Chapter Three- Textbook Notes.docx

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Western University
Computer Science
Computer Science 1032A/B
Diane Goldstein

CompSci 1032 Taylor Ward October 11, 2011 Chapter Three: Strategy, Information Systems, and Competitive Advantage 1. What is the Productivity Paradox?  Computers are everywhere in society (watches, phones, cameras, calculators, etc.)  Hard to imagine world without computers  Stephen Roach (1989) argued computers have had no impact on economic productivity of our economy » Not intended to downgrade importance of information technology » He found no evidence of any increase in worker productivity associated with massive increase in investment in information technology  Productivity Paradox: born when Robert Solow stated “we see computers everywhere except in the productivity statistics.” » issue is more than 20 years old, question of how IT adds to productivity remains important  Productivity how IT can be used to create business value » Today we are interested in how investments IT create business value  Business Value is tangible benefits for organizations through more efficient use of resources or more effective delivery of services to customers  Developed economies continue to pour investment dollars into IT despite widespread publication  Majority of businesses seem to be able to justify large investments in IT  Question of chapter: whether or not businesses receive value from investments?  Reasoning… » Measurement error may be critical reason for observed lack of productivity » Measuring productivity in increasingly service-based economy challenging because of invisible/intangible benefits associated with IT  Researchers suggest three ways to value IT: » 1. Productivity: allows companies to make more output from same inputs or make output faster than before technology was in place » 2. Structure of Competition: IT alter way corporations compete, when one firm invests in IT the rival firm will often follow suit to keep up and battle on software they offer and technical support they provide. Also, video rental’s structure changed when IT enabled people to rent movies from home over internet lines instead of driving to movie store (industry changes so does structure of competition). » 3. Benefits to the End Customer: increased competition and lower costs from new processes often benefits the final consumer (cheaper and better quality goods and services).  Today, organizations cannot afford to invest in IT simply because “everyone else is doing it”  Successful organizations must understand business value they ar seeking and how information technology will help secure that value 2. Can Information Systems Improve Productivity? o Productivity for organizations can be increased through increased efficiency or effective business processes  Increasing efficiency means business processes can be accomplished more quickly or with fewer resources and facilities (or both). o Efficiency is relatively easy to measure, working toward “doing things right” using the right amount of resources, facilities, and information to complete the job satisfactorily CompSci 1032 Taylor Ward October 11, 2011 o Effectiveness, rather than efficiency, means “doing the right things” offering new or improved goods or services that customers value o Sometimes, “doing things right” and “doing right things” can be in conflict in a company (Company A so focused on increasing efficiency that is misses fact that customers have changed and no longer value their product, i.e. doing things right but not doing the right things) Business Processes and Value Chains:  Business processes are closely related to concept of a value chain o Value Chain: a network of activities that improve effectiveness (or value) of a good or service and is made up of at least one and often many business processes. o Example: large blob of natural rubber has very little value but once it is manufactured and shipped to a tire store, the value has increased. Each of the steps in the chain (business processes) adds some value. o In general, more value a company adds to a good or service in its value chain, the higher the price the company can charge for the final product o Margin: difference between price the customer is willing to pay and the cost the company incurs in moving the goods or services through the value chain (raw diamonds much lower margin than finished diamonds) o Concept of value chain formalized by Michael Porter, prof at Harvard  Identified two types of activities that support value chains:  Primary Activities: value is added directly to product (shipping, designing)  Support Activities: support primary activities (pay workers, maintenance)  Support activities add value only indirectly  Nobody buys tire because company has great payroll system but company couldn’t run without a payroll system  Great payroll system might make company more efficient and allow company to offer lower price than competitors  Understanding value chain helps understand how information systems can increase productivity (enable development of more efficient or effective supporting activities) o Examples… financial accounting systems, human resource systems, production systems, customer relationship systems  Also increase productivity offering new improved services, primary activities that would not be available without IT o Examples… internet shopping, 24-hour customer support, package tracking 3. How are Organizational Strategy and Industry Structure Related?  Organizational strategy begins with assessment of fundamental characteristics and struc
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