WEEKLY QUESTIONS FOR CHAPTER ONE- Information Systems in Business

Q1. Explain information technology’s role in business and describe how you measure success? (Pg 8 & 21)

The role of information technology is to:

• improve productivity
• generating growth
• reduce cost
• improve accuracy
• improve communication
• improve the speed and quality of decision making by automating the process

Guy’s theory is that IT brings people closer together. For example, now you can conduct a meeting online where managers are in different cities. It not only has an effect on business (ie on the business' process) but also has the potential to transform it (ie from a single person business to a large online business). Once this culture is embedded into the organisation; then the areas of customer service, finance, sales, marketing, HR and operations management can all benefit through effective IT solutions.
There are 2 metrics to measure success; efficiency and effectiveness. Efficiency IT metrics measure the performance of the IT system itself (ie throughput, speed & availability). Effectiveness IT metrics measure the impact IT has on business processes and activities (ie customer satisfaction, conversion rates and sell through increases). Peter Drucker explains that managers 'do things right' and/or 'do the right things'. Doing things right addresses efficiency (getting the most from each resource) and doing the right things addresses effectiveness (setting the right goals and objectives and ensuring they are accomplished).


Q2. List and describe each of the forces in Porter’s Five Forces Model? (Pg 26-29)

Here is the diagram that explains this model:

A. Supplier Power
Supplier power is high when one supplier has concentrated power over an industry. If supplier power is high, the supplier can directly influence the industry by charging higher prices, limiting the quality of services and shifting costs to industry participants. When supplier power is high, buyers lose revenue because they can't pass on the price increase of the final product to the customer. For example, if Microsoft raises the price of its operating system, it will decrease the profitability of its buyers.

B. Threat of New Entrants
The threat of new entrants is high when it is easy for new competitors to enter a market and low when there are significant barriers to entering a market. An entry barrier includes a feature of a product/service that customers have come to expect from a particular industry (and hard to replicate) and must be offered by the new organisation in order to survive. (EG: a bank must offer ATMs, online internet banking etc)

C. Buyer Power
Buyer power is high when buyers have many sellers to choose from and is low when their are fewer choices. This type of power is reflected by their ability to impact the price they are willing to pay for an item. Strong buying power is similar to a monopsony- a market where there are many suppliers and only one buyer. Here the buyer sets the price. One way to reduce buyer power is to create a competitive advantage so that it is harder for customers to leave (ie loyalty program).

D. Threat of Substitutes
The threat of substitute products or services is high when there are many alternatives to a product or service and low when there are few alternative to choose from. However it is seldom possible in the real world to have no alternatives, but companies can create a competitive advantage by using switching costs. Switching costs are costs that can make customers reluctant to switch to another product or service. Note that it doesn’t need to have an associated monetary cost. For example, Amazon.com develops a unique profile of shopping & purchasing habits. Therefore if the customer decides to shop elsewhere, there is an associated switching cost because the site won’t have a profile of their past purchases.

E. Industry Rivalry amongst existing competitors
Rivalry amongst existing competitors is high when competition is fierce in a market and low when competition is more complacent. There is an overall trend towards competition in most industries. EG: super markets. Ways to reduce this are loyalty programs or using switching costs.

For more information about this model see:
http://www.12manage.com/methods_porter_five_forces.html


3. Describe the relationship between business processes and value chains? (Pg 31)
 
A business process is a standardised set of activities that accomplish a specific task, such as processing a customer's order. To evaluate the effectiveness of its business processes, an organisation can use Michael Porter's value chain approach. An organisation creates value by performing a series of activities that Porter identifies as the value chain. The value chain approach views an organisation as a series of processes, each which adds value to the product or service (ie the frontline activities). To achieve a competitive advantage, the VC must enable the organisation to prove a unique value to its customers. In addition to these value chain adding activities, the firm operates in a value system of vertical activities including those of upstream suppliers and downstream channel members. To achieve a competitive advantage, the firm must perform one or more value creating activity in a way that creates more overall value than do competitors. Added value is created though lower costs and superior benefits/ features of the product/ service (differentiation).

Examining the organisation as a VC leads to identifying the important activities that add value for the customer and finding IT systems that support those activities. Support value activities include infrastructure, HR Management, technology development and procurement (the buying of inputs) to help support value adding activities. They help streamline and reduce costs.

Organisations should attempt to use IT to add value to both primary and support value activities. For example, the development of a marketing campaign management system (primary value activity) that could target marketing campaigns more efficiently and therefore reducing marketing costs. This system would also help the organisation pinpoint the target market's needs; therefore increasing sales.

Another example, is the development of an HR system (support activity) that could more effectively reward employees based on performance and identify employees who are at risk of leaving their jobs, allowing the organisation to find additional challenges/opportunities that would help retain these employees, therefore reducing turnover costs.


4. Compare Porter’s three generic strategies? (pg 30)
The three strategies are:


A. Broad Cost Leadership
B. Broad Differentiation
C. Focused Strategy

The broad strategies reach a large market segment and the focused strategy targets a smaller niche market segment. A focused strategy concentrates on either cost leadership or differentiation

A Cost Leadership Strategy involves the firm winning market share by appealing to cost-conscious or price-sensitive customers. This is achieved by having the lowest prices in the target market segment. To succeed at offering the lowest price while still achieving profitability, the firm must be able to operate at a lower cost than its rivals.

The Differentiation Strategy involves the creation of a product or services that is perceived throughout its industry as unique. The company may then charge a premium for its product. This specialty can be associated with design, brand image, technology, features, dealers, network, or quality of customer service. Increased costs can usually be passed on to the buyers. Examples of the successful use of a differentiation strategy are Nike, Apple Computer, and Mercedes-Benz automobiles.