Use of Information Technology in Managing Businesses - Term Paper Example

Running Header: Use of Information Technology in Managing Businesses Surname: First Names: Student Number: Institution: Course Number: Course Name: Assignment Due Date: Table of Contents Table of Contents 2 3.0 Impact of the Internet in the Marketing process 4 4.0 Information Technology and business Strategy 5 5.0 Information Technology and business Internal Strategy 6 6.0 Information technology and organizational design 7 7.0 Information Technology and supply chain management 9 8.0 Benefits of using IT in business management 11 8.1 Improved operational efficiency and effectiveness 11 8.2 Product innovation with information technology 11 8.3 Transactional processing 11 8.4 Supply chain planning and collaboration 12 9.0 Conclusion 12 1.0 Introduction In the current world of business, many businesses are considered as independent entities with multi-echelon networks that involve supply chains, delivery of goods and services to the end user, Auramo, et al (2005). In supply chain management (SCM), the establishment of an integrated link with multi-company networks has enabled many companies to realize significant benefits through the utilization of information technology (IT) which has been considered by many as an imperative tool for controlling these networks. According to Themistocleous, et al (2008), on their empirical research on the importance of IT in SCM, noted that IT has played a very vital role in bringing about efficiency in SCM and business operations as a whole through information processing and sharing. This essay will critically evaluate the various concepts that are related to IT and its application in management which include: the impact of IT in the marketing processes, the role of IT in managing business strategies, IT and business’ internal strategies, IT and the organizational design, the relationship between IT and SCM. It will also evaluate the benefits realized from IT applications in business operations and thereafter draw conclusions from the study that will be used as a guide by the business management teams to make decisions. 2.0 Information Technology Information Technology (IT) is the study that entails designing, creating, utilizing, supporting, and managing computer-based information systems by use of both software and hardware computer applications. Given the fact that technology is continuously evolving, computerization is quickly expanding to other forms of technology like the mobile technology. This has been made possible by the fact that there are now several handheld technology devices in the market such as the cell phones and PDAs. In the current world, the technological environment has real advanced and now there are many key players in the IT field who include: computer engineers and other specialists like the programmers whose main responsibility is to manage computer networks and other technology related database systems (Williamson, 2005). 3.0 Impact of the Internet in the Marketing process Use of IT and more especially the internet creates a very important tool for the business to enter into a new industry since it does not require huge capital investments to drive sales like when doing business offline. However, it is notable that as the number of people who are in access to the internet has continued to increase, the competition is also likely to increase in several industries. According the report by the Department of Commerce’s ‘Digital Economy 2009’ about 600 million people worldwide have access to the internet according to Themistocleous, et al (2008). This is a 100 percent increase over the last ten years. This possibility has seen greater expansion of the market whereby the companies are now expected to expand their territory through increased technology innovations and development as a way of reaching the potential market. IT has over years changed the nature of competition in the market by influencing the products or services offered in the market and by affecting the cost structure of different business firms through reduced cost of production, distribution as well as transaction processing. IT has also played a very vital role in ensuring balance between the buyer and the supply by determining the cost of switching either by the supplier or the buyer. Since use of IT is able to decrease customers’ search costs by a significant amount, it is then confirmable that prices are likely to be reduced and therefore shifting the bargaining power from the business to the customer. Given the fact that IT can be used to administer different prices for different goods, then it is important to note that the element of price discrimination is done away with by the business. A research done by Themistocleous, et al (2008) also revealed that use of internet has greatly promoted the integration of various supply chain activities apart from ensuring efficient distribution as well delivery of services to the customers. 4.0 Information Technology and business Strategy Senior business executives, planners and information system operators are more than ever before paying much of their attention to the opportunities available in the market and on how they can employ appropriate information technology to realize a meaningful competitive advantage. This has been as a result that those companies that applied IT have managed to make a very important stride and thus gaining more competitive advantage over their rivals in their respective industries. Given the fact the current world economic environment is not stable, in their research Themistocleous, et al (2008) found that use of information technology by businesses, has provided a chance for planners to be able to manage the available challenges by lowering operational costs of doing business. Through IT, businesses are now able to utilize related software in to aid efficient and effective transaction processing and capturing as well as decision making process by making use of decision support systems. A study done by Auramo, et al (2005) found that underutilization of IT has posed very serious managerial problems to both information systems and the business managers since many of the business opportunities are overlooked for obvious reasons such the element of ignorance on the role of IT in business performance, poor communication among the key participants, resistance to change by both the business and information systems personnel, inability of the business to cite important business opportunities that could offer them a competitive advantage and finally lack of proper tools that can be used to measure benefits related to information technology. It is important for the managers to understand that several suggestions have been put forward by various researchers which explain the various capabilities that are there in IT which include: development of key performance measures that could used to enhance efficiency and effectiveness in the business’ functions. In a study that was done in fifteen multi-national companies that operate in Australia, China and the United Kingdom in 2005, Gerstein and Reisman found that there was serious need for companies to come up certain tools that can be used to the actual impact of IT in every business function (Themistocleous et el 2008). They duo did recommend this after observing that both the nature of work and organizational structure greatly determines how easy and difficult the use of IT could be. 5.0 Information Technology and business Internal Strategy According to Rockart and Scott Morton (2004), efficiency and effectiveness are two major business’ domains that have been directly attributed to the proper use of IT by businesses. Ideally the aim of any given business is to offer the best to the customers while maintaining operational cost at minimum. Leavitt's organizational model demonstrates how business can employ different mechanisms such as personnel management and organizational structure in order to bring into board the desired impact which is competitive performance through IT. Hundreds of papers that explain how businesses can identify opportunities that are supportive of management processes that are information technology friendly have been published. (Closs, and Savitskie, 2003), explains how various techniques differ from each other in terms of focus, emphasis as well as its applicability. However, it is important for the planners to note that these techniques are specific and they only function well in certain functional areas of the firm only. In their review they continue to demonstrate that the first generation methodology of the IT used by the firm mainly depends on the firm’s view and its objective to enhance efficiency. This approach is mainly composed of the business systems planning (BSP) and the office automation methodology (OAM). These techniques identify those formal ways that can be used to model the operations of the business in order to ensure significant improvement in efficiency and effectiveness. The process of doing this requires that there be clear and specific roles of the planners and the senior management. The critical success factors (CSF) methodology as developed by (Lucas, 2004), extensively explains how unstructured environments can be modified by introducing appropriate substitutes that will identify opportunities that lead to improved operational performance by use of information systems (IS). However, during the implementation process, the planners and senior management need to understand that apart from offering important steps towards helping business firms use IT to realize their goals; these approaches have not recognized strategic considerations as the important driving towards spotting IT related opportunities. Further, these approaches are only private theories that have been developed and that have been zeroed in management information systems (MIS). 6.0 Information technology and organizational design In many occasions, it is believed that the implications of IT are well defined within the strategy of the organization and it is found the company’s philosophy literature. These theories are used to build the basis upon which specific and testable hypotheses are developed. For the purpose of ensuring that there is compatibility between the organizational design and the IT, a link must always be established by applying the concept of bounded rationality (White and Pearson, 2001). Bounded rationality as used in IT, explains individual limitations in terms of information processing capabilities such as memory, computation as well as communication. This clearly explains the reason as to why information systems are important in given business environment since they have more capabilities of processing information than individual human being and thereby allowing easy and faster informational and computational processes for the planning and the management team and therefore expanding the limits of bounded rationality. According to (Lucas, 2004), bounded rationality is the key concept that has guided the building of the organizational theory. He further explains that human beings are limited in terms of capabilities as pertains to informational processing and therefore assigning a lot of information processing tasks by the management is a way of failing decision making and consequently poor operational performance. From this theory of thought, many organizations are designed in such away to allow for more information processing by use of IT rather than depending entirely on human beings who can not handle the complexities involved. In order to manage high costs associated with bounded rationality, we seek to explain how systems can be characterized in such away to ensure operational costs are minimized. However, important instructional processing, speed as well as depth of system functions aspects of information processing are, they are not real relevant to the organizations’ view with regard to bounded rationality and for that reason only former measures can be used to reduce human limitations. Functional components such as storage, processing as well as communication and their characteristics such as capacity, quality as well as unit cost are useful in defining the range of organizational measures that can be applied by the management to manage cost (White and Pearson, 2001). Figure 1 below elaborates how various functional components can be arranged together with their qualities in a matrix form to show a characterization of information technology and how it can be used to reduce the effect of bounded rationality by bringing into operations efficiency and effectiveness. Storage Processing communications Capacity Breadth and depth of database Range and depth of systems functions Size of population accessing the network Quality Relevance of data End of use Media appropriateness Unit cost Cost of managing data Cost for each transaction, cost for each user Cost per message Figure 1. A Characterization of Information Technology The main objective of this illustration in figure 1 above is to show how information technology influences efficiency and effectiveness by the bounded rationality of an individual and management decision making. 7.0 Information Technology and supply chain management Several authors have identified opportunities that can be realized by any given through the application of IT that will lead them to creating a competitive advantage over their rivals in the industry and across the market. Two major business approaches have been used to explain the role of IT in business management which includes: the value-added chain analysis of the firm’s day to day operations and the Porter's framework for competitive analysis. Bagchi and Skjoett-Larsen (2002), managed to introduce three main opportunities that are attributable to the use of IT in business and they include: creation of competitive advantage as seen earlier, improvement of the value adding function and venturing new business through service or product provision as shown in figure 2 below. The Porter approach that considers five common forces that exist within the market has been used by researchers to explain how IS can be used to counter any moves that are likely to be made by the competing firms. Bagchi and Skjoett-Larsen (2002) examined how IT and supply chain management (SCM) can be integrated together for business strategy and suggested that SCM and IT integration can ran through a specific path which starts with low through medium and then high integration. On the hand the research by Themistocleous et al. (2008), used the three supply chain integrative levels and described that IT is very important in building a stable supply chain. Further research carried out by Kauremaa et al. (2004) found that IT related benefits are eminent and actually make the management of transaction a bit easier. Kind of IT used in SCM Reasons for applying IT in SCM Transaction processing Cost reduction Large volume of transactions Faster information transfer Reduction of human errors Supply chain planning and collaboration Uncertain and logistically demanding market Order tracking and delivery management Business project orientation In-transit delivery management Figure 3. The a priori construct and their presumed relationships The prior construct explains the relationship between that is their between IT and SCM as used by Bagchi and Skjoett-Larsen during their study on the role of IT in SCM. 8.0 Benefits of using IT in business management 8.1 Improved operational efficiency and effectiveness Improvement of business operations is the primary focus of the business and is depended on how various IT applications are used. Use of IT in key functional areas of the business brings about new innovations in the industry that can create a competitive advantage for one’s business. As discussed earlier, IT creates an environment operational efficiency is possible according to Yu, et al (2001). 8.2 Product innovation with information technology In many decades, IT has offered businesses with opportunities to create unique products for the customers. IT has been used extensively especially in the automotive and electronics to modify the already existing apart from building new ones in order to offer the customers the best. On the other hand, industries such as the banking industry, the consultancy industry and the insurance industry have been able to use IT to deliver service-based products (Closs, and Savitskie, 2003). 8.3 Transactional processing In a research that was done by the Department of Engineering and Management with collaboration with the Department of Business Technology both from the University of Helsiki in 2006, to the role of IT in SCM, found that 10 out of 16 companies studied used IT in processing business transactions. During the study it was found that many companies that had used IT reduced their manual work significantly apart from reducing operational costs and improving quality of information provided to the managers for decision making. 8.4 Supply chain planning and collaboration During the same study done by the Department of Engineering and Management with collaboration with the Department of Business Technology both from the University of Helsiki in 2006, to the role of IT in SCM, it was revealed that sharing of information across the functions and across the industry was possible among those companies that applied IT. Through information sharing, companies were able to strategize as a group to pursue a common goal (Taggert and Tharp, 2007). 9.0 Conclusion In conclusion, it is important to note during the review, a number of observations with regard to use of IT in business operations. One important thing that has been noted is that IT is an important tool in given business environment since it creates room for business firms to identify several business opportunities and venture into them. SCM is one such area of business functions that IT has helped to develop by creating an environment where businesses can link with customers, suppliers as well as other industry firms through collaboration. According to Themistocleous, et al (2008) on their empirical research, it was found that SCM success is directly related with IT application. Secondly, IT is seen as a key tool in reducing manual work and operations costs through faster processing of transactions and speedy information transferring and hence improving the quality of service delivery. On this note, it is important for the planners and senior mangers to recognize the role of IT in management as it enables easy linking of several business functions into a single unit and thus creating efficiency and effectiveness (Lucas, 2004). References Bagchi, P.K. and Skjoett-Larsen, T. (2002). “Integration of information technology and organizations in a supply chain”. The International Journal of Logistics Management, Vol. 14, No. 1, pp. 89-108. Auramo, J., Kauremaa, J. and Tanskanen, K. (2005). ”Benefits of IT in supply chain management – an explorative study of progressive companies”, International Journal of Physical Distribution & Logistics Management, Vol. 35, No. 2, pp. 82-100. Closs, D. and Savitskie, K. (2003). “Internal and external logistics information technology integration”. International Journal of Logistics Management, Vol. 14, No. 1, pp. 63-76. Kauremaa, J., Auramo, J., Tanskanen, K. and Kärkkäinen, M. (2004). ”The use of information technology in supply chains: transactions and information sharing perspective”, Logistics Research Network Annual Conference: Dublin, Ireland. Themistocleous, M., Irani, Z. and Love, P.E.D. (2008). “Evaluating the integration of supply chain information systems: a case study”, European Journal of Operational Research, Vol. 159, No. 2, pp. 393-405. Yu, Z., Yan, H. and Cheng, T.C.E (2001). ”Modelling the benefits of information sharing based partnerships on a two-level supply chain”, Journal of the Operational Research Society, Vol. 53, No. 4, pp. 436-446. White, R. and Pearson, J. (2001). “JIT, system integration and customer service”. International Journal of Physical Distribution & Logistics Management, Vol. 31, No. 5, pp. 313-333. Williamson, O. (2005). Information systems, Markets and Hierarchies. Free Press: New York. Taggert, W. M. and Tharp, M. O. (2007). "A Survey of Information Requirements Analysis Techniques." ACM Computing Surveys, Volume 9, Number 4, December 2007, pp. 273- 290. Lucas, H. C. Jr. (2004). "Performance and the Use of an Information System." Management Science, Volume 21, Number 8, April 2004, pp. 908-919. Read More