, filter, process, create, and distribute data (“Information Systems,” 2012).

· "Information systems are combinations of hardware, software, and telecommunications networks that people build and use to collect, create, and distribute useful data, typically in organizational settings (Valacich & Schneider, 2010).

· "Information systems are interrelated components working together to collect, process, store, and disseminate information to support decision making, coordination, control, analysis, and visualization in an organization (Laudon & Laudon, 2012).

As you can see, these definitions focus on two different ways of describing information systems: the components that make up an information system and the role that those components play in an organization. Let’s take a look at each of these.

The Components of Information Systems

Many students understand that an information system has something to do with databases, spreadsheets, computers and e-commerce. And they are all right, at least in part: information systems are made up of different components that work together to provide value to an organization.

Information systems are made up of five components: hardware, software, data, people, and process. The first three, fitting under the category technology, are generally what most students think of when asked to define information systems. But the last two, people and process, are really what separate the idea of information systems from more technical fields, such as computer science. In order to fully understand information systems, students must understand how all of these components work together to bring value to an organization.

Technology

Technology can be thought of as the application of scientific knowledge for practical purposes. From the invention of the wheel to the harnessing of electricity for artificial lighting, technology is a part of our lives in so many ways that we tend to take it for granted. As discussed before, the first three components of information systems—hardware, software, and data—all fall under the category of technology. Each will be discussed in more detail in later sections, but we will take a moment here to introduce them so we can get a full understanding of what an information system is.

Hardware

Information systems hardware is the part of an information system you can touch—the physical components of the technology. Computers, keyboards, disk drives, iPads, and flash drives are all examples of information systems hardware.

Software

Software is a set of instructions that tells the hardware what to do. Software is not tangible—it cannot be touched. When programmers create software programs, what they are really doing is simply typing out lists of instructions that tell the hardware what to do. There are several categories of software, with the two main categories being operating-system software, which makes the hardware usable, and application software, which does something useful. Examples of operating systems include Microsoft Windows on a personal computer and Google’s Android on a mobile phone. Examples of application software are Microsoft Excel and Angry Birds.

Data

The third component is data. You can think of data as a collection of facts. For example, your street address, the city you live in, and your phone number are all pieces of data. Like software, data is also intangible. By themselves, pieces of data are not really very useful. But aggregated, indexed, and organized together into a database, data can become a powerful tool for businesses. In fact, all of the definitions presented at the beginning of this section focused on how information systems manage data. Organizations collect all kinds of data and use it to make decisions. These decisions can then be analyzed as to their effectiveness and the organization can be improved. The reading, Data and Databases, will cover their uses in organizations.

Networking Communication: A Fourth Technology Piece?

Besides the components of hardware, software, and data, which have long been considered the core technology of information systems, it has been suggested that one other component should be added: communication. An information system can exist without the ability to communicate—the first personal computers were stand-alone machines that did not access the internet. However, in today’s hyper-connected world, it is an extremely rare computer that does not connect to another device or to a network. Technically, the networking communication component is made up of hardware and software, but it is such a core feature of today’s information systems that it has become its own category.

People

When thinking about information systems, it is easy to get focused on the technology components and forget that we must look beyond these tools to fully understand how they integrate into an organization. A focus on the people involved in information systems is the next step. From the frontline help-desk workers, to systems analysts, to programmers, all the way up to the chief information officer, the people involved with information systems are an essential element that must not be overlooked.

Process

The last component of information systems is process. A process is a series of steps undertaken to achieve a desired outcome or goal. Information systems are becoming more and more integrated with organizational processes, bringing more productivity and better control to those processes. But simply automating activities using technology is not enough; businesses looking to effectively utilize information systems do more. Using technology to manage and improve processes, both within a company and externally with suppliers and customers, is the ultimate goal. Technology buzzwords such as "business process reengineering," "business process management," and "enterprise resource planning" all have to do with the continued improvement of these business procedures and the integration of technology with them. Businesses hoping to gain an advantage over their competitors are highly focused on this component of information systems.

The Role of Information Systems

Now that we have explored the different components of information systems, we need to turn our attention to the role that information systems play in an organization. From our definitions above, we see that these components collect, store, organize, and distribute data throughout the organization. In fact, we might say that one of the roles of information systems is to take data and turn it into information, and then transform that into organizational knowledge. As technology has developed, this role has evolved into the backbone of the organization. To get a full appreciation of the role information systems play, we will review how they have changed over the years.

The Mainframe Era

From the late 1950s through the 1960s, computers were seen as a way to more efficiently do calculations. These first business computers were room-sized monsters, with several refrigerator-sized machines linked together. The primary work of these devices was to organize and store large volumes of information that were tedious to manage by hand. Only large businesses, universities, and government agencies could afford them, and they took a crew of specialized personnel and specialized facilities to maintain. These devices served dozens to hundreds of users at a time through a process called time-sharing. Typical functions included scientific calculations and accounting, under the broader umbrella of "data processing."

In the late 1960s, the Manufacturing Resources Planning (MRP) systems were introduced. This software, running on a mainframe computer, gave companies the ability to manage the manufacturing process, making it more efficient. From tracking inventory to creating bills of materials to scheduling production, the MRP systems (and later the MRP II systems) gave more businesses a reason to want to integrate computing into their processes. IBM became the dominant mainframe company. Nicknamed "Big Blue," the company became synonymous with business computing. Continued improvement in software and the availability of cheaper hardware eventually brought mainframe computers (and their little sibling, the minicomputer) into most large businesses.

The PC Revolution

In 1975, the first microcomputer was announced on the cover of Popular Mechanics: the Altair 8800. Its immediate popularity sparked the imagination of entrepreneurs everywhere, and there were quickly dozens of companies making these "personal computers." Though at first just a niche product for computer hobbyists, improvements in usability and the availability of practical software led to growing sales. The most prominent of these early personal computer makers was a little company known as Apple Computer, headed by Steve Jobs and Steve Wozniak, with the hugely successful "Apple II." Not wanting to be left out of the revolution, in 1981 IBM (teaming with a little company called Microsoft for their operating-system software) hurriedly released their own version of the personal computer, simply called the "PC." Businesses that had used IBM mainframes for years to run their businesses finally had the permission they needed to bring personal computers into their companies, and the IBM PC took off. The IBM PC was named Time magazine’s "Man of the Year" for 1982.

Because of the IBM PC’s open architecture, it was easy for other companies to copy, or "clone" it. During the 1980s, many new computer companies sprang up, offering less expensive versions of the PC. This drove prices down and spurred innovation. Microsoft developed its Windows operating system and made the PC even easier to use. Common uses for the PC during this period included word processing, spreadsheets, and databases. These early PCs were not connected to any sort of network; for the most part they stood alone as islands of innovation within the larger organization.

Client-Server

In the mid-1980s, businesses began to see the need to connect their computers together as a way to collaborate and share resources. This networking architecture was referred to as client-server because users would log in to the local area network (LAN) from their PC (the "client") by connecting to a powerful computer called a "server," which would then grant them rights to different resources on the network (such as shared file areas and a printer). Software companies began developing applications that allowed multiple users to access the same data at the same time. This evolved into software applications for communicating, with the first popular use of email appearing at this time.

This networking and data sharing all stayed within the confines of each business, for the most part. While there was sharing of electronic data between companies, this was a very specialized function. Computers were now seen as tools to collaborate internally, within an organization. In fact, these networks of computers were becoming so powerful that they were replacing many of the functions previously performed by the larger mainframe computers at a fraction of the cost. It was during this era that the first Enterprise Resource Planning (ERP) systems were developed and run on the client-server architecture. An ERP system is a software application with a centralized database that can be used to run a company’s entire business. With separate modules for accounting, finance, inventory, human resources, and many, many more, ERP systems, with Germany’s SAP leading the way, represented the state of the art in information systems integration.

The World Wide Web and E-Commerce

Invented in 1969, the internet was confined to use by universities, government agencies, and researchers for many years. The internet’s rather arcane commands and user applications made it unsuitable for mainstream use in business. One exception to this was the ability to expand email outside the confines of a single organization. While the first email messages on the internet were sent in the early 1970s, companies that wanted to expand their LAN-based email started hooking up to the internet in the 1980s. Companies began connecting their internal networks to the internet in order to allow communication between their employees and employees at other companies. It was with these early internet connections that the computer truly began to evolve from a computational device to a communications device.

In 1989, Tim Berners-Lee developed a simpler way for researchers to share information over the network at CERN laboratories, a concept he called the World Wide Web (CERN, n.d.). This invention became the launching point of the growth of the internet as a way for businesses to share information about themselves. As web browsers and internet connections became the norm, companies rushed to grab domain names and create websites.

In 1991, the National Science Foundation, which governed how the internet was used, lifted restrictions on its commercial use. In 1994, eBay and Amazon.com were established, two true pioneers in the use of the new digital marketplace. A mad rush of investment in internet-based businesses led to the dot-com boom through the late 1990s, and then the dot-com bust in 2000. While much can be learned from the speculation and crazy economic theories espoused during that bubble, one important outcome for businesses was that thousands of miles of internet connections were laid around the world during that time. The world became truly "wired" heading into the new millenium, ushering in the era of globalization.

As more companies were expected to be connected to the internet, the digital world also became a more dangerous place. Computer viruses and worms, once slowly propagated through the sharing of computer disks, could now grow with tremendous speed via the internet. Software written for a disconnected world found it very difficult to defend against these sorts of threats. A whole new industry of computer and internet security has arisen.

Web 2.0

As the world recovered from the dot-com bust, the use of technology in business continued to evolve at a frantic pace. Websites became interactive; instead of just visiting a site to find out about a business and purchase its products, customers wanted to be able to customize their experience and interact with the business. This new type of interactive website, where you did not have to know how to create a web page or do any programming in order to put information online, became known as web 2.0. Web 2.0 is exemplified by blogging, social networking, and interactive comments being available on many websites. This new web-2.0 world, in which online interaction became expected, had a big impact on many businesses and even whole industries. Some industries, such as bookstores, found themselves relegated to a niche status. Others, such as video rental chains and travel agencies, simply began going out of business as they were replaced by online technologies. This process of technology replacing a middleman in a transaction is called disintermediation.

As the world became more connected, new questions arose. Should access to the internet be considered a right? Can I copy a song that I downloaded from the internet? How can I keep information that I have put on a website private? What information is acceptable to collect from children? Technology moved so fast that policymakers did not have enough time to enact appropriate laws, making for a Wild West–type atmosphere.

The Post-PC World

After 30 years of the PC being the primary computing device used in most businesses, sales of the PC are now beginning to decline as sales of tablets and smartphones are taking off. Just as the mainframe before it, the PC will continue to play a key role in business, but will no longer be the primary way that people interact and do business. The limited storage and processing power of these devices is being offset by a move to "cloud" computing, which allows for storage, sharing, and backup of information on a massive scale. This will require new rounds of thinking and innovation on the part of businesses as technology continues to advance.

The Eras of Business Computing
Era	Hardware	Operating System	Applications
Mainframe (1970s)	Terminals connected to mainframe computer.	Time-sharing(TSO) on MVS	Custom-written MRP software
PC (mid-1980s)	IBM PC or compatible. Sometimes connected to mainframe computer via expansion card.	MS-DOS	WordPerfect, Lotus 1-2-3
Client-Server (late 80s to early 90s)	IBM PC "clone" on a Novell Network.	Windows for Workgroups	Microsoft Word, Microsoft Excel
World Wide Web (mid-90s to early 2000s)	IBM PC "clone" connected to company intranet.	Windows XP	Microsoft Office, Internet Explorer
Web 2.0 (mid-2000s to present)	Laptop connected to company Wi-Fi.	Windows 7	Microsoft Office, Firefox
Post-PC (today and beyond)	Apple iPad	iOS	Mobile-friendly websites, mobile apps

Can Information Systems Bring Competitive Advantage?

It has always been the assumption that the implementation of information systems will, in and of itself, bring a business competitive advantage. After all, if installing one computer to manage inventory can make a company more efficient, won’t installing several computers to handle even more of the business continue to improve it?

In 2003, Nicholas Carr wrote an article in the Harvard Business Review that questioned this assumption. The article, entitled "IT Doesn’t Matter," raised the idea that information technology has become just a commodity. Instead of viewing technology as an investment that will make a company stand out, it should be seen as something like electricity: managed to reduce costs, ensure that it is always running, and be as risk-free as possible.

As you might imagine, this article was both hailed and scorned. Can IT bring a competitive advantage? It sure did for Walmart.

What Is an Information System?

Registered trademark of Wal-mart

Walmart is the world’s largest retailer, earning $15.2 billion on sales of $443.9 billion in the fiscal year that ended on January 31, 2012. Walmart currently serves over 200 million customers every week, worldwide (Walmart, 2012). Walmart’s rise to prominence is due in no small part to its use of information systems.

One of the keys to this success was the implementation of Retail Link, a supply-chain management system. This system, unique when initially implemented in the mid-1980s, allowed Walmart’s suppliers to directly access the inventory levels and sales information of their products at any of Walmart’s more than 10,000 stores. Using Retail Link, suppliers can analyze how well their products are selling at one or more Walmart stores, with a range of reporting options. Further, Walmart requires the suppliers to use Retail Link to manage their own inventory levels. If a supplier feels that their products are selling out too quickly, they can use Retail Link to petition Walmart to raise the levels of inventory for their products.

This has essentially allowed Walmart to "hire" thousands of product managers, all of whom have a vested interest in the products they are managing. This revolutionary approach to managing inventory has allowed Walmart to continue to drive prices down and respond to market forces quickly.

Today, Walmart continues to innovate with information technology. Using its tremendous market presence, Walmart can require suppliers to immediately implement technology, which becomes a business standard.

Summary

In this section, you have been introduced to the concept of information systems. We have reviewed several definitions, with a focus on the components of information systems: technology, people, and process. We have reviewed how the business use of information systems has evolved over the years, from the use of large mainframe computers for number crunching, through the introduction of the PC and networks, all the way to the era of mobile computing. During each of these phases, new innovations in software and technology allowed businesses to integrate technology more deeply.

We are now to a point where every company is using information systems and asking the question: Does it bring a competitive advantage? Every business person should understand what an information system is and how it can be used to bring a competitive advantage. And that is the task we have before us.

Study Questions

1. What are the five components that make up an information system?

2. What are three examples of information system hardware?

3. Microsoft Windows is an example of which component of information systems?

4. What is application software?

5. What roles do people play in information systems?

6. What is the definition of a process?

7. What was invented first, the personal computer or the internet (ARPANET)?

8. In what year were restrictions on commercial use of the internet first lifted? When were eBay and Amazon founded?

9. What does it mean to say we are in a "post-PC world"?

10. What is Carr’s main argument about information technology?

References

CERN (n.d.). The birth of the web. Retrieved from http://public.web.cern.ch/public/en/about/web-en.html

Information Systems. In Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Information_systems_(discipline)

Laudon, K. & Laudon, J.P. (2012). Management information systems, 12th ed., Upper Saddle River, NJ: Prentice-Hall.

Valacich, J., & Schneider, C. (2010).  Information systems today—Managing in the digital world, 4th ed. Upper Saddle River, NJ: Prentice-Hall.

Walmart. (2012). 2012 annual report.

Licenses and Attributions

Chapter 1: What Is an Information System from Information Systems for Business and Beyond by David T. Bourgeois is available under a Creative Commons Attribution 3.0 Unported license. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

© 2021 University of Maryland Global Campus

Business Strategy

This section presents a high-level overview of the strategic planning process for business. All companies want to formulate technology solutions that effectively support the business and its objectives. To do so, the company must first understand its business model, the fundamentals of its business type (manufacturing, finance, service, etc.), and its strategy. Only once the company has understood these, should it begin to focus on its systems. Information systems are only tools that are used to support a business; therefore, if the tools are not aligned with business requirements, then its resources (time, money, and people) may be wasted, triggering an undesirable outcome.

Many businesses establish an overall mission or vision statement—Why are we in business? Following is a list of companies with their mission statements:

Amazon—"to be earth's most customer-centric company, to build a place where people can come to find and discover anything they might want to buy online." (Amazon Jobs, 2018)

Marriott—"to be the world's favorite travel company" (Marriott Investor Relations).

Google—“to organize the world’s information and make it universally accessible and useful” (Google.com, 2018).

As you can see, these mission and vision statements are very broad and overarching; however, to achieve these, organizations need more specifics with actionable areas to accomplish to help support the mission/vision. In order to define the goals and objectives, first organizations scan the environment looking at several factors, such as competition, business environment, customers, employees, and location. This analysis helps identify threats and opportunities. A frequent tool used in business is SWOT Analysis: identifying Strengths, Weaknesses, Opportunities and Threats. The section Does IT Matter? also looks at further methods to analyze the competitive environment.

This analysis can result in organizations defining business goals and objectives and the specific actions needed to be successful. When these objectives are defined, opportunities can be identified to use information technology to help reach those objectives.

It’s important that technology support the business objectives rather than drive the objectives. For example, looking back at Amazon’s mission statement, specific goals and objectives would need to be defined (e.g., How can customer-centric be increased?). One approach is customizing the user experience so customers feel valued and that Amazon really “knows” them. A strategic goal might be to maximize the customer’s experience through personalization of the online shopping experience. With technology, information regarding customers’ browsing and shopping habits can be stored and retrieved when a customer returns to the Amazon site, prompting with messages such as “Hello John—Recommended Links for You” or “John—Buy it Again,” followed by a list of recent purchases John has made. The benefits of the information technology can be increased sales and increased customer loyalty, which give Amazon a competitive advantage in the online retail arena.

This information would then be documented for everyone in the company to understand and be able to do their part to support the business strategy. For example, Amazon might document as follows:

Mission/Vision: Our vision is to be earth's most customer-centric company, to build a place where people can come to find and discover anything they might want to buy online.

Business Strategy (derived from the Mission/Vision): to be earth's most customer-centric company, to build a place where people can come to find and discover anything they might want to buy online.

· Technology Support: A robust online shopping system would accommodate millions of customers and products and focus on the individual customer's searches and buying habits.

· Competitive Advantage: Availability of millions of products would increase sales, and a focus on the customer would increase customer loyalty.

Strategic Goal 1: Increase customer-centricity by maximizing the customer's experience through personalization of the online shopping experience.

Objective: Provide customer with at least five other items they might be interested in based on previous purchases by the end of the first quarter.

Technology Support: The system would store each customer's purchases and retrieve that information when the customer returns to the Amazon site, and present a message such as "Hello, John – Recommended for you" with icons of several items related to his recent purchases.

Strategic Goal 2: Increase the number of items available.

Objective: Add 10% more items to the inventory.

Technology Support: The system would provide the ability to store and retrieve items for display to customers.

To achieve success, an organization should translate its high-level mission into specific objectives so it can align its technology support to those objectives. The alignment can provide clear direction and enable all levels of the organization to work towards maximizing their investments in information technology.

References

Amazon Jobs (2018). Retrieved from https://www.amazon.jobs/en/working/working-amazon

Google.com/About. (n.d.). Retrieved from https://www.google.com/about/

Marriott. (2018). Marriott investor relations: Frequently asked questions. Retrieved from https://marriott.gcs-web.com/investor-faqs

© 2021 University of Maryland Global Campus

All links to external sites were verified at the time of publication.

Does IT Matter?

Introduction

For over 50 years, computing technology has been a part of business. Organizations have spent trillions of dollars on information technologies. But has all this investment in IT made a difference? Have we seen increases in productivity? Are companies that invest in IT more competitive? In this reading, we will look at the value IT can bring to an organization and try to answer these questions. We will begin by highlighting two important works from the past two decades.

The Productivity Paradox

In 1991, Erik Brynjolfsson wrote an article, published in the Communications of the ACM, entitled “The Productivity Paradox of Information Technology: Review and Assessment.” By reviewing studies about the impact of IT investment on productivity, Brynjolfsson was able to conclude that the addition of information technology to business had not improved productivity at all—the “productivity paradox.” From the article, he does not draw any specific conclusions from this finding and provides the following analysis (Brynjolfsson, 1991):

Although it is too early to conclude that IT’s productivity contribution has been subpar, a paradox remains in our inability to unequivocally document any contribution after so much effort. The various explanations that have been proposed can be grouped into four categories:

1. Mismeasurement of outputs and inputs,

2. Lags due to learning and adjustment,

3. Redistribution and dissipation of profits, and

4. Mismanagement of information and technology.

In 1998, Brynjolfsson and Lorin Hitt published a follow-up paper entitled “Beyond the Productivity Paradox” (Brynjolfsson & Hitt, 1998). In this paper, the authors utilized new data that had been collected and found that IT did, indeed, provide a positive result for businesses. Further, they found that sometimes the true advantages in using technology were not directly relatable to higher productivity, but to “softer” measures, such as the impact on organizational structure. They also found that the impact of information technology can vary widely between companies.

IT Doesn’t Matter

Just as a consensus was forming about the value of IT, the internet stock market bubble burst. Just two years later, in 2003, Harvard professor Nicholas Carr wrote his article “IT Doesn’t Matter” in the Harvard Business Review. In this article, Carr asserts that as information technology has become more ubiquitous, it has also become less of a differentiator. In other words, because information technology is so readily available and the software used so easily copied, businesses cannot hope to implement these tools to provide any sort of competitive advantage. Carr goes on to suggest that since IT is essentially a commodity, it should be managed like one: low cost, low risk. Using the analogy of electricity, Carr describes how a firm should never be the first to try a new technology, thereby letting others take the risks. IT management should see themselves as a utility within the company and work to keep costs down. For IT, providing the best service with minimal downtime is the goal.

As you can imagine, this article caused quite an uproar, especially from IT companies. Many articles were written in defense of IT; many others in support of Carr. Carr released a book based on the article in 2004, entitled “Does IT Matter?”

Probably the best thing to come out of the article and subsequent book was that it opened up discussion on the place of IT in a business strategy, and exactly what role IT could play in competitive advantage, which is addressed in this reading.

Competitive Advantage

What does it mean when a company has a competitive advantage? What are the factors that play into it? While there are entire courses and many different opinions on this topic, let’s go with one of the most accepted definitions, developed by Michael Porter (2001) in his book Competitive Advantage: Creating and Sustaining Superior Performance. A company is said to have a competitive advantage over its rivals when it is able to sustain profits that exceed average for the industry. According to Porter, there are two primary methods for obtaining competitive advantage: cost advantage and differentiation advantage. So the question becomes: how can information technology be a factor in one or both of these methods? In the sections below, we will explore this question using two of Porter’s analysis tools: the value chain and the five forces model. We will also use Porter’s analysis in his 2001 article “Strategy and the Internet,” which examines the impact of the internet on business strategy and competitive advantage, to shed further light on the role of information technology in competitive advantage.

The Value Chain

In his book, Porter describes exactly how a company can create value (and therefore, profit). Value is built through the value chain: a series of activities undertaken by the company to produce a product or service. Each step in the value chain contributes to the overall value of a product or service. While the value chain may not be a perfect model for every type of company, it does provide a way to analyze just how a company is producing value. The value chain is made up of two sets of activities: primary activities and support activities. We will briefly examine these activities and discuss how information technology can play a role in creating value by contributing to cost advantage, differentiation advantage, or both.

Porter’s Value Chain

Series of activities that contribute to the overall value of a product or service

The primary activities are the functions that directly impact the creation of a product or service. The goal of the primary activities is to add more value than they cost. The primary activities are:

· Inbound logistics: These are the functions performed to bring in raw materials and other needed inputs. Information technology can be used here to make these processes more efficient, such as with supply-chain management systems, which allow the suppliers to manage their own inventory.

· Operations: Any part of a business that is involved in converting the raw materials into the final products or services is part of operations. From manufacturing to business process management (covered in Business Processes), information technology can be used to provide more efficient processes and increase innovation through flows of information.

· Outbound logistics: These are the functions required to get the product out to the customer. As with inbound logistics, IT can be used here to improve processes, such as allowing for real-time inventory checks. IT can also be a delivery mechanism itself.

· Sales/Marketing: The functions that will entice buyers to purchase the products are part of sales and marketing. Information technology is used in almost all aspects of this activity. From online advertising to online surveys, IT can be used to innovate product design and reach customers like never before. The company website can be a sales channel itself.

· Service: The functions a business performs after the product has been purchased to maintain and enhance the product’s value are part of the service activity. Service can be enhanced via technology as well, including support services through websites and knowledge bases.

The support activities are the functions in an organization that support, and cut across, all of the primary activities. The support activities are:

· Firm infrastructure: This includes organizational functions such as finance, accounting, and quality control, all of which depend on information technology; the use of enterprise resource planning (ERP) systems (to be covered in The People in Information Systems) is a good example of the impact that IT can have on these functions.

· Human resource management: This activity consists of recruiting, hiring, and other services needed to attract and retain employees. Using the internet, HR departments can increase their reach when looking for candidates. There is also the possibility of allowing employees to use technology for a more flexible work environment.

· Technology development: Here we have the technological advances and innovations that support the primary activities. These advances are then integrated across the firm or within one of the primary activities to add value. Information technology would fall specifically under this activity.

· Procurement: The activities involved in acquiring the raw materials used in the creation of products and services are called procurement. Business-to-business e-commerce can be used to improve the acquisition of materials.

This analysis of the value chain provides some insight into how information technology can lead to competitive advantage. Let’s now look at another tool that Porter developed—the “five forces” model.

Porter’s Five Forces

Porter developed the “five forces” model as a framework for industry analysis. This model can be used to help understand just how competitive an industry is and to analyze its strengths and weaknesses. The model consists of five elements, each of which plays a role in determining the average profitability of an industry. In 2001, Porter wrote an article entitled ”Strategy and the Internet,” in which he takes this model and looks at how the internet impacts the profitability of an industry. Below is a quick summary of each of the five forces and the impact of the internet.

Porter’s Five Forces Model

Five elements that determine an industry’s competitiveness and average profitability

 

· Threat of substitute products or services: How easily can a product or service be replaced with something else? The more types of products or services there are that can meet a particular need, the less profitability there will be in an industry. For example, the advent of the mobile phone has replaced the need for pagers. The internet has made people more aware of substitute products, driving down industry profits in those industries being substituted.

· Bargaining power of suppliers: When a company has several suppliers to choose from, it can demand a lower price. When a sole supplier exists, then the company is at the mercy of the supplier. For example, if only one company makes the controller chip for a car engine, that company can control the price, at least to some extent. The internet has given companies access to more suppliers, driving down prices. On the other hand, suppliers now also have the ability to sell directly to customers.

· Bargaining power of customers: A company that is the sole provider of a unique product has the ability to control pricing. But the internet has given customers many more options to choose from.

· Barriers to entry: The easier it is to enter an industry, the tougher it will be to make a profit in that industry. The internet has an overall effect of making it easier to enter industries. It is also very easy to copy technology, so new innovations will not last that long.

· Rivalry among existing competitors: The more competitors there are in an industry, the bigger a factor price becomes. The advent of the internet has increased competition by widening the geographic market and lowering the costs of doing business. For example, a manufacturer in Southern California may now have to compete against a manufacturer in the South, where wages are lower.

Porter’s five forces are used to analyze an industry to determine the average profitability of a company within that industry. Adding in Porter’s analysis of the internet, we can see that the internet (and by extension, information technology in general) has the effect of lowering overall profitability (Porter, 2001). While the internet has certainly produced many companies that are big winners, the overall winners have been the consumers, who have been given an ever-increasing market of products and services and lower prices.

Using Information Systems for Competitive Advantage

Now that we have an understanding of competitive advantage and some of the ways that IT may be used to help organizations gain it, we will turn our attention to some specific examples. A strategic information system is an information system that is designed specifically to implement an organizational strategy meant to provide a competitive advantage. These sorts of systems began popping up in the 1980s, as noted in a paper by Charles Wiseman entitled “Creating Competitive Weapons From Information Systems” (Wiseman & MacMillan, 1984).

Specifically, a strategic information system is one that attempts to do one or more of the following:

· deliver a product or a service at a lower cost;

· deliver a product or service that is differentiated;

· help an organization focus on a specific market segment; or

· enable innovation.

Following are some examples of information systems that fall into this category.

Business Process Management Systems

In their 2003 book, IT Doesn’t Matter—Business Processes Do, Smith and Fingar argued that it is the integration of information systems with business processes that leads to competitive advantage. They then go on to state that Carr’s article is dangerous because it gave CEOs and IT managers the green light to start cutting their technology budgets, putting their companies in peril. They go on to state that true competitive advantage can be found with information systems that support business processes. In the reading, Business Processes, we will focus on the use of business processes for competitive advantage.

Electronic Data Interchange

One of the ways that information systems have participated in competitive advantage is through integrating the supply chain electronically. This is primarily done through a process called electronic data interchange, or EDI. EDI can be thought of as the computer-to-computer exchange of business documents in a standard electronic format between business partners. By integrating suppliers and distributors via EDI, a company can vastly reduce the resources required to manage the relevant information. Instead of manually ordering supplies, the company can simply place an order via the computer and the next time the order process runs, it is ordered.

Manual Order Process

Graphic comparison of the manual order process

Order Process with EDI

Graphic comparison of the order process with electronic data exchange (EDI)

Collaborative Systems

As organizations began to implement networking technologies, information systems emerged that allowed employees to begin collaborating in different ways. These systems allowed users to brainstorm ideas together without the necessity of physical, face-to-face meetings. Utilizing tools such as discussion boards, document sharing, and video, these systems made it possible for ideas to be shared in new ways and the thought processes behind these ideas to be documented.

Broadly speaking, any software that allows multiple users to interact on a document or topic could be considered collaborative. Electronic mail, a shared Word document, social networks, and discussion boards would fall into this broad definition. However, many software tools have been created that are designed specifically for collaborative purposes. These tools offer a broad spectrum of collaborative functions. Here is just a short list of some collaborative tools available for businesses today:

· Google Drive. Google Drive offers a suite of office applications (such as a word processor, spreadsheet, drawing, presentation) that can be shared between individuals. Multiple users can edit the documents at the same time and threaded comments are available.

· Microsoft SharePoint. SharePoint integrates with Microsoft Office and allows for collaboration using tools most office workers are familiar with. SharePoint is covered in more detail in the reading, Networking and Communication.

· Cisco WebEx. WebEx is a business communications platform that combines video and audio communications and allows participants to interact with each other’s computer desktops. WebEx also provides a shared whiteboard and the capability for text-based chat to be going on during the sessions, along with many other features. Mobile editions of WebEx allow for full participation using smartphones and tablets.

· Atlassian Confluence. Confluence provides an all-in-one project-management application that allows users to collaborate on documents and communicate progress. The mobile edition of Confluence allows the project members to stay connected throughout the project.

· IBM Lotus Notes/Domino. One of the first true “groupware” collaboration tools, Lotus Notes (and its web-based cousin, Domino) provides a full suite of collaboration software, including integrated email.

Decision Support Systems

A decision support system (DSS) is an information system built to help an organization make a specific decision or set of decisions. DSSs can exist at different levels of decision-making with the organization, from the CEO to the first-level managers. These systems are designed to take inputs regarding a known (or partially known) decision-making process and provide the information necessary to make a decision. DSSs generally assist a management-level person in the decision-making process, though some can be designed to automate decision making.

An organization has a wide variety of decisions to make, ranging from highly structured decisions to unstructured decisions. A structured decision is usually one that is made quite often, and one in which the decision is based directly on the inputs. With structured decisions, you know the decision that needs to be made once you know the necessary information. For example, inventory reorder levels can be structured decisions: Once our inventory of widgets gets below a specific threshold, automatically reorder 10 more. Structured decisions are good candidates for automation, but we don’t necessarily build decision support systems for them.

An unstructured decision involves a lot of unknowns. Many times, unstructured decisions are decisions being made for the first time. An information system can support these types of decisions by providing decision-makers with information-gathering tools and collaborative capabilities. An example of an unstructured decision might be dealing with a labor issue or setting policy for a new technology.

Decision support systems work best when decision-makers are making semi-structured decisions. A semi-structured decision is one in which most of the factors needed for making the decision are known, but human experience and other outside factors may still play a role. A good example of an semi-structured decision would be diagnosing a medical condition (see sidebar).

As with collaborative systems, DSSs can come in many different formats. A nicely designed spreadsheet that allows for input of specific variables and then calculates required outputs could be considered a DSS. Another DSS might be one that assists in determining which products a company should develop. Input into the system could include market research on the product, competitor information, and product development costs. The system would then analyze these inputs based on the specific rules and concepts programmed into it. Finally, the system would report its results, with recommendations and/or key indicators to be used in making a decision. A DSS can be looked at as a tool for competitive advantage in that it can give an organization a mechanism to make wise decisions about products and innovations.

Isabel—A Health Care DSS

DSSs are best applied to semi-structured decisions, in which most of the needed inputs are known, but human experience and environmental factors also play a role. A good example that is in use today is Isabel, a health-care DSS. The creators of Isabel explain how it works:

Isabel uses the information routinely captured during your workup, whether free text or structured data, and instantaneously provides a diagnosis checklist for review. The checklist contains a list of possible diagnoses with critical “Don’t Miss Diagnoses” flagged. When integrated into your EMR system, Isabel can provide “one click” seamless diagnosis support with no additional data entry (http://www.isabelhealthcare.com/home/ourmission).

Investing in IT for Competitive Advantage

In 2008, Brynjolfsson and McAfee published a study in the Harvard Business Review on the role of IT in competitive advantage, entitled “Investing in the IT That Makes a Competitive Difference.” Their study confirmed that IT can play a role in competitive advantage, if deployed wisely. In their study, they draw three conclusions (McAfee & Brynjolfsson, 2008):

· First, the data show that IT has sharpened differences among companies instead of reducing them. This reflects the fact that while companies have always varied widely in their ability to select, adopt, and exploit innovations, technology has accelerated and amplified these differences.

· Second, good management matters. Highly qualified vendors, consultants, and IT departments might be necessary for the successful implementation of enterprise technologies themselves, but the real value comes from the process innovations that can now be delivered on those platforms. Fostering the right innovations and propagating them widely are both executive responsibilities that can’t be delegated.

· Finally, the competitive shakeup brought on by IT is not nearly complete, even in the IT-intensive US economy. We expect to see these altered competitive dynamics in other countries, as their IT investments grow.

· Information systems can be used for competitive advantage, but they must be used strategically. Organizations must understand how they want to differentiate themselves and then use all the elements of information systems (hardware, software, data, people, and process) to accomplish that differentiation.

Summary

Information systems are integrated into all components of business today, but can they bring competitive advantage? Over the years, there have been many answers to this question. Early research could not draw any connections between IT and profitability, but later research has shown that the impact can be positive. IT is not a panacea; just purchasing and installing the latest technology will not, by itself, make a company more successful. Instead, the combination of the right technologies and good management, together, will give a company the best chance of a positive result.

Study Questions

1. What is the productivity paradox?

2. Summarize Carr’s argument in “Does IT Matter?”

3. How is the 2008 study by Brynjolfsson and McAfee different from previous studies? How is it the same?

4. What does it mean for a business to have a competitive advantage?

5. What are the primary activities and support activities of the value chain?

6. What has been the overall impact of the internet on industry profitability? Who has been the true winner?

7. How does EDI work?

8. Give an example of a semi-structured decision and explain what inputs would be necessary to provide assistance in making the decision.

9. What does a collaborative information system do?

10. How can IT play a role in competitive advantage, according to the 2008 article by Brynjolfsson and McAfee?

References

Brynjolfsson, E. (1991). The productivity paradox of information technology: review and assessment. Communications of the ACM, 36(12), 66-77.

Brynjolfsson, E., & Hitt, L. (1998). Beyond the productivity paradox. Communications of the ACM, 41(8), 49–55.

McAfee, A., & Brynjolfsson, E. (2008, July - August). Investing in the IT that makes a competitive difference. Harvard Business Review. Retrieved from https://hbr.org/2008/07/investing-in-the-it-that-makes-a-competitive-difference

Porter, M. (2001). Strategy and the internet. Harvard Business Review, 79(3), Retrieved from http://hbswk.hbs.edu/item/2165.html

Smith, H. & Fingar, P. (2003). IT doesn’t matter—Business processes do. Tampa, FL: Meghan-Kiffer Press.

Wiseman, C., & MacMillan, I. C. (1984). Creating competitive weapons from information systems. Journal of Business Strategy, 5(2), 42.

Licenses and Attributions

Chapter 7: Does IT Matter? from Information Systems for Business and Beyond by David T. Bourgeois is available under a Creative Commons Attribution 3.0 Unported license. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

© 2021 University of Maryland Global Campus

How Organizations Use Information Systems Strategically

So far you’ve learned about what is meant by information system and how IT matters in organizations, as well as how businesses align their strategy with the use of information technology.  It’s important to keep in mind that organizations have basically two ways to increase profits—either raise prices or reduce expenses (or a combination of the two). Organizations can’t just focus on money coming in because there are expenses that must be paid out of that income resulting in a net income (Gross Income ₋ Expenses = Net Income). Even governmental agencies and nonprofit companies need to take in money (governmental budgets, taxpayers, donations, etc.), pay the expenses incurred in achieving the organization's mission, and have money left over to reinvest in the business.  

In the section Does IT Matter?, the concept of the value chain was presented. Each of the five primary areas of the value chain along with the support activities (frequently referred to as back-office functions) provide opportunities to improve profitability and identify where technology can help improve processes. Each business would define specifically what its primary activities are and then analyze where there are opportunities within each area.  

Porter's Value Chain

Series of activities that contribute to the overall value of a product or service

Does IT Matter? also introduced Porter’s Five Forces, a framework to help organizations assess its environment. Understanding how the five forces impact the organization can help organizations determine where to focus to increase their competitive advantage. For example, if operating in a highly competitive environment (many companies offering the same or very similar products or services), then the company could establish a strategy to provide its goods and services at a lower cost or to target a specific market niche.  When a company has decided its strategy, then it’s time to look at how to achieve that strategy. Here’s where the use of information technology and information systems can come into play. Improving the ability to deliver goods and services at a lower cost or in a unique way can be enabled by information systems.

Licenses and Attributions

Chapter 7: Does IT Matter? from Information Systems for Business and Beyond by David T. Bourgeois is available under a Creative Commons Attribution 3.0 Unported license. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

© 2021 University of Maryland Global Campus

Globalization and the Digital Divide

Globalization is the term used to refer to the integration of goods, services, and culture among the nations of the world. Globalization is not necessarily a new phenomenon; in many ways, we have been experiencing globalization since the days of European colonization. Further advances in telecommunication and transportation technologies accelerated globalization. The advent of the worldwide internet has made all nations next-door neighbors.  The internet has wired the world. Today it is just as simple to communicate with someone on the other side of the world as it is to talk to someone next door.

The new era of globalization allows any business to become international. Some of the advantages include the following:

· The ability to locate expertise and labor around the world. Instead of drawing employees from their local area, organizations can now hire people from the global labor pool. This also allows organizations to pay a lower labor cost for the same work based on the prevailing wage in different countries.

· The ability to operate 24 hours a day. With employees in different time zones all around the world, an organization can literally operate around the clock, handing off work on projects from one part of the world to another. Businesses can also keep their digital storefront (their website) open all the time.

· A larger market for their products. Once a product is being sold online, it is available for purchase from a worldwide consumer base. Even if a company's products do not appeal beyond its own country's borders, being online has also made the product more visible to consumers within that country.

In order to fully take advantage of these new capabilities, companies need to understand that there are also challenges in dealing with employees and customers from different cultures. Some of these challenges include:

· Infrastructure differences. Each country has its own infrastructure, many of which are not of the same quality as the US.

· Labor laws and regulations. Different countries (even different states in the United States) have different laws and regulations. A company that wants to hire employees from other countries must understand the different regulations and concerns.

· Legal restrictions. Many countries have restrictions on what can be sold or how a product can be advertised. It is important for a business to understand what is allowed.

· Language, customs, and preferences. Every country has its own (or several) unique culture(s), which a business must consider when trying to market a product there. Additionally, different countries have different preferences. For example, in some parts of the world, people prefer to eat their french fries with mayonnaise instead of ketchup; in other parts of the world, specific hand gestures (such as the thumbs-up) are offensive. 

· International shipping. Shipping products between countries in a timely manner can be challenging. Inconsistent address formats, dishonest customs agents, and prohibitive shipping costs are all factors that must be considered when trying to deliver products internationally.

Digital Divide

As the internet continues to make inroads across the world, it is also creating a separation between those who have access to this global network and those who do not. This separation is called the digital divide and is of great concern. The digital divide can occur between countries, regions, or even neighborhoods. In many US cities, there are pockets with little or no internet access, while just a few miles away high-speed broadband is common. Solutions to the digital divide have had mixed success over the years. Many times, just providing internet access and/or computing devices is not enough to bring true internet access to a country, region, or neighborhood. Organizations must evaluate this potential issue as they seek to operate in different geographical areas to determine whether technology solutions are readily accessible and usable to their target audience.  

Licenses and Attributions

Chapter 11: Globalization and the Digital Divide from Information Systems for Business and Beyond was adapted by The Saylor Foundation and is available under a Creative Commons Attribution 3.0 Unported license. © 2014, David T. Bourgeois. UMUC has modified this work and it is available under the original license.

© 2021 University of Maryland Global Campus