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Chapter 3

BUS 237 Chapter Notes - Chapter 3: Gross Domestic Product, Business Process, Information System

Business Administration
Course Code
BUS 237

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Why Should I Care About Productivity and Innovation?
- Labour productivity is the ratio of the gross domestic product (GDP) of a country
divided by the total paid hours worked by people in the country
- Productivity paradox - the lack of evidence of an increase in worker
productivity associated with the massive increase in investment in information
- Productivity - the creation of business value
- Business value - tangible benefits for organizations through either more
efficient use of resources or more effective delivery of their services to
- Three different ways the value of IT can be realized
- Productivity: IT allows a company to create more and/or better output from
the same inputs and create them faster than before the technology was in
- Makes the firm more efficient and potentially more effective
- Structure of competition: IT can alter the way corporations compete
- Benefits to the end customer: IT helps make processes more efficient and
changes the nature of competition.
- With increased competition, the reduction of costs associated with
new processes is often passed on to the final consumer
- “Technology for technology’s sake” - organizations cannot afford to invest in IT
simply because “everybody else is doing it” and then hope for the best
What Is Business Technology Management (BTM), and How Is It
Related to Productivity and Innovation?
- Innovation - Rogers’ five characteristics: relative advantage, compatibility,
complexity, trialability, and observability
- Business Technology Management (BTM) - a category of skills focused on the
ability to effectively innovate using information technology in organizations
How Do Information Systems Improve Productivity
- Productivity for organizations can be increased either through increased efficiency or
more effective business processes
- Efficiency - a measure of productiveness also refers to accomplishing a business
process either more quickly with the same resources or as quickly with fewer
- Relatively easy to measure once you have decided which measures are
- “Doing things right” - using just the right amount of resources, facilities, and
information to complete the job satisfactorily
- Effectiveness - doing the right things
- Often requires companies to consider changing their business processes to
deliver something new and improved
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- Increased effectiveness: company considers offering either new or improved
goods or services that the customer values
Business Processes and Value Chains
- Value chain - a network of value-creating activities that improve the
effectiveness (or value) of a good or service
- The more value a company adds to a good or service in its value chain, the higher
the price the company can change for the final product
- Margin - the difference between value and cost
- Primary activities - activities in which value is added directly to the product
- Inbound logistics, operations, outbound logistics, market/sales, and
- Supplier activities - the activities that contribute indirectly to the value creation
- Procurement, technology, human resources, and the firm’s
- Information systems also increase productivity by offering new and improved
services, primarily activities that would not be available without IT
How Are Organizational Strategy and Industry Structure Related?
- A company’s information systems strategy should support, or be aligned with, the
overall company strategy
- Five forces model - Assesses industry characteristics and profitability by
means of five competitive forces:
- Bargaining power of suppliers
- Threat of substitutions
- Bargaining power of customers
- Rivalry among firms
- Threat of new entrants
- A model proposed by Michael Porter
- Competitive strategy - the strategy an organization chooses as the way it will
succeed in its industry.
- According to Porter, there are four fundamental competitive strategies:
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