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Information Technology Information Technology

in the Digital Agein the Digital Age

Chapter 1Chapter 1

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Learning ObjectivesLearning Objectives

Describe the characteristics of the digital economy.Describe the characteristics of the digital economy.

Recognize the relationships between business pressures, organizational Recognize the relationships between business pressures, organizational responses, and information systems.responses, and information systems.

Identify the major pressures in the business environment & describe the Identify the major pressures in the business environment & describe the major organizational responses to them.major organizational responses to them.

Describe the role of I.T. in organizational activities.Describe the role of I.T. in organizational activities.

Define computer-based information systems & I.T. Define computer-based information systems & I.T.

List the essentials of networked computing & Web-based systems.List the essentials of networked computing & Web-based systems.

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Case: BMS enters the Digital Case: BMS enters the Digital EconomyEconomy

Problem:Problem: Bristol-Myers Squibb (BMS) is a leading manufacture of pharmaceutical Bristol-Myers Squibb (BMS) is a leading manufacture of pharmaceutical

drugs, beauty and infant-food products. drugs, beauty and infant-food products. They were struggling to stay ahead in the new digital economy. They were struggling to stay ahead in the new digital economy.

Solution:Solution: BMS initiated multiple Web-based projects, overhauled its management BMS initiated multiple Web-based projects, overhauled its management

structure, revamped its procurement and supply chain processes, and structure, revamped its procurement and supply chain processes, and expanded its myriad of Web sites. expanded its myriad of Web sites.

Results:Results: BMS experienced over $100 million in annual savings just from e-BMS experienced over $100 million in annual savings just from e-

procurement.procurement.

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Lessons from the CaseLessons from the Case

Global competition drives even large corporations to find ways to Global competition drives even large corporations to find ways to reduce costs, increase productivity and improve customer service.reduce costs, increase productivity and improve customer service.

These efforts are best achieved by using Web-based systems.These efforts are best achieved by using Web-based systems.

The major initiatives that BMS embarked upon were:The major initiatives that BMS embarked upon were:

Reduce costs by introducing an e-procurement system.Reduce costs by introducing an e-procurement system. Increase sales by utilizing the Web.Increase sales by utilizing the Web. Improve relationships with employees & customers. Improve relationships with employees & customers.

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1.1 Doing Business in the Digital 1.1 Doing Business in the Digital EconomyEconomy

Electronic commerce (EC)Electronic commerce (EC) is the use of Web-based is the use of Web-based systems to support buying, selling, and customer service.systems to support buying, selling, and customer service.

Click-and-mortarClick-and-mortar companies add some EC activities to companies add some EC activities to their regular business. their regular business.

Networked computingNetworked computing connects several computers and connects several computers and other electronic devices via telecommunication networks.other electronic devices via telecommunication networks.

Internet, Intranet, ExtranetInternet, Intranet, Extranet

InformationInformation technology (IT)technology (IT) refers to the collection of refers to the collection of computer systems used by an organization.computer systems used by an organization.

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IT in Business ActivitiesIT in Business Activities

Capabilities of IS (table 1.1)Capabilities of IS (table 1.1)

Benefits of ISBenefits of IS Improving productivityImproving productivity Reducing costReducing cost Improving decision makingImproving decision making Enhance customer relationshipEnhance customer relationship Developing new strategic applicationsDeveloping new strategic applications

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The Digital EconomyThe Digital Economy

The The digital economydigital economy refers to refers to an economy that is based on an economy that is based on digital technologies, including digital technologies, including digital communication digital communication networks, computers, and networks, computers, and software. software.

The digital economy is also The digital economy is also sometimes called the sometimes called the Internet Internet economyeconomy, the , the New economyNew economy,, or the or the Web economyWeb economy. .

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Old vs. New Economy: Old vs. New Economy: PhotographyPhotography

Old EconomyOld Economy You buy film at the store, insert it You buy film at the store, insert it

into your camera & take pictures. into your camera & take pictures. Once you complete the film, Once you complete the film,

sometimes weeks or months after sometimes weeks or months after you began the roll, you take it to you began the roll, you take it to the store for processing. the store for processing.

Go back to the store and pay for Go back to the store and pay for enlargements and duplications.enlargements and duplications.

Send photos to family and friends. Send photos to family and friends.

New EconomyNew Economy Use a Use a digital cameradigital camera that can also that can also

take videos. No film is needed, and take videos. No film is needed, and no processing required. You can no processing required. You can see the results immediately & see the results immediately & enlarge & print photos quickly. enlarge & print photos quickly.

If your digital camera is connected If your digital camera is connected to a wireless device (such as a to a wireless device (such as a palmtop computer or a cell phone) palmtop computer or a cell phone) take pictures and see them within a take pictures and see them within a few seconds. few seconds.

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Digital Economy Business Models Digital Economy Business Models

Business Model: Business Model: A method of doing business A method of doing business Spell out how to add valueSpell out how to add value

Name-Your-Own-Price.Name-Your-Own-Price. Pioneered by Priceline.com, this Pioneered by Priceline.com, this model allows customers to state a price they are willing to model allows customers to state a price they are willing to pay for a product or service. pay for a product or service.

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Digital Economy Business Models Digital Economy Business Models (cont.)(cont.)

Dynamic Brokering.Dynamic Brokering. In the digital age customers can In the digital age customers can specify requirements for a service or a product. specify requirements for a service or a product. These specifications are broadcast over the Internet These specifications are broadcast over the Internet (“Webcasted”) to service providers in an automatic (“Webcasted”) to service providers in an automatic invitation to submit bids. invitation to submit bids.

Reverse Auctions.Reverse Auctions. Electronic reverse auctions are Electronic reverse auctions are fast, they reduce administrative costs by as much as fast, they reduce administrative costs by as much as 85 %, & products’ prices can be 5 - 20 % lower.85 %, & products’ prices can be 5 - 20 % lower.

Affiliate marketingAffiliate marketing is an arrangement in which marketing is an arrangement in which marketing partners place a banner of a company, such as partners place a banner of a company, such as Amazon.com, on their Web site. Amazon.com, on their Web site.

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Digital Economy Business Digital Economy Business Models Models (cont.)(cont.)

Group Purchasing.Group Purchasing. Anyone can pay less per Anyone can pay less per unit when buying more units. Discounts are unit when buying more units. Discounts are usually available for quantity purchases.usually available for quantity purchases.

E-marketplaces and Exchanges.E-marketplaces and Exchanges. Since Since 1999, thousands of electronic marketplaces, 1999, thousands of electronic marketplaces, of different varieties, have sprung up. of different varieties, have sprung up.

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2.1 Major Business Pressures2.1 Major Business Pressures

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Market PressuresMarket Pressures

Global Economy & Global Economy & Strong Competition.Strong Competition.

Global competitionGlobal competition is is intensified as governments intensified as governments become involved through become involved through the use of subsidies, tax the use of subsidies, tax policies, import/export policies, import/export regulations & incentives.regulations & incentives.

Rapid and inexpensive Rapid and inexpensive communication and communication and transportation modes increase transportation modes increase the magnitude of international the magnitude of international trade even further. trade even further.

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Market PressuresMarket Pressures (cont.)(cont.)

Changing Nature of the Changing Nature of the Workforce. Workforce.

The workforce is becoming The workforce is becoming more diversified, with more more diversified, with more females, single parents, females, single parents, minorities, and minorities, and handicapped persons handicapped persons working in all types of working in all types of positions.positions.

Powerful Powerful Customers. Customers.

Consumer sophistication Consumer sophistication & expectations increase & expectations increase as customers become as customers become more knowledgeable more knowledgeable about the availability and about the availability and quality of products and quality of products and services. services.

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Technology PressuresTechnology Pressures

Technological Technological Innovation & Innovation & Obsolescence.Obsolescence.

Some of today’s state-of-the-Some of today’s state-of-the-art products may be obsolete art products may be obsolete tomorrow. tomorrow.

Thus, technology Thus, technology accelerates the competitive accelerates the competitive forces. forces.

Information Information Overload. Overload.

The amount of The amount of information available on information available on the Internet more than the Internet more than doubles every year.doubles every year.

The management of The management of information is critical.information is critical.

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Societal Pressures Societal Pressures (cont.)(cont.)

Social Responsibility. Social Responsibility.

Issues range from the Issues range from the environment to education. environment to education.

Government Government Regulations.Regulations. Regulation issues involve Regulation issues involve health, safety, health, safety, environmental control, and environmental control, and equal opportunity. equal opportunity.

Government Government Deregulation.Deregulation. Deregulation Deregulation can be a blessing to one can be a blessing to one company but a curse to company but a curse to another company.another company.

Ethical IssuesEthical Issues.. Business ethics relates to Business ethics relates to standards of right and wrong standards of right and wrong in business practices. in business practices.

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Organizational and societal impact Organizational and societal impact

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Organizational ResponsesOrganizational Responses

Organizations need to respond to business, societal and technical Organizations need to respond to business, societal and technical pressures with pressures with critical response activitiescritical response activities..

A typical industry-level response to the digital economy is A typical industry-level response to the digital economy is disintermediationdisintermediation, or the elimination of intermediary organizations. , or the elimination of intermediary organizations.

Organizations can also take Organizations can also take proactiveproactive measures, to create a measures, to create a change in the market place. change in the market place. e.g., e.g., exploiting opportunities exploiting opportunities created by external pressurescreated by external pressures..

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Organizations’ Major ResponsesOrganizations’ Major Responses

Strategic systems for Strategic systems for competitive advantagecompetitive advantage

Continuous improvement effortsContinuous improvement efforts

Business process reengineering Business process reengineering (BPR)(BPR)

Business alliancesBusiness alliances

Electronic commerceElectronic commerce

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Organizations’ Major ResponsesOrganizations’ Major Responses

Strategic SystemsStrategic Systems provide organizations with strategies to provide organizations with strategies to increase their market share, better negotiate with suppliers, increase their market share, better negotiate with suppliers, or stop competitors. (e.g. Federal Express’s overnight or stop competitors. (e.g. Federal Express’s overnight delivery sys)delivery sys)

Continuous Improvement EffortsContinuous Improvement Efforts aim to improve a aim to improve a company’s productivity and quality. Examples include:company’s productivity and quality. Examples include:

Improved productivityImproved productivity Managing enterprise data Managing enterprise data Just-in-time (JIT) Just-in-time (JIT) Innovation and creativity Innovation and creativity Total quality managementTotal quality management Change managementChange management Knowledge managementKnowledge management Customer service Customer service

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Organizations’ Major ResponsesOrganizations’ Major Responses

Business Process Reengineering Business Process Reengineering refers to the refers to the introduction of a major innovation in an organization’s introduction of a major innovation in an organization’s structure & the way it conducts business.structure & the way it conducts business.

The major areas in which IT supports BPR are the following;The major areas in which IT supports BPR are the following;

Reducing cycle time and time to market. Reducing cycle time and time to market. Empowerment of employees and collaborative work. Empowerment of employees and collaborative work. Customer-focused approach and CRM. Customer-focused approach and CRM. Restructuring and team-based structure. Restructuring and team-based structure.

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Organizations’ Major Responses Organizations’ Major Responses

Business Alliances.Business Alliances. Many companies realize that Many companies realize that alliances with other companies, even competitors, alliances with other companies, even competitors, can be very beneficial. can be very beneficial.

Temporary jointTemporary joint venture = venture = companies form a special companies form a special company for a specific, limited-time mission. company for a specific, limited-time mission.

Electronic Commerce. Electronic Commerce. Doing business Doing business electronically is the newest and perhaps most electronically is the newest and perhaps most promising strategy that many companies can promising strategy that many companies can pursue.pursue.

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Case: IT Shortens Time to MarketCase: IT Shortens Time to Market

Problem:Problem: In order to assure quality, and minimize risk, the FDA requires companies In order to assure quality, and minimize risk, the FDA requires companies

to conduct extensive research & testing, which can take up to 10 years.to conduct extensive research & testing, which can take up to 10 years.

Solution:Solution: Several software companies enable document scanning into databases Several software companies enable document scanning into databases

that saves hours in research time.that saves hours in research time. The database is indexed and includes full-text-search and retrieval The database is indexed and includes full-text-search and retrieval

programs.programs.

Results:Results: The time to market of a new drug has been reduced by up to a year, The time to market of a new drug has been reduced by up to a year,

saving hundreds of lives. saving hundreds of lives.

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Information SystemsInformation Systems

Information systems (IS)Information systems (IS) collect, process, store, analyze, collect, process, store, analyze, and disseminate information for a specific purpose. and disseminate information for a specific purpose.

Information Systems are comprised of;Information Systems are comprised of; inputsinputs (data, instructions)(data, instructions) outputsoutputs (reports, calculations) (reports, calculations) feedbackfeedback mechanismsmechanisms that controls the operation that controls the operation an environmentan environment that it works within that it works within

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Computer-Based Information Computer-Based Information SystemSystem

A computer-based A computer-based information system (CBIS)information system (CBIS) is an information system is an information system that uses computer that uses computer technology to perform technology to perform some or all of its intended some or all of its intended tasks.tasks.

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Components of Information Components of Information SystemsSystems

HardwareHardware is a set of devices is a set of devices such as processor, monitor, such as processor, monitor, keyboard, and printer. keyboard, and printer.

SoftwareSoftware is a set of programs is a set of programs that enable the hardware to that enable the hardware to process data.process data.

DatabaseDatabase is a collection of is a collection of related files, tables, relations, related files, tables, relations, and so on, that stores data.and so on, that stores data.

Network Network is a connecting system is a connecting system that permits the sharing of that permits the sharing of resources between computers.resources between computers.

ProceduresProcedures are the set of are the set of instructions about how to instructions about how to combine the above components.combine the above components.

PeoplePeople are those individuals are those individuals who work with the system or use who work with the system or use its output.its output.

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Case: Managing Accounting Across Case: Managing Accounting Across AsiaAsia

Problem:Problem: Le Saunda Holding Company (Hong Kong) is a shoe manufacturer that Le Saunda Holding Company (Hong Kong) is a shoe manufacturer that

manages 32 subsidiaries in four Asian countries. manages 32 subsidiaries in four Asian countries. Their financing and cash flow is a very complex process. Their financing and cash flow is a very complex process.

Solution:Solution: To cope with the rapid growth of the company, a sophisticated accounting To cope with the rapid growth of the company, a sophisticated accounting

software package was installed. software package was installed.

Results:Results: The system is much more reliable & internal/ external auditing is easier. The system is much more reliable & internal/ external auditing is easier. All these improvements have led to a substantial growth in revenue and All these improvements have led to a substantial growth in revenue and

profits for the firm.profits for the firm.

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Case: the US Presidential Election Case: the US Presidential Election 20002000

In addition to the various success stories, IT involves a number of In addition to the various success stories, IT involves a number of failures, with the most famous being the failures, with the most famous being the Presidential Election of Presidential Election of 20002000..

20-to-30 year old machines were used to count votes and generated 20-to-30 year old machines were used to count votes and generated the greatest election confusion ever encountered.the greatest election confusion ever encountered.

How can such election confusion be avoided in the future? How can such election confusion be avoided in the future?

Perhaps the solution lies in Perhaps the solution lies in digital-age voting machinesdigital-age voting machines,, which displays which displays a person’s vote on a computer screen and asks them to verify their a person’s vote on a computer screen and asks them to verify their choice. choice.

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General Technological TrendsGeneral Technological Trends

Cost Performance Ratio Cost Performance Ratio

Object-Oriented Environment Object-Oriented Environment & Document Management& Document Management. .

Networked ComputingNetworked Computing

Mobile CommerceMobile Commerce

Integrated Home ComputingIntegrated Home Computing. .

The InternetThe Internet

General trends within computing systems include the following:

Intranets and Extranets Corporate Portals The Networked Enterprise Optical Networks

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Cost Performance RatioCost Performance Ratio

Cost Performance Ratio: Improvement by a Factor of Cost Performance Ratio: Improvement by a Factor of at Least 100.at Least 100. In about 10 years, a computer will cost the same as its In about 10 years, a computer will cost the same as its

costs today but will be about 50 times more powerful.costs today but will be about 50 times more powerful.

Moore’s Law:Moore’s Law: Gordon Moore, the co-founder of Intel, predicted in 1965 Gordon Moore, the co-founder of Intel, predicted in 1965

that the processing power of silicon chips would double that the processing power of silicon chips would double every 18 months. every 18 months.

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Object-Oriented Environments Object-Oriented Environments

An An objectobject--oriented environmentoriented environment is an innovative way of is an innovative way of programming and using computers that is expected to significantly programming and using computers that is expected to significantly reduce the cost of both building and maintaining information reduce the cost of both building and maintaining information systems. systems.

Object technologyObject technology enables the development of self-contained units enables the development of self-contained units of software that can be shared, purchased, and/or reused. of software that can be shared, purchased, and/or reused.

The increased use of multimedia and object-oriented systems The increased use of multimedia and object-oriented systems makes makes electronic document managementelectronic document management one of the most one of the most important topics of IT.important topics of IT.

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Network ComputingNetwork Computing

Network technology enables users to reach other users and Network technology enables users to reach other users and access databases anywhere in the organization.access databases anywhere in the organization.

Metcalfe’s Law:Metcalfe’s Law: Robert Metcalfe, a pioneer of computer Robert Metcalfe, a pioneer of computer networks, claims that the value of a network grows roughly in line networks, claims that the value of a network grows roughly in line with the square of the number of its users. with the square of the number of its users.

Kelly’s Extension:Kelly’s Extension: The value of the Internet is much larger, The value of the Internet is much larger, according to Kelly (1999). On the Internet we can make multiple according to Kelly (1999). On the Internet we can make multiple simultaneous connections between groups of people.simultaneous connections between groups of people.

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Mobile-CommerceMobile-Commerce

M-commerce (mobile commerce)M-commerce (mobile commerce) refers to the conduct of e- refers to the conduct of e-Commerce via wireless devices. It is the commercial application Commerce via wireless devices. It is the commercial application of of mobile computingmobile computing which is based on wireless networks. which is based on wireless networks.

There is an increased interest in There is an increased interest in m-commercem-commerce because the because the number of mobile devices is projected to top 1 billion by 2004. number of mobile devices is projected to top 1 billion by 2004.

Location-based commerce (L-commerce)Location-based commerce (L-commerce) is an application of m-is an application of m-commerce that offers customers the location information of commerce that offers customers the location information of anything they want to purchase. anything they want to purchase.

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Network Computers & Home ComputingNetwork Computers & Home Computing

The Network Computer,The Network Computer, first introduced in 1997, does not first introduced in 1997, does not have a hard drive. Instead, it is served by a central have a hard drive. Instead, it is served by a central computing station, and temporarily receives and can use computing station, and temporarily receives and can use applications and data stored elsewhere on the network. applications and data stored elsewhere on the network.

Integrated Home Computing. Integrated Home Computing. Soon,Soon, home computing, home computing, television, telephone, home security systems, and other television, telephone, home security systems, and other devices will be integrated and managed in one unit. devices will be integrated and managed in one unit. Smart appliancesSmart appliances refer torefer to home appliances that are home appliances that are

connected to the Internet. connected to the Internet.

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The Internet, Intranets & ExtranetsThe Internet, Intranets & Extranets

The Internet.The Internet. From about 50 million Internet users in 1997, From about 50 million Internet users in 1997, there could be as many as 750 million by 2007. there could be as many as 750 million by 2007.

IntranetsIntranets utilize information technology to provide utilize information technology to provide organizations with internal communication systems. organizations with internal communication systems.

Extranets Extranets combine intranets with the Internet to create a combine intranets with the Internet to create a

powerful interorganizational systems for collaboration.powerful interorganizational systems for collaboration.

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Corporate Portals, Networked EnterprisesCorporate Portals, Networked Enterprises& Optical Networks & Optical Networks

A corporate portalA corporate portal refers to a company’s Web site that is used refers to a company’s Web site that is used as a as a gatewaygateway to the corporate data, information, and to the corporate data, information, and knowledge. knowledge.

The Networked Enterprise. The Networked Enterprise. The various components just The various components just described can be integrated together into an enterprise wide described can be integrated together into an enterprise wide network extended to all business partners.network extended to all business partners.

Optical Networks Optical Networks are high capacity telecommunication networks are high capacity telecommunication networks that convert signals in the network and transmit these over fiber that convert signals in the network and transmit these over fiber optic filaments.optic filaments.

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Why Learn about IT? Why Learn about IT?

Being IT Literate On the Job & OffBeing IT Literate On the Job & Off

Finding Employment Opportunities in ITFinding Employment Opportunities in IT

Future Organizational LeadershipFuture Organizational Leadership

Using IT to Become a MillionaireUsing IT to Become a Millionaire

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Plan of the BookPlan of the Book

Part I:Part I: IT in the OrganizationIT in the Organization

Part II: Part II: The Web RevolutionThe Web Revolution

Part III:Part III: Organizational ApplicationsOrganizational Applications

Part IV:Part IV: Managerial and Decision Support Managerial and Decision Support

SystemsSystems

Part V: Part V: Implementing and Managing ITImplementing and Managing IT

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Managerial IssuesManagerial Issues

How can we recognize the How can we recognize the opportunities for using IT and opportunities for using IT and Web-based systems?Web-based systems?

How important is IT?How important is IT? In some In some cases, IT is the only approach that cases, IT is the only approach that can help organizations. can help organizations.

Who is going to build, operate, and Who is going to build, operate, and maintain the information systems?maintain the information systems?

How much IT?How much IT? IT IT does not come free, does not come free, but not having it may but not having it may be much costlier. be much costlier.

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Managerial Issues Managerial Issues (cont.)(cont.)

Is the situation going to change?Is the situation going to change? Yes, the pressures will be Yes, the pressures will be stronger as time passes & the IT stronger as time passes & the IT role will be even more important.role will be even more important.

What about ethics and social What about ethics and social issues?issues? The implementation of The implementation of IT involves many ethical and IT involves many ethical and social issues.social issues.

What about Globalization?What about Globalization? Globalization opens many Globalization opens many opportunities, ranging from selling opportunities, ranging from selling products and services online, to products and services online, to conducting joint ventures or conducting joint ventures or investing in them. investing in them.

How can an organization How can an organization transform itself to the digital transform itself to the digital economy?economy?