Information Systems in Business

Information Systems in Business Careers

• Accountants use information systems to summarize transactions, create financial records, organize data, and perform financial analysis
• The Sarbanes-Oxley Act requires accountants to have in-depth knowledge of databases, reporting systems, and networks for tracing financial transactions, including online ones
• Financial managers work with senior management to ensure information system investments align with corporate goals
• Marketing has undergone significant technology-driven change in recent years
• E-commerce expansion shifts consumer focus to the Internet
• Marketing managers use customer behavior databases from online and offline sources to develop reports, gather feedback, and manage product development
• Electronic trading systems mine data to discover market patterns
• Models using real-time data execute trades instantly when an opportunity arises
• Automated systems can move billions quickly, and actions by one system can trigger actions in others
• Operations Management requires employees to use information systems to coordinate and optimize resources using databases and analytical software
• Managers use information systems for various tasks, from desktop productivity tools to enterprise coordination

Fundamentals of IT

• Moore's Law states the number of transistors on an integrated circuit doubles every 18 months, and the cost of data storage halves and computing power doubles at no additional cost
• This depends on the number of transistors, not necessarily innovation, and is being developed through quantum computers
• Consequences include having more IT over time (more sensors/trackers)
• More data is collected, contributing to big data
• Metrics are being collected, such as transaction volumes
• Incentives motivate business people and align interests
• Information Technology = Strategic Business Value
• The information provided by the tech is the most valuable to a business, not the level of technology itself
• Information impacts every business area
• Efficiency and competitive advantage are added which leads to business success
• Digital products are anything that can be digitized like mobile games, movies, or newspapers.
• Digital information is expensive to produce but cheap to reproduce
• With digital goods, creation cost is incurred once, and production cost is incurred every time you need to produce a physical good, making digital more cost-efficient
• Digital products have high fixed costs, such as creation, and low marginal/variable costs, such as production
• As quantity increases, cost decreases, and markup increases
• Fixed costs are sunk costs and irrelevant to future decisions
• Focus is set on variable costs
• There are no significant capacity constraints
• Customer information is more easily collected
• Businesses should set prices for digital goods where marginal revenue exceeds marginal cost
• The marginal cost is so low, it can almost be offered for "free"
• When competing with companies that offer "free" digital goods, the business model needs to be understood like Google's ad revenue, market segmentation, or the freemium model where a base level is free, but a premium addition is offered

Digital Goods as Experience Goods

• Food, services, and digital goods are experience goods
• A good's utility can only be discovered after consumption
• Each customer must experience the product personally to value it due to quality being ascertained after consumption
• Consumer valuations vary based on culture and expectations, making it hard to convey a product's value before purchase

Strategies to Promote Experience Goods

• Previews/Trials: Allow users to sample for free like listening to the first 30 seconds of a song
• Doesn't cost the company much, minus opportunity cost
• Ratings & Reviews: Showing previous customers' opinions is helpful
• Reduces customer uncertainty but doesn't address taste heterogeneity
• Discounts/Free samples
• Brand & reputation
• If a song is shared on a reputable platform it indicates the producer is confident people will buy the music
• As brand and reputation increase, less need for previews may be needed
• Customization can also be used

Information Overload

• This occurs because everyone can access and upload information on the internet, this makes it difficult to drive relevant traffic
• Information is not scarce due to the quantity of exploding info but attention is limited, which effectively difficult to gain attention
• Strategies to overcome information overload include recommendations like Youtube algorithm
• Recommendations can be either social or personal
• Social recommendations are more expensive and used by social networks to create personalized ads and target to ideal customer.
• It is an opt-out marketing strategy, unless you change the settings a website will send you marketing emails
• Provide "Search and filters"
• Profiling: Collecting information about people through online data

Overcoming Info Overload

• Overcoming information overload can have social costs like manipulation of ideas
• Polarization of ideas where people tend to have more extreme opinions
• Information Technology has extensive infrastructure to tore, retrieve, view, transmit, and receive information
• Information can be filtered through static filter or open filter
• Manipulation information: queries and conditional probability used to analyze data and get conclusions
• Technology provides accessibility and enriches information
• Technology is able to manipulate and filter
• Tech also has the ability of combining data sources and facilitating exchange of information

Role of IS in Business

• This is to support and enhance business processes by facilitating transactions and recording activities
• Enables tracking inventory and balance, supporting and enabling Decision Making
• Information Technology impacts the industry by affecting business performance and survival

Porters 5 Forces

• Firms are not isolated entities, they are part of a community/industry
• Framework for analyzing the competitive pressures in an industry
• Intensity of rivalry within the industry is determined by:
  • Threat of new entrants
  • Threat of substitute products
  • Bargaining power of buyers (customers)
  • Bargaining power of suppliers
• The forces can be divided into: Horizontal and Vertical Forces
• Horizontal Forces- competitive pressure comes from within the industry and shape how fiercely companies compete, like rivalry among existing competitors, threat of new entrants, and threat of substitute products or services
• Vertical Forces- competitive pressure comes from outside the industry value chain and reflect the power of suppliers and buyers
• In order to lower the threat of new entrants, businesses create barriers to entry through:
  • Brand: Established companies have strong brand recognition, making it hard for new businesses to attract customers
  • Regulation: Government laws, intellectual property rights, and industry rules can make it harder for new companies
  • Distribution Channels: If existing companies control key distribution points, it is hard for new entrants to compete
  • Capital Intensity: Businesses that require a high initial capital investment to start are harder to enter
  • Switching Costs: If the cost that a consumer incurs when switching is high, they are less likely to switch
  • Network Effects: The more people use a product, the more valuable it becomes
• Substitutes depends on switching costs, price-performance trade-off and buyer inclination to switch
• Buyer power refers to customer influence over businesses
• Strengthen buyer power leads to demand lower prices, better quality, or services
• Buyer power is dependent on price sensitivity
• Product differentiation means buyer power is low if products are unique
• Buyer power is high if there are many substitutes available
• Backward integration means a company expands its operations to control it's suppliers
• Supplier power refers to supplier control over pricing, availability, and quality
• Supplier power has more power if inputs impact costs or differentiation, switching costs of firms, and the threat of forward integration
• Degree of rivalry refers to how intense competition is within an industry
• High rivalry means price wars, heavy marketing, and constant innovation

Factors of Rivalry

• Industry concentration: competition is lower if an industry has few big players
• Value added: competition shifts from price wars to unique offerings
• Brand identity: rivalry is lower of the customers are loyal
• Disruptive technologies often increase competition, lower costs, and shift market power
• Ripple (XRP) uses cryptocurrency for instant transactions
• SWIFT relies on correspondent banking relationships
• Cloud storage Is more accessible and scalable than hard drives
• Network effect is when the value of a product or service increases as more people use it
• Metcalfe's Law: Value = (users [n])^2, meaning the value of a network is proportional to the square of the number of users
• Increase the utility and exchange Value of the product grows as more people use it and you can connect with more
• This leads to complementary benefits and staying power

Feedback Loops

• Positive feedback loops can be in 1-sided and 2-sided Markets
• Positive Feedback Loops occur more in 2-sided markets
• Because of this, 1-sided markets are developing to become 2-sided markets
• Roblox is a user-generated gaming platform where players create and share their own games
• Complementary benefits rise when third-party products or services enhance an offering
• A product with staying power remains relevant despite competition

Gaining Staying Power

• When network effects are present, markets may reach a tipping point where network effects become so valuable that only one winner emerges.
• To gain staying power, new entrants need superior features and reasons for users to switch.
• Strategies to compete in Networked Markets include being first-to-market, subsidizing adoption, and redefining the market
• Form alliances and partnerships
• Establish distribution channels
• Seed the market with complements
• Maintain backward compatibility
• Use open standards
• Zara is the game-changing clothes giant in the multibrand empire of Inditex and a technology-enabled strategy allows it not to use advertising and rarely run sales
• Zara is highly vertically integrated, unlike competitors who outsource most steps

Why Study Zara?

• Zara is undergoing one of the fastest global expansions and profitability is among the highest in the industry
• Zara's super-efficient model leads to competitively priced merchandise, fewer markdowns, faster inventory turnover, reduced risk, and less advertising
• Some information systems strategies that Zara applies are:
  • Just-in-time manufacturing
  • Profound vertical integration
  • Technology-orchestrated supplier coordination
  • Omnichannels
  • Finely tuned logistics
• Just-in-Time Manufacturing leads to variablity in order size and order timing
• To eliminate these issues, let all participants have access to consumer demand information
• Inventory optimization models determine how many of which items in which sizes should be delivered to each specific store.
• Zara leverages RFID tracking, which helps to improve supply chain responsiveness and stock accuracy.
• Information management includes gathering knowledge, data presented in meaningful context, data processed, and a difference that makes a difference

Zara vs Gap

• Zara avoids inventory through dynamic inventory updates, which encourages impulse buying
• Gap is slower and more traditional, focusing on economies of scale but lacking agility.
• Disintermediation means removing middle layers
• Dell sells directly to customers and a supply chain is a network
• IS (Information Systems) Affect Supply Chain Performance by Reducing costs and expands speed
• omnichannel is an approach to retail that offers consumers an integrated set of shop, sales, and return experiences.
• In-store pickups for online orders provide convenience