Chapter 1

IT support for Organizational Performance Learning Objective There are six learning objectives to the first chapter. You will be able to understand the concept of the digital economy, the impact business pressures play on the organization and their responses and adaptations to these pressures, and the role information technology plays both within and outside of the organization. Given the global nature of commerce, the interrelationship of information systems, the organization, and the external environment, this must be explored. 1.1 Doing Business in the Digital Economy In todays global economy every Mom and Pop business has a web presence. As companies search to differentiate themselves and to focus on products and markets, it has become a necessity to expand onto the Internet and to offer goods and services to a wider market. Conducting business over electronic channels has been around for decades (EDI), but modern applications range from informational sites to online sales. Companies searching for new customers, more discriminating customers, or simply more exposure have found a vigorous and active outlet in the Internet. Personalization has allowed greater flexibility and opened even more venues, while the potential of reaching most of the worlds citizens is an exciting possibility. An information system is a mechanism for acquiring, storing, processing, and communicating data into information to support organizational decision making and control. The system accepts inputs (data entry), processes them into a useful form through the use of computers, and delivers outputs (reports, calculations). In a computer-based information system, hardware, software, database management systems, networks, standard procedures, and people comprise the components of the system. In some information systems, not all of these components may be present; for example, in a small system with a single computer, it may not be necessary to be connected to a network. The digital economy is an economic system (a way of doing business and making transactions) based on digital (or computer-based) technologies. The key to these systems are reliable, rapid telecommunications systems which include Internet service, corporate intranets and extranets, value-added networks, and so on. The digital economy is global and, in many respects, borderless, allowing people and organizations from around the world to share knowledge, interact, and collaborate.

Characteristics of a "digital organization" are: A policy of open information access and communication; distributed decision rights and "empowerment" of line workers; strong performance-linked incentives; active investment in corporate culture; regular communication of strategic goals throughout the organization; and, an emphasis on recruiting and hiring top employees. The increased access to information and communication has, among other things, drastically decreased the costs of researching and starting a business. The digital economy is part of a cycle of the development and enhancement of innovations that are creating new opportunities, and new problems all of which require an entrepreneur to address them. A digital enterprise is one that has oriented itself around the modern realties of the information economy. An e-business is a company that has superficial adoption of technology to perform a business function. 1.2 Business Pressures, Organizational Performance & Responses, and IT Support The major components of the business environment impact model are: 1. The company: core competencies, business processes, critical responses solutions 2. IT: Support, infrastructure and applications 3. Performance and the feedback to mission, goals, strategies and plans 4. The environment and problems, pressures and opportunities Refer figure 1.2. The environment creates opportunities and problems that an organization can respond to, in light of its mission and goals, and corresponding to its strengths and technology support. An organizations solution will cause feedback to the environment, which may in turn stimulate another response from the organization. A business model is the method of doing business by which a company can sustain itself by generating revenue through the sale of some service or product. The business model determines how a company makes money by specifying where it is positioned in the value chain. The manner in which these products are sold and the way payment is received are standardized, but product offerings may differ across countries. Business models in the digital economy include the name-your-own-price or demand collection systems (priceline.com), reverse auctions (hedgehog.com), affiliated marketing (linkshare.com), group purchasing (enqwest.com), and emarketplaces(bebann.com), and exchanges (orbitz.com). Traditional e-business models include auctions (ebay.com) and virtual marketplaces or cybermalls (amazon.com, bcybermall.com) The major types of pressures are market pressures, technology pressures, technological pressures, physical pressures, and societal and political pressures. Market pressures include the move toward globalization and strong competition, for instance, the effects of free trade agreements (NAFTA, European Union) and of regional currency fluctuations (Asian currency crisis of the late 1990s). The changing nature of the workforce and suppliers and the effects of changing customer tastes are also market pressures. Lowered trade barriers for new entrants have produced a number of acceptable substitutes for products.

Technology pressures include the speed with which technology becomes obsolete and new technologies come to market. Knowledge workers are faced with avalanches of information leading to information overload. Customers have higher expectations in terms of levels of service, forcing an organization to expend more energy and resources to obtain new customers while delivering up greater customer service to retain existing customers. Societal pressures include social responsibility, governmental regulations at the local, state, national, and international level, and ethical norms. The latter can be a distinct problem to the global organization, as ethics can be a regional phenomenon. For example, bribery, while a commonplace and acceptable method of doing business in many parts of the world, is a criminal action in the United States. Further complicating social responsibilities are questions surrounding pollution, equal employment opportunities, education, and marketing. Legal pressures fluctuate with the passage of laws by the various authorities and their representative agencies, as well as with the decisions of judges in trial courts. Truth in advertisements, health and safety requirements, pollution standards, and tariff rates all must be considered. Government regulation and deregulation can rewrite the face of an industry. Political pressures seem to overlap a number of societal and legal pressures but may also include community service activities and community development. In view of the recent emphasis on anti-terrorism, there has been a fever of nationalism across the world. An organization uses critical response activities to respond to environmental pressures that threaten to de-stabilize the organization. The major response activities employed are strategic systems, continuous improvement efforts, business process reengineering (BPR), business alliances, and electronic commerce. These allow an organization to improve quality, manage large amounts of information, reduce cost of development, increase productivity, reduce training cycle time, enhance customer service, improve decision-making processes, and widen access to information. 1.3 The Adaptive, Agile and Real-time Enterprise Information technology refers to the technical (as opposed to the social) side of an information system including hardware, software, networks, and other devices. A organization can properly deal with changes in the environment that constitute opportunities or threats in a timely manner. The steps of becoming an adaptive enterprise are: 1.) recognizes the environmental and organizational changes as quickly as they occur, or before; 2.) deals with changes properly and correctly; 3.) becomes a digital and agile enterprise; 4.) does not wait for a competitor to introduce change; 5.) changes information systems quickly. Organizations are able to quickly respond to challenges and opportunities, and to adapt to changing business models, processes and market demands in such a fashion so as to gain advantage over competitors.

The major capabilities of IT include the possibilities for improving productivity, enhancing the quality of product development or service, assisting in decision-making processes, attaining a strategic advantage over competitors, allowing for greater differentiation, and aiding in greater product and market focus. 1.4 Information Technology Developments and Trends Some developments include (see Table 1.4) include: GUI dominating PCs, increase in storage capacity, a push toward open architecture, multimedia forms of information distribution will increase dramatically. Some developments include (see Table 1.4) include: storage networks ubiquity will increase, the use and application of the internet will continue to grow, RFID tags will usher a new wave of technological change, inter-personal transmission will increase. One will be more effective in their chosen career, as the use of IT is increasingly pervasive across the commercial environment. New opportunities for employment entrepreneurship will arise as innovations in IT continue to expand the commercial marketplace, understanding IT will be crucial to seizing these opportunities. A real-time enterprise is one that is able to develop, manage and make use of real-time information systems and business processes. It is an organization that ensures the business operations are as reflective as possible of the actual environment of the organization. Some of the characteristics are: companies must design IS that support all business processes, are tightly integrated, available at all times, and including as much automation of business processes as possible. Why is the Internet said to be the creator of new business models? The Internet challenges the economic, social, political, physical and technological foundations of the old economy. A new generation of entrepreneurs is using the digital economy to find new ways to attracting customers and suppliers, as well as disseminating information to new sources and finding new markets for their goods and services. Most of these business models are not new. Indeed, many (bartering, exchanges, auctions) have been around since before the advent of money. They should be viewed, instead, as alternative ways of conducting business, locating the best quality product, and finding the best price. By providing a location for these entrepreneurs to set-up-shop and by providing buyers with an easy method for locating and transacting business with these sellers, the Internet is helping to create new business models. Since every business and organization now has the potential to reach the entire world, the Internet has opened new doors and created a rapidly changing marketplace. Discuss why some information systems fail. Information systems can fail because companies do not know how to properly make use of and distribute the information that is collected. Knowledge workers must insure against information overload, while securing proper distribution of reports and documents in order to aid in executive and management decisions.

Information systems can also be unsuccessful because they are too difficult to use, either due to the actual functionality of the system or to improper training of the users. Additionally, it is necessary to convince management to support the use of the system. The rapidly changing field of available technologies can also lend themselves to the failure of systems. Technology becomes obsolete quickly, and easier to use devices are constantly being created. Discuss why a digital enterprise is not necessarily an adaptive enterprise. A digital enterprise is on that has adapted to, and oriented itself around, the forces of the modern information-centric economy. However, this does not necessarily mean that it has adopted an orientation that is focused on, or capable of, recognizes the environmental and organizational changes as quickly as they occur, or before; and deal with changes properly and correctly. This latter aspect of an organization is indicative of the adaptive organization. One of the characteristics of the adaptive organization, however, is the orientation around the information economy, such that it will be by necessity a digital enterprise. It needs such an orientation to be able to examine and respond to the environment quickly. Discuss why every adaptive enterprise is digital, but not every digital enterprise is adaptive. A digital enterprise is on that has adapted to, and oriented itself around, the forces of the modern information-centric economy. However, this does not necessarily mean that it has adopted an orientation that is focused on, or capable of, recognizing the environmental and organizational changes as quickly as they occur, or before; and deal with changes properly and correctly. This latter aspect of an organization is indicative of the adaptive organization. One of the characteristics of the adaptive organization, however, is the orientation around the information economy, such that it will be by necessity a digital enterprise. It needs such an orientation to be able to examine and respond to the environment quickly. Summary This chapter explores the digital economy, business models, business pressures, and critical responses to the pressures. Additionally, it gives the student an introduction to information systems and information technology, as well as the current trends in information systems. The chapter concludes with a section on the importance of learning information systems.