Week 2

Internet Trends
Strategy

Themes throughout Course

Technology:
Development and mastery of digital computing
and communications technology

Business:
New technologies present businesses with new
ways of organizing production and transacting
business

Society:
Intellectual property, individual privacy, public
welfare policy

Origins and Growth of Internet

Precursors:
Baxter Healthcare
Electronic Data Interchange (EDI)
French Minitel (1980s videotex
system)
None had functionality of Internet

1995: Beginning of e-commerce

First sales of banner advertisements

E-commerce fastest growing form

of commerce in United States

A Brief History
19952000: Invention
Key concepts developed
Limited bandwidth and media
Euphoric visions of
Friction-free commerce
Lowered search costs,
disintermediation, price
transparency, elimination of unfair
competitive advantage

First-mover advantages

Dot-com crash of 2000

A Brief History (cont.)

20012006: Consolidation
Emphasis on business-driven approach
Traditional large firms expand presence
Start-up financing shrinks up
More complex products and services
sold
Growth of search engine advertising
Business Web presences expand to
include e-mail, display and search
advertising, and limited community
feedback features

A Brief History (cont.)

2007Present: Reinvention
Rapid growth of:
Online social networks
Mobile platform
Local commerce

Entertainment content develops as

source of revenues
Transformation of marketing
Coordinated marketing on social, mobile, local
platforms
Analytic technologies

Internet
Internet brings
fundamental changes
to commerce
Traditional commerce:
Consumer as passive
targets
Mass-marketing driven
Sales-force driven
Fixed prices
Information asymmetry

Eight Unique Features of

Internet Technology
1.
2.
3.
4.
5.
6.
7.
8.

Ubiquity
Global reach
Universal standards
Information richness
Interactivity
Information density
Personalization/customization
Social technology

Web 2.0
User-centered applications
and social media technologies
User-generated content and
communication
Highly interactive, social
communities
Large audiences; yet mostly
unproven business models
Examples: Twitter, YouTube,
Instagram, Wikipedia, Tumblr

E-commerce vs. E-business

E-business:
Digital enabling of transactions and processes
within a firm, involving information systems
under firms control

E-commerce
Includes commercial transactions involving an
exchange of value across organizational
boundaries

Sometimes E-commerce is seen as a

subset of E-Business

Types of E-commerce
May be classified by market relationship or
technology

Business-to-Consumer (B2C)
Business-to-Business (B2B)
Consumer-to-Consumer (C2C)
Social e-commerce
Mobile e-commerce (M-commerce)
Local e-commerce

The Growth of B2C E-commerce

Figure 1.3, Page 20

SOURCE: Based on data from eMarketer, Inc., 2013a;

The Growth of B2B E-commerce

Figure 1.4, Page 21

SOURCE: Based on data from U.S. Census Bureau, 2013;

 Strategy

Information Technologys Role in

Business
Information technology is everywhere in
business

1. Why do we need to manage IT well?

Each year the world spends more than US$2,000 billion
on ICT
In some firms, control is centralized, in others it is not.
Some firms outsource some or all IT, others do not.
Some firms spend 10% of revenue on IT, others less than
1%.
Corporate America spends more than $275 billion each
year on approximately 200,000 application software
projects. Many of these will fail, but not for lack of money
or technology; most will fail for lack of skilled project
management. (Standish Chaos)*
*Article on Blackboard

 Businesses must be innovative to stay

in business and succeed
IT can be a powerful tool, but is not a
silver bullet solution
Must use IT in line with the
organisations business strategy to be
successful

Nicholas Carr: Does IT Matter?

Harvard Business School Press

IT is just a commodity.
It is no longer a source of competitive
advantage.
Hogwash says Steve Ballmer, Microsoft.
See Reading on Blackboard

Nicholas Carr: Does IT Matter?

Spend less. Studies show that the companies with

the biggest IT investments rarely post the best
financial results.

Follow, don't lead. Moore's Law guarantees that

the longer you wait to make an IT purchase, the
more you'll get for your money.

Focus on vulnerabilities, not opportunities. Even

a brief disruption in the availability of the technology
can be devastating.

Link

Link

Link

IT Productivity Paradox
Explained

Basic Business Principles

Business Strategy
Defines long term vision/direction

Many sub-strategies must coexist in

the value chain
Information technology strategy
Marketing strategy
Electronic commerce strategy
Product strategies
Manufacturing strategy

Evolving Business
Strategies
Information Technology Strategy
Technology is changing at an accelerating
rate
Impossible to keep current manually

All strategies must align with each

other and the overall business
strategy

IT Demands
Maximise Return
Improve business results;

grow revenue and earnings,

cash flow, and reduced
cost of operations

Mitigate Risk
Ensure security and

continuity
of internal business
operations, while
minimising exposure to
external risk factors

5/6/15

Increase Agility
Enable the business

organisation and
operations to adapt to
changing business needs

Improve Performance
Improve business

operations performance
end-to-end
across the enterprise
Increase customer and
employee satisfaction
25

Aim: Gain a Strategic Advantage

by

Elements of IS strategy
Business information strategy. This defines
how information and knowledge will be used to
support the business objectives
IS functionality strategy. Defines the
requirements of the business from the systems.
Defines how the resources will be used and the
allocation of responsibility
IT strategy. This defines the hardware and the
software standards and preferred suppliers.

28

Strategy process model

2
Strategic objectives

3
Strategic definition

Monitor, evaluate and respond

1
Strategic analysis

4
Strategic implementation
30

Challenges and Trends

General challenges
1.
2.
3.
4.
5.
6.
7.

Information Security Management

Identity and Access Management
Conforming to Assurance and Compliance Standards
Privacy Management
Disaster Recovery Planning (DRP) and Business Continuity Management (BCM)
IT Governance
Securing and Controlling Information Distribution

5/6/15

33

Challenges and Trends

General challenges

1. Information Security Management

2. Identity and Access Management
3. Conforming to Assurance and Compliance Standards
4. Privacy Management
5. Disaster Recovery Planning (DRP) and Business Continuity Management (BCM)
6. IT Governance
7. Securing and Controlling Information Distribution
8. Mobile and Remote Computing
9. Electronic Archiving and Data Retention
10.Document, Forms, Content and Knowledge Management
11.Training, Competency and Awareness
12.Business Process Improvement, Workflow and Process Exception Alerts
13.Improved Application and Data Integration
14.Web Deployed Applications
15.Enterprise System Management

5/6/15

34

Challenges and Trends

General challenges

IT aware of and monitoring key technologies, trends and challenges

to ensure that the organisation will be ready to respond to changes
quickly and effectively

1. Information Security Management

2. Identity and Access Management
3. Conforming to Assurance and Compliance Standards
4. Privacy Management
5. Disaster Recovery Planning (DRP) and Business Continuity Management (BCM)
6. IT Governance
7. Securing and Controlling Information Distribution
8. Mobile and Remote Computing
9. Electronic Archiving and Data Retention
10.Document, Forms, Content and Knowledge Management
11.Training, Competency and Awareness
12.Business Process Improvement, Workflow and Process Exception Alerts
13.Improved Application and Data Integration
14.Web Deployed Applications
15.Enterprise System Management
16.Business Intelligence (BI)
17.Customer Relationship Management (CRM)
18.Information Portals
19.Environmental Concerns
20.Infrastructure Optimisation

. Benchmarking against other industries and competitors

. Developing best practice

5/6/15

35

Without Planning

Financial losses
Lower staff morale
Missed opportunities
Management will be fire-fighting
continuously
Reduced customer satisfaction.

36

Organisation
environment
All organisations operate within an
environment
Micro-environment immediate includes
customers, suppliers and intermediaries
Macro-environment wider environment
of social, legal, economic, political and
technology

The environment influences the way

in which the organisation works
37

PORTERS FIVE FORCES MODEL

Five Forces Model helps determine

the relative attractiveness of an
industry and includes
1. Buyer power
2. Supplier power
3. Threat of substitute products and services
4. Threat of new entrants
5. Rivalry among existing competitors

PORTERS FIVE FORCES MODEL

Buyer Power
IT can help you (as a provider) reduce
buyer power
Examples (all enabled by IT)
Loyalty program rewards customers
for repeated business
Airline industry
Hotels
Grocery stores

Threat of Substitute Products or Services

Threat of substitute products or services
high when there are many alternatives; low when
there are few
Switching costs can help
Switching cost costs that make customers
reluctant to switch
Legislation in place to remove prohibitive ties on
consumers
local loop unbundling, mobile number porting

Threat of New Entrants

Threat of new entrants high
when it is easy for new competitors to
start; low when it is not
Entry barrier feature that
customers want and new competition
must provide to enter market
ATMs, online banking, etc

Usage Share of Browsers2011

Summary: Growth

Rivalry Among Existing Competitors

Rivalry among existing

competitors high in a fiercely
competitive market; low in a more
complacent market

Example retail grocers

Highly competitive
Use IT to compete on price

Five Forces Model Summary

Helps determine the attractiveness of
an industry
Should enter or expand operations in
an industry?
How can IT help?
Create/eliminate an entry barrier?
Loyalty schemes

Top Line Versus Bottom Line

Top Line Versus Bottom Line

Top line competitive advantage
focus to increase revenue
Bottom line competitive advantage
focus to decrease costs
IT can support both top-line and
bottom-line initiatives

Value of Information
Systems
Cost must NOT outweigh benefits
Return on investment (ROI)
ROI = (Benefits Costs) / Costs
Costs include
Hardware
Software
Labor

Benefits include
Tangible benefits
Intangible benefits

Total cost of ownership (TCO)

Method to quantify long-term direct and indirect costs

Net Present Value

NPV is the discounted flow of
benefits minus costs of the proposed
information system
See here.
NPV requires expression in $$$ of all
benefits and costs; impossible for a
growing number of ISs

Example of NPV of an IT Implementation

Tangible Benefits
Revenues
Cost reduction
Shorter Cycle Times (ordering,
manufacturing, supplying)

Intangible Benefits
?

Intangible Benefits

Employee Loyalty
Customer Loyalty
Partner Loyalty
Investor Loyalty
Brand and Image
Improved Decision-Making
Increased Market Share, Barriers to
Entrants, and other strategic
advantages
Market Value

Costs
Capital Expenditure (Hardware,
Software, Telecommunications)
Education and Training
Maintenance of IT and Networks

To Summarise
Before the tactical planning of information systems
is carried out, the overall information system
strategy must be agreed upon and communication
to all other sub-systems.
This strategy will identify areas within the business
strategy that would benefit from new or improved
information systems.
It will map out a plan for the development of these
systems based on strategic importance and
availability of resources.
It will incorporate new developments in technology
and future needs.
It will also decide between a policy of centrallycontrolled development of systems or a strategy of
local development to meet local needs.
57

Presentations
C3/D3 Netflix: The Next Blockbuster
C4/D4 Pandora and The Freemium
Business Model