1. Chapter Fourteen Information Technology for Business Strategy and Electronic Commerce

2.  1999 Addison Wesley Longman14.2 Chapter Outline Information Technology to Support Business Strategy Intranets, Extranets, and Electronic Commerce

3.  1999 Addison Wesley Longman14.3 Strategy Concepts Managers need to understand the environment before deciding how best to use information technology.

4.  1999 Addison Wesley Longman14.4 Strategy Concepts A competitive forces model is used to understand environmental influences affecting the organization. The model includes five external threats. Managers can develop a better strategy by identifying the interaction of these factors in their industry.

5.  1999 Addison Wesley Longman14.5 Types of Strategies A strategy is an organization’s intention to pursue a set of activities over the long term to attain its goals. There are three basic strategies: –Cost leadership –Differentiation –Innovation.

6.  1999 Addison Wesley Longman14.6 Cost Leadership Strategy Used when managers want to provide high-quality products at the lowest cost in the industry. Company may also help customers and suppliers reduce their costs.

7.  1999 Addison Wesley Longman14.7 Differentiation Strategy Used when managers focus on developing superior products that are particularly valued by customers and are perceived as different from competitors’ products. May include novel design features which are useful to customers.

8.  1999 Addison Wesley Longman14.8 Innovation Strategy The focus is on finding new ways to restructure business processes for developing, producing or distributing products. Company may enter new market, expand into global markets, or diversify.

9.  1999 Addison Wesley Longman14.9 Focus on Time: Quick Response Strategy Company may provide products or services faster than competitors. Company responds to customer demands more quickly. –Some companies have reduced time required to design and manufacture a product by 50%.

10.  1999 Addison Wesley Longman14.10 Strategic Information Systems An information system crucial to the company’s competitive success. Information technology (IT) is valuable when it can be used to create market barriers. Information technology can create switching costs for customers or suppliers. IT can change the balance of power in supplier relationships.

11.  1999 Addison Wesley Longman14.11 Strategic Information Systems Information technology can create new products and services. IT allows product customization. Information technology can change the basis of competition in the industry.

12.  1999 Addison Wesley Longman14.12 Information Technology Supports Value Chain Model Managers must decide where in the value chain information technology can be used to support the company’s competitive strategy.

13.  1999 Addison Wesley Longman14.13 Information Technology Supports Value Chain Model Particular value chain activities can be streamlined or redesigned to enhance and reduce cost. Managers can improve performance by improving efficiency or effectiveness.

14.  1999 Addison Wesley Longman14.14 Competing on Efficiency There are at least five ways information technology can improve efficiency: –Empowering people –Eliminating waste –Using the best known way to do the work –Automating work –Integrating value chain activities within the company and with other organizations.

15.  1999 Addison Wesley Longman14.15 Competing on Effectiveness Help the customer purchase the product. Assure that the product fits the customer’s needs. Make the product easier to use. Make the product easier to maintain.

16.  1999 Addison Wesley Longman14.16 Interorganizational Information Systems An interorganizational information system uses information technology to enable a company to share data and exchange transactions with other companies electronically. A business alliance is a cooperative arrangement between two or more businesses with complementary capabilities.

17.  1999 Addison Wesley Longman14.17 Business Alliances Calyx & Corolla’s product delivery is based on organizing and maintaining a network of business relationships rather than on manufacturing or service capabilities.

18.  1999 Addison Wesley Longman14.18 Electronic Data Interchange EDI is the direct, computer-to-computer exchange of standardized, common business transaction documents such as purchase orders and invoices between business partners, suppliers, and customers.

19.  1999 Addison Wesley Longman14.19 Electronic Data Interchange

20.  1999 Addison Wesley Longman14.20 Electronic Data Interchange 92% of companies surveyed recently had EDI links with their customers. 81% had EDI links with their suppliers. Lack of compatible standards among EDI systems requires modification of many EDI systems before they can communicate with one another.

21.  1999 Addison Wesley Longman14.21 International Information Systems Any information system that supports international business activities is called an international information system. Networks and telecommunications technology have made it economically feasible for more companies to do business internationally.

22.  1999 Addison Wesley Longman14.22 International Information Systems There are four basic configurations for a company to operate internationally: –Multinational –Global –Transnational –Exporting and importing.

23.  1999 Addison Wesley Longman14.23 Issues in Developing an International Information System Some companies do not allow personal data about employees to leave the country. Some countries have nonexistent or poorly enforced software copyright laws. Some countries have poorly maintained and aging telecommunications infrastructures.

24.  1999 Addison Wesley Longman14.24 Intranets, Extranets, and Electronic Commerce Electronic commerce (e-commerce) is sharing business information, maintaining business relationships, and conducting business transactions through the use of telecommunications networks. E-commerce is more than technology.

25.  1999 Addison Wesley Longman14.25 How the Internet Is Changing Business It is estimated that $8 billion worth of business was conducted over the Internet in 1997. It is estimated that this number will grow to $333 billion by 2002. Companies can reduce infrastructure costs. Companies can save transaction costs. –Banking transaction costs 60 cents with an ATM, versus 13 cents on the Internet.

26.  1999 Addison Wesley Longman14.26 Stages of Using the Internet for Business Phase one: The company adopts email as a communication tool. Phase two: The company creates a public Web site. Phase three: The company develops a private intranet. Phase four: The company uses the Internet to conduct business transactions with customers, suppliers and other organizations.

27.  1999 Addison Wesley Longman14.27 Intranets to Support Internal Business Processes Using Internet technology as the basis of information system design has several benefits: –Platform neutrality –Open standards –Reduction in hardware and software costs –Ease of installation –Minimal user training –Dramatic improvement in company communications.

28.  1999 Addison Wesley Longman14.28 Characteristics of an Intranet Network - LAN or WAN Computer(s) with server software Computer(s) with client software Communications software (e.g. TCP/IP) Firewall software protects against unauthorized users.

29.  1999 Addison Wesley Longman14.29 How an Organization Can Use an Intranet Companies can provide access to important information. Intranets facilitate teamwork and collaboration. Firms use intranets to conduct internal business transactions.

30.  1999 Addison Wesley Longman14.30 Extranets to Connect Business Alliances An extranet is a private interorganizational information system connecting the intranets of two or more companies in a business alliance. Secure private networks are expensive but secure. Public networks are inexpensive but insecure. Virtual private networks are economical and moderately secure.

31.  1999 Addison Wesley Longman14.31 Secure Private Network Intranets are connected physically with private leased telephone lines.

32.  1999 Addison Wesley Longman14.32 Public Network Relatively inexpensive with low security, protected only by firewalls and user login procedures.

33.  1999 Addison Wesley Longman14.33 Virtual Private Network Relatively economical and good security because data are coded.

34.  1999 Addison Wesley Longman14.34 How Businesses Use Extranets Increasing the speed of business-to-business transactions Reducing errors on intercompany transactions Reducing costs of telecommunications Increasing the volume of business with partners

35.  1999 Addison Wesley Longman14.35 How Businesses Use Extranets Exchanging business-to-business documents (similar to EDI) Checking on inventory and order status from suppliers Collaborating with business partners on joint projects.

36.  1999 Addison Wesley Longman14.36 Connecting With Customers on the Internet A customer with Internet access can use a Web browser to conduct an entire purchasing transaction on-line.

37.  1999 Addison Wesley Longman14.37 Characteristics of Effective Internet Sites Offer high-speed transactions Have a large, up-to-date product selection Are easy to use Allow secure transactions Provide after-sale features.

38.  1999 Addison Wesley Longman14.38 Connecting to the Internet Companies may need to: –Increase size and speed of the network’s internal cabling –Install additional servers and routers –Install Web server software. The Internet service provider (ISP) chosen should provide high-quality, reliable Internet connections at reasonable cost.

39.  1999 Addison Wesley Longman14.39 Business Issues Relevant to the Web Site Is the Web site helping meet corporate goals? How should the content be designed so a user can find desired information easily? How will interactive features be used to provide feedback about the site, including suggestions for improvement? Should the company host its Web site or contract with another company?

40.  1999 Addison Wesley Longman14.40 Ethical Issues of Electronic Commerce It is recommended that companies publish their electronic commerce policy on their Web site, including the following: –A clear, explicit statement of the organization’s privacy policy –A policy statement addressing situations in which a person’s permission must be secured before that person’s ID, photo, ideas, or communications are used or transmitted

41.  1999 Addison Wesley Longman14.41 Ethical Issues of Electronic Commerce –A clear statement of how the company will inform customers of the intended uses of personal information gathered during an on-line transaction –A statement that addresses issues of ownership with respect to network postings and communications –A policy stating how the company monitors user behaviors on the Web site, and when such information might be used by the company.

42.  1999 Addison Wesley Longman14.42 After reading this chapter, you should be able to: List several strategies business organizations use to succeed in a competitive environment Discuss how a business organization can use information technologies to counter competitive forces in the environment

43.  1999 Addison Wesley Longman14.43 After reading this chapter, you should be able to: Describe how a business organization can use information technologies to compete effectively by improving efficiency and by improving its products and services Describe the characteristics of information systems that support business-to- business arrangements, nationally and internationally

44.  1999 Addison Wesley Longman14.44 After reading this chapter, you should be able to: Describe electronic commerce and the phases a company goes through using the Internet for business Describe the purpose, characteristics, and uses of intranets and extranets Describe the use of public Web sites for supporting business-customer transactions