Explain information technology’s role in business and describe how you measure success?
Information technology encompasses organisations everywhere. Information technology plays a vital role in managing and processing information within an organisation. Technology supports and aligns itself with strategic direction of organisations. Information technology can lead to business success and innovation if individuals use and manage it effectively. Information technology influences major functional areas within the business such as marketing, operations & HR. It enables them to enhance communication between each other and further improve business activities. Thus, generating growth and productivity for the business.
To measure success in a business; you need to have constant awareness of IT performance, the contribution of IT to business success and further opportunities for improvement are all crucial in measuring success of a business.
The two key performance indicators in measuring success are:
1. Efficiency IT metric which measures the performance of the IT system, i.e. using resources at its optimal level. These include throughput, speed, system availability, information accuracy, web traffic, and response time.
2. Effectiveness IT metric measures the impact IT has on business processes and activities, i.e. the goals and objectives of the business. These include customer satisfaction, usability, conversion rates and financial.
Benchmarking is another way businesses can measure IT success, that is comparing past and present results constantly and identifying the steps and procedures to improve system performance.
Video: http://www.metacafe.com/watch/4061465/key_performance_indicators/, Key Performance Indicators.
List and describe each of the forces in Porter’s Five Forces Model?
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Video: The five competitive forces that shape strategy: http://www.youtube.com/watch?v=4R60P_KeA44
Porter’s model can help a business:
- Identify potential opportunities
- Create a competitive advantage while discouraging potential rivals.
- Identify how attractive an industry is
1. Buyer Power
Buyer power is high when buyers have many sellers to choose from.
Buyer power is low when buyers have a few sellers to choose from.
A company can reduce buyer power by introducing loyalty programs (incentives) to attract customers and reward them based on the amount of business interaction within the organization and thus can create competition between industries.
2. Supplier power
Supplier power is high when one supplier has a concentrated power over an industry. When supplier power is high, suppliers can influence an industry by:
- Raising prices
- Limiting quality or service
These are passed onto their buyers, however buyers can lose revenue as they may not be able to pass these changes onto their customers. Therefore, suppliers will benefit by having concentrated power over an industry.
3. Threat of substitute products or services
The threat of substitute products or services is high when there are alternative products or services such as butter, spreads and margarine. This can lead to high competition between industries.
The threat of substitute products or services is low when there are a few substitutes alternatives for e.g. specific medicines or medical equipment.
Markets become competitive, as technology such as internet can make industries less secure as there are many substitutes, and customers can use the internet to research other available products which can increase competition.
4. Threat of new entrants
Threat of new entrants is high when competitors can easily enter a market and low when there are significant barriers to enter a market eg telecommunications industry, where threat of new entrants is low.
5. Rivalry among existing competitors
High when competition is fierce in a market and low when competition is more complacent.
Switching costs is a way to reduce rival power. These costs can make customers reluctant to switch to another product or service.
A unique product is another way to reduce rival power but creating products that are different then competitors’ products.
Describe the relationship between business processes and value chains?
Value chain analysis determines the success or failure of a strategy chosen in Porter’s three generic strategies.
Business process is a set of activities that accomplish a task in business such as processing customer order. To evaluate the effectiveness of a business process an organization can use a value chain approach. This examines the processes of a task and then identifies the activities, which adds value to the product or service for the customer such as offering discounts. In essence, this value chain approach will improve a specific process and increase customer satisfaction and growth for the business.
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Compare Porter’s three generic strategies?
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Once an organization has determined the market they wish to enter they can choose three generic strategies.
1. Broad cost leadership – which is focusing to target a mass market. It is aiming to be the cheapest and produce the most.
2. Broad differentiation – establishing a unique product.
3. Focused strategy – targets a niche market focusing on either cost leadership or differentiation.
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