Digital Economy1

8/10/2019 Digital Economy1

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In format ion Techno logy

in the Dig i tal Age

Chapter 1


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Learning Objectives

Describe the characteristics of the digital economy.

Recognize the relationships between business pressures,organizational responses, and information systems.

Identify the major pressures in the business environment &describe the major organizational responses to them.

Describe the role of I.T. in organizational activities.

Define computer-based information systems & I.T.

List the essentials of networked computing & Web-based

systems.


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Case: BMS enters the Digital Economy

Problem:

Bristol-Myers Squibb (BMS) is a leading manufacture ofpharmaceutical drugs, beauty and infant-food products.

They were struggling to stay ahead in the new digitaleconomy.

Solution:

BMS initiated multiple Web-based projects, overhauled its

management structure, revamped its procurement and supplychain processes, and expanded its myriad of Web sites.

Results:

BMS experienced over $100 million in annual savings just

from e-procurement.


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Lessons from the Case

Global competition drives even large corporations to findways to reduce costs, increase productivity and improvecustomer service.

These efforts are best achieved by using Web-basedsystems.

The major initiatives that BMS embarked upon were:

Reduce costs by introducing an e-procurement system.

Increase sales by utilizing the Web.

Improve relationships with employees & customers.


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1.1 Doing Business in the Digital Economy

Electronic commerce (EC)is the use of Web-basedsystems to support buying, selling, and customer service.

Click-and-mortarcompanies add some EC activities totheir regular business.

Networked computingconnects several computers andother electronic devices via telecommunication networks.

Internet, Intranet, Extranet

Informationtechnology (IT)refers to the collection ofcomputer systems used by an organization.


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IT in Business Activities

Capabilities of IS (table 1.1)

Benefits of IS

Improving productivity Reducing cost

Improving decision making

Enhance customer relationship

Developing new strategic applications


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The Digital Economy

The digital economyrefersto an economy that is basedon digital technologies,

including digitalcommunication networks,computers, and software.

The digital economy is alsosometimes called theInternet economy, the Neweconomy,or the Webeconomy.


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Old vs. New Economy: Photography

Old Economy

You buy film at the store, insert it

into your camera & take pictures.

Once you complete the film,

sometimes weeks or months after

you began the roll, you take it to

the store for processing.

Go back to the store and pay for

enlargements and duplications. Send photos to family and friends.

New Economy

Use a digital camerathat can alsotake videos. No film is needed, andno processing required. You can

see the results immediately &enlarge & print photos quickly.

If your digital camera is connectedto a wireless device (such as apalmtop computer or a cell phone)take pictures and see them within afew seconds.


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Digital Economy Business Models

Business Model:

A method of doing business

Spell out how to add value

Name-Your-Own-Price.Pioneered by Priceline.com, thismodel allows customers to state a price they are willing topay for a product or service.


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Digital Economy Business Models (cont.)

Dynamic Brokering.In the digital age customers canspecify requirements for a service or a product. Thesespecifications are broadcast over the Internet

(Webcasted) to service providers in an automaticinvitation to submit bids.

Reverse Auctions.Electronic reverse auctions arefast, they reduce administrative costs by as much as

85 %, & products prices can be 5 - 20 % lower. Affiliate marketingis an arrangement in which

marketing partners place a banner of a company, such asAmazon.com, on their Web site.


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Digital Economy Business Models (cont.)

Group Purchasing.Anyone can pay less perunit when buying more units. Discounts are

usually available for quantity purchases. E-marketplaces and Exchanges.Since

1999, thousands of electronic marketplaces,of different varieties, have sprung up.


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2.1 Major Business Pressures


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Market Pressures

Global Economy &Strong Competition.

Global competitionisintensified as governmentsbecome involved throughthe use of subsidies, tax

policies, import/exportregulations & incentives.

Rapid and inexpensivecommunication andtransportation modesincrease the magnitude ofinternational trade evenfurther.


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Market Pressures(cont.)

Changing Nature of

the Workforce.

The workforce isbecoming more diversified,with more females, singleparents, minorities, and

handicapped personsworking in all types ofpositions.

Powerful

Customers.

Consumer sophistication& expectations increaseas customers becomemore knowledgeableabout the availability andquality of products andservices.


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Technology Pressures

Technological

Innovation &

Obsolescence.Some of todays state-of-the-art products may beobsolete tomorrow.

Thus, technologyaccelerates the competitiveforces.

InformationOverload.

The amount ofinformation available onthe Internet more than

doubles every year.

The management ofinformation is critical.


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Societal Pressures (cont.)

Social Responsibility.

Issues range from theenvironment to education.

GovernmentRegulations.

Regulation issues involve

health, safety,environmental control, andequal opportunity.

Government

Deregulation.Deregulationcan be a blessing to one

company but a curse toanother company.

Ethical Issues.

Business ethics relates tostandards of right and wrongin business practices.


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Organizational and societal impact


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Organizational Responses

Organizations need to respond to business, societal andtechnical pressures with critical response activities.

A typical industry-level response to the digital economy isdisintermediation, or the elimination of intermediaryorganizations.

Organizations can also takeproactivemeasures, to create a

change in the market place.

e.g., exploiting opportunities created by external pressures.


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Organizations Major Responses

Strategic systems for

competitive advantage

Continuous improvement

efforts

Business process

reengineering (BPR)

Business alliances

Electronic commerce


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Strategic Systemsprovide organizations with strategies toincrease their market share, better negotiate with suppliers,or stop competitors. (e.g. Federal Expresss overnightdelivery sys)

Continuous Improvement Effortsaim to improve acompanys productivity and quality. Examples include:

Improved productivity Managing enterprise data

Just-in-time (JIT) Innovation and creativity Total quality management Change management

Knowledge management Customer service


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Business Process Reengineering refers to theintroduction of a major innovation in an organizations

structure & the way it conducts business.

The major areas in which IT supports BPR are thefollowing;

Reducing cycle time and time to market.

Empowerment of employees and collaborative work.

Customer-focused approach and CRM.

Restructuring and team-based structure.


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Business Alliances. Many companies realize thatalliances with other companies, even competitors,can be very beneficial.

Temporary jointventure = companies form a specialcompany for a specific, limited-time mission.

Electronic Commerce. Doing businesselectronically is the newest and perhaps mostpromising strategy that many companies canpursue.


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Case: IT Shortens Time to Market

Problem:

In order to assure quality, and minimize risk, the FDA requirescompanies to conduct extensive research & testing, which can

take up to 10 years.Solution:

Several software companies enable document scanning intodatabases that saves hours in research time.

The database is indexed and includes full-text-search andretrieval programs.

Results:

The time to market of a new drug has been reduced by up to a

year, saving hundreds of lives.


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Information Systems

Information systems (IS)collect, process, store,analyze, and disseminate information for aspecific purpose.

Information Systems are comprised of;

inputs(data, instructions)

outputs(reports, calculations)

feedbackmechanismsthat controls the operation

an environmentthat it works within


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Computer-Based Information System

A computer-based

information system (CBIS)

is an information systemthat uses computertechnology to performsome or all of its intended

tasks.


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Components of Information Systems

Hardware is a set of devicessuch as processor, monitor,keyboard, and printer.

Software is a set of programsthat enable the hardware toprocess data.

Database is a collection ofrelated files, tables, relations,and so on, that stores data.

Network is a connecting systemthat permits the sharing ofresources between computers.

Proceduresare the set ofinstructions about how tocombine the above components.

Peopleare those individuals

who work with the system or useits output.


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Case: Managing Accounting Across Asia

Problem: Le Saunda Holding Company (Hong Kong) is a shoe manufacturer that

manages 32 subsidiaries in four Asian countries.

Their financing and cash flow is a very complex process.

Solution: To cope with the rapid growth of the company, a sophisticated accounting

software package was installed.

Results:

The system is much more reliable & internal/ external auditing is easier.

All these improvements have led to a substantial growth in revenue andprofits for the firm.


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Case: the US Presidential Election 2000

In addition to the various success stories, IT involves a number offailures, with the most famous being the Presidential Election of2000.

20-to-30 year old machines were used to count votes andgenerated the greatest election confusion ever encountered.

How can such election confusion be avoided in the future?

Perhaps the solution lies in digital-age voting machines,whichdisplays a persons vote on a computer screen and asks them to

verify their choice.


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General Technological Trends

Cost Performance Ratio

Object-Oriented

Environment & Document

Management.

Networked Computing

Mobile Commerce

Integrated Home

Computing.

The Internet

General trends within computing systems include the following:

Intranets and Extranets

Corporate Portals

The Networked Enterprise

Optical Networks


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Cost Performance Ratio

Cost Performance Ratio: Improvement by a Factor

of at Least 100.

In about 10 years, a computer will cost the same asits costs today but will be about 50 times morepowerful.

Moores Law: Gordon Moore, the co-founder of Intel, predicted in 1965

that the processing power of silicon chips would doubleevery 18 months.


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Object-Oriented Environments

An object-oriented environmentis an innovative way ofprogramming and using computers that is expected tosignificantly reduce the cost of both building and

maintaining information systems.

Object technologyenables the development of self-contained units of software that can be shared,

purchased, and/or reused. The increased use of multimedia and object-oriented

systems makes electronic document managementone

of the most important topics of IT.


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Network Computing

Network technology enables users to reach other usersand access databases anywhere in the organization.

Metcalfes Law: Robert Metcalfe, a pioneer of computernetworks, claims that the value of a network grows roughlyin line with the square of the number of its users.

Kellys Extension:The value of the Internet is much larger,according to Kelly (1999). On the Internet we can makemultiple simultaneous connections between groups of

people.


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Mobile-Commerce

M-commerce (mobile commerce)refers to the conduct ofe-Commerce via wireless devices. It is the commercialapplication of mobile computingwhich is based on wireless

networks.

There is an increased interest in m-commercebecause thenumber of mobile devices is projected to top 1 billion by

2004.

Location-based commerce (L-commerce)is an applicationof m-commerce that offers customers the location

information of anything they want to purchase.


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Network Computers & Home Computing

The Network Computer,first introduced in 1997, doesnot have a hard drive. Instead, it is served by a centralcomputing station, and temporarily receives and can

use applications and data stored elsewhere on thenetwork.

Integrated Home Computing. Soon,home computing,

television, telephone, home security systems, andother devices will be integrated and managed in oneunit.

Smart appliancesrefer tohome appliances that are

connected to the Internet.


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The Internet, Intranets & Extranets

The Internet.From about 50 million Internet users in 1997,there could be as many as 750 million by 2007.

Intranetsutilize information technology to provideorganizations with internal communication systems.

Extranets combine intranets with the Internet to create a

powerful interorganizational systems for collaboration.


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Corporate Portals, Networked Enterprises

& Optical Networks

A corporate portalrefers to a companys Web site that is usedas a gatewayto the corporate data, information, and knowledge.

The Networked Enterprise. The various components justdescribed can be integrated together into an enterprise widenetwork extended to all business partners.

Optical Networks are high capacity telecommunication

networks that convert signals in the network and transmit theseover fiber optic filaments.


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Why Learn about IT?

Being IT Literate On the Job & Off

Finding Employment Opportunities in IT

Future Organizational Leadership

Using IT to Become a Millionaire


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Plan of the Book

Part I: IT in the Organization

Part II: The Web Revolution

Part III: Organizational Applications

Part IV: Managerial and Decision Support Systems

Part V: Implementing and Managing IT


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Managerial Issues

How can we recognize the

opportunities for using IT and

Web-based systems?

How important is IT?Insome cases, IT is the onlyapproach that can help

organizations.

Who is going to build,

operate, and maintain the

information systems?

How much IT?IT

does not come free,but not having it maybe much costlier.


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Managerial Issues (cont.)

Is the situation going tochange?Yes, thepressures will be stronger

as time passes & the ITrole will be even moreimportant.

What about ethics andsocial issues?Theimplementation of ITinvolves many ethical and

What about Globalization?Globalization opens manyopportunities, ranging fromselling products andservices online, toconducting joint ventures orinvesting in them.

How can an organization

transform itself to the digital

economy?

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