Explain information technology’s role in business and describe how you measure success?
Information technology (IT) plays a significant role in the running and success of a business.
IT above all effects the operations of a company and hence is an important factor in business. Baltzan, Phillips, Lynch and Blakey in their book ‘Business Driven Information Systems’ suggest that IT not only effects business, but also has the ability to ‘transform it’. (Baltzan, Phillips, Lynch and Blakey 2010 pp 8)
Technology, if used effectively, can help strengthen the company and allow for managers to prosper in the business world. Technology gives companies the edge on competitors, facilitates communication between employees, helps reduces costs, improve productivity and make trading for the company easier. IT helps provide ‘efficiency and effectiveness’ (Baltzan and Phillips et al pp 10) across the company.
An important role of IT is the fact that it can increase business intelligence. Increased business intelligence means companies can receive information and data about their business enabling them to effectively evaluate the success of their company and help them make decisions to do with the business regarding productivity, new business adventures, competitors, improving customer service, industry environments etc.
IT can also help with the communication both internally and externally. Through the development of technologies such as computers and mobile phones organisations can develop stronger communication skills within the company with employees. This enables fast paced communication between the various functional areas of the business resulting in increased productivity and efficiency within the business.
IT has also helped with effective communication between companies and their suppliers, partners or clients. IT has enabled businesses to effectively communicate various issues to these stakeholders and keep them up to date with what is happening in the Organisation.
It is very important for the IT people in an organisation to understand the business so they can effectively provide information about new processing systems that can contribute to the company and solve any issues that have presented themselves.
IT Success:
The success of IT within a business is not an easy thing to measure, as the return of investment is not easily determined. An effective way a manager can determine the success of IT is through different measures of KPI’s, efficiency and effectiveness metrics and benchmarking.
KPI’s are Key Performance Indicators. KPI’S are set up to analyse how successful particular areas of a business are.
Within retail examples of KPI’s could be ‘sales vs. budget’ or ‘the conversion ratio’ (how many people enter the store over how many actually buy products) - each analysing the success of the team and company within the industry.
This is similar with IT. To measure how successful the IT has been on our company, we need to analyse the key measure of their performance. Some suggestions for KPI’s within a companies IT department could be the amount of viruses the company had over the year, the amount of technical support people needed throughout the year or even the number of support calls they received. Each of these KPI’s determines how successful the IT team has been over the year.
Efficiency and effectiveness metrics: is another way a business can measure the success of IT.
Efficiency metrics measures how efficient the IT system was itself. It measures the speed and availability of IT. This can be measured through the amount of times the computers crashed or how fast the system was over the year. Efficiency wants to analyse how well the organisation is using the resources it has.
Effectiveness metrics: Effectiveness metrics is about how the IT has helped improve the company. It looks at customer satisfaction.
Effectiveness metrics and efficiency metrics can’t be separated from each other- they are co-dependent. Efficient does not always equal effective therefore when analysing an organisation you must look at the companies goals and objectives as well as the strategy they are using and see if they are achieving it.
Benchmarking: this is another effective way to analyse the IT of a business. A benchmark is a ‘baseline of values that the system seeks to attain’ (Baltzan and Phillips et al 2010 pp 21) Benchmarking entails analysing an organisations results compared to the baseline of values the organisation has set. If these goals have not been met the company must understand why and re evaluate their system. This is a great way of analysing the success of IT in a business as it gives a realistic way of measuring both the effectiveness and efficiency of IT.
List and describe each of the forces in Porter’s Five Forces Model?
The five forces model was developed by Potter and is ‘ a useful tool to aid in understanding competition and its implications for business strategy’ (Baltzan and Phillips et al 2010 pp 26). The five forces help establish how a company is measuring up within the industry they are in, establish various opportunities, threats and understand various competitors which intern effect their strategy.
The Five forces in the model are:
Buyer power: This is the power consumers have to change and influence the price they will pay for a product. Buyer power is high when consumers have many products to choose from and low when there are fewer brands and products. By reducing the buyer power you are creating competitive advantage. You want to make the product look the most attractive to your consumers and make them want to buy it more than your competitor
E.g. competitive advantage may include the company offering a ‘buy one get one free’ promotion
Supplier power: Supplier power is high when a supplier has higher influence and power within their industry. When a supplier has this they are able to have higher prices for goods or limit quality. When it is high consumers loose have very little choice in products and their prices. Suppliers want their power to be high so they can have control over their prices and products.
Threat of substitute products or services: this is high when there are many competitors in the industry and alternatives of products available for consumers. An ideal market for a company would be having little replacement for products available to consumers (little competing products) It is low when there are few alternatives in the industry.
Threat of new entrants: This is when a new competitor enters your market. It is high when it is easy for a new competitor to enter the market and low when the competition is tougher and there are ‘entry barriers’ (Baltzan and Phillips et al 2010 pp28) that must be met in order to survive in the industry.
E.g. an entry barrier for an airline would be online booking. Customers expect this in the industry and if a new entrant cannot provide this it can’t survive within the industry.
Rivalry among existing competitors: This is high when competitors are aggressive or intense within the industry and low when competition is not. There are multiple ways to reduce rivalry one being competitive advantage. If a company differentiates themselves to the other products on the market then the rivalry is reduced. Another ways is to use switching costs. This is when a customer doesn’t want to buy the alternative to your product on the market.
Porters Five Forces Model (Baltzan and Phillips et al 2010 pp 27)
For further information visit: http://www.quickmba.com/strategy/porter.shtml
Describe the relationship between business processes and value chains?
Both the value chain and business process play a fundamental role in the execution of strategy. Business processes are a set of specific activities used to meet a certain task
The value chain (see below image) is a theory by Porter that suggests a business is made up of processes that add value to the product/service
Value creation is the result of an effective business process. Through effective analysing of the value chain within an organisation the business can identify the most important activities that need to be accomplished to meet the consumers needs adding value to the customer. The company must work with the IT department to find appropriate operating systems that maintain these activities.
An organisation uses the value chain to analyse the success of their activities and strategies in the Organisation. The value chains analyse the effectiveness of the business processes within the organisation and how they can improve them too. An organisation can create value by performing certain tasks through the value chain and through re evaluating business strategy.
Compare Porter’s three generic strategies?
The three generic strategies are:
1.Broad cost leadership- this targets a large market in the industry, it appeals to a large audience
2.Broad differentiation- this focuses on a unique selling point for a company
3.Focused strategy- target a specific market. Focused strategies usually focus on either cost leadership or differentiation
Both broad cost leadership and broad differentiation have a broader market than focused strategy. Differentiation has a higher cost than cost leadership, which aims to get the best prices for the product. The focused strategy is more about a focused market, which is very narrow.
Porter suggests organisations adopt only one of these strategies as they enter the market. Adopting more than one can lead to confusion with your business strategy.
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