Value Chain

It is clear from these resources that business personnel use IS to achieve a certain outcome. But what outcome are they aiming for? Simply put, a business takes resources, processes them and then provides an enriched version of those resources to a customer. Sometimes the business aims to do this for a profit whereas in others the objective is to achieve a social outcome (where profit is not the main driver). In any case, businesses must do the processing in an efficient manner and have products that generate the largest cost-to-price differential (i.e. the difference between the amounts paid to obtain the resources and what the customer might pay to buy them) (you might consider looking at the subject MGT603 Systems Thinking for more on the forces that drive business efficiency). This is true for private as well as public enterprise, social enterprise, government services, charities, schools and universities.
Here, we also must define ‘system:’
A system is a set of entities that cooperate toward achieving a certain outcome.
Note here that the entities—the parts of the system that cooperate and collaborate in order to achieve the given outcome—may themselves be systems; in that case we can refer to them as subsystems. Hence, a system can be said to be modular, standardised and its parts contributing toward the required outcome. Systems, furthermore, can be termed open or closed. An open system permits interaction with its environment; a closed system does not allow such interaction. Closed systems are mainly the domain of the physical sciences (but we consider the theoretical implications in later subjects). Therefore, for the most part, we consider open systems in this subject.
Taking the theoretical model of the open system, consider now that any enterprise, itself, can be considered a system. Let’s look at a classic in the management space, Michael E. Porter (1985), who put forward the so-called value chain, which has remained one of the most influential models in business since its inception:

(, retrieved 19 July 2018)
The value chain is an open system. Starting at the lower left-hand-side of the model, a firm accepts inputs into its system (inbound logistics), performs processing on those inputs (operations), organises to move the enriched product to the customer (outbound logistics), promote the product to the customer (marketing & sales) and then provide after sales service, if necessary (service). (Does this sound familiar? It should…this model was alluded to a few paragraphs back!) These are referred to as the primary activities because they embody the main steps involved in running any business. As firms become more and more complex or grow in size, it can become necessary to standardise certain activities across the modular primary activities. These secondary or support activities—which include procurement, technology, human resources management and firm infrastructure—interface across all of the primary activities, supporting them.
It can be seen from the value chain model that businesses are a form of open system. With the ‘system’ part addressed, this leads us to how information fits in to our discussion of information systems? With the surge of commercially available computing systems that started in the 1960s, the ability to collect data inside firms increased and precipitated the creation of an abundance of information. Data have always been used to make business decisions, but the computing power made information creation and accessibility much more rapid. The study of IS as the means of facilitating business is the reason we find ourselves reading this very page. As information pervades all aspects and every corner of the firm, it is essential to running businesses and it is expected that every manager, every contributing personnel in a business has at least a rudimentary understanding of the information requirements of the firm, how they are derived, how they are consumed and their permanency.
At this point, it should be obvious that an IT system without purpose has next to no business value. An IS, aimed at achieving a business outcome, however, has become invaluable and business outcomes in the present day have come to rely critically on IS as the enabler of those business outcomes. Let’s now unpack further elements of contemporary information systems. You have learned already that technology may be present in the IS but what other entities or subsystems may IS comprise? Here is a short list:

  1. People
  2. Input
  3. Process
  4. Output
    We mentioned earlier that technology may be present. If it is, it can take on many forms and whatever that form is, its job is to facilitate the processing and to interface between the people involved in the system exchanges. Thinking about technology, it can be defined as:
    Applied scientific knowledge toward practical ends.
    This broad definition is fairly non-specific, fairly vague and open to all sorts of technology to fit our thinking at the present moment. Your ideas, before reading this, might have been about the phone you hold in your hand, or the screen you might be reading these words on&emdash;both of which fit the definition and both of which share that they are electronic technology. However, that would be limiting the scope of technology to just the application of electricity to practical ends. If you printed the page and are reading these words from a piece of paper, then that, too, fits the definition of technology. Paper and ink, both, are applied scientific knowledge (somebody invented them, right?). The first Australians fashioned crude weapons from stone and wood in order to hunt animals for food. Moving to the Industrial Revolution that started in England in the 18th century, technology that featured there was largely steam engine-based, aimed at manufacturing. So, it does not have to electronic to be considered technology. In fact, as long as the use of the technology is aligned to the business outcome.
    A notable anecdote:
    In 2010, the author of this subject was working for a large Australian retailer, at its head office where 1000 other people worked in back office functions, buying merchandise, testing, administrating and otherwise supporting the network of what was then 300 stores across the country. At the time the Microsoft Windows was maturing, adjusting to the demands of the business (and gaming) world and the latest release was Windows 7, quite an improvement over its predecessor, Windows Vista. However, this Australian retailer was running Windows XP on all company desktop and laptop machines—a technology introduced eight years earlier, and in the eyes of many, outdated and old-fashioned. The pressure exerted by the people working at that retailer to upgrade to Windows 7 was immense and yet it wasn’t for a further five years before the desktop operating systems were finally upgraded. The reason? Each time a business is required to make an investment in software, it needs to be convinced of a return on investment. Windows XP was serving the needs of the business perfectly fine, it was patched and supported, and it was only the glitter of ‘newness’ that buoyed the pressure to upgrade. The factor that finally drove the company to upgrade was the withdrawal of support from Microsoft itself!
    The lesson from this anecdote is the large Australian retailer was right that software systems and technology ought not be bought unless there is a compelling business reason to do so (you can undertake the subject FIN600 Financial Management for more on measuring returns on investment and the bases for other business decisions). When it comes time for you to recommend IS solutions to businesses, be sure to remember this anecdote and to have the courage to propose solutions that are fit for business purposes.
    An interesting short reading to consider at this moment is the Australian Computer Society (ACS) code of ethics and the code of conduct, both are linked in the readings section of this module. When you’re done, the second part of the module is waiting for you, and eagre!
    1.1 Readings
  5. The Importance of Information Technology
  6. Why Should a General Manager Study IT?
  7. Australian Computer Society (ACS) n.d. ‘ACS Code of Ethics’, [online], accessed 23 July 2018.
  8. Australian Computer Society (ACS) 2014 ‘ACS Code of Professional Conduct’, Professional Standards Board, April 2014, [online], accessed 23 July 2018.
    1.1 Activities
    Start or contribute to a discussion on what the imagination age is and what it means for you, your career, your community, life in general and the wider macroeconomy. If you are studying this subject in the online mode, start or contribute to the discussion in the online fora; if you’re on-campus, your tutor will facilitate the discussion in class. This is a formative learning activity, so you should listen to feedback given to you by your peers, the tutor and even how you reflect on the discussion later. Reflect on this activity and jot down some notes for you to include in your assessments. Participating in this discussion is essential for your assessment in this subject. This activity is expected to take you between half-an-hour and a full hour to complete.
    Using Porter’s (1985) famous value chain, explain the business models of the following: 1) a sale-trading artisan shoemaker; 2) your local grocery store or supermarket; 3) an information systems consultancy; 4) a hairdressing salon or barber; and, 5) Torrens University. To appropriate justice to each case, you should aim for typing at least a full page (five pages in total). This activity does not require you to share your ideas, but if you’re taking this subject in an on-campus mode, one or more of them may be facilitated in class using the whiteboard. If this occurs, be prepared to contribute your ideas, have them validated (or learn from the corrections) and then absolutely do the remainder in your own time. While this activity is not necessarily formative, you will be practicing writing in your own words, using theoretical concepts applied practically, and engaging in the required rigour in a postgraduate program. It is expected that this activity will take you two hours to complete.
    Use the definition given for technology in this module and write it out on a piece of paper. Break this definition down, if you can, into its parts. Think about ‘applied scientific knowledge’ first and ‘practical ends’ second. Without consulting any research material (yet), draw a mind map of your thinking on technology. What do those things mean—’applied scientific knowledge’ and ‘practical ends’? Can you draw any links between them and examples of technology in use today? What about 100 years ago? 1000 years ago? 10,000 years ago? Write a short answer to the following question: does your conception of the word ‘technology’ change if you have to include technology examples for all of these epochs? Be ready to discuss your answer in-class or on the discussion board with your peers. Be ready to challenge your colleagues and to have your ideas challenged. If they are, be ready to defend them.
    1.1 References
    Porter, ME 1985 Competitive Advantage: Creating and Sustaining Superior Performance, Harvard University Press, Boston, MA, USA.

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