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Management Information Systems, 13TH ED.
MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon
Learning Track 1: The Changing Business Environment of
Information Technology
A combination of information technology innovations and a changing domestic and global busi-
ness environment makes the role of IT in business even more important for managers than just a
few years ago. e Internet revolution is not something that happened and then burst, but instead
has turned out to be an ongoing, powerful source of new technologies with significant business
implications for much of this century.
ere are five factors to consider when assessing the growing impact of IT in business firms both
today and over the next ten years.
◆ Internet growth and emergence of the mobile platform
The Internet, Mobile Platform, and Technology
Convergence
One of the most frequently asked questions by Wall Street investors, journalists, and business
entrepreneurs is, “What’s the next big thing?” As it turns out, the next big thing is in front of us:
Chapter 3: Information Systems, Organizations, and Strategy
Chapter 3 Learning Track 1 2
$1.6 trillion communications industry (traditional and wireless telephone networks), and the $900
billion content industry (from Hollywood movies, to music, text, and research industries).
TABLE 1-1 The Changing Contemporary Business Environment
INTERNET GROWTH AND TECHNOLOGY CONVERGENCE
New business technologies with favorable costs
TRANSFORMATION OF THE BUSINESS ENTERPRISE
Flattening
Decentralization
Flexibility
Location independence
Low transaction and coordination costs
Empowerment
Collaborative work and teamwork
GLOBALIZATION
Management and control in a global marketplace
Competition in world markets
Global workgroups
Global delivery systems
RISE OF THE INFORMATION ECONOMY
Knowledge- and information-based economies
EMERGENCE OF THE DIGITAL FIRM
Digitally enabled relationships with customers, suppliers, and employees
Core business processes accomplished using digital networks
Digital management of key corporate assets
Agile sensing and responding to environmental changes
Chapter 3 Learning Track 1 3
continued
Although each industry has its favored platform, the outlines of the future are clear: a world of near
universal, online, on-demand, and personalized information services from text messaging on cell
phones, to games, education, and entertainment.
Traditional markets and distribution channels are weakening and new markets are being created.
For instance, the markets for music CDs and video DVDs and the music and video store industries
are undergoing rapid change. New markets for online streaming media and for music and video
downloads have materialized. DVD movie sales, and CD music sales, have plunged by 50% since
their heyday in 2005.
Today, networking and the Internet are nearly synonymous with doing business. Firms’ relation-
ships with customers, employees, suppliers, and logistic partners are becoming digital relation-
ships. As a supplier, you cannot do business with Wal-Mart, or Sears, or most national retailers
unless you adopt their well-defined digital technologies. As a consumer, you will increasingly inter-
So much business is now enabled by or based upon digital networks that we use the terms elec-
tronic business and electronic commerce frequently throughout this text. Electronic business,
or e-business, designates the use of Internet and digital technology to execute all of the activities
in the enterprise. E-business includes activities for the internal management of the firm and for
Chapter 3 Learning Track 1 4
continued
Internet has become a powerful tool for instantly mobilizing interest groups for political action and
fund-raising.
Transformation of the Business Enterprise
Along with rapid changes in markets and competitive advantage are changes in the firms them-
selves. e Internet and the new markets are changing the cost and revenue structure of traditional
firms and are hastening the demise of traditional business models.
At the Orbitz Web site, visitors can
make online reservations for airlines,
e Internet and related technologies make it possible to conduct business across firm boundar-
ies almost as eciently and effectively as it is to conduct business within the firm. is means that
Chapter 3 Learning Track 1 5
continued
Corporation, its main customer. Sentinel responds automatically to Boeing’s need for parts by
increasing, decreasing, or shutting down GKN’s systems according to parts usage (Mayor, 2004).
In addition to these changes, there has also been a transformation in the management of the
enterprise. e traditional business firm was—and still is—a hierarchical, centralized, structured
arrangement of specialists who typically relied on a fixed set of standard operating procedures to
Globalization
A growing percentage of the American economy—and other advanced industrial economies in
Europe and Asia—depends on imports and exports. Foreign trade, both exports and imports,
accounts for more than 25 percent of the goods and services produced in the United States, and
even more in countries such as Japan and Germany. Companies are also distributing core business
Chapter 3 Learning Track 1 6
continued
Rise of the Information Economy
e United States, Japan, Germany, and other major industrial powers are being transformed from
industrial economies to knowledge- and information-based service economies, whereas manufac-
turing has been moving to lower-wage countries. In a knowledge- and information-based economy,
knowledge and information are key ingredients in creating wealth.
FIGURE 1-1 The Growth of the Information Economy.
Since the beginning of the twentieth century, the United States has experienced a steady decline in the
In knowledge- and information-based economies, the market value of many firms is based largely
Chapter 3 Learning Track 1 7
continued
Knowledge and information provide the foundation for valuable new products and services, such as
credit cards, overnight package delivery, or worldwide reservation systems. Knowledge- and infor-
Emergence of the Digital Firm
All of the changes we have just described, coupled with equally significant organizational redesign,
have created the conditions for a fully digital firm. e digital firm can be defined along several
Business processes refer to the set of logically related tasks and behaviors that organizations
develop over time to produce specific business results and the unique manner in which these activ-
ities are organized and coordinated. Developing a new product, generating and fulfilling an order,
ways organizations accomplish their business processes can be a source of competitive strength.
Key corporate assets—intellectual property, core competencies, and financial and human assets—
are managed through digital means. In a digital firm, any piece of information required to support
key business decisions is available at any time and anywhere in the firm.
Digital firms sense and respond to their environments far more rapidly than traditional firms,
giving them more exibility to survive in turbulent times. Digital firms offer extraordinary
Figure 1-2 illustrates a digital firm making intensive use of Internet and digital tech nology for
electronic business. Information can ow seamlessly among different parts of the company and
Chapter 3 Learning Track 1 8
FIGURE 1-2 Electronic Business and Electronic Commerce in the Emerging Digital Firm.
A few firms, such as Cisco Systems or Dell Computers, are close to becoming fully digi tal firms,
using the Internet to drive every aspect of their business. In most other companies, a fully digital
