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The .

com [dot com] Bubble


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Intel Stock Price

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Bubbles in the past


Tulip Bubble 1637 South Sea Bubble 1720 Railway Bubble 1840s dot Com Bubble ~ 2000 U.S. Housing Bubble 2008

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Nortel 10 years

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Intel 10 years

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CISCO 10 years

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Qualcomm 10 years

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JDS Uniphase 10 years

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Sun 10 years

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The South Sea Bubble (1720)

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By the way
I can calculate the motion of heavenly bodies, but not the madness of people.
Isaac Newton after he lost 20,000 in the South Sea Bubble

IBM 10 years

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Microsoft 10 years

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What the bubble means


Capital is easy to get (too easy) A market for new issues (equity financing)
Large number of IPOs (1999 457)

Stock prices increase PE ratio increases dramatically Prices return to normal suddenly
(2001 76 IPOs)
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The Bubble
Lasted from the IPO for Netscape (Aug. 1995) Until after Y2K (year 2000)
Say, mid 1998 until mid 2000, about 24 months Nasdaq DOW S&P 500
All hit highs they have not reached since
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Consequences of the Bubble for IT


Many internet firms (.coms) disappeared, but
Innovation didnt slow down Capital investment continued But entrepreneurship did drop
Venture capital was more difficult to get
Investment in technology became subject to more scrutiny

Outsourcing became more popular thought to


require less capital to keep up with technology
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Consequences of the Bubble for IT


Some companies
ENRON WorldCom Adelphi

Went too far trying to exploit the bubble


Executives are serving time

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Look out for


When you are doing research:
Reading books, magazines, cases, other references Always note whether or not it was written before, during, or after the bubble Before usually optimistic After more realistic (not necessarily more accurate)
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Paradigm Shifts and Bubbles

Bubble more likely here

Paradigm Shifts
technology discontinuity customer need
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time

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Nortel (2000) vs. The South Sea Bubble (1720)

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Guess

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Same company - later

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Remember
What is a Bubble? The Dot. Com bubble
Its consequences

Recent adjustments

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Nortel bankrupt Sun Microsystems bought by Oracle EDS bought by HP Google Android, Chrome new software player?? RIM ??? HP ???
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Remember
IPO (Initial Public Offering) Venture capital PE Ratio

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End

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Big Iron, Hardware, Moores Law

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The Five IT costs or components

Where is the network?

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In the Beginning
Computers to 1945
Analog vs. digital .. Digital won

Computers 1945-1964
IAS, Urbana and the Illiac Tubes to transistors

Computers 1965-1982
Dominance of IBM Big Iron
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More Recently
1982 to 1995
LSI - Large Scale Integration chips
Made things smaller - microscopic

The Internet e-mail, file transfer Application Providers services

1996 to Present

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The Web, search engines Outsourcing Applications over the Internet (cloud computing) Social computing, cell phones, etc.
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Also
Transition of the dominant player

IBM Microsoft Google Room Desktop Mobile


Centralized Distributed Ubiquitous
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IBM 7094

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S/360 40

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S/360 50

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A note about Mainframes Big Iron


Often called Legacy Systems
Still important in some applications
Banks Insurance companies Credit card processing Governments

Moving from legacy systems to modern systems is expensive and difficult


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A system
Feedback!

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A Computer System

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Simpler version of a System

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Memory, storage, bytes


CPUs only process data expressed as a series of 0s and 1s bits Digital computer systems use bits
Analog computer systems use continuous signals (usually voltages)

8 bits 1 byte

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Bytes
It turns out A byte is pretty small need to consider many of them

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Kilo (1000s) Mega (millions) 1 MB 1 million bytes Giga (billions) 1GB 1 billion bytes Tera (trillions)
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Bytes

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ASCII Codes (Being replaced by Unicode)

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Bytes
A single byte may represent an ASCII character E.g., an A a 1 a $ ASCII is a standard set of 256 codes used to represent numbers letters and a few other characters Unicode is a newer standard using 2 bytes important for multilingual data - 65,000 codes

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Bytes
One typewritten page is two KB (double spaced) If, each character (and space) is represented by an ASCII code, each takes one byte, 8 bits 500 pages are (about) one MB 500,000 pages are about one GB
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Note
B capital B means bytes b small b, means bits
KB a kilobyte, 1000 bytes 8000 bits

Kb a kilobit, 1000 bits 125 bytes


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End

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Moores Law
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Some Players in Information Technology


Economists: David Hume Alfred Marshal
Ronald Coase Brian Arthur John Nash Charles Vickery

Entrepreneurs: Bill Gates Andy Grove



Michael Dell (Amazon) (E-Bay) (Google)


Don Tapscott George Gilder Charles Handy Chris Anderson
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Scientists: Claude Shannon Paul Baran Gordon Moore Bob Metcalf Herb Grosch Eric Schmidt

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The Players who have Laws named after them



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Herbert (Herb) Grosch Gordon Moore Robert (Bob) Metcalf Paul Baran Claude Shannon Ronald H. Coase Eric Schmidt
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A few people have made a lot of money from information technology Who has given away the most??

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The CPU and microprocessors


Industry built on Moores Law Dominant manufacturer INTEL
Others: IBM, AMD, Motorola. Texas Instruments Microprocessors are everything (e.g., cell phones, MP3 players, video cards, routers) CPUs are microprocessors in computers
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Moores Law
Gordon Moore predicted in 1965 that the:
price/performance of microprocessors will double every 18 months

What works now for $10


will cost $5 in 18 months $2.50 in 36 months $1.25 in 54 months

In 10 years it will cost 8 cents!


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Moores Law
Firms, companies, industries that recognized Moores law have prospered.
Those that ignored it have disappeared!!
A few, that try to provide a distinctive product at a premium price (Apple) have survived

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For example, Intel (INTC) (prospered)


Designed a CPU architecture or family for PCs
e.g., Apple and SUN are other architectures

The Intel family 8088, 80286, 80386, 80486, Pentium, Pentium II, Pentium III, Pentium IV, etc. (Core Duo, Quad) Appear 18 to 24 months apart. A very deliberate, successful, design and marketing strategy. Intel manages innovation
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Intel Processors

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Intel Stock Price

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Suppose. . .
Your business was manufacturing and marketing a product (or service) that decreased in cost by half every 18 months:
How could you possibly stay in business?
- suppose you were selling hamburgers?
E.g., PC manufacturers Long distance telephone providers (service) Disk drive manufacturers

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Suppose. . .
Your business was buying a component that was decreasing in cost this way
How would you price your product? How would you keep your margins? How could you leverage this price change to:
increase your market? develop new uses (innovation)?

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Suppose. . .
Your business was buying equipment or a service that was decreasing in cost this way
How can you exploit this to lower your costs and increase your profits? What do you have to do to say competitive?

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Some Strategies
Industries go through commoditization
Innovative products that commanded high prices at the beginning eventually become commodities Need to change strategies move to
Low cost, high volume create a demand

Move to standards Consolidate (merge) with competitors


Form alliances to keep costs down
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Examples
What have you bought
When it was new, innovative That is now a lot less expensive, a lot more common?

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Some Strategies
for Competitive Advantage

1. Low (production, operating) cost (within your


industry) (not necessarily low prices)

2. 3. 4. 5. 6.
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Differentiate (from your competitors) (better service) Focus (niche market, be best in a smaller market) Innovation (new features) Growth (increase market share) Alliances (concentrate on your core)
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Examples
Moores Law works for:
PCs Storage Cell Phone devices Printers Screens, monitors Long distance telephone service

Does Moores law work for?



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IPhone IPod Cell phone services Software, consulting services


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Other ICT devices


(Information, Communication Technologies)

Moores Law applies to:


Disk drives Printers Telecommunication devices Other accessories

Because they are based on microprocessors and the manufacturing technology that has spun off from them
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But
Moores Law doesnt seem to apply to software products
Why? What might change this? Moores law doesnt seem apply to services
consultants, integrators, web designers, etc.

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Top Philanthropists
9. Michael and Susan Dell $993 million 2. Bill and Melinda Gates (Foundation) $5,458 million 1. Gordon and Betty Moore (Foundation) $7,046
million

Source: Business Week, November 28, 2005 (from 2001 to 2005)

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Remember
What Moores Law says: prices drop by half every 18 months (or performance doubles) In stories, cases, and examples ask:
Does Moores Law affect the business?
If so, how (e.g., strategy, profits, competition)? Where? ( e.g., Operations, products)

What does the firm use that Moores Law doesnt apply to?
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An Example
Here is an early computer
What might it be used for? Why was it never popular? Why are Honeywell, Xerox, General Electric, Ford, RCA -- no longer in the computer business?
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End

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Hardware

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The Five IT costs or components p.6

Where is the network?

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In the Beginning
Computers to 1945
Analog vs. digital .. Digital won

Computers 1945-1964
IAS, Urbana and the Illiac Tubes to transistors

Computers 1965-1982
Dominance of IBM Big Iron
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More Recently
1982 to 1995
LSI - Large Scale Integration chips The Internet e-mail, file transfer Application Providers

1996 to Present

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The Web, search engines Outsourcing Applications over the Internet (cloud computing) Social computing, cell phones, etc.
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Also
Transition of the dominant player

IBM Microsoft Google Room Desktop Mobile


Centralized Distributed Ubiquitous
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IBM 7094

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S/360 40

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S/360 50

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A note about Mainframes Big Iron


Often called Legacy Systems
Still important in some applications
Banks Insurance companies Credit card processing Governments

Moving from legacy systems to modern systems is expensive and difficult


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A system
Feedback!

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A Computer System p. 91

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Simpler version p. 89

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Memory, storage, bytes


CPUs only process data expressed as a series of 0s and 1s bits Digital computer systems use bits
Analog computer systems use continuous signals (usually voltages)

8 bits 1 byte

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Bytes
It turns out A byte is pretty small need to consider many of them

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Kilo (1000s) Mega (millions) 1 MB 1 million bytes Giga (billions) 1GB 1 billion bytes Tera (trillions)
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Bytes

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ASCII Codes (Being replaced by Unicode)

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Bytes
A single byte may represent an ASCII character E.g., an A a 1 a $ ASCII is a standard set of 256 codes used to represent numbers letters and a few other characters Unicode is a newer standard using 2 bytes important for multilingual data
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Bytes
One typewritten page is two KB (double spaced) If, each character (and space) is represented by an ASCII code, each takes one byte, 8 bits 500 pages are (about) one MB 500,000 pages are about one GB
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Note
B capital B means bytes b small b, means bits
KB a kilobyte, 1000 bytes 8000 bits

Kb a kilobit, 1000 bits 125 bytes


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Memory
RAM (random access memory) (primary storage)
often 4 gigabytes 4 billion bytes Very fast

Magnetic and optical storage devices (disk drives, DVDs)


Often 320 and more gigabytes Slower, relatively inexpensive

Flash memory - SD cards (4, 8, 32, gigabytes) slower but cheap cameras, sticks, etc. portable devices
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About Time
It turns out, a second is a long time
Need to talk about fractions of seconds Millisecond 1 thousandth Microsecond 1 millionth Nanosecond 1 billionth Light travels about 30 cm in 1 nanosecond

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Rates
Together, size and time measure rates
E.g., Megabytes per second MB/sec

Also as frequencies times per second


E.g., 3 MegaHertz 3 million times per second

Other terms:
Baud bit per second Bandwidth number of bits per second (through a given channel), e.g., from the Internet to your computer
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CPUs perform operations in clock cycles

1 hertz is one (clock) cycle per second


E.g., the sequence of operations to add two numbers might be: 1. retrieve the instruction 2. Decode the instruction Execute the instruction:
3. 4. 5. get first number get second number add the two numbers

6. Store the result

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This is six clock cycles


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CPU Speeds
Measured in Megahertz (and Gigahertz) Millions (billions) of (clock) cycles per second A single arithmetic operation may take several cycles Advanced CPUs can overlap operations
E.g., dual core, quad core
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Three ways to make a CPU faster


1. Speed up the clock (more steps per second) 2. Do some steps in parallel
Do next step 1 while steps 4, 5 and 6 are happening

3. Use a larger word size (internally in the CPU the bus)


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All these things depend on more transistors in a CPU Moores Law talked about: Cramming more components onto integrated circuits

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CPU Speeds
Newer CPUs have special instructions
E.g., Pentium III had special instructions for helping graphics and sounds. Pentium IV does more steps in parallel

Current CPUs have a 32 bit internal word size (or bus)


Newer CPUs have a 64 bit internal bus It is the backplane of Schmidts Law
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Why more RAM memory is a GOOD THING


Run larger programs (a bigger desk) More simultaneous users More simultaneous programs Often faster (larger cache for disks)
May make peripherals run faster

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Why more RAM memory is a GOOD THING


Relatively cheap, (compared the CPU) Easy to install Doesnt (normally) require reconfiguring
Note:
Cache memory usually is right on the CPU chip So you cant change it, and it is more expensive
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Types of Memory
Current PCs 1000 MB to 4000 MB of memory
Original PC had 64 KB
How many times larger is 1000 MB?

Cache Memory on the CPU chip


Very fast, expensive

Video Memory on the video adapter


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Typical test questions


1. Define bit, byte, MB, KB, millisecond, Microsecond 2. What are three ways to make a CPU faster? 3. Give four reasons why more memory is a good thing. 4. If a page of typed text takes 2KB, how many pages can be stored on a CD that holds 640 MB. 5. Describe four types of common storage devices
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Typical test questions


6. If a CD holds 640 MB of data and your computer reads it a 2 MB per second
How long will it take to read the whole CD?

7. If a DVD holds 4.7 GB of data how long will it take to read it?

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A typical test question


8. A SD card holds 2 GB, how many pages of typed text can be written on one?
2 GB = 2,000,000 KB 1 page is 2 KB This SD card can hold 2,000,000/2 = 1 million pages

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Analog to Digital
reality is analog
Bits no size, colour or weight and can travel at the speed of light. Digitizing taking samples of an analog signal CDs take 44.1K per second. But each sample is 16 bits. Bandwidth number of bits per second (through a given channel). the channels capacity A CD needs 44.1 x 16 x 2 (stereo) =1.4 Mbps
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Buses and Connectors


have different bandwidths
Internal bus USB 1.1, 2.0 Wireless 802.11 Digital monitors Older
Serial Port Parallel Port Infrared ISA PCI SCSI

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USB 2.0
(USB 3.0 now the current version)

Announced April 2000 an example of a Standard


Controlled by the USB Implementers Forum This is an organization of manufacturers

USB has a bandwidth of 480 Mb/sec It can provide power for low power devices
How many bytes per second? How long does it take to transfer a 6 GB DVD?
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Analog and Digital


Analog signals are continuous
E.g., sound, light, radio waves, etc.

Digital signals are a stream of bits, on and off, 1s and 0s. Analog signals usually get distorted when they are transmitted or stored. Digital signals can be reproduced perfectly
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Analog and Digital


Analog signals are hard to mix,
E.g., radio and television use different parts of the spectrum, TV signals use different channels Cable is a different wire from telephone

It is possible to mix digital signals


E.g., you computer receives pictures, documents (e-mail and web pages), sounds, video, all on the same network.
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Digital Signals Bandwidth


64,000 bits per second voice
1.4 million bps high fidelity music 45 million bps video

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Problem
A CD can hold about 72 minutes of music. How many bytes is this?

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Answer
72 min. x 60 = 4,320 seconds
4,320 x 1.4 = 6,048 Mb 6,048 / 8 = 756 MB

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End

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Software
(Chapter 3 pp. 102-108, TB pp.463)

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Software
The set of instructions that tell a computers CPU what to do
E.g.
Read a number from memory Read another number Add the two numbers together Store the result in memory

The instructions are sometimes called computer code


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Software
Writing instructions is called programming or coding The code is in a language all imperative verbs There are many different languages and dialects It is slow, tedious and expensive
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Types of Software
Two broad categories
Application software System software (the operating system)

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Types pp.105-107
Systems software
operating systems (O/S)
Windows, Unix, MacOS, Linux, Android telecommunications software and services Database Management Systems (DBMS)

Application software
word processing vs. more specific applications
Project Management running an ATM
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Third Party vs. OEM


OEM Original Equipment Manufacturer
E.g., Dell, Microsoft, Intel, IBM, Apple

Buying accessories, software, services etc. not from the OEM you are said to be dealing with a third party
First party you Second party OEM, your primary vendor Third party another vendor
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Operating Systems (O/S)


Computer Operating Systems
MS Windows Unix Others have fallen by the wayside

Special Purpose O/S


In ATMs Other devices, Cell Phones, etc. - Android
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Windows vs. Unix


Windows is owned and marketed by Microsoft - proprietary
Many versions over time: Win 95, Win 98, Win 2000, Win XP, Vista, etc. Succeeded in the market by
incorporating many good ideas Increasing economies of scale Bloodthirsty competitiveness
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Windows vs. Unix


Unix Core (kernel) is open available to anyone open source software Each manufacturer tailors it to their products Sun SunOS, HP HP/UX IBM AIX Linux is a generic type that most manufacturers now use but sold by several different vendors and still tailored Android is proprietary, but freely available
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What does the O/S do?


O/S, generally, specific to hardware
Shields the applications from hardware dependence For example, to an application program MS Excel a spreadsheet all disks look alike big, small, floppy, CDs, DVDs, flash drives, etc.

Definition: O/S a program that manages the resources of a computer, e.g., memory, CPU, printers, disk drives, network, etc.
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What else does the O/S do?


Manages the user interface how you see the computer the windows, the file folders, etc. Includes utilities such as search (or find) Some devices have special characteristics
E.g., Printer
Cant be shared so the O/S spools or queues the output to disk for later printing.

E.g., Mouse
Needs to react immediately, O/S, gives this a high priority, ability to interrupt other functions
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Why the O/S is so Important


Because it shields the applications from hardware dependence It enables developers (3rd parties) to create an application that will run on different platforms cell phones, tablets from various manufacturers (2nd party) So, over the last 25 years or so, apps are a huge industry!
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Developing Software Products is


1. 2. 3. 4. 5. Slow (takes years) Error Prone (lots of post sale adjustments) Expensive Also - risky Requires talent. Some people are better than others. A few people are very good. 6. Moores Law doesnt seem to apply
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Software Products
7. Very difficult to specify the design, difficult to control the development.

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Software Products
8. Market may be difficult to define, can vary from very narrow and specific to very broad. Sometimes, vertically integrated, sometimes wide (horizontal). E.g., a Word Processor or a WP for lawyers

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a spreadsheet, an accounting package, an accounting package for dentists


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Horizontal vs. Vertical


This concept is important Some firms target a horizontal market
They sell their products to a wide range of companies, e.g., Office Depot, utilities, transportation, banks, insurance, etc.

Some firms target or are embedded in a specific industry, e.g., manufacturers of printing presses, aircraft, specialty services This is called a vertical market
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Off-the-Shelf vs. Custom


pp. 366-367

Customized tailored (created) to meet the specifications of an organization


Off-the-Shelf supports common business processes Tailor off-the-shelf modify to your needs

Horizontal vs. Vertical Software

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Software Issues
Costs Software is Expensive!
ERP software starts at $100,000
may cost $50 or $100 million to implement in a large firm

Cost CICS $20,000 per month, on one machine in one room used by dedicated terminals (IBM had 20,000 customers)

Upgrades to Windows $50 x 2,000 $100,000 every couple of years but more difficult to deploy Difficult to control costs, difficult to allocate costs
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Programming Languages pp.459-466

HTML and tags


Another approach to programming a computer that also has a long history More capable hardware has made it important E.g., HTML (for Web pages) uses tags around the text
Describes the structure: text, headings, lists And Links
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Tags (or codes)


Content Management Software (CMS)
Now important for firms to keep their web pages up-to-date Especially, when the web pages are designed and hosted by an outside organization (outsourced) CMS allows you to enter unformatted data (e.g., text) and edits it for the corporate web pages
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Other Software Problems


One approach, is central distribution from a service provider (ASP). Training, old and new employees, required before hiring or is it the responsibility of HR? Ownership, e.g., by you, or your employees who write software?, or by the provider? Standardization e.g., one word processor, one spreadsheet across the whole company? Problems with a mobile workforce, or people working from home, on their own laptop?
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Today
Very few companies write computer programs for their own use. Usually they buy programs (applications) from specialized vendors
Database companies e.g., Oracle Application companies
E.g., PeopleSoft, J.D. Edwards (now both part of Oracle)

Enterprise companies e.g., SAP (SystemAnalyse und Programmentwicklung), IBM $500,000 and up ($50,000,000 or so)
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Application Service Providers ASPs


the Cloud cloud computing
Not entirely a new idea Result of:
Modern high speed networks High cost of maintaining software Accounting and financial considerations Corporate focus

Also called SaaS (Software as a Service)


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ASPs value
You rent the use of software, as you need it, this may give you:
1. Predictable pricing 2. No up-front capital expenditure 3. Rapid deployment

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Most of these issues will come up again They are fundamental management problems Software and hardware for an enterprise are the means of production In a bit business they are vital
Managers must make good choices
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Note
Keep Your Software up-to-date Learn how to use it
Use your word processor its not just a typewriter Use your spreadsheet its not just a pocket calculator Use their help
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Software UNB has for you


Help Desk
In HIL

Bookstore always check their prices Updating software

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End

A Note about Software economics


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A Note about Software Economics


Software exhibits Increasing Economies of Scale
Under the right circumstances software is immensely profitable Normally, production, eventually, results in decreasing economies of scale

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normal Economies of Scale

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But,Software
1. Doesnt cost anything or take any time to replicateit doesnt weigh anything 2. Has the property (Metcalfs Law) that the larger the market the more the market grows

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I.E., you prefer to use the same software that your supplier and your customers use One software product, e.g., MS Windows, can become ubiquitous
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Increasing Economies of Scale

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This is one characteristic of


The New Economy

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Free?
Open-source software
Publicly available and free Source code may be available Sometimes distributed as freeware or shareware
With an optional fee Sometimes a complete version has a fee Dont confuse with limited time free trials

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End

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Network Basics
What is the Internet?
Chapter 3 pp.109-118 TB pp. 467- 487

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Internet
Some material here More material later focusing on the web and e-commerce

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Five Significant Technologies


1. Microprocessors, LSI circuits, chips
2. Software 3. Databases 4. Packet switched networks The Internet 5. Search Engines
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Thomas Watson said The world will need about five computers
He was out byhow many!

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Three inventions made the difference


1. Packet switching
2. Client/Server networks 3. Fiber (or fibre) and why it is important

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Definitions
Protocol (p. 480, p.110)
a standard that specifies the format of data as well as the rules to be followed during transmission
Ethernet p. 480

Optical fibre cables p. 473 Unshielded twisted pair p. 473 Router p. 482

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Definitions
Bandwidth p.110
The diameter of the pipe
How much data (bits) can be sent down a wire per second? The larger the pipe, the more can be sent
Measured in bits per second (bps) or bytes per second (Bps)e.g., 100Mbps is 100 million bits per second the bandwidth in the classrooms

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175

Definitions
Switched circuits
A networking technique that sets up a physical connection between two parties, for the duration of the session. (This is the phone system).

Packet switching
Technology that breaks blocks of data into small, fixed bundles and routes them through the available communications channels. (This is the Internet).

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The Internet:
Combines
Computers Telecommunications

Is a redesign of
How signals can move How people can connect to one another The value (or cost) of communicating
Feb-13 ADM 3713 177

The Internet is:


Concerned with how to make computers communicate across different platforms, software and brands Concerned with transmission of data; (now this includes the human voice in real time)
like the ocean no one owns it a cloud
Feb-13 ADM 3713 178

Formal definition
A global information system that:
Is logically linked together by a globally unique address space based on the Internet Protocol (IP) or its subsequent extensions/follow-ons; Is able to support communications using the Transmission Control Protocol/Internet Protocol (TCP/IP) Provides, uses or makes accessible, either publicly or privately, high-level services layered on the communications and related infrastructure described . . .
Feb-13 ADM 3713 179

Open Architecture
Each distinct network would stand on its own and no internal changes would be required to connect it to the Internet Communications would be on a best effort basis Networks would be connected by routers (black boxes) no information would be retained about individual packets No global operations control
Feb-13 ADM 3713 180

Whats Important
1. Globally unique address space 2. Based on the Internet protocol (IP) 3. Able to support TCP/IP
4. Provides services layered on the communications infrastructure
Feb-13 ADM 3713 181

. . . Every public and private network that has agreed to exchange communication using TCP/IP it is a standard
This includes big, backbone networks, local campus LANs, and your house or apartment
Feb-13 ADM 3713 182

Circuit Switched Networks


Not the Internet
Technology that sets up a fixed circuit between two points for the duration of a connection and takes down the circuit when the message is finished.
Conventional telephones Circuits are switched to make a pipe
Feb-13 ADM 3713 183

Circuit switching and Packet switching


Circuit switching is like a railway
Directedness (tracks) Control Central command

Needs a central office

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184

Packet switching is like a road


Freedom Autonomy Driver decides
Trucks Cars buses

Needs a router
Feb-13 ADM 3713 185

Packet Switching p. 113


Technology that breaks blocks of data into small fixed, bundles and routes them through any available communications channel
The Internet is based on packet switching
Using TCP/IP packets and protocols

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186

Packets
TCP/IP defines the details (this is the older version)
1,444 bytes
48 bytes

This is data

This is the address and other data


ADM 3713 187

Feb-13

TCP/IP Protocol(s) p. 114


IP defines a 128 bit address
Handles addressing and forwarding of packets
Extended to 128 bits (called IPv6) from 32 bits (IPv4)

TCP defines handling, segmentation, reassembly, concatenation, separation and recovery of packets
Feb-13 ADM 3713 188

The Routers give direction


Routers are like highway signs Routers are (black) boxes really a special
purpose computer

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Routers and Signs


Routers allow different paths to get to the same destination

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190

Routers
Routers can route packets around a blockage Packets for one message may:
Go along different routes Arrive out of order

Feb-13

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191

Feb-13

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192

Packet routing vs. PSTN


The Internet requires computers (routers)
But, the structure of the network doesnt change

The PSTN (public switched telephone network)


Circuit was set up and shut down for each call Required hardware big iron
Feb-13 ADM 3713 193

So
Packets are sent to their destination with the assistance of routers (This is the IP part)

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At the receiving end:


Each packet is checked to ensure the message is complete
They are assembled into their original form (This is the TCP part on your desktop)
Feb-13 ADM 3713 195

Textbook
Has a simplified diagrams
pp. 483 p. 114

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196

Feb-13

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197

Global Address Space


Every computer has an IP number p. 114, p.483 Every one is different 128 bits (was 32 bits) Domain names e.g. unb.ca
Name servers
Match names and IP numbers Managed by the Domain Name Server (DNS)
Feb-13 ADM 3713 198

Feb-13

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199

Stupid vs. Intelligent


In the (new Internet) stupid network, the data tells the network where it wants to go
The (old telephone) intelligent network, tells the data which path to follow
Feb-13 ADM 3713 200

Packet switched
Always on No call Time not a factor Customers are not distinguishable purpose of data is not known

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201

For the Internet


Overhead is very low, there is no permanent circuit Connection is not reliable best effort Intelligence is at the edge, the PC is smart, routers are dumb Services are at the edge, there is no central office this is where business is conducted The Internet is like the ocean no one owns it
Feb-13 ADM 3713 202

Telecos
Dont like the Internet, want to control it like a telephone system
Intelligence in a central office the handset is dumb Services in the central office, e.g., call waiting, 911, the central office is owned by the service provider Control the services,
prevent Skype force users to their brand, charge for different services and volume of use
Feb-13 ADM 3713 203

Client/server Networks pp. 112, 472


A network in which one or more computers are servers and provide services to other computers, called clients. Services might be:

Feb-13

E-mail Web pages Databases Business rule processing


ADM 3713 204

Client or Server
People use the machines on their desks (or in their hands). These are normally the client machines.
Services are provided by (usually) larger machines on the network that run unattended (in the backroom or anywhere on the Internet). These are the server machines.
Feb-13 ADM 3713 205

Client/Server
Shares processing between the desktop and the backroom Allows the firm to centralize control of information, the database(s) on the server Allows employees customers, suppliers local use and analysis at the desktop
Anywhere..
Feb-13 ADM 3713 206

Examples of Services
E-mail receiving, sending (use the SMTP
protocol)

Web servers (use the HTTP protocol) Database servers for the firms data (use the
SQL language)

File systems (use the FTP protocol) Authentication (use the SSL protocol)
Feb-13 ADM 3713 207

Examples of IP Services
As compared to applications
TCP/IP services:
E-mail receiving, sending Web servers Authentication Security and encryption File systems Database servers
Feb-13 ADM 3713

Applications:
You Tube Facebook Amazon E-Bay SaaS (cloud computing)

208

The Commercial Network


Your machine
Ethernet over copper to your router or Wi-fi

Your router (to a modem) to


To your ISPs router (Rogers, Aliant)

The ISPs Router


To the long haul internet provider (Sprint, etc.)

(Reversed at the other end)


Feb-13 ADM 3713 210

The Commercial Network

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211

IP Names and Addresses pp.115


Each network has an address UNB Fredericton 131.202.xxx.xxx The lower numbers are assigned to campus networks and machines Networks also use names something.unb.ca
p. 183

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212

.203 unicorn

R www. amazon.com Library 131.202.45

Internet

Router Faculty of Admin 131.202.8

.7 jupiter
Feb-13 ADM 3713

.49 mars

dns
web mail
213

Neotrace
16 hops

197 ms return
131.202.53.114 204.146.80.99 CA*Net design
Feb-13 ADM 3713 214

Fiber
Good points
Cheap Dielectric High capacity (fast) (incredibly high)

Hard to install in built up areas


(One way is to thread it through gas pipes)

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Twisted Pair (Copper)


UTP, Cat-5. Cat-6, RJ45 Carries Ethernet

Twisted Pair to Router

Coax (copper)
(59U)

Fiber (glass)

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220

Fiber (Fibre)
Many orders of magnitude faster than copper and wireless Cheaper WDM allows the capacity to increase
Adds lambdas

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221

Aliant and FiberOP


BellAliant FibreOP 25/5
~$88.00 per month
20 Mbps download
5 Mbps upload

Rogers Extreme Plus


~$70.00 per month
25 Mbps download
1 Mbps upload 125 GB per month
Feb-13 ADM 3713 222

Aliant and FiberOP


The artificial scarcity is created two ways: The download speed 100 Mbps might be reasonable Making the upload speed slower than the download speed no technical reason for this it probably takes extra equipment to throttle it
Feb-13 ADM 3713 223

Free?
Book: Free: The Future of a Radical Price
By Chris Anderson

In order to stay in their traditional businesses


Firms create artificial scarcity Treat an abundant (cheap) thing hard drive capacity, bandwidth, peripheral services (e-mail ids, security, some software) as if they were scarce and charge for them This treats a scarce thing your time as if it were abundant
Feb-13 ADM 3713 224

Speed Dating - Aliant and Rogers

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225

Paradigm Shift?
Circuit switching Packet switching

function

Paradigm Shifts
technology discontinuity customer need
Feb-13

time

ADM 3713

226

Why in the Internet intelligence is at the edge


Packet switching as used by the Internet
Services are at the edge a service provider (the one who makes money) can be anywhere The network provider
doesnt need to provide added services, just a reliable access. Doesnt need to know about or charge for the type of use only the time or volume (- has a fixed cost)

Moores Law the capital cost is dropping A disruptive technology


Feb-13 ADM 3713 227

What is the next . . .?


IP telephony (VOIP (voice over IP)) Skype Wireless IP telephony

Convergence
Cell phones and the wireless Internet Fixed wireless to the home? Fibre to the home? TV

Who wins? Who loses?


Feb-13 ADM 3713 228

Questions?
What threats does Aliant face?
What threats does Rogers face? CRTC controls telecommunication policy in Canada FCC controls telecommunication policy in the USA
Feb-13 ADM 3713 229

Firewalls, encryption, VPNs


pp. 425, 426, 424

Important Talk about later

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230

IP utilities on your PC
(Laptop, Tablet?, Smartphone?)

Ipconfig /all
Tells you your IP address (and MAC address)

ping
Tells you whether an address is active (and whether or not your machine is working)

tracert
lists the nodes to a destination

arp
Most recently accessed IPs

nslookup
Resolves IP numbers and names
Feb-13 ADM 3713 231

End

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233

The Properties of the Internet


ADM 3713

1. Mediating Technology
Connects people
B2B, B2C, etc, Facilitates exchange (cf. a bank) Two-way (not one way, like TV or radio)

This gives the customers power

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2. Universality

Can enlarge the world


Market anywhere

Can shrink the world


Work anywhere

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236

3. Network Externalities
The more users the better: increases value Metcalfs Law: value of something is number of users N N2
N = 10 then value = 100 N = 20 then value = 400 N = 1000 then value = 1,000,000

The reverse is true if a new technology (say, a new cell phone technology) doesn't take off, it has low value (and profit).
Feb-13 MBA 6106 237

4. Distribution Channel
bit Products digital products music, life insurance, stock trades Information Replacement
Disintermediation (e.g., travel agency, stock broker) Extension
Price drops may be enough to increase market (also a mediating technology)

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5. Time Moderator
Shrink time
Information and bit products are available immediately

Enlarge time
24 x 7 availability E-mail delivered when read

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239

6. Information Asymmetry
When one party in a transaction knows more than another.
E.g., real estate brokers know more about the housing market than the typical seller or buyer E.g., a car dealer knows more about his costs than a car buyer This term also comes from Economics

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The Internet can


Shrink Information Asymmetry
Reduces the disparity of access to information between parties in a transaction A buyer can search for information and know (almost) as much as the seller E.g, car dealer cost

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Examples
Term Life Insurance
The term life premiums have dropped $1 billion in USA Vendors had an information monopoly, the Internet reduced this

Coffins?

Feb-13

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242

7. Infinite Virtual Capacity


Access to information, response time and storage of data and information is not constrained by technology
Because of Moores Law No shortages

Feb-13

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243

8. Low Cost Standard


Internet technology is open
Available to anyone at one of the profit sites

Costs are far lower than any competing technologies


(for a variety of reasons)

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9. Creative Destroyer
Barriers to entry are low, substitute products and services are available
1. Brand-new industries have been created 2. Transforms the structure, conduct, performance of existing industries 3. Competitive advantage in existing industries (and new ones) can be enhanced

Feb-13

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245

10. Transaction-Cost Reducer


Reduces the cost of doing business
Searching Communicating Negotiating Reduces information asymmetry Both Transaction costs and Agency costs

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246

Remember
Transaction costs are incurred during the process of buying or selling, on top of the PRICE of whatever is changing hands. If these costs can be reduced, the PRICE MECHANISM will operate more efficiently. Agency costs the costs of managing the business
E.g., Rent for facilities, accounting and legal costs

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Limitations of the Internet


Knowledge need this
Tacit knowledge
Non verbal, acquired by experience

Explicit knowledge
Coded, verbalized, specified

People need to recognize


Bounded rationality some things can be so new and different, they are indistinguishable from magic
Feb-13 MBA 6106 248

End

Feb-13

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250

Eric Schmidt
Schmidts Law

ADM 3713

Feb-13

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252

Eric Schmidt
When the network becomes as fast as the backplane, the computer hollows out
Fast means bandwidth

Feb-13

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253

Feb-13

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254

Remember
Moores Law
And its consequences

CPU architecture family Commodity, commoditization

Schmidts Law Backplane Bandwidth Strategies for competitive advantage

Feb-13

ADM 3713

255

End

Feb-13

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257

The Internet Layers


pp. 479-481

ADM 3713

Layers of the Internet


The open architecture of the Internet is designed in layers These can be thought of as separate pieces of software or different collections of protocols They allow free development of products that can interact with one another (are compatible) To us, they are rather abstract To internet engineers they are real
Feb-13 MBA 6106 259

Layers
1. Application (+ Presentation + Session) 2. Transport 3. Network 4. Data Link 5. Physical
Feb-13 MBA 6106 260

Curiously
This is an abstract model to enable engineers to build the Internet, but
Each layer has turned out to be a business opportunity!!

Feb-13

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261

The Internet Value Sites


ADM 3713

Who provides your layers?


Who do you do business with?

Application Transport Network Data Link Physical

Feb-13

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264

Value
Value Network
The various firms using the Internet to create value for the customers

Profit Sites
Specific types (or places where) of value is created and examples of firms that operate at that spot
Feb-13 MBA 6106 265

I Users
1. E-Commerce
Real money for real products and services

2. Content aggregators


Feb-13

Collect and distribute information


Act as an intermediary outsourcers
MBA 6106 266

3. Brokers/Agents and 4. Market Makers 5. Service Providers

II Communications Services
6. Backbone Operators
Control the Internet Provide access to the web

7. ISPs/OSPs 8. Last Mile


Provide Internet connections to consumers

Feb-13

Wired and wireless


MBA 6106 267

III Suppliers
9. Content Creators
Developers and owners of intellectual capital Provide application and system software

10. Software suppliers 11. Hardware suppliers


Provide communication and computer hardware and accessories
MBA 6106 268

Feb-13

Examples

Feb-13

BrunNet Aliant Sprint Microsoft Cisco Dell SAP


MBA 6106

Oracle/PeopleSoft LearnStream L.L. Bean Google Yahoo Amazon E-Bay


269

Examples
Ditech.com
mortgages

Feb-13

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270

In cases
What properties of the Internet are important? What layers are important and What value sites show up?

End

Feb-13

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273

Managing in the Digital World


Chapter 1

ADM 3713

Note: Definitions on Tests


1. What is it? (the definition)
2. Why is it important? 3. Give an example

Feb-13

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275

Chapter 1 pp. 2-51


Chapter 1
1. Information Systems Today 2. Globalization (part 1) 3. Information Systems 4. IS good and bad -----------------------------------------1. IS vs. privacy
Feb-13 ADM 3713 276

In the Information Society


Computers are:
Powerful, inexpensive easy to use

Telecommunication is:
Global, inexpensive, accessible

In much of the world the population is:


Computer literate (know how to use a computer) Have computer fluency (know how to learn and apply new technologies)

But
Some parts of the world are not in the Information Society Not just because of where they live, but also:
How they live (attitudes) Their government (politics)

Globalization pp. 10-20

Globalization: Economic Changes


1-281

Economic Changes
Increases in international trade, development of global financial systems and currency, and outsourcing of labor

Globalization: Cultural Changes


1-282

Cultural Changes
Increased multiculturalism through TV and movies; international travel and immigration; ethnic foods; Facebook, FarmVille, Twitter, and YouTube

Globalization: Technological Changes


1-283

Technological Changes
Low-cost computing platforms and communication technologies; e-mail, Skype, and instant messaging; lowcost global telecommunications infrastructure; global patent and copyright enforcement

Globalization: 1.0, 2.0, 3.0


1-284

Opportunities p. 18
Due to:
Falling transportation costs Falling telecommunication costs

Leads to:
Reaching new markets Managing a global workforce

Challenges p. 19
Governments
Political system
E.g., Autarky (the opposite of Globalization)

Geoeconomic
Time zones, infrastructure reliability, expertise

Cultural
Social organizations, advertising

What is an Information System?


A set of interrelated components that
Collect (or retrieve) data Process, Store, Analyze, and Distribute information

to support decision-making and control in an organization leads to knowledge


Feb-13 ADM 3713 288

What an information system does:


Input data Process Data Output Data
Stores Data Control by software, by people, by procedures Feedback to correct data, software, improve the process
Feb-13 ADM 3713 290

Systems also have


A program controls the process
A sequence of rules or instructions
Written instructions Computer program Mechanical devices (e.g., clock) A political program

The feedback can change this program

Feb-13

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291

What is a system?
A group of components that interact to achieve some purpose
With these characteristics
1. Input 2. Processing 3. Output
4. Feedback 5. Control
Feb-13 ADM 3713 292

a System

Input

Process

Output

Feedback/ Control

Feb-13

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293

An Information System
network Input Process Output

Store Data

Feedback/ Control
Store Data

Store Data

Feb-13

ADM 3713

294

Feb-13

ADM 3713

295

Components of Business Processes


- a network of activities, resources, facilities and information to achieve a business function

1. Activities 2. Resources 3. Facilities


Feb-13 ADM 3713 296

Components of Business Processes


4. Information


Feb-13

Data Information Knowledge Wisdom


ADM 3713 297

Feb-13

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298

DATA vs. INFORMATION

Raw facts
Represent events E.g. sales from a cash register

Organized data
Meaningful to people E.g. sales trends, comparison of sales by brand
299

Feb-13

ADM 3713

Data vs. Information vs. Knowledge


Data (Item). Elementary description of things, events, activities and transactions that are recorded, classified and stored but are not organized to convey any specific meaning. Information. Data organized so that they have meaning and value to the recipient. Knowledge. Data and/or information organized and processed to convey understanding, experience, accumulated learning and expertise as they apply to a current problem or activity. Wisdom. ---Feb-13 ADM 3713 300

Development and Use of Information Systems


You need to:
Take an active role in order to ensure that system will meet your needs Understand how they are constructed Consider the users needs during development Learn how to employ the system Take into account ancillary functions
Security Backup Recovery

Feb-13

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302

What Is MIS?
Management Information Systems MIS is the development and use of information systems that help businesses achieve their goals and objectives Key elements:
Development and use Information systems Business goals and objectives
Feb-13 ADM 3713 303

Ask Questions
How can I apply information technologies in a business environment to help my organization focus on top-line competitive advantage? How can I apply information technologies in a business environment to help my organization focus on bottom-line competitive advantage?
Feb-13 ADM 3713 304

Ask Questions
What will a system do for you? 1. What is the purpose? 2. What will using it enable us to do? 3. What goal can we accomplish through its use? 4. Will it aid us in reaching our objectives?
Feb-13 ADM 3713 305

Ask Questions
These are the questions you should ask as you read business cases
For example in 7-11

What Is the Shape of Things to Come?


Moores Law predicted that the number of transistors on a computer chip would double every two years (18 to 24 months) This prediction has been generally accurate for more than 40 years Moores Law is one of the few predictions in area of IT that has really stood the test of time
Feb-13 ADM 3713 307

Within the next decade?


1. Unlimited storage will be almost free 2. Analytical software will reveal hidden treasures 3. The real and virtual world will collide as wide-area networks become cheap, reliable, and widely available 4. These technology trends will enable deep, powerful, performance-enhancing innovations that will be felt in almost every industry 5. Many of these will combine existing things, e.g., a GPS, a cell phone, Google to find the nearest Pizza, or ATM or Manicurist
Feb-13 ADM 3713 308

Business of IT and IS
Business is changing because of advances in IS and IT
Mobility devices will change what it means to go to work Industries are undergoing significant change because of the shifts in technology

Feb-13

ADM 3713

309

Can IS provide Competitive Advantage?


Does IT/IS Matter?
Maybe (probably)

Does IT Destroy Jobs?


Maybe

Feb-13

ADM 3713

310

However

Feb-13

ADM 3713

311

End

Feb-13

ADM 3713

313

Chapter 2

In Chapter 2
ENABLING ORGANIZATIONAL STRATEGY THROUGH INFORMATION SYSTEMS Decisions Organizational Decision-Making Levels Organizational Functional Areas

Sources of Competitive Advantage


Identifying Where to Compete: Analyzing Competitive Forces Identifying How to Compete: Analyzing the Value Chain INTERNATIONAL BUSINESS STRATEGIES IN THE DIGITAL WORLD

Four Behavioral Topics


1. 2. 3. 4. Decision Making Estimating (later) Resistance to Change (later) Assessing Risk (later)

Feb-13

ADM 3713

316

Making Decisions
In IT/IS decisions must be made all the time
What technology to acquire? What technology to get rid of? Who to choose as a supplier? How much to pay?

The IT/IS part of the firm makes these types of decisions all the time and participates in larger decisions
Feb-13 ADM 3713 317

Managers Roles
(all very important to IT managers)

Interpersonal Roles
Figurehead, leader, liaison

Informational Roles
Monitor, disseminator, spokesperson, analyzer

Decisional roles
Entrepreneur, disturbance handler, resource allocator, negotiator
Feb-13 ADM 3713 318

Why decision making is difficult


1. Number of alternatives (large and growing) 2. Under time pressure 3. Necessity to conduct a sophisticated analysis (simulation, modeling) 4. Necessity to involve (consult) experts

Feb-13

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319

Making Estimates
an important part of the decision process

Long term estimates:


How long will the technology last? How much will it cost to run?

Short term estimates:


How much will it cost to acquire? How long will it take to install?

Feb-13

ADM 3713

320

IT management needs to know the strategic direction of the firm:


IT decisions are medium to long term, 5 to 10 years. IT decisions are expensive and returns may not show up for a couple of years. IT decisions require specialized personnel, these need to be hired, trained and retained.

Only in the past few years have the IT part of the firm been given a role in strategy
Feb-13 ADM 3713 321

Examples of IT Decisions
Major Initiatives (big Systems) Supply Chain Management (SCM)
Automates tracking inventory and information among business processes and across companies

Three flows in the supply chain


Information Goods Financial
Feb-13 ADM 3713 322

IT Decisions
From the IT point of view, strategic direction of the firm includes (for example):
To what degree is the firm going to participate in e-commerce? What is the firms policy about outsourcing? Is the firms strategy to grow its market? Is the firms strategy to be a low cost producer? Is the firm moving to global operations?
Feb-13 ADM 3713 323

These lead to
Decisions such as choosing:
Appropriate database design and products Network design and suppliers Software products ERP, CRM, SCM systems

Feb-13

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324

Decisions
Decision Structure: Structured
We know what information we need That information is accessible Decision rules are clear

Semi-structured
One or more of the three previous characteristics are not met to some degree

Unstructured
All three characteristics are not met to a large degree
Feb-13 ADM 3713 325

Problem Structure
Usually we assume:
People know what they need and want People can tell us what they need and want What they want doesnt change

This may be true in structured situations

Feb-13

ADM 3713

326

Problem Structure
But:
People may not know exactly what they want

These are un-structured situations


People may know more than they can say

Then these are semi-structured situations

Feb-13

ADM 3713

327

Problem Structure
Learning takes place
wants, needs change (looks like people are changing their minds) This also creates semi-structured situations

Feb-13

ADM 3713

328

Example

Feb-13

ADM 3713

329

Decision-Making Levels of an Organization


2-330

Day-to-day business processes Interactions with customers Decisions:


structured, recurring, and can often be automated using IS.

Operational Level
2-331

IS used to:
optimize processes, and understand causes of performance problems.

Operational Level (contd)


2-332

Functional managers

Managerial Level
2-333

Monitor and control operational-level activities


Focus: effectively utilizing and deploying resources Goal: achieving strategic objectives

Managers decisions
Semistructured Moderately complex Time horizon of few days to few months

IS can help with:


performance analytics (dashboards), predictive analysis, and

Managerial Level (contd)


2-334

The president, CEO, vice presidents, board of directors Decisions


Unstructured Long-term strategic issues Complex and nonroutine problems with long-term ramifications

Executive Level
2-335

IS is used to:
obtain aggregate summaries of trends and projections, and provide KPIs across the organization.

Executive Level (contd)


2-336

Organizational Functional Areas


2-337

Business Process Supported by Functional Area IS


2-338

Kinds of Information Systems


in the firm

Feb-13

ADM 3713

339

Examples

Feb-13

ADM 3713

340

Feb-13

ADM 3713

341

Three ways to make decisions


1. Rational Model 2. Garbage Can Model 3. Scoring Method
All three are used all the time!!

Feb-13

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342

1. The Rational Model


(also called the Simons Model after Herb Simon) has four phases: 1. Intelligence problem identification or opportunity seeking 2. Design enumeration of alternatives plus advantages/disadvantages 3. Choice make selections 4. Implementation do, control
ADM 3713 343

Feb-13

Feb-13

ADM 3713

344

Stages of Decision-Making (Simon)


INTELLIGENCE: Collect information; identify problem DESIGN: Conceive alternatives; select criteria CHOICE: Use criteria to evaluate alternatives; select IMPLEMENTATION: Put decision into effect; allocate resources; control
Feb-13 ADM 3713 345

Rational Model
Can be used to analyze structured, semistructured and unstructured situations Note the similarity to a system
Input, output, feedback and control

Also called systems approach to decision making

Feb-13

ADM 3713

346

2. Garbage Can Model


and the skonk works
Garbage Can Model:
In this model decision-makers have a large number of problems and opportunities at the same time. In addition, they have a large number of solutions available to them. Solutions are such things as money, personnel, information, systems, knowledge etc. The problems and solutions float around in a garbage can. When an appropriate solution and problem find each other, the problem is solved.

Feb-13

ADM 3713

347

The skonk works


Popular in firms that depend on innovation to sustain competitive advantage:
Small groups working on unofficial projects are tolerated (sometimes encouraged) These groups are called skonk works
E.g., IBMs PC Texas Instruments Lockheed aircraft

Develop an idea then go around and try to sell it within the firm
Feb-13 ADM 3713 348

3. Weighted Characteristics Method of Decision Making (or Scoring)


a common method of decision making when you are faced with several alternatives. It has the following steps.
1. 2. Select characteristics. Give characteristics a weight. (This is an arbitrary scale may be 1 to 5, 1 to 100, etc). 3. Evaluate alternatives on each characteristic and assign a score. 4. Multiply scores by weights and add.

Select (consider) the alternative with the highest score.


Feb-13 ADM 3713 349

Scoring Method of Decision Making


Characteristics Weight Supplier 1 Score Weight x Score Score Supplier 2 Weight x Score Score Supplier 3 Weight x Score

Total

Feb-13

ADM 3713

350

Scoring Method - Problem


This a widely used method of making decisions, but:
May lead you to believe that an unstructured decision is semi-structured or that a semistructured decision is structured. Sometimes masks real problems More subjective than most people think

Feb-13

ADM 3713

351

Summary
Types of decisions
Structured Semi-structured Unstructured Repetitive

Simons Model (rational model) Garbage Can Weighted Characteristics (Scoring)


Feb-13 ADM 3713 352

Decisions in Cases
What types of decisions are being made?
Structured, unstructured, semi-structured

What types of decisions do the players think they are making?


What mechanism was used to make the decision?
Rational, Garbage can, Scoring, Other

Did the decision makers consider the strategic direction of the firm?
Feb-13 ADM 3713 353

Selecting a PC
Choose the characteristics How important is each characteristic?
Weight them (1 to 5)

Choose possible brands (or models) How closely does each brand match the characteristics?
Assign a %
Feb-13 ADM 3713 354

Selecting a PC
Score
Multiply the weight by the % and add

Debate, reflect

Feb-13

ADM 3713

355

How do you get information?


1. RFI Request for information
Widely used for new, innovative, non-standard, one-off projects, or projects that are new to you

2. RFP Request for proposal


Sent to a select group More formal Generally, you know what you want
Feb-13 ADM 3713 356

How do you get information?


3. RFQ Request for quote
Often binding (must take lowest) Used for routine purchases

How much do you tell the prospective vendor about your process?
The characteristics? The Weights?

Non-disclosure agreements
Feb-13 ADM 3713 357

In a case
Give examples of
Data, information Types of decision making, decision levels Decision making steps

Feb-13

ADM 3713

358

Competitive Advantage
(N.B. dont confuse with comparative advantage)

Competitive Advantage providing a product or service in a way that customers value more than what your competition is able to do.

How can IT help?

Feb-13

ADM 3713

359

Kinds of Information Systems


in the firm

Feb-13

ADM 3713

360

IS from a Functional Perspective


Sales & Marketing Business Processes Manufacturing & Production Business Processes Finance & Accounting Business Processes Human Resources Business Processes

Feb-13

ADM 3713

361

IS from an Organizational Perspective


Operational-level (short time frame)
Keep track of and monitor flow of transactions

Knowledge-level
Support knowledge and data workers

Management-level or Tactical (medium time frame)


Support middle-level management decision-making

Strategic-level (long time frame)


Support long-range planning of senior management
Feb-13 ADM 3713 362

Flow of Information

Feb-13

ADM 3713

363

Flow of Information

Feb-13

ADM 3713

364

Granularity
Information at the bottom of the organization has a lot of detail or high granularity - operational staff collect detailed data
Important because operational staff also need specific, detailed instructions

As information moves up the organization it looses detail its granularity decreases


Important because middle and upper managers need to see a broader picture
Feb-13 ADM 3713 365

The Problem
It is difficult for information to move sideways in an organization Information (and data) moves up and down with accounting, within manufacturing, within sales and marketing relatively easily The functional areas of the firm tend to act like silos
Feb-13 ADM 3713 366

Feb-13

ADM 3713

367

Flow of Information Systems

Feb-13

ADM 3713

368

Todays Information systems


Try to ensure that data, information, knowledge is available across the functional areas (the silos) of the firm
Firms have moved from centralized computing and data to decentralized computing and shared information
Feb-13 ADM 3713 369

Decentralized Computing and Shared Information


Today, organizations have maintained their decentralized computing while bringing together all the organizations information Enterprise Resources
This bringing together of information is accomplished by using databases and networks to decentralize Databases support the concept of shared information. So, computing power is now decentralized and information is shared.

Feb-13 ADM 3713 370

Questions for 7-11


Explain the business processes

Feb-13

Identify the systems Show the activities Information flows Resources Facilities Information
ADM 3713 371

End

Feb-13

ADM 3713

373

Gaining Competitive Advantage with IT


Porters Competitive Forces Model The Heart of Capitalism!

Chapter 2
Decisions
Types of decisions Decision making

Organization Structure
Levels Functional Areas

Five Forces Model Value Chain Model Global Business

Competitive Advantage pp. 57-67


A firms ability to do something faster, better and smarter than their competitors in the same industry.
And make more money (profit) than their competitors.

Feb-13

ADM 3713

377

Concepts
1. 2. 3. 4. Productivity and Business Value Industry Analysis Porters Five Forces Model The Generic Strategies

Feb-13

ADM 3713

378

Why?
Why do firms spend money on IT?
Sometimes $100s of millions . . .
E.g., Hershey Chocolates, Quantum Disks, Oxford Health, TransCanada Pipelines, Dell Computers, Province of New Brunswick, Sobeys, etc.
Feb-13 ADM 3713 379

How can IT create business value


1. Productivity IT allows a company to make either more output from the same inputs, and/or to make better output and/or to make the output faster than before the technology

2. Structure of competition IT can alter the way firms compete


3. Benefits to the End Customer IT helps make processes more efficient and changes the nature of the competition. Consumers may see cheaper and better goods and services
Feb-13 ADM 3713 380

1. What is an Industry?
An industry is made up of firms competing for the same business. McDonalds competes with Wendys, Burger King, Taco Bell other fast food outlets. This is the fast food industry

Feb-13

ADM 3713

381

An Industry
Dell competes with IBM, HP/Compaq, Gateway, Toshiba, Sony, etc. This is the PC industry

Feb-13

ADM 3713

382

An Industry
Ford competes with GM, Chrysler, Honda, etc. This is the automobile industry
There is a different industry (even though some of the players are the same) for heavy trucks.
Feb-13 ADM 3713 383

But
Dell doesnt compete with Taco Bell or Ford They are in different industries
Always think about what industry a firm is in who are its competitorsuseful in other courses
Feb-13 ADM 3713 384

In an industry. . .
Some firms make above average margins (profits)
These are the successful firms These have competitive advantage (not the same as

Some make average margins Some are below average Why???

Feb-13

ADM 3713

385

What influences profitability, business value?


1. Industry structure
Some industries are more profitable than others Customers may not be price sensitive Industry may be protected

2. Relative level of a companys value creation


efficiency some firms are run better than others in the same industry: faster, better, smarter

3. Provide benefits to the end consumer to the market


Feb-13 ADM 3713 386

2. Porters Competitive Forces Model


~1985 Used by companies to examine their competitive edge Is very useful in determining how IT can enhance competitiveness
There are (lots of) other models of competition and strategy
Feb-13 ADM 3713 387

Porters Competitive Forces Model


Applies to firms in the same industry, describes five forces (or threats):
1. 2. 3. 4. 5. Threat of new competitors Bargaining power of suppliers Bargaining power of buyers (customers) Threat of substitute products or services Rivalry among existing firms

Feb-13

ADM 3713

388

Feb-13

ADM 3713

390

The Porter Model

Feb-13

ADM 3713

391

The Porter Model

Feb-13

ADM 3713

392

In an Industry
A successful firm
Devises strategies to counter the five forces By doing so, earns above average margins
Gives them competitive advantage in their industry higher margins

A truly successful firm sustains this competitive advantage


Feb-13 ADM 3713 393

Feb-13

ADM 3713

394

Buyer Power
Price sensitivity
Is the buyer always looking for a lower price?

Buyer information
The more information the buyer has the more power

Buyer concentration
Do you have a lot of buyers or are you dependent on just a few?

Substitute products
Does the buyer need your product? can he use something else?

Backward integration
Can the buyer make what you sell him?

Buyer switching costs


Is it easy for the buyer to switch to another supplier?

Buyer volume
Is your product a small item to the buyer? If so, you have more power
ADM 3713 396

Feb-13

Buyer Power
Threats from Buyers. . .
Force down prices Bargain for higher quality or more services Playing competition against one another

At the expense of industry profitability!!

Feb-13

ADM 3713

397

Buyer Power Examples


Switching costs
Disk drives - standard, buyers can switch easily if there is a better price, they have more power. If the cost to switch is high, buyers have less power Windows?, suites of office programs?

Feb-13

ADM 3713

398

Supplier Power
Differentiation of inputs (few alternative sources) Switching costs Substitute inputs Supplier concentration Importance of volume Cost relative to industry Threat of forward integration (relative to backward integration)

Feb-13

ADM 3713

399

Supplier Power
Threats from suppliers:
Raise prices Reduce quality or services

At the expense of industry profitability!!

Feb-13

ADM 3713

400

Inter-industry Rivalry
Intensity of rivalry Product differences Brand identity Switching costs Information complexity

Feb-13

ADM 3713

401

Potential New Entrants


How easy (or difficult) is it for new entrants in the industry? High capital costs make it difficult Expensive or complex technology or trade secrets make it difficult Perhaps, if you invest in an expensive, effective (e.g., it lowers your costs) information system it will make it difficult for new entrants
Feb-13 ADM 3713 402

Substitute Products or Services


A threat is that a (new) product or service will appear that will enable your buyers to replace your product. . . PC style computers have replaced mainframes they come from a variety of vendors that never made mainframes

Feb-13

ADM 3713

403

What can you do?


There are specific things you can do to counter the threats There are Generic Strategies to help sustain competitive advantage:
Remember the five forces represent threats to lower your profits relative to the rest of your industry Effective strategies will enable you to earn above average margins for your industry
Feb-13 ADM 3713 404

3. Generic Competitive Strategies to increase value


1. 2. 3. 4. Cost leadership Differentiation Broad focus Narrow Focus

5. Innovation 6. Alliances, growth


Feb-13 ADM 3713 405

Feb-13

ADM 3713

406

1. Cost Leadership
Use information technology to lower your costs not your profits. Offer your products to the market and make an above industry average margin

Feb-13

ADM 3713

408

2. Differentiation
Being unique in the industry
Providing addition service or features at a competitive price Provide more value to the buyer (consumer benefit) IT can be significant
E.g., Caterpillar keeping track of the location of spare parts
Feb-13 ADM 3713 409

3. Focus
on a select group of customers

Selecting a narrow segment (niche) market


Then achieving cost leadership or differentiation Business customers vs. consumers (banking) Law firms boutiques Concentrate on these customers, make them happy

IT can help, e.g., identifying potential customers


leading to higher producer surplus and consumer surplus

Feb-13

ADM 3713

410

4. Focus
on a wide segment of the industry

But keep the lowest cost So that


Your producer surplus (margin) is higher than the average for the industry Your consumers see a higher benefit

Feb-13

ADM 3713

411

Use of Porters Model


1. Analyze your industry who are the competitors? 2. What are the threats? 3. What are the business drivers?- is this an industry that competes on cost? On innovation? On service or flexibility?

Feb-13

ADM 3713

412

Use of Porters Model


Devise a strategy, generic or otherwise
Low cost, differentiation, focus

Investigate supportive information technologies

Strategy is not necessarily just a longterm goal, it may be a continuous process


Feb-13 ADM 3713 413

Competitive Advantage via Business Processes


Organizations can gain a competitive advantage by implementing business systems
Locking in customers
High switching costs Making it easy to connect to and work with organization
ADM 3713 414

Locking in suppliers

Feb-13

Competitive Advantage via Business Processes, continued


Create entry barriers
Making it expensive for new competition to enter market

Establish alliances
Establish standards Promote product awareness

Reducing costs
Increased profitability
Feb-13 ADM 3713 415

End

Feb-13

ADM 3713

417

The Value Chain


Chapter 2 pp. 63-66

ADM 3713

Feb-13

ADM 3713

419

Strategy Concepts
1. 2. 3. 4. 5.
Feb-13

Value Creation and Capture The Value Chain Industry Analysis The Five Forces The Four generic strategies
ADM 3713 420

IT and Productivity
Productivity is
Hard to define Difficult to measure

Productivity IT allows a company to make either more output from the same inputs, and/or to make better output and/or to make the output faster than before the technology roughly speaking
Feb-13 ADM 3713 421

How can IT create business value


Structure of competition IT can alter the way corporations compete
Benefits to the end customer IT helps make processes more efficient and changes the nature of the competition. Consumer may see cheaper and better goods and services May lead to competitive advantage
Feb-13 ADM 3713 422

Can Information Systems Improve Productivity?


Increasing efficiency means that business processes can be accomplished either more quickly or with fewer resources and facilities (or both). doing things right Increased effectiveness means that the company considers offering either new or improved goods or services that the customer values doing the right things
Feb-13 ADM 3713 423

Value Creation
(not in book)

Consumer Benefit
All the characteristics that a consumer values in a product or service Characterized by the price the consumer is willing to pay

Costs
All the expenses that are incurred in providing a product for the consumer

Value Created
The difference between the Consumer Benefit and the Costs
Feb-13 ADM 3713 424

Value

Feb-13

ADM 3713

425

Capturing Value
Producer Surplus (or Margin)
Profits the firm generates from selling a product or service

Consumer Surplus
Difference between what the consumer is willing to pay (the maximum benefit) and the price actually paid

Value Created is the sum


the difference between the cost and what the consumer is willing to pay
Feb-13 ADM 3713 426

Value

Feb-13

ADM 3713

427

Summary
Consumer Benefit what the consumer is willing to pay Costs all the expenses in providing the good or service Value Created (Consumer Benefit minus Costs)
Made up of

Producer Surplus the profits the firm generates Consumer Surplus the consumer benefit minus what
they actually paid

Value Created the Producer Surplus plus the Consumer


Surplus
Feb-13 ADM 3713 428

What influences Producer Surplus?


(Margin or Profitability)

Industry structure
Some industries are more profitable than others

Relative level of a companys value creation


efficiency some firms are run better than others in the same industry doing things right
They produce with lower costs and create more value they allow more producer and consumer surplus

effectiveness some firms offer new or improved goods or services that the customer values doing the right things
Feb-13 ADM 3713 429

Business Processes and Value Chains


A value chain is a network of valuecreating activities
Primary activities Support activities

Made up of at least one and often many business processes


Feb-13 ADM 3713 430

Porters Value Chain Model

Feb-13

ADM 3713

432

Primary Activities
Primary activities are activities in which value is added directly to the product Primary activities include the following (five):
1.Inbound logistics 2.Operations 3.Outbound logistics 4.Marketing and sales 5.Service

Stages accumulate costs and add value to product Net result is total margin of the value chain And consumer benefit as well
Feb-13 ADM 3713 433

Value Chain primary activities


1. Inbound Logistics
a. b. c. d. Raw material handling Inspection Selection delivery

2. Operations (manufacturing)
a. In-house production b. Assembly, testing c. Maintenance and operation of the plant

Feb-13

ADM 3713

434

Value Chain primary activities


3. Marketing and Sales
a. Advertising, pricing, promotion

4. Outbound Logistics
a. Order processing, shipping

5. Service (after sale)


a. Technical support b. Service, warranty

Feb-13

ADM 3713

435

Feb-13

ADM 3713

436

Support Activities
Support activities support the primary activities Support activities include the following (four)
1.Firm infrastructure 2.Human resources 3.Technological development 4.Procurement

Contribute indirectly to production, sales, and service Add value and costs but:
Produce margin that is difficult to calculate Produce consumer benefit that is difficult to measure

Feb-13

ADM 3713

437

Value Chain support activities


HR management IT and R & D Finance (e.g., capital resources) Legal Services Procurement (vs. purchasing)

Feb-13

ADM 3713

438

Value chain

Feb-13

ADM 3713

439

Evaluate (quantify)
Successful firms within an industry:
Evaluate their value chain business processes Align the processes of the value chain with their strategy
Low cost - focus on activities that lower costs - enhance the producer surplus Differentiation focus on activities that enhance the consumer surplus create value for the consumer
E.g. outbound logistics, R & D, After-sales service

Focus identify the set of customers who value your product


Feb-13 ADM 3713 441

Evaluate (quantify) contd


Invest in IT
to increase the effectiveness of their processes that are important in increasing value (decrease the ineffectiveness of their value reducing processes)

Image and reputation


Ensure the customers are aware of your strategy we are low cost! we provide you with value!!

Feb-13

ADM 3713

442

Value Chain
IT and E-business may add value through each stage in the value chain
Improves communication at the interfaces Reduces costs

Even traditional businesses may be information intensive, (insurance, banking, government), then IT can add great value
Feb-13 ADM 3713 443

Value Chain
The value chain can provide a framework to design and implement a firms strategy:
Lower the costs at the interfaces Reduce supplier and buyer power Reduce the threat of new entrants Reduce the impact of substitutes

IT (IS and ICT) can contribute


Feb-13 ADM 3713 444

Business Processes

Feb-13

ADM 3713

445

Value Chain vs. Supply chain


The Value chain is (generally) within the firm. The Supply Chain is the network of vendors that supply what the firm needs

Feb-13

ADM 3713

446

How is the value chain implemented?


Cross-functional systems
SCM supply chain management
Reduces costs Reduces buyer power

CRM customer relationship management


Reduces costs Reduces customer power

ES (ESP) enterprise resource planning


Facilitates a process organization

Feb-13

ADM 3713

447

How is the value chain implemented?


By Cross Functional Systems (products)
Hardware
Networks Input Devices
Barcode scanners RFID tags

Collaboration
FedEx, UPS

Outsourcing, offshoring
Feb-13 ADM 3713 448

Feb-13

ADM 3713

449

End

Feb-13

ADM 3713

451

B2C EC
business to consumer electronic commerce ADM 3713

Electronic Commerce pp.144-184


Commerce (buying and selling) of goods, services and money enhanced by the Internet
Can be very low barriers to entry
But, buyer power can be high (easy to switch)

Includes events leading up to the purchase and after sale service But, still requires sound business fundamentals and principals
Otherwise the Bubble
Feb-13 ADM 3713 453

Concepts for EC
Properties of the Internet Vertical vs. Horizontal Markets Merchant vs. Non-merchant portals or Marketplaces Procurement vs. Purchasing Bit products vs. hard goods Niche products vs. Mainstream products Information (a bit product) as a salable commodity Advertising as a EC product

Databases
Data is stored in a table structure A table has rows and columns The table represents an entity e.g., students Each row represents a unique occurrence of the entity e.g. a person Each column represents an attribute of the entity e.g, colour, sex, size

Databases
Within the table, each row must be unique
The field (or fields) within a row that makes it unique is the Key field

Databases
Tables can be connected (related) by the key fields

Fig. 5.1

Feb-13

ADM 3713

459

Keep in mind
The Properties of the Internet (handout)
Compare this to the table in the text (and the accompanying text) p. 146

(They complement each other)

Business to Consumer (B2C)


An individual customer tends to deal with a particular business e.g., retail goods
merchant companies LL Bean Lee Valley Danier, Roots, Canadian Tire

There are a few exceptions Market places


or non-merchant companies pp. 156-159
Examples:
Feb-13 ADM 3713 462

Merchant vs. Non-Merchant Companies

Feb-13

ADM 3713

463

Merchant vs. Non-Merchant Companies


Merchant companies buy goods and then resell them. Non-merchant companies arrange for the purchase and sale without ever taking title to the goods. Examples of B2C:
Merchant Non-merchant
Feb-13 ADM 3713 464

Note
Non-merchant companies are also called
Marketplaces Portals

Feb-13

ADM 3713

465

Fig. 5.3

Feb-13

ADM 3713

466

Some B2C is services


Monster.com - jobs PriceLine - Travel ticket and reservations
These (typically) are non-merchant companies (marketplaces) Try to understand what sort of firm you are dealing with a marketplace (Portal) or directly with a merchant company
Feb-13 ADM 3713 467

B2C vs. B2B

Feb-13

ADM 3713

468

B2Cs Advantages
Closely associated with the Internets properties:
1. 2. 3. 4. 5. 6.
Feb-13

World wide reach 24/7 Low cost Intelligence is at the edge Unlimited capacity Some products are bit products
ADM 3713 469

B2Cs Problems
How to recreate an in store experience
1. 2. 3. 4. 5. Helpful service Security, privacy and trust handling the goods - delivery Information Payments

Feb-13

ADM 3713

470

To address these problems


Can provide a lot of information text and pictures show the item in context Security and trust is a problem Also
Use technology Build on reputation Provide e-mail, ask an expert Provide an unlimited variety Handling the goods still a problem
Size charts help
Feb-13 ADM 3713 471

To what extent
Do these firms
L.L. Bean www.llbean.com Lee Valley www.leevalley.ca Amazon www.amazon.com Roots www.roots.ca Canadian Tire

address the problems? use the advantages of the Internet and E-commerce?
Feb-13 ADM 3713 472

Whats going on here? How can some of these firms make money selling weird things??

Feb-13

ADM 3713

473

The Long Tail


Here's the reality of the book industry
in 2004, 950,000 sold fewer than 99 copies. Another 200,000 sold fewer than 1,000 copies. Only 25,000 sold more than 5,000 copies. only 10 books sold more than a million copies in 2004, fewer than 500 sold more than 100,000.

Feb-13

ADM 3713

474

Feb-13

ADM 3713

475

The book industry has known for decades, there's virtue in nichesbooks that aren't for everyone, but really thrill those they are for. The trick is finding a way to make a business in niches this mass of niches is called the Long Tail, the land of the relatively low-selling items. Publishers tend to focus on the head of the curve, where the hits are, and forget most of the rest.
Feb-13 ADM 3713 476

It's demanded by the constraints of the physical world: limited shelf space, limited channels, limited screens. But now distribution methods have virtually unlimited capacity, from the digital products on iTunes to the combination of online catalogues and overnight delivery pioneered by Amazon.com. Thanks to these extraordinarily efficient channels, mass markets are shifting to millions of niches
Feb-13 ADM 3713 477

Feb-13

ADM 3713

478

Electronic commerce lets you make money from the long tail
Amazon I Tunes Lee Valley Etc.

Feb-13

ADM 3713

479

Long-tail products don't replace hits (very popular items), they replace the monopoly of hits enforced by the limitations of physical retail space.

Feb-13

ADM 3713

480

But
Some say
In B2C e-commerce, as a general rule, the best merchandise to sell is either commoditylike, digital, or a combination of the two.

Compareis this true?


Canadian Tire Lee Valley Tools
Feb-13 ADM 3713 481

What did I Tunes


Buy two years ago to add to their long tail?

Feb-13

ADM 3713

482

B2C
Illus. 4-18 Benefits EC web site rules Google and Searches

B2B
Illus. Market places Vertical Horizontal Auctions (illus)

Topics
Databases EC and B2C vs. B2B Review properties of the Internet
Business strategies (illus.) Disintermediation vs. reintermediation

E-Government

End