Chapter 3: Productivity, Innovation, and Strategy Flashcards
Productivity / labour productivity
the ratio of the
gross domestic product (GDP) of a country divided by the total paid
hours worked by people in the country.
primary indicator of our per
capita income
labor productivity (based on Conference board of Canada)
Labour productivity in Canada
measures the value that Canadian workers
generate per hour, which, for the latest data available, was about $50 per
hour (compared with $67 for the U.S. and $75 for Norway ).
Most experts agree that to enhance productivity,
Canada must foster a culture of innovation, open its industries to more
competition, and increase the amount of machinery and equipment
(M&E) in the economy (particularly in the Information and Communications Technology (ICT)
Information and Communications Technology (ICT)
Provides products and services that other industries rely on to get their
work done.
Productivity paradox
The lack of evidence of an increase in worker productivity associated with
the massive increase in investment in information technology.
Business value
Tangible benefits for organizations through either more efficient use of
resources or more effective delivery of their services to customers.
Researchers have
suggested three different ways in which the value of IT can be realized.
1) The first is through productivity.
2) The second way to realize the investment value of IT is through the
structure of competition
3) The final way that IT investment value is realized through benefits to the
end customer
1) The first is through productivity.
IT allows a company to create more
and/or better output from the same inputs and create them faster than
before the technology was in place. For example, if you had a small
accounting firm, investing in IT might allow you to add more customers,
automate basic tasks
This investment makes the firm more
efficient and potentially more effective.
The second way to realize the investment value of IT is through the
structure of competition
IT can alter the way corporations compete. For
example, if one accounting firm invests in IT, then rival firms will often
follow suit to stay current. The competitive structure changes because of
IT to include the software accounting firms offer and the technical
support they can provide.
Example: When IT enabled people to stream and watch movies at home
(usually through Netflix), it eliminated the need to patronize the local
video rental store.
The final way that IT investment value is realized through benefits to the
end customer
IT helps make processes more efficient and changes the
nature of competition. With increased competition, the reduction of costs
associated with new processes is often passed on to the final consumer.
The consumer may, therefore, see cheaper and better goods and services
as a result of IT
Innovation
Rogers’ five characteristics: relative advantage, compatibility, complexity,
trialability, and observability.
Business Technology Management (BTM)
A category of skills focused on the ability to effectively innovate using
information technology in organizations.
Skills Framework for the Information Age (SFIA)
A set of skills thought to be useful for those employees focused on
developing and maintaining information technology.
Efficiency
A measure of productiveness also refers to accomplishing a business
process either more quickly with the same resources or as quickly with
fewer resources.
Doing things
right
often means using just the right amount of resources, facilities, and
information to complete the job satisfactorily.
Effectivness
Doing the right things.
Increased
effectiveness means that the company considers offering either new or
improved goods or services that the customer values
Sometimes, “doing the right things” and “doing things right” can be in
conflict.
The organization might be doing things right, but it is not doing the right
things.
Value chain
A network of value-creating activities.
a network of activities that improve the effectiveness (or
value) of a good or service. A value chain is, therefore, made up of at least
one and often many business processes.
Value chains have directions either
1) upstream
2) Downstream
Example of backward integration / upstream
Organizations
that expand into activities related to the basic raw materials of a process—
such as a tire company that decides to manufacture its own rubber or a
coffee store that decides to grow its own coffee
Example of forward integration, or
moving downstream in the value chain.
Those that move closer to end customers—for example, a mining
company that begins to cut and finish its own diamonds rather than sell
raw stones wholesale
Margin
The difference between the price the customer is willing to pay
and the cost the company incurs in moving the good (or service) through
the value chain
Raw diamonds, for example,
are sold at a much lower margin than finished diamonds.
Two types of activities that support value chains
1) Primary activities
2) Support activities
1) Primary activities
activities in which value is
added directly to the product. In our example above, shipping raw
materials, designing the tires, manufacturing the tires, shipping the
finished tires, and installing the tires are all primary activities. Each of
these primary activities adds value for the customer.
2) Support activities
Support activities add value only indirectly. For example, nobody buys a
tire because a company has a great payroll system.
But a company could
not run a factory without the ability to pay its workers.
An organization’s strategy reflects its
goals and objectives
company’s
strategy is influenced by
the competitive structure of the company’s
industry.
a company’s information systems strategy
should support, or be aligned with
the overall company strategy
Organizational strategy begins with
an assessment of the fundamental
characteristics and structure of an industry
Fives forces model
A model proposed by Michael Porter that assesses industry characteristics and profitability by means of five competitive forces—bargaining power of suppliers, threat of substitutions, bargaining power of customers, rivalry among firms, and threat of new entrants.
The intensity of each of the five forces determines:
1) the characteristics of the industry,
2) how profitable the industry is,
3) and how sustainable profitability will be.
Competitive strategy
The strategy an organization chooses as the way it will succeed in its
industry. According to Michael Porter, there are four fundamental competitive strategies:
1) cost leadership across an industry
2) or within a particular industry segment,
3) and product differentiation across an industry
4) or within a particular industry segment.
Two general types of technological innovations
1) Sustaining technologies
2) Disruptive technologies
1) Sustaining technologies
changes in technology that maintain the
rate of improvement in customer value. For example, the vulcanization of
rubber allowed tire manufacturers to produce tires that facilitated faster
and more comfortable rides. This innovation improved the experience of
driving a car and helped sustain the original innovation.
2) Disruptive technologies
introduce a very new package of
attributes to accepted mainstream products. In the music industry, for
example, the advent of the MP3 file format was a disruptive technology
because it offered the ability to store and play music through digital
devices.
Diffusion of innovation
The process by which an innovation is communicated through certain
channels over time among the members of a social system.
Rogers identified five stages through which
the diffusion of an innovation occurs
(1) knowledge,
(2) persuasion,
(3) decision,
(4) implementation, and
(5) confirmation
(1) knowledge,
occurs
when you first hear about an innovation but lack specific information
about it. For example, you may have heard about a particular phone
application such as Slack, but you may not know much about it.
(2) persuasion,
when you become interested in the innovation and
find out more about it.
(3) decision,
Once you have collected enough information
Here, you consider the pros and cons of
adopting the innovation, and make a decision to adopt or reject it.
(4) implementation
If you decide to pursue the innovation
you use the innovation and figure out whether to
continue using it or look for an even better way
(5) confirmation
If you are happy, then
you reach the peaceful state of confirmation, where you use the innovation to its full potential.
Organizations gain a competitive advantage by
1) creating new products or services,
2) by enhancing existing products or services,
3) and by differentiating their products and services from those of their competitors.
Switching costs
The process of locking in customers by making it difficult or expensive for
them to switch to another product
Another way to gain competitive advantage is to establish alliances with
other organizations
Such alliances create standards, promote product
awareness and needs, develop market size, reduce purchasing costs, and
provide other benefits
Sustained competitive advantage
The development of people and procedures that are well supported by the underlying technology.
Companies with sustainable competitive advantage work to integrate many activities:
marketing, customer service, product design,
and product delivery
