Doing Business in Digital Times

Doing Business in Digital Times

Chapter 1

Doing Business in Digital Times

Prepared by Dr. Derek Sedlack, South University

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Business Process Management and Improvement

The Power of Competitive Advantage

Enterprise Technology Trends

How Your IT Expertise Adds Value to Your Performance and Career

Every Business Is a Digital Business

Every Business Is a Digital Business

Digital Business

A social, mobile, and Web-focused business.

Business Model

How a business makes money.

Digital Business Model

Defined how a business makes money digitally.

Customer Experience (CX)

About building the digital infrastructure that allows customers to do whatever they want to do, through whatever channel they choose to do it.

Cloud Computing

A style of computing in which IT services are delivered on-demand and accessible via the Internet.

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Every Business Is a Digital Business

Why develop digital business models?

Deliver an incredible customer experience

Turn a profit

Increase market share

Engage their employees

How does the customer experience (CX) measure up?

There is a strong relationship between the quality of a firm’s CX and brand loyalty, which in turn increases revenue.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Every Business Is a Digital Business

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Twitter dominates the reporting of news and events as they are happening.

Facebook became the most powerful sharing network in the world.

Location-aware technologies track items through production and delivery to reduce wasted time and inefficiency in supply chains and other business-to business (B2B) transactions.

Smartphones, tablets, other touch devices, and their apps reshaped how organizations interact with customers–and how customers want businesses to interact with them.

Every Business Is a Digital Business

Cloud Computing

Resource acquisition is “as needed” and without upfront investments.

Resources no longer dependent on buying that resource.

Machine-to-Machine (M2M) Technology

Objects that connect themselves to the Internet with sensor-embedded devices are commonly referred to as the Internet of Things (IoT).

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Every Business Is a Digital Business

Big Data

Commonly defined as high-volume, mostly text data

Studied by data scientists in the field of data science

Data Science

Managing and analyzing massive sets of data for purposes such as target marketing, trend analysis, and the creation of individually tailored products and services.

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Every Business Is a Digital Business

Social-Mobile-Cloud (SoMoClo)

Huge data centers accessible via the Internet and forms the core by providing 24/7 access to storage, apps, and services.

Handheld and wearable devices and their users form the edge of the cloud.

Social channels connect the core and edge, creating integration of technical and services infrastructure needed for digital business.

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Every Business Is a Digital Business

Social-Mobile-Cloud (SoMoClo) cont.

Makes it possible to meet the expectations of employees, customers, and business partners.

Provides customers’ interests and preferences to create new products and services and allows quick response to changes in usage patterns as they occur.

Mobiles are now an extension of individuals’ body and mind.

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Every Business Is a Digital Business

What are the benefits of cloud computing?

What is machine-to-machine (M2M) technology? Give an example of a business process that could be automated with M2M.

Describe the relationships in the SoMoClo model.

Explain the cloud.

Why have mobile devices given consumers more power in the marketplace?

What is a business model?

What is a digital business model?

Explain the Internet of Things.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Suggested Answers:

1. What are the benefits of cloud computing?

With cloud computing, IT services are delivered via the Internet on-demand. Some benefits are faster application deployment, no need for upfront hardware costs, a flexible capacity for changing computing requirements, and the ability to add, or reduce, server space on-demand.

2. What is machine-to-machine (M2M) technology? Give an example of a business process that could be automated with M2M.

Machine-to-machine (M2M) technology enables sensor-embedded products to share reliable real-time data via radio signals. M2M is also referred to as the Internet of Things (IoT) and is widely used to automate business processes in industries ranging from transportation to health care. By adding sensors to trucks, turbines, roadways, utility meters, heart monitors, vending machines, and other equipment they sell, companies can track and manage their products remotely.

3. Describe the relationships in the SoMoClo model.

The SoMoClo model refers to social, mobile, and cloud technologies and their relationships, creating the technical infrastructure for digital business. At the core is the cloud, providing 24/7 access to storage, apps, and services. Handhelds and wearables, such as Google Glass, Pebble, and Sony Smartwatch (Figure 1.8), and their users form the edge. Social channels connect the core and edge.

4. Explain the cloud.

The cloud consists of huge data centers accessible via the Internet which provides 24/7 access to storage, apps, and services.

5. Why have mobile devices given consumers more power in the marketplace?

The social influences of a connected society impact advertising and marketing. Positive, or negative, influences on social media can impact consumer buying. Being mobile, consumers can check endorsements and prices on the spot when contemplating a purchase. Customer loyalty, and therefore revenue, increasingly is dependent upon a business exploiting mobile technology, such as location-aware services, apps, alerts, and social networks.

6. What is a business model?

A business model is the means by which a company expects to, and does, make money.

7. What is a digital business model?

A digital business model defines how a business makes money digitally.

8. Explain the Internet of Things.

The Internet of Things refers to a set of capabilities enabled when physical things are connected to the Internet via sensors. Sensors allow for the sharing of real-time data as well as the tracking, monitoring, and management of products remotely.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Business Process Management and Improvement

The Power of Competitive Advantage

Enterprise Technology Trends

How Your IT Expertise Adds Value to Your Performance and Career

Every Business Is a Digital Business

Business Process Management and Improvement

Business Process

Series of steps by which an organization coordinates and organizes tasks to get work done.

Process

Activities that convert inputs into outputs by doing work.

Deliverables

Outputs created through work toward a desired benefit or expected performance improvement.

Performance

A result of processes where maximizing efficiency over one’s competitors is a critical success factor.

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Business Process Management and Improvement

Chapter 1

Business Process Components

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People

Technology

Information

Business Process Management and Improvement

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Business Process

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INPUTS

Raw materials, data, knowledge, expertise

ACTIVITIES

Work that transforms input & acts on data and knowledge

DELIVERABLES

Products, services, plans, or actions

Business Process Management and Improvement

Business Process Characteristics

Formal Processes or Standard Operating Procedures (SOP): documented and have well-established steps.

Informal Processes: typically undocumented, undefined, or are knowledge-intensive.

Range from slow, rigid to fast-moving, adaptive.

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Business Process Management and Improvement

Process Improvement

Continuous examination to determine whether they are still necessary or operating at peak efficiency by eliminating wasted steps called Business Process Reengineering (BPR).

Digital technology enhances processes by:

Automating manual procedures

Expanding data flows to reach more functions and parallel sequential activities

Creating innovative business processes to create new models

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Business Process Management and Improvement

Process Management

Consists of methods, tools, and technology to support and continuously improve business processes also known as Business Process Management (BPM).

BPM software is used to map processes performed manually, by computers, or to design new processes.

BPM requires buy-in from a broad cross section of the business, the right technology selection, and highly effective change management to be successful.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Business Process Management and Improvement

What is a business process? Give three examples.

What is the difference between business deliverables and objectives?

List and give examples of the three components of a business process.

Explain the differences between formal and informal processes.

What is a standard operating procedure (SOP)?

What is the purpose of business process management (BPM)?

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Suggested Answers:

1. What is a business process? Give three examples.

Business processes are series of steps by which organizations coordinate and organize tasks to get work done. In the simplest terms, a process consists of activities that convert inputs into outputs by doing work.

Answers may vary. Some examples of common business processes are:

• Accounting: Invoicing; reconciling accounts; auditing

• Finance: Credit card or loan approval; estimating credit risk and financing terms

• Human resources (HR): Recruiting and hiring; assessing compliance with regulations; evaluating job performance

• IT or information systems: Generating and distributing reports and data visualizations; data analytics; data archiving

• Marketing: Sales; product promotion; design and implementation of sales campaigns; qualifying a lead

• Production and operations: Shipping; receiving; quality control; inventory management

• Cross-functional business processes: Involve two or more functions, for example, order fulfillment and product development

2. What is the difference between business deliverables and objectives?

Objectives define the desired benefits or expected performance improvements. They do not and should not describe what you plan to do, how you plan to do it, or what you plan to produce, which is the function of processes. This last item, what you plan to produce, are deliverables.

3. List and give examples of the three components of a business process.

The three components of a business process are inputs, activities, and deliverables.

Inputs are those items needed to produce the deliverables. These may be raw materials, data, knowledge, or expertise.

Activities are the work that transforms inputs and acts upon data and knowledge in order to produce deliverables.

Deliverables are the products, services, plans, or actions which result from business processes.

4. Explain the differences between formal and informal processes.

Formal processes are documented and have well-established steps. Order taking and credit approval processes are examples.

Informal processes are typically undocumented, have inputs that may not yet been identified, and are knowledge-intensive.

5. What is a standard operating procedure (SOP)?

A standard operating procedure (SOP) is a well-defined and documented way of doing something. An effective SOP documents who will perform the tasks; what materials to use; and where, how, and when the tasks are to be performed.

6. What is the purpose of business process management (BPM)?

Business process management (BPM) consists of methods, tools, and technology to support and continuously improve business processes. The purpose of BPM is to help enterprises become more agile and effective by enabling them to better understand, manage, and adapt their business processes.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Business Process Management and Improvement

The Power of Competitive Advantage

Enterprise Technology Trends

How Your IT Expertise Adds Value to Your Performance and Career

Every Business Is a Digital Business

The Power of Competitive Advantage

IT Consumerization

The migration of consumer technology into enterprise IT environments.

Caused by personally owned IT becoming a capable and cost-effective solution for expensive enterprise equivalents.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

The Power of Competitive Advantage

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Competitive Advantage

Agility

Responsiveness

Flexibility

The Power of Competitive Advantage

Agility

The ability to respond quickly

Responsiveness

IT capacity can be easily scaled up or down as needed

Flexibility

The ability to quickly integrate new business functions or to easily reconfigure software or applications.

IT agility, flexibility, and mobility are tightly interrelated and fully dependent on a organization’s IT infrastructure and architecture.

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The Power of Competitive Advantage

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Corporate Profitability

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Industry Structure

Competitive Advantage

The Power of Competitive Advantage

Industry Structure

An industry’s structure determines the range of profitability of the average competitor and can be very difficult to change.

Competitive Advantage

An edge that enables a company to outperform its average competitor. Competitive advantage can be sustained only by continuously pursuing new ways to compete.

Gartner Group: the difference that matters to customers.

IT competitive advantages are generally short-lived.

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The Power of Competitive Advantage

SWOT

Strengths: Reliable processes; agility; motivated workforce

Weaknesses: Lack of expertise; competitors with better IT infrastructure

Opportunities: A developing market; ability to create a new market or product

Threats: Price wars or other fierce reaction by competitors; obsolescence

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The Power of Competitive Advantage

Strategic Planning

A series of processes in which an organization selects and arranges its businesses or services to keep the organization healthy or able to function even when unexpected events disrupt one or more of its businesses, markets, products, or services.

Strategy

The plan for how a business will achieve its mission, goals, and objectives including questions such as:

What is the long-term business direction?

What is the overall plan for deploying resources?

What trade-offs are necessary?

How do we achieve competitive advantage over rivals in order to achieve or maximize profitability?

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The Power of Competitive Advantage

Chapter 1

Porter’s Competitive Forces Model

Threat of

New Entrants

Rivalry

Our

Company

Competing

Companies

Threat of Substitute

Products or Services

Supplier Power

(Bargaining Power of

Suppliers and Brands)

Buyer Power

(Bargaining Power of

Buyers and Distribution

Channels)

Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

The Power of Competitive Advantage

Basis of the Competitive Forces Model

PROFIT = TOTAL REVENUES minus TOTAL COSTS

Profit is increased by increasing total revenue and/or decreasing total costs. Profit is decreased when total revenues decrease and/or total costs increase.

PROFIT MARGIN = SELLING PRICE minus COST OF THE ITEM

Profit margin measures the amount of profit per unit of sales, and does not take into account all costs of doing business.

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The Power of Competitive Advantage

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Strategies for Competitive Advantage
Cost leadership Differentiation Niche Growth
Alliance Innovation Operational effectiveness Customer orientation
Time Entry barriers Customer or supplier lock-in Increase switching costs

Porter’s Competitive Forces Strategies

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The Power of Competitive Advantage

Primary Activities

Business activities directly involved in the production of goods involving the purchase of materials, the processing of materials into products, and delivery of products to customers.

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Services

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The Power of Competitive Advantage

Support Activities

Applied to any or all of the primary activities which may also support each other.

Infrastructure, accounting, finance, and management

Human resource management (HR)

Technology development, and research and development (R&D)

Procurement or purchasing

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

The Power of Competitive Advantage

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Business Process Management and Improvement

What are the characteristics of an agile organization?

Explain IT consumerization.

What are two key components of corporate profitability?

Define competitive advantage.

Describe strategic planning.

Describe SWOT analysis.

Explain Porter’s five-forces model, and give an example of each force.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Suggested Answers:

1. What are the characteristics of an agile organization?

An agile organization has the ability to respond or adapt quickly.

Organizations depend on IT agility and responsiveness to be able to adapt to market conditions and gain a competitive edge. That competitive advantage is short-lived if competitors quickly duplicate it.

Responsiveness means that IT capacity can be easily scaled up or down as needed, which essentially requires cloud computing. Closely related to IT agility is flexibility. Flexibility means having the ability to quickly integrate new business functions or to easily reconfigure software or apps.

2. Explain IT consumerization.

IT consumerization is the migration of consumer technology into enterprise IT environments. This shift has occurred because personally owned IT is as capable and cost-effective as its enterprise equivalents.

3. What are two key components of corporate profitability?

The two key components of corporate profitability are industry structure and competitive advantage. Industry structure determines the range of profitability of an average competitor in that sector and can be very difficult to change.

4. Define competitive advantage.

Competitive advantage is the edge that enables a company to outperform its average competitor. Competitive advantage can be sustained only by continually pursuing new ways to compete. IT can be an enabler of competitive advantage. Competitive advantage is the difference between a company and its competitors on matters pertinent to customers—such as quality of service/product, and value for money.

5. Describe strategic planning.

Strategic planning is a series of processes in which an organization selects and arranges its businesses or services to keep the organization healthy or able to function even when unexpected events disrupt one or more of its businesses, markets, products, or services. Strategic planning involves environmental scanning and prediction, or SWOT analysis, for each business relative to competitors in that business’ market or product line.

6. Describe SWOT analysis.

In general, strategic analysis is the scanning and review of the political, social, economic and technical environment of the organization. Then the company would need to investigate competitors and their potential reactions to a new entrant into their market. Equally important, the company would need to assess its ability to compete profitably in the market and impacts of the expansion on other parts of the company.

The purpose of this analysis of the environment, competition, and capacity is to learn about the strengths, weaknesses, opportunities, and threats (SWOT) of the expansion plan being considered. SWOT analysis, as it is called, involves the evaluation of strengths and weaknesses, which are internal factors; and opportunities and threats, which are external factors. Examples are:

Strengths: Reliable processes; agility; motivated workforce

Weaknesses: Lack of expertise; competitors with better IT infrastructure

Opportunities: A developing market; ability to create a new market or product

Threats: Price wars or other fierce reaction by competitors; obsolescence

 

SWOT is only a guide and should be used together with other tools such as Porters’ Five Forces Analysis Model. Porters’ models are described in the next section. The value of SWOT analysis depends on how the analysis is performed. Here are several rules to follow:

Be realistic about the strengths and weaknesses of your organization

Be realistic about the size of the opportunities and threats

Be specific and keep the analysis simple, or as simple as possible

Evaluate your company’s strengths and weaknesses in relation to those of competitors (better than or worse than competitors)

Expect conflicting views because SWOT is subjective, forward-looking, and based on assumptions

SWOT analysis is often done at the outset of the strategic planning process.

7. Explain Porters’ five forces model and give an example of each force.

According to Porter’s competitive forces model, there are five major forces that influence a company’s position within a given industry and the strategy that management chooses to pursue. Other forces, including new regulations, affect all companies in the industry, and have a rather uniform impact on each company in an industry. According to Porter, an industry’s profit potential is largely determined by the intensity of competitive forces within the industry. The five major forces in an industry affect the degree of competition, which impact profit margins and ultimately profitability. These forces interact so while you read about them individually, their interaction determines the industry’s profit potential. For example, while profit margins for pizzerias may be small, the ease of entering that industry draws new entrants into that industry. Conversely, profit margins for delivery services may be large, but the cost of the IT to support the service is a huge barrier to entry into the market.

Here is an explanation of the five industry (market) forces.

1. Threat of entry of new competitors. Industries that have large profit margins attract others (called entrants) into the market to a greater degree than small margins. It’s the same principle as jobs–people are attracted to higher paying jobs, provided that they can meet or acquire the criteria for that job. In order to gain market share, entrants typically sell at lower prices or offer some incentive. Those companies already in the industry may be forced to defend their market share by lowering prices, which reduces their profit margin. Thus, this threat puts downward pressure on profit margins by driving prices down.

 

This force also refers to the strength of the barriers to entry into an industry, which is how easy it is to enter an industry. The threat of entry is lower (less powerful) when existing companies have ITs that are difficult to duplicate or very expensive. Those ITs create barriers to entry that reduce the threat of entry. An example of an industry difficult to enter might be that of a new car sales dealership, as these are controlled by the manufacturer.

2. Bargaining power of suppliers. Bargaining power is high where the supplier or brand is powerful; e.g., Apple, Microsoft, and auto manufacturers. Power is determined by how much a company purchases from a supplier. The more powerful company has the leverage to demand better prices or terms, which increase its profit margin. Conversely, suppliers with very little bargaining power tend to have small profit margins.

3. Bargaining power of customers or buyers. This force is the reverse of the bargaining power of suppliers. Examples are Wal-Mart and government agencies. This force is high where there are a few, large customers or buyers in a market.

4. Threat of substitute products or services. Where there is product-for-product substitution, such as Kindle for Nook, there is downward pressure on prices. As the threat of substitutes increases, profit margin decreases because sellers need to keep prices competitively low.

5. Competitive rivalry among existing firms in the industry. Fierce competition involves expensive advertising and promotions; intense investments in research and development (R&D), or other efforts that cut into profit margins. This force is most likely to be high when entry barriers are low; the threat of substitute products is high, and suppliers and buyers in the market attempt to control. That’s why this force is placed in the center of the model.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Business Process Management and Improvement

The Power of Competitive Advantage

Enterprise Technology Trends

How Your IT Expertise Adds Value to Your Performance and Career

Every Business Is a Digital Business

Enterprise Technology Trends

Shifting focus

More mobile business apps, fewer docs on desktops

More socially engaged – but subject to regulation

More near-field communication (NFC) and radio frequency identification (RFID) technologies

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Enterprise Technology Trends

Shifting security issues

Move to mobile raises data security issues

A more transient workforce means higher risk for data (due to loss or theft)

Customer ignorance toward restrictions or regulations (particularly finance and healthcare)

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Enterprise Technology Trends

What was the significance of Apple’s introduction of the iPhones music store?

What are three IT trends?

What are three business applications of NFC?

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Suggested Answers:

1. What was the significance of Apple’s introduction of the iPhones music store?

The iTunes store was the first representation of Apple’s future outside of its traditional computing product line and a breakthrough that forever changed the music industry.

2. What are three IT trends?

The three trends are 1) direction away from the traditional desktop and documents era and toward mobile business apps in the cloud; 2) to be more socially engaged, within restrictions of regulation; and 3) more near-field communication technology.

3. What are three business applications of NFC?

Answers may vary. Some examples are: payment / validation of products, such as airline boarding passes with a touch of an NFC smartphone; tracking products in their supply chain; validating authenticity of high-end goods before purchase; accessing of marketing offers on goods to be purchased; the tracking of livestock; and, the tracking and payment of tolls on toll roads without requiring human interaction.

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Copyright © 2015 John Wiley & Sons, Inc. All rights reserved.

Learning Objectives

Business Process Management and Improvement

The Power of Competitive Advantage

Enterprise Technology Trends

How Your IT Expertise Adds Value to Your Performance and Career

Every Business Is a Digital Business

How Your IT Expertise Adds Value to Your Performance and Career

Emerging Technology Roles:

Chief Technology Officer

Chief Information Officer

IT Project Management

Data-related roles (streaming, management, analytics, development, analysis, and more)

Expanded Traditional Roles:

Knowledge workers

Entrepreneurs

Managers

Business leaders

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How Your IT Expertise Adds Value to Your Performance and Career

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Key Strategic and Tactical Questions

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How Your IT Expertise Adds Value to Your Performance and Career

Why is IT a major enabler of business performance and success?

Explain why it is beneficial to study IT today.

Why are IT job prospects strong?

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Suggested Answers:

1. Why is IT a major enabler of business performance and success?

Digital technology creates markets, businesses, products, and careers. Exciting IT developments are changing how organizations and individuals do things. New technologies, such as 4G or 5G networks, embedded sensors, on-demand workforces, and e-readers point to ground-breaking changes. CNN.com has created a new market whose impacts are yet to be realized. Visit report at ireport.com/, where a pop-up reads “report is the way people like you report the news. The stories in this section are not edited, fact-checked or screened before they post.”

2. Explain why it is beneficial to study IT today?

According to the U.S. Department of Labor, and the University of California Los Angeles (UCLA), the best national jobs in terms of growth, advancement, and salary increases in 2013 are in the fields of IT, engineering, health care, finance, construction, and management. It is projected that these job categories will see above-average national growth over the next several years. The U.S. Department of Labor projections are generally 6–10 years in reference. With big data, data science, and M2M, companies are increasing their IT staff. In addition, many new businesses are seeking more programmers and designers. Data security threats continue to get worse. The field of IT covers a wide range that includes processing of streaming data, data management, big data analytics, app development, system analysis, information security, and more.

Job growth is estimated at 53 percent by 2018, according to the U.S. Department of Labor; and salaries in many IT jobs will increase by 4 to 6 percent. The lack of skilled IT workers in the U.S. is a primary reason for the outsourcing of IT jobs.

3. Why are IT job prospects so strong?

Answers may vary. IT managers play a vital role in the implementation and administration of digital technology. Workers with specialized technical knowledge and strong communications and business skills, as well as those with an MBA with a concentration in an IT area, will have the best prospects. Job openings will be the result of employment growth and the need to replace workers who transfer to other occupations or leave the labor force (Bureau of Labor Statistics, 2012–2013).

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