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AFM 241 Final Exam Cheat Sheet - Final
Version
Week 1 – IT Business Value
What is IT
- 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 - 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 IT - Information Technology (IT) is created by combining: hardware, software, data - In the context of organizations: people, processes and procedures, policies - To: o Provide information processing capabilities to handle and process information o Provide information for managerial decision making o Solve problems, reduce inefficiencies, increase competitiveness **4 main IT values
- Achieving Operational Excellence o** Operational Elements for Excellence ▪ Daily Routine ▪ Business Processes ▪ Value Activities o Supply chain: supplier, distributors, retailors, customers - Achieving Customer Intimacy o Know your customers better o Segment and target markets precisely and then tailor offerings to match exactly the demands of those niches o Fit an increasingly fine defined customers (fine-grained customers) as per detailed customer knowledge and operational flexibility o Practices of Customer Intimacy ▪ Customer loyalty programs: IT can automatically send emails and reminders ▪ CRM systems ▪ Call/help centers: AI assistant ▪ Customization: Recommendation systems ▪ Customer-centric/oriented production: DIY (Threadless), 3-D print - Managing Knowledge o Knowledge is a firm asset ▪ Intangible ▪ Creation of knowledge from data, information, requires organizational resources ▪ As it is shared, experiences network effects o 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) o 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)
- Business information value chain o Raw data acquired and transformed through stages that add value to that information o Value of IT determined in part by extent to which it leads to better decisions, greater efficiency, and higher profits - Business perspective o Calls attention to organizational and managerial nature of IT Business Information Value Chain
Week 2 – Business Strategy
Basic concepts of strategy
- 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 When a firm implements strategy competitors can’t 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 - First-mover advantage o Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage - Always temporary as it is quickly copied - Resources o Inputs into a firm's production process o Tangible or intangible - Capability o Capacity for a set of resources to perform a task or activity in an integrative manner o Resources shape capability: Relationship between capital and R&D capability o Capability is more than combination of resources: Learning, Analytics Identifying competitive advantage - Environmental scanning o Acquisition and analysis of events & trends in environment external to an organization - Three common tools used in developing competitive advantages:
o Porter’s Five Forces Model o Porter’s generic strategies o Value chains Resource Based View (RBV)
- The premise of RBV is that firms possess different resources and capabilities - Competitive advantage when resources are valuable, rare, costly to imitate, and non-substitutable - Examples: Tim Hortons, West Jet - Isolating mechanisms (Protect competitive advantage) o 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 o Path Dependence - What is the optimal capability development trajectory? What is the path leading to final offerings? (Role of history) o Unique historical conditions (role of history) -Choices made in the past influence the options a company has now and in the future o Time compression diseconomies -The quicker a firm develops the resource, the higher the development cost Relative Competitive Performance
4. New Entrants - The ease of which new competitors can enter a market - Entry barrier o A feature of a product or service that customers have come to expect and entering competitors must offer the same for survival 5. Rivalry Among Competitors - The amount of direct conflict between businesses in a specific industry - Product differentiation o 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: o Generic Strategy ▪ Low-cost leadership ▪ Product differentiation ▪ Focus on market niche o Specialized Strategy ▪ Strengthen customer and supplier intimacy ▪ Innovation Generic strategies - Low-cost leadership o Produce products and services at a lower price than competitors o Example: Walmart’s efficient customer response system - Product differentiation o Enable new products or services, greatly change customer convenience and experience o Example: Google, Nike, Apple o Mass customization - Focus on market niche o Use information systems to enable a focused strategy on a single market niche; specialize o Example: Hilton Hotels’ O n Q system Specialized strategies - Strengthen customer and supplier intimacy o Use IT to develop strong ties and loyalty with customers and suppliers o Increase switching costs o Examples: Chrysler, Amazon, Starbucks - Innovation o Use IT to constantly destruct existing offerings with creativity (Creative destruction by Schumpeterian competition) o Increasing product differentiation and customer intimacy o 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 **Porter’s value chain analysis
- The value chain o** An internal analysis that helps a business optimize the value from its functions o 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 o 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
Week 3 – IT Strategy
▪ IT strategy : a plan of action to create an IT capability for maximum and sustainable value for an organization. ▪ 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 & barriers to entry ▪ Economies of scale ▪ Network effects ▪ Customer switching cost ▪ Capital requirements ▪ Incumbent advantage? ▪ Access to distribution channels
▪ Or cloud computing 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 license ➔ Sometimes you can negotiate directly with the software vendor to make enhancements to meet your needs by paying for the changes Disadvantages ➔ Modification/customization usually incurs a huge upfront cost ➔ Companies have to incur a maintenance cost every time the vendor upgrades the original package ➔ Very little or no support from the vendor Cloud services : Advantages ➔ Plug and use ➔ Pay by use ➔ Scalable Disadvantages
➔ Data security ➔ Constrained by Internet connection
Week 4 – IT Alignment
Business-IT alignment : A process of using fit/ suitable IT to achieve business strategies and objectives
- Only 37% of executives believe in alignment with their businesses - Alignment can increase competitive advantage , business performance , quality improvement , cost reduction and revenue growth - Strategic alignment: align IT strategy with business strategy - Process alignment: align IT designs with business processes and requirements - Social alignment: align IT staffs with business professionals Strategic alignment- Mcfarlan’s strategic grid (Plan IT for specific business strategy) Operational focus: ▪ IT projects and investments aim to reduce operation costs and to enhance effectiveness of business operation ▪ Focusing on quality, speed, flexibility, and time to market
Social Alignment: Align IT and business executives via an inclusive culture
▪ Align values and missions with both groups of staffs ▪ Form shared domain knowledge on communication between IT and business executives ▪ Form an inclusive culture to both groups of staffs ▪ Rotate IT staffs with business professionals so that IT staffs know about the business needs and processes across departments and jobs ▪ Include IT professionals in business strategy development and business professionals into IT strategy development ▪ Modernize performance goals to include considerations of collaboration between IT and business professionals ▪ Cultivate data-driven decision-making habits among business professionals
Week 5 – Business Analytics
Why do companies need data analytics? Hyper competition
- Fast-changing and fragmented customer preferences - Rapid technological changes - Higher rivalry and difficulty in sustaining competitive advantage - Ever-increasing influx of data - Incapability of leveraging such data for new insights and to inform strategic decision making - Inability of identifying the problems correctly and fast **What is business intelligence?
- Business intelligence o** Infrastructure for collecting, storing, analyzing data produced by business o Databases, data warehouses, data marts - Data analytics o Tools and techniques for analyzing data o OLAP, statistics, models, data mining - Business intelligence vendors
o Create business intelligence and analytics purchased by firms Data analytics
- Analytics is the use of: o data o information technology o statistical analysis o quantitative methods o mathematical or computer-based models to help managers gain improved insight about their business operations and make better, fact- based decisions - Key capabilities for competitive advantage Data for data analytics - Metrics are used to quantify performance - Measures are numerical values of metrics - Discrete metrics involve counting o on time or not on time o number or proportion of on time deliveries - Continuous metrics are measured on a continuum o delivery time o package weight o purchase price **Data types
- Numerical o Interval Data** ▪ Ordinal data but with constant differences between observations ▪ No true zero point ▪ Ratios are not meaningful ▪ Examples:
- temperature readings o Ratio Data ▪ Continuous values and have a natural zero point ▪ Ratios are meaningful ▪ Examples:- monthly sales- delivery times - Categorical o Nominal Data ▪ Data placed in categories according to a specified characteristic ▪ Categories bear no quantitative relationship to one another ▪ Examples:
- customer’s location (America, Europe, Asia)
- employee classification (manager, supervisor, associate) o Ordinal Data ▪ Data that is ranked or ordered according to some relationship with one another ▪ No fixed units of measurement ▪ Examples:
- college football rankings
- Possible benefits may not be clear - Innovators are in strong financial position can afford potential losses Early adopters - Not as risk seeking, still have to deal with relatively high level of uncertainty - Technology is not at experimental stage, not mature yet - Role is pivotal, success will trigger the mass adoption, failure can end the new technology Early Majority - Will join when most risks have been mitigated, while the benefits are high Late Majority - Reflects adopters who will invest in the new technology because of a strong peer pressure - Realized that it peers have gained competitive advantage, investment becomes necessary Laggards - Hostile to new technologies, very conservative Hype cycle – Gartner Innovation trigger- Technological breakthrough or proof of concept which triggers public interest ➔ Technology is still at the experimental stage ➔ No proven viable business applications Peak of inflated expectations- Followed by a period of unrealistic expectations ➔ Some companies start investing in the new technology Tough of disillusionment- Majority of the first adopters fail to extract value from their investment, initial hype is followed by disillusionment ➔ Overall adoption of the new technology remains at less than 5%
➔ Corresponds, to innovators in Rogers’ classification Slope of enlightenment- Gradually, new instances of how the new technology can deliver tangible benefits emerge ➔ Renewing interest, new generation of adopters Plateau of productivity- Mainstream adoption takes off ➔ Their success, provides the proof that the technology is viable and generates benefits ➔ Rogers’ Early majority Importance of business analytics for the accounting and finance community
- Data analytics can unlock significant value by making information transparent and usable at much higher frequency - As organizations create and store more transactional data in digital form, they can collect more accurate and detailed performance information on everything from product inventories to sick days, and therefore expose variability and boost performance - Analytics allows ever-narrower segmentation of customers and therefore much more precisely tailored products or services. - Sophisticated analytics can substantially improve decision- making - Data analytics can be used to improve the development of the next generation of products and services
Week 6 – Data Driven Strategy Development
Digitization – conversion of products to digital format and the concomitant inventions that ensue Digitalization – innovation of business models and processes that exploit digital opportunities Digital transformation – system-level restructuring of economies, institutions, and society that occurs through digital diffusion Digital business strategy
- IT strategy as a functional-level strategy: SAP for procurement, reimbursement, auditing, marketing management
- IT strategy as a process strategy: automate business processes for order management, customer service
- Digital business strategy has transcended functional and process areas o Amazon has digitized bookstores, cashier-free convenience store o Pay-as-you-go for cloud computing services, e.g., Dropbox o Nike Fuel: digitized running shoes o GE’s Internet connected real-time patient monitoring o Netflix digitized DVD rentals to streaming o Apple control industry architecture for premium profits from telecom carriers
- No separation between business strategy and digital business strategy
- Organizational strategy formulated and executed by leveraging digital resources to create different value
- Digital resources
Week 8 – Digital Business Models
What is a business model?
- A conceptual framework showing the underlying economic logic and system that explains how a business can deliver value to customers at an appropriate cost and profit - Representation: Plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it generates Business model Digital business models - Utilize digital resources to improve several components of business models, e.g., customer relationship, value proposition, etc. - Digitization decreases the importance of places (physical locations) and people to delight customers o Internal power: customer experience changes from product groups to multiproduct experience o Business process: integrated channels o Customer data: shared within an enterprise 3 components of digital business model - Content: What is consumed? e.g., information, product or service - Experience: how is content packaged? - Platform: how is content delivered? **Generic model classification
- C2C o** Consumer-to-consumer: consumers sell or trade directly with other consumers o E.g., taobao.com, ebay.com - Social commerce o Sell goods to social media friends - B2C o Business-to-consumer: business sells products/services directly to individual consumers o e.g., Amazon.com, Apple online store, Gucci - B2B
o Business-to-business: business sells products or services to other businesses or brings multiple buyers and sellers together in a central marketplace o e.g., Alibaba.com, Globalsources.com o Models: E-distributor, E-procurement, exchange, Industry consortium Common B2C business models
- E-tailer o Online version of traditional retailer; eg. Amazon o Revenue model: sales revenue o Variations: ▪ Virtual merchant ▪ Bricks-and-clicks ▪ Manufacturer-direct o Low barriers to entry - Community provider (social network) o Provide online environment (social network) where people with similar interests can transact, share content, and communicate o Examples: Facebook, LinkedIn, Twitter o Revenue models: typically hybrid, combining advertising, subscriptions, sales, transaction fees - Content provider o Digital content on the Web: news, music, video, text, artwork, financial information o Example: YouTube, The New York Times o Revenue models: ▪ Variety of models: ads, subscription, sales of digital goods, content purchase ▪ Gifts; Tips - Portal o Search plus an integrated package of content and services o Revenue models: advertising, referral fees, transaction fees, subscriptions for premium services o Variations: ▪ Horizontal/general (public) ▪ Vertical/specialized (corporate, need authorization) - Transaction broker o Process online transactions for consumers ▪ Primary value proposition—saving time and money o Revenue model: transaction fees o Industries using this model: ▪ Financial services ▪ Travel services ▪ Job placement services - Market creator o Create digital environment where buyers and sellers can meet and transact ▪ Examples: Priceline, eBay ▪ Revenue model: Transaction fees, fees to merchants for access o Sharing economy (mesh economy): platforms that allow people to sell services
