Lesson 3: Productivity, Innovation, and Strategy

Question 1

productivity paradox

Answer 1

The lack of evidence of an increase in worker productivity associated with the massive increase in investment in information technology.

Question 2

productivity

Answer 2

the creation of business value

Question 3

business value

Answer 3

tangible benefits for organizations through either more efficient use of resources or more effective delivery of their services to customers

Question 4

What are ways to realize the investment value of IT?

Answer 4

• productivity: create more and better output from the same inputs and create them faster
• structure of competition: if one firm invests in IT then the others that offer a similar service will also follow and invest in IT as well and the investment in IT will change the service that is offered to the customer even if just very slightly; thus a firm that was struggling may now outcompete another firm
• benefits to the end customer: more efficient processes and reduction of costs is passed on to the consumer

Question 5

innovation according to Roger

Answer 5

• relative advantage
• compatibility
• complexity
• trialability
• observability

Question 6

BTM

Answer 6

Business Technology Management

A category of skills focused on the ability to effectively innovate using information technology in organizations.

Question 7

SFIA

Answer 7

Skills Framework for the Information Age

A set of skills thought to be useful for those employees focused on developing and maintaining information technology

Question 8

What kinds programs at universities are being developed or have been recently developed for BTM?

Answer 8

• business and technical training
• financial accounting
• system analysis and design
• project management
  -IT infrastructure
• marketing
• international business management
• writing and business communication
• organizational behaviour
• teamwork skills

Question 9

efficiency

Answer 9

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/properly: using just the right amount of resources, facilities, and information to complete the job satisfactorily

Question 10

effectiveness

Answer 10

doing the right things

• often requires companies to consider changing their business processes to deliver something new and improved
• most organizations must be efficient and effective

Question 11

Peter Drucker

Answer 11

• famous management theorist
• “It is fundamentally the confusion between effectiveness and efficiency that stands between doing the right things and doing things right. There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”

Question 12

value chain

Answer 12

• a network of value-creating activities (they improve the effectiveness of a good or a service)
• made up of at least one business process
• E.g. changing a piece of rubber into a tire to increase the value of the rubber, and further shipping it close to customers increases the value further
• value chains have directions: upstream and downstream

Question 13

What does it mean to move downstream in the chain value?

Answer 13

doing processes as a company that come last rather than being someone to work with a raw product

• forward integration

e.g.: a mining company decides to cut and finish its own diamonds rather than sell raw stones wholesale

Question 14

What does it mean to move upstream in the chain value?

Answer 14

• backward integration

A company such as a coffee shop growing their own coffee instead of buying the beans

Question 15

margin

Answer 15

the difference between value and cost

A higher margin means that more value was added in the value chain

Marginal benefit means higher value at lower cost. Increase in total benefit divided by the increase in consumption.

Question 16

primary activities

Answer 16

activities in which value is added directly to the product

The fundamental activities that create value:
- inbound logistics (receiving and storing inventory)
- operations (using inputs to create or generate the final product)
- outbound logistics (retrieving and distributing the product or service to the customers)
- marketing/sales (convincing the customer and enabling purchase of the good or service)
- service (supporting the customers’ use of the product or service)

Michael Porter is the person who talks about primary and secondary activities and formalized the definitions

Question 17

support activities

Answer 17

The activities that contribute indirectly to value creation:
-procurement
- technology
- human resources
- firm’s infrastructure

Question 18

Five forces model

Answer 18

• proposed by Michael Porter
• assesses industry characteristics and profitability by means of five competitive forces:
  1. bargaining power of supliers
  2. threat of substitutions
  3. bargaining power of customers
  4. rivalry among firms
  5. threat of new entrants
• the intensity of these forces determines the characteristics of the industry, how profitable the industry is, and how sustainable profitability will be

Question 19

competitive strategy

Answer 19

the strategy an organization chooses as the way it will succeed in its industry.

Michael Porter says there are 4 fundamental competitive strategies:
1+2: cost leadership across an industry or within an industry
3+4: product differentiation across an industry or within a particular industry

(cost or differentiation, industry wide or focus)

Question 20

sustaining technologies

Answer 20

Changes in technology that maintain the rate of improvement in customer value.

E.g. discovering how to vulcanize rubber allowed the experience of car driving to be improved which helped sustain the original innovation of a tire. These tires allowed faster and more comfortable rides.

Other examples:
- improved size and speed of electronic memory help us store and retrieve data more quickly
- faster processors allow us to not waste time

Bower and Christensen described two types of technological innovations. This is one of them.

Question 21

disruptive technologies

Answer 21

A product that introduces a very new package of attributes from the accepted mainstream products.

e.g. MP3 file format had people moving from listening to CDs and tapes (using Sony Walkmans) to downloading MP3s and listening to them through Apple iPods. Further, we are now moving to streaming such as Spotify or Pandora. Notice how the companies are affected by the innovations.

Other examples:
- RBC first offered a national automated banking machine (ABM) network in Canada in 1980 and other banks had to follow suit to keep up (other banks found ways of having you upload pictures of cheques to deposit cheques)
- Research in Motion (RIM) invention called Blackberry in 1999 (other companies found ways to keep up like the Apple iPhone)
One of the two general types of innovation as described by Bower and Christensen.

Question 22

When was the first electronic computer made?

Answer 22

1939

Question 23

When was the first personal computer made?

Answer 23

1980

Question 24

When was the commercialization of the Internet?

Answer 24

Early 1990s

Question 25

diffusion of innovation

Answer 25

The process by which an innovation is communicated through certain channels over time among the members of a social system. - Definition from Everett Rogers

Question 26

Rogers Five Stages through which diffusion of an innovation occurs

Answer 26

1. knowledge (when you first hear about an innovation but lack info)
2. persuasion (becoming interested in the innovation)
3. decision (considering pros and cons and deciding whether to adopt or reject the innovation)
4. implementation (use it and decide if this is what you want or if there is a better way)
5. confirmation (use it to the full potential)

Some of these steps can be dropped at any point, these are simply the options.

Question 27

Principles of competitive advantage: product or service implementation

(these are ways that organizations respond to the five competitive forces from the five forces model)

Answer 27

1. create a new product or service
2. enhance the product or service
3. differentiate the product or service

Question 28

Principles of competitive advantage: system implementations

(these are ways that organizations respond to the five competitive forces from the five forces model)

Answer 28

4. lock in customers and buyers
5. lock in suppliers
6. raise barriers to market entry
7. establish alliances
8. reduce costs

Question 29

switching costs

Answer 29

the process of locking in customers by making it difficult or expensive for them to switch to another product

organizations can also lock in suppliers by making it difficult to switch to another organization

Question 30

What is a positive way to gain competitive advantage?

Answer 30

establish alliances with other organizations in order to:

• create standards
• promote product awareness and needs
• develop market size
• reduce purchasing costs

(other benefits may also exist, they are just not listed here)

Question 31

The more ubiquitous (existing everywhere) IT becomes, the less __________

Answer 31

the less competitive advantage IT provides

Nicholas Carr: evolution of IT follows patterns like other earlier disruptive technologies like railway and electricity; competitve advantage only exists for a little while and is not sustained

Question 32

What kind of innovation has sustainable competitive advantage?

Answer 32

Information systems (not information technology)

Long-term competitive advantage lies not with the technology but in how a company and its people adopt the technology. We must have an effective integration of people, procedures, and technology in order to experience long-term advantages.

Question 33

sustained competitive advantage

Answer 33

the development of people and procedures that are well supported by the underlying technology

companies must find a distinctive way to compete that can adapt over time