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Chapter 1
Information Technology
in the Digital Age
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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 of pharmaceutical
drugs, beauty and infant-food products.
 They were struggling to stay ahead in the new digital economy.
Solution:
 BMS initiated multiple Web-based projects, overhauled its management
structure, revamped its procurement and supply chain processes, and
expanded its myriad of Web sites.
Results:
 BMS experienced over $100 million in annual savings just from eprocurement.
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Lessons from the Case
 Global competition drives even large corporations to find ways to
reduce costs, increase productivity and improve customer service.
 These efforts are best achieved by using Web-based systems.
 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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EC & Networked Computing
 Electronic commerce (EC) is the use of Web-based
systems to support buying, selling, and customer service.
 Click-and-mortar companies add some EC activities to
their regular business.
 Networked computing connects several computers and
other electronic devices via telecommunication networks.
 Information technology (IT) refers to the collection of
computer systems used by an organization.
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The Digital Economy
 The digital economy refers to
an economy that is based on
digital technologies, including
digital communication networks,
computers, and software.
 The digital economy is also
sometimes called the Internet
economy, the New economy,
or the Web economy.
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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 camera that can also
take videos. No film is needed, and
no processing required. You can
see the results immediately &
enlarge & print photos quickly.
 If your digital camera is connected
to a wireless device (such as a
palmtop computer or a cell phone)
take pictures and see them within a
few seconds.
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Digital Economy Business Models
 Name-Your-Own-Price. Pioneered by Priceline.com, this model allows
customers to state a price they are willing to pay for a product or
service.
 Dynamic Brokering. In the digital age customers can specify
requirements for a service or a product. These specifications are
broadcast over the Internet (“Webcasted”) to service providers in an
automatic invitation to submit bids.
 Reverse Auctions. Electronic reverse auctions are fast, they reduce
administrative costs by as much as 85 %, & products’ prices can be 5 20 % lower.
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Digital Economy Business Models (cont.)
 Affiliate marketing is an arrangement in which marketing
partners place a banner of a company, such as Amazon.com, on
their Web site.
 Group Purchasing. Anyone can pay less per unit 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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Major Business Pressures
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Market Pressures
 Global Economy & Strong
Competition.
Global competition is intensified
as governments become
involved through the use of
subsidies, tax policies,
import/export regulations &
incentives.
Rapid and inexpensive
communication and
transportation modes increase
the magnitude of international
trade even further.
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Market Pressures
 Changing Nature of the
Workforce.
The workforce is becoming
more diversified, with more
females, single parents,
minorities, and handicapped
persons working in all types of
positions.
(cont.)
 Powerful Customers.
Consumer sophistication &
expectations increase as
customers become more
knowledgeable about the
availability and quality of
products and services.
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Technology Pressures
 Technological Innovation
& Obsolescence.
 Information Overload.
Some of today’s state-of-the-art
products may be obsolete
tomorrow.
The amount of information
available on the Internet more
than doubles every year.
Thus, technology accelerates
the competitive forces.
The management of information
is critical.
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Societal Pressures (cont.)
 Social Responsibility.
Issues range from the
environment to education.
 Government Regulations.
Regulation issues involve health,
safety, environmental control,
and equal opportunity.
 Government Deregulation.
Deregulation can be a blessing to
one company but a curse to
another company.
 Ethical Issues.
Business ethics relates to
standards of right and wrong in
business practices.
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Organizational Framework
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Organizational Responses
 Organizations need to respond to business, societal and
technical pressures with critical response activities.
 A typical industry-level response to the digital economy is
disintermediation, or the elimination of intermediary
organizations.
 Organizations can also take proactive measures, 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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Organizations’ Major Responses
 Strategic Systems provide organizations with strategies to increase
their market share, better negotiate with suppliers, or stop competitors.
 Continuous Improvement Efforts aim to improve a company’s
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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Organizations’ Major Responses
 Business Process Reengineering refers to the introduction of a
major innovation in an organization’s structure & the way it
conducts business.
 The major areas in which IT supports BPR are the following;
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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Organizations’ Major Responses
 Business Alliances. Many companies realize that
alliances with other companies, even competitors, can be
very beneficial.
 Temporary joint venture = companies form a special company
for a specific, limited-time mission.
 Electronic Commerce. Doing business electronically is
the newest and perhaps most promising strategy that many
companies can pursue.
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Case: IT Shortens Time to Market
Problem:
 In order to assure quality, and minimize risk, the FDA requires companies to
conduct extensive research & testing, which can take up to 10 years.
Solution:
 Several software companies enable document scanning into databases that
saves hours in research time.
 The database is indexed and includes full-text-search and retrieval
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 a specific purpose.
 Information Systems are comprised of;
 inputs (data, instructions)
 outputs (reports, calculations)
 feedback mechanisms that controls the operation
 an environment that it works within
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Computer-Based Information System
A computer-based
information system (CBIS)
is an information system
that uses computer
technology to perform
some or all of its intended
tasks.
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Components of Information Systems
 Hardware is a set of devices
such as processor, monitor,
keyboard, and printer.
 Software is a set of programs
that enable the hardware to
process data.
 Database is a collection of
related files, tables, relations,
and so on, that stores data.
 Network is a connecting system
that permits the sharing of
resources between computers.
 Procedures are the set of
instructions about how to
combine the above components.
 People are those individuals
who work with the system or use
its 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 and
profits for the firm.
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Case: the US Presidential Election 2000
 In addition to the various success stories, IT involves a number of
failures, with the most famous being the Presidential Election of
2000.
 20-to-30 year old machines were used to count votes and
generated 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, which
displays a person’s vote on a computer screen and asks them to
verify their choice.
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General Technological Trends
General trends within computing systems include the following:
 Cost Performance Ratio
 Object-Oriented Environment &
Document Management.
 Networked Computing
 Intranets and Extranets
 Mobile Commerce
 Corporate Portals
 Integrated Home Computing.
 The Networked Enterprise
 The Internet
 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 as its costs
today but will be about 50 times more powerful.
 Moore’s Law:
 Gordon Moore, the co-founder of Intel, predicted in 1965 that the
processing power of silicon chips would double every 18 months.
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Object-Oriented Environments
 An object-oriented environment is an innovative way of
programming and using computers that is expected to
significantly reduce the cost of both building and maintaining
information systems.
 Object technology enables 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 management one of the most
important topics of IT.
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Network Computing
Network technology enables users to reach other users and
access databases anywhere in the organization.
 Metcalfe’s Law: Robert Metcalfe, a pioneer of computer networks,
claims that the value of a network grows roughly in line with the
square of the number of its users.
 Kelly’s Extension: The value of the Internet is much larger,
according to Kelly (1999). On the Internet we can make multiple
simultaneous connections between groups of people.
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Mobile-Commerce

M-commerce (mobile commerce) refers to the conduct of eCommerce via wireless devices. It is the commercial application of
mobile computing which is based on wireless networks.
 There is an increased interest in m-commerce because the number of
mobile devices is projected to top 1 billion by 2004.

Location-based commerce (L-commerce) is an application of mcommerce 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, does not have
a hard drive. Instead, it is served by a central computing
station, and temporarily receives and can use applications and
data stored elsewhere on the network.
 Integrated Home Computing. Soon, home computing,
television, telephone, home security systems, and other
devices will be integrated and managed in one unit.
 Smart appliances refer to home 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.
 Intranets utilize information technology to provide
organizations 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 portal refers to a company’s Web site that is used
as a gateway to the corporate data, information, and
knowledge.
 The Networked Enterprise. The various components just
described can be integrated together into an enterprise wide
network extended to all business partners.
 Optical Networks are high capacity telecommunication
networks that convert signals in the network and transmit these
over 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? In some
cases, IT is the only approach 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
may be much costlier.
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Managerial Issues (cont.)
 Is the situation going to
 What about Globalization?
change? Yes, the pressures will
Globalization opens many
be stronger as time passes &
opportunities, ranging from selling
the IT role will be even more
products and services online, to
important.
conducting joint ventures or
investing in them.
 What about ethics and social
 How can an organization
issues? The implementation of
transform itself to the digital
IT involves many ethical and
economy?
social issues.
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