Introduction Changing Environment Network Effects Information Economics Information

Introduction Changing Environment Network Effects Information Economics Information Systems for Managers Implications 1/43

Introduction Changing Environment Network Effects Information Economics Implications 2/43 1. How to categorize systems according to the hierarchical, functional, and process perspectives. You will also learn the rationale for each perspective and its limitations. 2. The definition, underlying principles, and applications of business process reengineering (BPR), as well as the advantages and disadvantages of BPR. 3. The definition of integration and its role in the modern firm. We will explore the pressures toward integration and the challenges integration creates. We will also discuss business and systems integration trends and the relationship between the two. 4. The genesis of the enterprise systems (ES) trend and why so many companies are employing or introducing them. You will also learn to articulate the principal benefits and risks associated with these systems. 5. The definition of the term supply chain management and how to explain the role that supply chain management applications play in modern organizations. 6. The definition of the term best of breed and how to describe the benefits and drawbacks of this approach to systems integration. You will also learn to draw comparisons between the best-of-breed and enterprise systems approaches. 7. How to describe what is meant by knowledge management, how to categorize the different types of knowledge commonly found in organizations, and how to explain why organizations feel the need to employ knowledge management applications. 8. The definition of the terms business intelligence (BI) and BI infrastructure. You will also learn how to identify and describe the role of the technologies that comprise a modern BI infrastructure. 9. The definition of the term customer relationship management (CRM) and how to articulate both its benefits and limitations. You will also learn how the CRM and BI trends relate to one another.

Introduction Changing Environment Network Effects Information Economics Implications A « textbook » for better learning Ch. 1 : Information Systems and the Role of General and Functionnal Managers Ch. 2 : Information Systems Defined Ch. 3 : Organizational Information Systems and Their Impact Ch. 4 : The Changing Competitive Environment Ch. 5 : Electronic Commerce: New Ways of Doing Business Ch. 6 : Strategic Information Systems Planning Ch. 7 : Value Creation & Strategic Information Systems Ch. 8 : Value Creation with Information Systems Ch. 9 : Appropriating IT-Enabled value Over Time Ch. 10 : Funding & Governance of Information Systems Ch. 11 : Creating Information Systems Ch. 12 : Information Systems Trends Ch. 13 : Security, Privacy & Ethics 3/43

Introduction Changing Environment environment Network Effects Technology Adoption Information Economics Implications 4/43

Introduction Changing Environment environment Network Effects Information Economics Implications Amazon vs Ebay! Well, that’s interesting 5/43

Introduction Changing Environment environment Network Effects Information Economics Implications 6/43 Amazon vs Ebay ! http: //finance. yahoo. com/q/is? s=AMZN+Income+Statement&annual http: //finance. yahoo. com/q/is? s=EBAY+Income+Statement&annual

Introduction Changing Environment environment Network Effects Information Economics Implications 7/43 Amazon vs Ebay ! http: //finance. yahoo. com/q/is? s=AMZN+Income+Statement&annual http: //finance. yahoo. com/q/is? s=EBAY+Income+Statement&annual

Introduction Changing Environment environment Once upon a time. . Network Effects Information Economics Implications 8/43

Introduction Changing Environment Network Effects Information Economics Implications Know the Power ! I also think that a fundamental understanding of network effects is very important. . Network effects are a fundamental characteristic of certain technology businesses. When network effects are possible, it is the most important thing in the world to follow, to understand, and to make happen. Scott Cook 9/43

Introduction Changing Environment Network Effects Information Economics Value in the netwok Implications 10/43

Introduction Network Effects Changing Environment Information Economics Implications Stronger gets stronger: the positive feedback i p p i T t n i o ng p 11/43

Introduction Changing Environment Network Effects Information Economics Implications Tipping Point vs. . Tippy Market • Tippy Market: Market that is subject to strong positive feedback, such that the market will “tip” in favor of the firm that is able to reach critical mass and dominate it • Tipping Point: The moment in the evolution of a market where one organization or technology reaches critical mass 12/43

Introduction Changing Environment Network Effects Information Economics Implications Stronger gets stronger: the positive feedback 13/43

Introduction Changing Environment Network Effects Information Economics Implications Negative Feedback • The opposite of positive feedback – The stronger gets weaker – The weaker gets stronger • Past a certain size, the dominant firm encounters difficulties, such as coordination costs and increasing overhead, that limit further growth. 14/43

Introduction Changing Environment Network Effects Information Economics Implications Network Effect = 15/43

Introduction Changing Environment Do all markets tip? Network Effects Information Economics Implications 16/43

Introduction Changing Environment Network Effects Do all markets tip? Information Economics Implications 17/43

Introduction Changing Environment Do all markets tip? Network Effects Information Economics Implications 18/43

Introduction Changing Environment Network Effects Do all markets tip? Information Economics Implications 19/43

Introduction Changing Environment Network Effects Types of Networks • Physical networks • Telephone network • Railroad network • Virtual network • i. Tunes network • Skype network • e. Bay network Information Economics © Gabriele Piccoli Implications 20/43

Introduction Changing Environment Network Effects Information Economics 21/43 Implications Recognizing Tippy Markets Network Effects Low High Low Unlikely High Low Depends Demand for variety

Introduction Changing Environment Network Effects Information Economics Implications Know the Power ! If I were running Apple, I would milk the Macintosh for all it’s worth — and get busy on the next great thing. The PC wars are over. Done. Microsoft won a long time ago. Steve Jobs, 1996 22/43

Introduction Changing Environment Network Effects Information Economics Implications Two sided networks • Networks that have two types of members – Users of content and suppliers of content (i. e. , Adobe PDF format) – Buyers and suppliers of goods (i. e. , Online electronic marketplaces) • The value of the network to one type of member depends on the number of members from the other side that take part in the network 23/43

Introduction Changing Environment Network Effects Two sided networks Information Economics Implications 24/43

Introduction Changing Environment Network Effects Information Economics Implications of Network Economics • Network effects occur in the presence of technology standards, virtual networks and communities of interest • It is critical to be an innovator in the market of digital products delivered over the Internet • Customers will pick a network, not a product or a service provider • Sponsoring a dominant network provides competitive advantage • The steeper the costs associated with being a member of competing networks, the more valuable it is to be able to control and retain ownership of the network 25/43

Introduction Changing Environment Network Effects Information Economics Implications The Economics of Information The information you can derive from ecommerce is as interesting as the commerce itself. Andy Cohen 26/43

Introduction Changing Environment Network Effects Information Economics 27/43 Implications Data and Information INFORMATION March 2014 Revenues DATA 13 245 03 2014 13 245 €

Introduction Changing Environment Network Effects Classic Information Goods Information Economics Implications 28/43

Introduction Changing Environment Network Effects Information Economics Economic Characteristics • High production costs • Negligible replication costs • Negligible distribution costs – Information is not the carrier • Sunk costs – Significant risk in producing information goods • No natural capacity limits • Not consumed by use • Experience good Implications 29/43

Introduction Changing Environment Network Effects Information Economics Implications of Information Goods • Information is customizable • Information is reusable • Information is often time-valued • Information goods can produce significant gross profit margins 30/43

Introduction Changing Environment Network Effects Information Economics Implications Information –Intensive Goods every business is an information business. Philip Evans Tom Wurtser http: //hbr. org/1997/09/strategy-and-the-new-economics-of-information/ar/1 31/43

Introduction Changing Environment Network Effects Information Economics Implications Information in Networks • Physical carriers of information goods often prevent information goods from behaving like information goods 32/43

Introduction Changing Environment Network Effects Information Economics 33/43 Implications The Richness and Reach Trade-Off – The amount of information that can be transmitted – The degree to which the information can be tailored to individual needs – The level of interactivity of the message Richness • Richness: • Reach – the number of possible recipients of the message Reach

Introduction Changing Environment Network Effects Information Economics Implications Richness The Richness and Reach Trade-Off Reach 34/43

Introduction Changing Environment Car Configurator Network Effects Information Economics Implications 35/43

Introduction Booking. com Changing Environment Network Effects Information Economics Implications 36/43

Introduction Changing Environment Network Effects Information Economics Implications = Implications 37/43

Introduction Changing Environment Network Effects Information Economics Implications Obstacles • Old technology leave the scene only when new ones have fully replaced the relevant features. • New entrants using new technologies face retaliation from incumbents. • New technologies entail costs: – Learning obstacles – Switching costs – Inertia slows the stopping and dismissal of old routine • A proliferation of information leads to a scarcity of attention • Scarcity of attention leads to slow adoption rates for all but the most revolutionary innovations. 38/43

Introduction Changing Environment Network Effects Information Economics Implications Retaliations • Legal means – Music industry vs. digital music • Legislative means – Car dealership networks vs. direct sales by car manufacturers. • Hybrid offers – Retailers (physical stores) vs. retailers (online operations) • Heightened competition, – Traditional telecommunications vs. Voice over IP 39/43

Introduction Changing Environment Network Effects Information Economics Implications Sustaining tech. , the “S curve” Performance Sustaining S Curve Original S Curve Market performance improvment expectation Time 40/43

Introduction Changing Environment Network Effects Information Economics Implications Performance Disruptive tech. , a bug in the Matrix Expected market performance improvement Performance improvement due to disruptive tech. Time 41/43

Introduction Changing Environment Network Effects Information Economics 42/43 Implications : prediction, anticipation, curiosity Forecast change Performance Which new functionalities? Current trend Temps

Introduction Changing Environment Network Effects What we Information Economics learned! Implications Comprehend the basic principles of network economics, including the sources of value in networks, and the definitions of physical and virtual networks. You will also learn to apply these concepts to strategy and managerial decision making. Understand the concepts and vocabulary of network economics, including positive feedback, network externalities, and tippy markets. Be able to recognize when network effects occur and what makes a market tip, as well as what market will not tip toward a dominant player. Comprehend the basic principles of information economics and the role that information plays in the modern competitive environment. Understand the concepts and vocabulary of information economics, including the ability to define classic information goods and information-intensive goods. Be able to explain how the advent of pervasive networks has enabled information to break the constraints imposed by traditional information carriers. You will also be able to explain what the richness/reach trade-off is and its implications for modern organizations. 43/43