AFM 241 Cheat Sheet PDF

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Cheat Sheet for Midterm...

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1 Week 1: IT Business Value -------------------------------------------------------------------------------------------------------------

An Information Technology can be defined technically as a set of interrelated components that collect (or retrieve), process, store, and distribute data or information to support decision making and control in an organization.

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Is a purposefully designed system that brings data, computers (hardware and software), procedures and people together to manage information important to an organization’s mission

Information Technology (IT) is created by combining:  hardware  software  data In the context of organizations  people  processes and procedures  policies To :  Provide information processing capabilities to handle and process information  Provide information for managerial decision making  Solve problems  Reduce inefficiencies  Increase competitiveness  … Four IT main values  Achieving Operational Excellence  Operational Elements for Excellence Daily Routine Business Processes Value Activities  Supply chain: supplier, distributors, retailors, customers The results:  Better and more product  Lower cost  Increase value for customers  Increase profitability?  Product focused?  Change what customers valued, how products/services are delivered, boost the level of value that customers excepted  Achieving Customer Intimacy  Know your customers better  Segment and target markets precisely and then tailor offerings to match exactly the demands of those niches  Fit an increasingly fine defined customers (fine-grained customers) as per detailed customer knowledge and operational flexibility Practices of Customer Intimacy:  Customer loyalty programs: IT can automatically send emails and reminders  CRM systems  Call/help centers: AI assistant  Customization: Recommendation systems

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Customer-centric/oriented production: DIY (Threadless), 3-D print

The results: Positive outcomes  Customer satisfaction  Great relationship with customers, e.g, loyal customers  Repeated purchase  Word of mouth to friends Potential negative outcomes  Privacy concerns  Managing Knowledge  Knowledge management systems among fastest growing areas of software investment  Information economy 37% U.S. labor force: knowledge and information workers 45% U.S. GDP from knowledge and information sectors  Substantial part of a firm’s stock market value is related to intangible assets: knowledge, brands, reputations, and unique business processes  Well-executed knowledge-based projects can produce extraordinary ROI Important Dimensions of Knowledge:  Knowledge is a firm asset. Intangible Creation of knowledge from data, information, requires organizational resources As it is shared, experiences network effects  Knowledge has different forms. May be explicit (documented) or tacit (residing in minds) Know-how, craft, skill How to follow procedure Knowing why things happen (causality)  Knowledge has a location. Cognitive event Both social and individual “Sticky” (hard to move), situated (enmeshed in firm’s culture), contextual (works only in certain situations)  Knowledge is situational. Conditional: Knowing when to apply procedure Contextual: Knowing circumstances to use certain tool Three knowledge management systems:  Enterprise-wide knowledge management systems General-purpose firm-wide efforts to collect, store, distribute, and apply digital content and knowledge  Knowledge work systems (KWS) Specialized systems built for engineers, scientists, other knowledge workers charged with discovering and creating new knowledge  Intelligent techniques

3 Diverse group of techniques such as data mining used for various goals: discovering knowledge, distilling knowledge, discovering optimal solutions

 Enhancing Decision Making  Decision Making Quality Enabled by IT 1. Information quality High-quality decisions require high-quality information 2. Management filters Managers have selective attention and have variety of biases that reject information that does not conform to prior conceptions 3. Organizational inertia and politics Strong forces within organizations resist making decisions calling for major change  High-velocity Automated Decision Making 1. Made possible through computer algorithms precisely defining steps for a highly structured decision 2. Humans taken out of decision 3. For example: High-speed computer trading programs Trades executed in 30 milliseconds 4. Require safeguards to ensure proper operation and regulation  Business intelligence 1. Infrastructure for collecting, storing, analyzing data produced by business 2. Databases, data warehouses, data marts  Business analytics 1. Tools and techniques for analyzing data 2. OLAP, statistics, models, data mining  Support decision making with data 1. Identify hidden patterns in the data 2. Mine previously-omitted opportunities Information Requirements of Key Decision-Making Groups in a Firm

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IT Spending:  In 2015, worldwide companies and organizations are expected to spend $3.8 trillion on IT, i.e., hardware, software, IT services, and telecommunications.  Companies are not required to disclose IT spending  Secondary sources  Voluntary disclosures - annual reports (signalling theory)  Vendors  Survey data: Magazines, e.g., InformationWeek 500 (IW500)  Survey data: Consulting companies, e.g., Computer associates, Harte-Hanks, Gartner, etc.  Notable exception: Y2K It isn’t just technology:  IT is instrument for creating value  Investments in information technology will result in superior returns Productivity increases Revenue increases Superior long-term strategic positioning  Investing in IT does not always guarantee good returns  There is considerable variation in the returns firms receive from IT investments  Factors  Adopting the right business model  Investing in complementary assets (organizational and management capital)  Business information value chain Raw data acquired and transformed through stages that add value to that information Value of IT determined in part by extent to which it leads to better decisions, greater efficiency, and higher profits  Business perspective Calls attention to organizational and managerial nature of IT The Business Information Value Chain

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Week 2: Business Strategy -------------------------------------------------------------------------------------------------------------Strategy  Approach, tactics, actions, plan adopted by a business designed to exploit core competencies and gain a competitive advantage  Key assumption: limited resources, competition for survival  Purpose: How to do better than your competitors  Competitive advantage (CA) o A product or service that an organization’s customers place a greater value on than similar offerings from a competitor o Achieved when a firm implements a strategy that competitors are unable to duplicate or find too costly to imitate  Better product quality  Procure raw materials at lower prices  Loyal customers who won’t switch to other companies o First-mover advantage  Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage o Always temporary as it is quickly copied Identifying Competitive Advantage  Environmental scanning The acquisition and analysis of events and trends in the environment external to an organization  Three common tools used in developing competitive advantages: Porter’s Five Forces Model (cross industry) Porter’s generic strategies (within industry) Value chains (within a firm) Strategy (continued)  Resources Inputs into a firm's production process  Tangible: Physical (e.g., equipment, land), human (e.g., high-quality managers and employee), organizational capitals, social networks, business networks  Intangible: know-how, patents, knowledge business processes  Capability Capacity for a set of resources to perform a task or activity in an integrative manner

6 Resources shape capability: Relationship between capital and R&D capability Capability is more than combination of resources: Learning, Analytics Resource Based View (RBV)  The premise of RBV is that firms possess different resources and capabilities  Organizations gain competitive advantage when resources are valuable, rare, costly to imitate, and nonsubstitutable  Examples: Tim Hortons，West Jet

Tim Hortons:  Valuable Resources  Cheaper coffee beans and ingredients  Freshly baked products  Brand name  Innovative menus (products)  Rarity  Was the offering unique? Is there a lot of companies that can access the same resources?  Costly to improve  Was it easy to copy?  Non-substitutable  Is there any other product that can substitute for this?  Isolating mechanisms for RBV  Causal Ambiguity  Difficult to understand the firm’s activities and how they are coordinated across organizational lines  Unclear about what resources work for performance and which resources to imitate  Patents, business secrets, recipe  Path Dependence  What is the optimal capability development trajectory? What is the path leading to finals offerings?  Unique historical conditions (role of history)  Choices made in the past influence the options a company has now and in the future  Time compression diseconomies

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The quicker a firm develops the resource, the higher the development cost

Michael Porter’s Five Forces Model:  An external analysis of industry forces impacting on the organization  IT collects, processes and reports Environmental Scan information  IT provides the technology to support strategies to limit the threat of the forces Made up of:  Buyer Power  Supplier Power  Substitute Product or Service  New Entrants  Rivalry Among Competitors Buyer Power  The ability of buyers to affect the price of an item  Generated for the buyer when it accounts for the largest percentage of a business’s profit  Switching cost The amount of benefits (monetary or non-monetary) a consumer must give up to go to another buyer.  Loyalty program Rewards customers based on the amount of business they do with a particular organization Increase the switching costs for buyers. Supplier Power  The ability of suppliers to set prices and terms.

Substitute Product or Service  Alternatives to a product or service  Loyalty programs increase Switching Costs and reduce this threat. New Entrants  The ease of which new competitors can enter a market  Entry barrier A feature of a product or service that customers have come to expect and entering competitors must offer th same for survival Rivalry Among Competitors  The amount of direct conflict between businesses in a specific industry  Product differentiation

8 Unique differences in the features of products or services that influence demand Information System Strategies for Dealing with Competitive Forces  Five strategies for dealing with competitive forces, enabled by using I T: Generic Strategy  Low-cost leadership  Product differentiation  Focus on market niche Specialized Strategy  Strengthen customer and supplier intimacy  Innovation Generic Strategy:  Low-cost leadership Produce products and services at a lower price than competitors Example: Walmart’s efficient customer response system  Product differentiation Enable new products or services, greatly change customer convenience and experience Example: Google, Nike, Apple Mass customization  Focus on market niche Use information systems to enable a focused strategy on a single market niche; specialize Example: Hilton Hotels’ O n Q system Specialized Strategy:  Strengthen customer and supplier intimacy Use IT to develop strong ties and loyalty with customers and suppliers Increase switching costs Examples: Chrysler, Amazon, Starbucks  Innovation Use IT to constantly destruct existing offerings with creativity (Creative destruction by Schumpeterian competition) Increasing product differentiation and customer intimacy Examples: iPhone, Google Three Generic Strategies  Using a single generic strategy makes efficient use of resources  First Selection is Broad or Narrow focus  Within Broad Focus choose Cost Leadership, or Differentiation  Narrow Focus is a single generic strategy THREE GENERIC STRATEGIES (Chart):

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Porter’s Value Chain Analysis:

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The Value Chain An internal analysis that helps a business optimize the value from its functions IT integrates the functions by enabling critical data/information sharing Firm as series of activities that add value to products or services Highlights activities where competitive strategies can best be applied Primary activities vs. support activities At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy Utilize benchmarking, industry best practices

10 Week 3: IT Strategy ----------------------------------------------------------------------------------------------------------------------

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IT strategy: a plan of action to create an IT capability for maximum and sustainable value for an organzation Final product: IT capability and value An interative process to create and align IT capablity with busienss strategy (not an end point) Sets directions for IT function/department: maximumize value creation from IT dollars Role of IT in the organization: shared view among a firm's top management team (TMT) i.e. a firm's IT orientation can be operational or strategic, support or lead the firm's strategy; it may be perceived as a necessary evil or leading edge. The firm may be an IT conservative or IT innovative.

IT Strategy Component  Service quality Deliever better and cost effective services to the businesses and customers  Information/Data Quality  Function: Required IT to actualize business functionality  Security levels  Sourcing strategy: build-in vs. purhcase  Budgets and payoff Factors driving IT Strategy:  Can IT change the basis of competition?  Can IT build barriers to entry?  Can IT change the balance of power in supplier relationships?  Can IT generate new products? IT and Basis of Competition  Cost leadership based competition  Adding value to products and/or services  Reducing existing staff  Grow without hiring staff  Improved material use  Increased machine efficiency  Digitized business processes IT and Barriers to Entry  Economies of scale  Network effects  Customer switching cost  Capital requirements  Incumbent advantage?  Access to distribution channels  Government policy IT and Balance of Power  Walmart has leveraged new technology to form close ties with its suppliers  John Deere has leveraged IT to improve customer experience and increase customer loyalty Technology Adoption  Categories of Adopters:  Innovators

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Early Adopters Early Majority Late Majority Laggards

Innovators: • 2.5% • Eager to try • Higher incomes and more worldly and more active • Self-confident • Well educated • Use scientific sources • Venturesome Early Adopters: • 13.5% • Adopt early in a product’s life cycle • Rely more on group norms and values • More oriented to the local community • Opinion leaders • Respect of others Early Majority: • 34% • Weigh pros and cons • Collect more information • Evaluate more so extend the adoption process • Rely on the group for information • Friends of opinion leaders • Deliberate decision makers Late Majority: • 34% • Adopt because their friends have • Rely on group norms so adoption is a result of pressure to conform • Older and below average income • Depend on word of mouth • Skepticism Laggards: • 16% • Do not rely on group norms • Independence tied to tradition • Heavily influenced by the past • By the time they adopt the innovation has been replaced • Suspicious of new products • Tradition McFarlan’s Strategic Grid  Plan IT for specific business strategies

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Support mode:  no impact in firm’s strategy or operation  Agricultural or hand-crafted products Factory Mode:  IT plays a very important role in firm’s operation, but low contribution to strategic position.  Banks, airlines, e-retailers Turnaround Mode:  IT having a low impact on operations and high impact on strategy  Implementing a new information system Strategic Mode:  IT having a high impact on day to day operation and long term strategy.  Harrah’s entertainment (Caesars Entertainment, Walmart, FedEx, and P&G  Benefits of McFarlan’s Strategic Grid  Framework to assess the alignment of individual IT projects with business operations and strategy  Firms can form its portfolio of IT projects  Benchmark a firm’s portfolio of IT projects with other firms  Framework for developing firm’s IT governance at the board level. IT payoffs - I (Input-Process-Output)

IT payoffs - II (IT Capabilities)  Standish Group - Chaos Report Project Classification-Criteria: Succeeded, Challenged, Failed, Main Findings  IT Implementation Capability  IT infrastructure Capability  Human IT Capability  Organizational IT capability Analyzing Cost and Benefits

13 Financial Analysis Tools • Payback Analysis • Return on investment (ROI) • Net present value (NPV) Cost –> Total cost • Is Fixed + Variable costs • Or Tangible + Intangible costs Payback Analysis: The process of determining how long it takes a system to pay for itself. Payback period is the actual time it takes to recover the system’s cost. o Ex: Cost to acquire system=$100000 o Time to acquire system=6 months Benefits with system = $ 20000 /year Payback period = = Return on Investment (ROI): Is a percentage rate that measures profitability by comparing total net benefits (the return) received from the new system to the total costs (the investment) of the project. ROI = ((total benefits-total costs) / total costs) *100% Ex: Total benefits = revenue/year + savings = 100000+20000=120000 Total costs = Cost to acquire + maintenance = 100000+5000=105000 ROI = Cost-Benefit Analysis Checklist: List each development strategy being considered o Identify all costs and benefits for each alternative. Be sure to indicate when costs will be incurred and benefits realized o Consider future growth and the need for scalability o Include support costs for hardware and software o Analyze various software licensing options, including fixed fees and formulas based on the number of users or transactions o Apply the financial analysis tools to each alternative o Study the results and prepare a report to management Adoption Strategies:  Choose between Make and Buy  If you choose to make Then is it In-house /Outsourcing?  If you choose to buy Then is it Modified/Unmodified Or cloud computing In-House system development:  Developing Software In-House Satisfy unique business requirements Minimize changes in business procedures and policies Better use and accommodate existing systems & technology

14 Develop internal resources and capabilities Outsourcing: o Developed by an external company usually called service providers o If this strategy is chosen:  reduce development cycle time  reduce costs  gain access to state-of-the-art technology Factors to consider outsourcing:  Development is not one of the core competencies of the client  Company does not have the ‘ability’ to run a development project  They do not desire to add additional workforce  Company has limited resource constraints  Development requires high capital startup costs Purchasing Unmodified software package systems  Advantages  Ready to use system, Plug and Use  Vendors provide better support and compatible future modifications  Proven reliability and performance benchmarks  Requires less technical development staff  Disadvantages  The package may not completely meet the requirements  They don’t provide any unique competitive advantage to companies Purchasing Modified Software Package systems  Advantages  Buy the package and make your own modifications, if this is permissible under the terms of the software l...