INFORMATION SYSTEMS

& BUSINESS

Session objectives

Upon completing this session you

should be able to:

Define an information system

Distinguish between computer literacy
and information systems literacy
Explain why information systems are
so important
Explain why information systems are
transforming organizations and
management

Key topics

Need for information systems

Approaches to information systems
Role of information systems
Opportunities with information
systems

Need for information

systems

Recent changes in the business

environment:

Emergence and strengthening of global

economy
Transformation of industrial economies
and societies into knowledge &
information-based service economies
Transformation of the business
enterprise

Emergence of global
economy

Economies worldwide depend on exports

and imports
Foreign trade accounts for over 25% of the
goods and services produced in the US
Success of firms today and in the future
depends on their ability to operate globally
Globalization offers new opportunities and
threats to businesses

IS & globalization

Information systems provide:

Communication capabilities
Analytic power that firms need
Ability to conduct trade and manage
businesses on a global scale

Controlling far-flung global corporations

is a major business challenge that
requires powerful information systems

Ex: Supply Chain Network

IS, globalization &

competition

Globalization and information

technology bring new threats to
business firms
Customers now can shop in a worldwide
marketplace 24 hours a day
Phenomenon heightens competition
and forces firms to play in open,
unprotected worldwide markets
To become effective and profitable,
firms need powerful information and
communication systems

Globalization outcomes

Management and control must be

done in a global marketplace
Competition is now in world markets
Global workgroups are
commonplace
Global delivery systems are now the
norm

Transformation of
economies

Industrial economies are being

transformed to knowledge &
information-based service
economies
Manufacturing has been moving to
low-wage countries
In the new economies, knowledge &
information are key ingredients in
creating wealth

Knowledge & information

Knowledge & information revolution began

at the turn of the 20th century and has
gradually accelerated
Knowledge & information work now accounts
for about 60% of the US gross national
product and about 55% of the labor force
Knowledge & information are the
foundations for many new services and
products

Knowledge & production

Knowledge & information intense

products require great deal of
learning and knowledge to produce
Knowledge utilization in production
of traditional products has
increased significantly

Knowledge & IS

In knowledge & information-based economy,

IT and systems take on great importance
Across all industries information and the
enabling technologies have become critical
strategic assets for business firms and their
managers
Information systems are needed to optimize
the flow of information and knowledge within
the organization
Information systems also helps management
maximize the firms knowledge resources

Ex: Supply chain of OEM

Source: Chase, Jacobs, Aquilano; Page 10

Benefits of disintermediation

The typical distribution channel has several intermediary layers, each of

which adds to the final cost of a product, such as a sweater. Removing
layers lowers the final cost to the consumer.

Outcomes of economic
transformation

Knowledge & information-based

economies
Higher productivity
New products and services
Knowledge has become a central
productive and strategic asset
Time-based competition
Shorter product life
Turbulent business environment
Limited employee knowledge base

Transformation of
enterprise

Transformation of organizing and

managing
Traditional business forms have
been replaced
New business forms have developed
Traditional management has been
transformed

Traditional business forms

Hierarchical & centralized

Structured arrangement of specialists
Reliance on standard operating
procedures
Delivering mass-produced products
and services
Targeting general mass markets

New business forms

Flat & decentralized

Flexible arrangement of generalists
Reliance on instant information
Delivering mass customized products
and services
Targeting specific markets or
customers
Facilitated by information technology

Traditional management

Formal plans that establish goals

Rigid division of labor
Formal rules & procedures
Appeals to loyalty to ensure proper
operation of the firm

New form of management

Informal commitments and networks to

establish goals
Flexible arrangements of teams and
individuals working in task forces
Customer orientation to achieve
coordination among employees
Appeals to professionalism and
knowledge to ensure proper operation of
the firm

New management & IS

Information technology makes this

style of management possible
Information technology makes the
firm more dependent on
knowledge, learning and decisionmaking of individual employees

Outcomes of enterprise
transformation

Flattening of the firm

Decentralization
Flexibility of workers
Location independence
Low transaction and coordination costs
Empowerment of the worker
Collaborative work and teamwork

Transformation of business

How information systems are

transforming business

Increase in wireless technology use, Web sites

Shifts in media and advertising
New federal security and accounting laws

Globalization opportunities

Internet has drastically reduced costs of

operating on global scale
Presents both challenges and opportunities

Capital investment in IT

Information technology investment, defined as hardware, software, and communications

equipment, grew from 32% to 51% between 1980 and 2008.
Source: Based on data in U.S. Department of Commerce, Bureau of Economic Analysis, National Income
and Product Accounts, 2008.

Digital firms

In the emerging, fully digital firm

Significant business relationships are

digitally enabled and mediated
Core business processes are accomplished
through digital networks
Key corporate assets are managed digitally

Digital firms offer greater flexibility in

organization and management

Time shifting, space shifting

Virtual Meetings: Smart

Management

What are the advantages of using

videoconferencing technologies? What
are the disadvantages?
What is telepresence and what sorts of
companies are best suited to use it as a
communications tool?
What kinds of companies could benefit
from using videoconferencing? Are there
any companies that might not derive any
benefits from this technology?

Corporate goals

Growing interdependence between ability to use

information technology and ability to implement
corporate strategies and achieve corporate goals
Business firms invest heavily in information
systems to achieve six strategic business
objectives:

Operational excellence
New products, services, and business models
Customer and supplier intimacy
Improved decision making
Competitive advantage
Survival

Operational excellence

Improvement of efficiency to attain

higher profitability
Information systems, technology
an important tool in achieving
greater efficiency and productivity
Example: Wal-Marts RetailLink
system links suppliers to stores for
superior replenishment system

Business model

Business model: describes how

company produces, delivers, and sells
product or service to create wealth
Information systems and technology:
major enabling tool for new products,
services, business models

Examples: Apples iPod, iTunes, and

iPhone, Netflixs Internet-based DVD
rentals

Customer & supplier

intimacy

Serving customers well leads to customers

returning, which raises revenues and profits

Example: High-end hotels that use computers to

track customer preferences and use to monitor
and customize environment

Intimacy with suppliers allows them to

provide vital inputs, which lowers costs

Example: J.C.Penneys information system which

links sales records to contract manufacturer

Improved decision making

Without accurate information:

Managers must use forecasts, best guesses, luck

Leads to:

Overproduction, underproduction of goods and services

Misallocation of resources
Poor response times

Poor outcomes raise costs, lose customers

Example: Verizons Web-based digital

dashboard to provide managers with realtime data on customer complaints, network
performance, line outages, etc.

Competitive advantage

Delivering better performance

Charging less for superior products
Responding to customers and suppliers
in real time
Example: Toyota and TPS (Toyota
Production System) enjoy a considerable
advantage over competitors
information systems are critical to the
implementation of TPS

Survival

Information technologies as a
necessity for business
May be:

Industry-level changes, e.g. Citibanks

introduction of ATMs
Governmental regulations requiring
record-keeping

Examples: Toxic Substances Control Act,

Sarbanes-Oxley Act

Organizations & IT

In contemporary systems there is a growing interdependence between a firms information

systems
and its business capabilities. Changes in strategy, rules, and business processes increasingly
require changes in hardware, software, databases, and telecommunications. Often, what the
organization would like to do depends on what its systems will permit it to do.

IS definitions

Information system:

Set of interrelated components

Collect, process, store, and distribute
information
Support decision making, coordination, and
control

Information vs. data

Data are streams of raw facts

Information is data shaped into meaningful
form

Data and information

Raw data from a supermarket checkout counter can be processed and organized to produce
meaningful information, such as the total unit sales of dish detergent or the total sales
revenue from dish detergent for a specific store or sales territory.

IS activities

Three activities produce information

organizations need:

Input: Captures raw data from

organization or external environment

Processing: Converts raw data into

meaningful form

Output: Transfers processed information

to people or activities that use it

Feedback loop

Feedback output that is returned

to the appropriate members of the
organization to help them

Evaluate the output

Correct the input

Computers and software are

technical foundation and tools,
similar to the material and tools
used to build a house

Information System
Functions

An information system contains information about an organization and its surrounding environment. Three basic activitiesinput,
processing, and outputproduce the information organizations need. Feedback is output returned to appropriate people or activities in the
organization to evaluate and refine the input. Environmental actors, such as customers, suppliers, competitors, stockholders, and regulatory
agencies, interact with the organization and its information systems.

Computer-based IS (CBIS)

Information systems that rely on

computer hardware and software
for processing and disseminating
information
Formal systems system resting on
accepted and fixed definitions of
data and procedures, operating
with predefined rules

Information systems & IT

Computers and related software programs

are the technical foundations, i.e. tools and
materials of modern information systems
Understanding information systems
requires understanding:

Problems they are designed to solve,

Their architectural and design elements
The organizational process that lead to these
solutions

Computers & IS

Using information systems effectively requires an understanding of the organization,

management, and information technology shaping the systems. An information system
creates value for the firm as an organizational and management solution to challenges
posed by the environment.

Organizational dimension

Hierarchy of authority,
responsibility

Senior management
Middle management
Operational management
Knowledge workers
Data workers
Production or service workers

Levels in a Firm

Business organizations are hierarchies consisting of three principal levels: senior management, middle management, and operational
management. Information systems serve each of these levels. Scientists and knowledge workers often work with middle management.

Business functions

Separation of business functions

Sales and marketing

Human resources
Finance and accounting
Manufacturing and production

Unique business processes

Unique business culture
Organizational politics

Management dimension

Managers set organizational

strategy for responding to business
challenges
In addition, managers must act
creatively:

Creation of new products and services

Occasionally re-creating the
organization

Technology dimension

Computer hardware and software

Data management technology

Networking and telecommunications

technology

Networks, the Internet, intranets and

extranets, World Wide Web

IT infrastructure: provides platform that

system is built on

Example: UPS

Read the UPS Case and then discuss the

following questions:

What are the inputs, processing, and

outputs of UPSs package tracking system?
What technologies are used by UPS?
How are these technologies related to UPSs
business strategy?
What problems do UPSs information
systems solve?
What would happen if these systems were
not available?

UPS tracking system

Dimensions of UPS tracking system

Organizational:

Management:

Procedures for tracking packages and managing

inventory and provide information

Monitor service levels and costs

Technology:

Handheld computers, bar-code scanners,

networks, desktop computers, etc.

Business perspective

Information system is instrument for

creating value
Investments in information
technology will result in superior
returns:

Productivity increases
Revenue increases
Superior long-term strategic positioning

Business information

Business information value chain

Raw data acquired and transformed through

stages that add value to that information
Value of information system determined in
part by extent to which it leads to better
decisions, greater efficiency, and higher
profits

Business perspective: Calls attention to

organizational and managerial nature of
information systems

Information value chain

From a business perspective, information systems are part of a series of value-adding activities for acquiring, transforming, and
distributing information that managers can use to improve decision making, enhance organizational performance, and,
ultimately, increase firm profitability.

Returns from IT
investments

Investing in information technology

does not guarantee good returns
Considerable variation in the returns
firms receive from systems
investments
Factors:

Adopting the right business model

Investing in complementary assets
(organizational and management capital)

Complementary assets

Assets required to derive value

from a primary investment
Firms supporting technology
investments with investment in
complementary assets receive
superior returns
E.g.: invest in technology and the
people to make it work properly

Complementary assets types

Organizational investments, e.g.

Managerial investments, e.g.

Appropriate business model

Efficient business processes
Incentives for management innovation
Teamwork and collaborative work
environments

Social investments, e.g.

The Internet and telecommunications

infrastructure
Technology standards

Approaches to IS

The study of information systems deals with issues and insights contributed from technical and behavioral
disciplines.

Technical & Behavioral

Technical approach

Emphasizes mathematically based models

Computer science, management science,
operations research

Behavioral approach

Behavioral issues (strategic business

integration, implementation, etc.)
Psychology, economics, sociology

Business information
systems

Business information systems

Combines computer science, management

science, operations research and practical
orientation with behavioral issues

Four main actors

Suppliers of hardware and software

Business firms
Managers and employees
Firms environment (legal, social, cultural
context)

Socio-technical view

Optimal organizational
performance achieved by jointly
optimizing both social and
technical systems used in
production
Helps avoid purely technological
approach

Socio-technical model

In a sociotechnical perspective, the performance of a system is optimized when both the

technology and the organization mutually adjust to one another until a satisfactory fit is
obtained.