Chapter Fourteen Information Technology for Business Strategy and Electronic Commerce.

Chapter FourteenChapter Fourteen

Information Technology for Business Strategy and Electronic Commerce

1999 Addison Wesley Longman 14.2

Chapter Outline

• Information Technology to Support Business Strategy

• Intranets, Extranets, and Electronic Commerce


Strategy Concepts

• Managers need to understand the environment before deciding how best to use information technology.


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.


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.


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.


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.


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.


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%.


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.


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.


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.


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.


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.


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.


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.


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.


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.



• 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.


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.


International Information Systems

There are four basic configurations for a company to operate internationally:– Multinational– Global– Transnational– Exporting and

importing.


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.


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.


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.


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.


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.


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.


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.


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.


Secure Private Network

• Intranets are connected physically with private leased telephone lines.


Public Network

• Relatively inexpensive with low security, protected only by firewalls and user login procedures.


Virtual Private Network

• Relatively economical and good security because data are coded.


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


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.


Connecting With Customers on the Internet

• A customer with Internet access can use a Web browser to conduct an entire purchasing transaction on-line.


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.


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.


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?


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


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.


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



• 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



• 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

Chapter Fourteen Information Technology for Business Strategy and Electronic Commerce.

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Transcript of Chapter Fourteen Information Technology for Business Strategy and Electronic Commerce.