Chapter 1

• Strategic Use of
Information Technology in
the Digital Economy
Learning Objectives
• Describe the characteristics of the digital economy and e-
business.
• Recognize the relationships between business pressures,
organizational responses, and information systems.
• Identify the major pressures in the business environment
and describe the major organizational responses to them.
• Define computer-based information systems and
information technology.
• Describe the role of information technology in supporting
the functional areas, public services and specific
industries
• List the new technology development in the areas of
generic and networked computing and Web-based
systems.
• Understand the importance of learning about information
technology.
Chapter 1 2
Digital Economy – “New” Economy

• E-Business: The use of electronic

technologies to transact business.
• Collaboration: People and Organizations
interact, communicate, collaborate and
search for information
• Information Exchange: Storing,
processing and transmission of
information.

Chapter 1 3
Digital Business
Telecommunications Networks
Thin Client
PC E- Com m er ce Ser ver STARS
On-line Bu si n ess t o Bu si n ess
Single-station Store Linux SSL
Of f i ce Su i t e Ser ver
Appliance Li n u x Vi d eo Con f er en ci n g SCO Unix
Ser ver Un i x
Sybase ASE Database
Appliance Tarentella
Server Net Cold Fusion
Appliance Wi n d ow s 2 0 0 0
Store 3 Beacon Hill's Stars
Store 1 Apache Server
On-line Multi-station Store
I P Ad d r ess 2 Apache Server
Linux
Credit Card Approval
I P Ad d r ess 3
I P Ad d r ess 1
On-line
POS
Salesperson
Field Sales You r Dom a i n / URL

Commercial I nt er net
Hu b

Internet
PC

E-commerce
In-house operations

PC
PC
STARS
Accounting
Phone Orders
Mail Orders
On-line Customers Order Fulfillment
Consumer & Business Purchasing Thin Client

Consumer
Thin Client

In-office
Chapter 1 4
The Old Economy – Taking Photo’s

1. Buy film in a store

2. Load your camera
3. Take pictures
4. Take roll of film to store for processing
5. Pickup the film when ready
6. Select specific photos for enlargement
7. Mail to family and friends

Chapter 1 5
The New Economy – Taking Photo’s

• 1st Generation Digital Photography

• Old economy except 6 and 7 were replaced by
using a scanner and emailing
• 2nd Generation Digital Photography
• Use a Digital Camera, no film, no processing.
• 3rd Generation Digital Photography
• Your Digital Camera is now your mobile phone, in
your binoculars or a palmtop computer.

Chapter 1 6
Business Models

• A business model is a method of doing business

by which a company can generate revenue to
sustain itself. The model spells out how the
company adds value to create a product or
service. (Value Chain)
• Nokia makes and sells cell phones
• A TV station provides free broadcasting. Its survival
depends on a complex model involving advertisers and
content providers.
• Internet portals, such as Yahoo, also use a complex
business model.

Chapter 1 7
Digital Age Business Models

• Name-Your-Own Price
• Reverse Auctions
• Affiliate Marketing
• E-Marketplaces and Exchanges
• Electronic aggregation (buying groups)

Chapter 1 8
Drivers Forcing Changes In Business
Models
Business Pressures
• Environmental, organizational, and technological
factors are creating a highly competitive business
environment these factors or forces can change
quickly, sometimes in an unpredictable manner.
Business Critical Response Activities

• Therefore, companies need to react frequently

and quickly to both the threats and the
opportunities resulting from this new business
environment. A response can be a reaction to a
pressure already in existence, an initiative
intended to defend an organization against future
pressures, or an activity that exploits an
opportunity created by changing conditions.
Chapter 1 9
The Drivers of change
• Business Pressures on an Organization that force
change. Technology

Market Society

Chapter 1 10
The Drivers of change Continued

• Business Pressures on an Organization.

Society Market

Technology
Chapter 1 11
Organizational Response to these
Drivers
• Strategic Management & Systems
• Continuous Improvement – Operational Efficiency
• Restructuring business processes
• Manufacturer to order, Mass-Customization
• Customer Focus Strategy
• Electronic business
• Business Alliances

Technology is required to
effectively implement
these critical responses.

Chapter 1 12
Information System
• An information system (IS) collects, processes, stores,
analyzes, and disseminates information for a specific purpose.
Like any other system, an information system includes inputs
(data, instructions) and outputs (reports, calculations). It
processes the inputs by using technology such as PCs and
produces outputs that are sent to users or to other systems via
electronic networks and a feedback mechanism that controls
the operation.
t ro l
Con
Inpu s s a c k
t P ro c e ed b
Fe

Outp
u t
Chapter 1 13
Information System Is A System

Chapter 1 14
 Computer Based Information
System

• Hardware
Hardware
• Software
Software
• Data Application
Data
• Network People
• Procedures
• People
More than hardware
and software

Chapter 1 15
Applications and Operations

• Retail operations
• Wholesale
• Manufacturing
• Human Resources
• Marketing
• Content management
• …
Chapter 1 16
Information Systems

• Functional Perspective
Marketing
• Identify customers
• Determine what they want
• Planning products
• Advertising and promoting products
• Determine prices for products

Chapter 1 17
Information Systems

• Functional Perspective
Sales
• Contact customers
• Sell the product
• Take the order
• Follow-up on the sale
• 5 year sales forecast

Chapter 1 18
Information Systems

• Functional Perspective
Manufacturing
• Control Equipment and machinery
• Design new products
• When and quantity of products to produce
• New production facilities
• Generate the work order

Chapter 1 19
Information Systems

• Functional Perspective
Purchasing
• Which vendors
• Quantity to purchase
• Coop, rebate tracking
• Handle delivery discrepancies
• Generate the purchase order

Chapter 1 20
Information Systems

• Functional Perspective
Finance
• Financial Assets
• Investment management
• Banking
• Long term budgets

Chapter 1 21
Information Systems

• Functional Perspective
Accounting
• Accounts Receivable
• Disbursements
• Payroll
• Depreciation
• Earned Coop and Rebates

Chapter 1 22
Information Systems

• Functional Perspective
Human Resources
• Employee wages, salaries & benefits
• Long term labor requirements
• Tracking vacation, sick,
• Track employee skills
• Interview and review employees

Chapter 1 23
Trends in Technology
• Cost-performance ratio of chips keeps improving. Moore’s
Law, his prediction was that the processing power of
silicon chips would double every 18 months.
• According to McGarvey & tenornetworks.com, states that
the performance of optical communication networks is
growing by a factor of 10 every three years
• Several new devices and methods to increase storage
capacity price performance
• Object technology enables the development of self-
contained units of software that can be shared
• Networked and distributed computing is emerging rapidly
Metcalfe’s Law. Chapter 1 24
Trends in Technology (continued)

• Internet
• Mobile Computing and M-Commerce
• Wireless networks
• Pervasive Computing
• Smart Devices

Chapter 1 25
Trends in Technology (continued)

The Networked Enterprise

• The Network Computer
• Optical Networks
• Storage Area Networks
• Intranets & Extranets
• The Internet

Chapter 1 26
Why Study Information Systems?

• You will be more effective in your chosen career if you

understand how successful information systems are built,
used, and managed.
• You also will be more effective if you know how to
recognize and avoid unsuccessful systems and failures.
• According to the US Bureau of Labor Statistics, “Top seven
fastest growing occupations fall within IT or computer
related field”
• Developing “Computer” Literacy will only enhance your
“Information” Literacy

Chapter 1 27
The Outline

Chapter 1 28
 MANAGERIAL ISSUES
• Recognizing opportunities for using IT and Web-based systems.
• Who will build, operate, and maintain the information systems. This is a critical
issue because management wants to minimize the cost of IT while maximizing its benefits.
Some alternatives are to outsource portions, or even all, of the IT activities, and to divide
the remaining work between the IS department and the end users.
• How much IT? This is a critical issue related to IT planning. IT does not come free, but
not having it may be much costlier.
• How important is IT? In some cases, IT is the only approach that can help
organizations. As time passes, the comparative advantage of IT increases.
• Is the situation going to change? Yes, the pressures will be stronger as time passes.
Therefore, the IT role will be even more important.
• Globalization. Global competition will have an impact on many companies. However,
globalization opens many opportunities, ranging from selling and buying products and
services online in foreign markets, to conducting joint ventures or investing in them. IT
supports communications, collaboration, and discovery of information regarding all the
above.

Chapter 1 29
 MANAGERIAL ISSUES Continued

• Ethics and social issues. The implementation of IT involves many ethical and social
issues that are constantly changing due to new developments in technologies and
environments. These topics should be examined any time an IT project is undertaken.
• Transforming the organization to the digital economy. The transformation can be
done on several fronts. Management should study the opportunities, consider alternatives
and prioritize them.

Chapter 1 30
Chapter 1
Copyright © 2004 John Wiley & Sons, Inc. All rights
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the use of these programs or from the use of the
information contained herein.

Chapter 1 31