Lecture1

Foundations of Information Systems in Business

HOWINFORMATIONSYSTEMS ARETRANSFORMINGBUSINESS
Businesses sought to sense and respond to rapidly changing customer
demand,reduce inventories to the lowest possible levels, and achieve higher
levels of operational efficiency. Supply chains have become more fast-paced,
with companies of all sizes depending on just-in-time inventory or reduce their
overhead costs and get to market faster.
Morewireless cellphone accounts were opened in 2009 than telephone
landlines installed.
Cellphones, BlackBerrys, iPhones, e-mail, and online conferencing over
the Internet have all become essential tools of business.
89 million people in the US Aaccess the Internet using mobile devices in
2010.
There are 285 million cellphone subscribers in the USA,and nearly 5
billion worldwide.
By June 2010, more than 99 million businesses world wide had dot-com
Internet sites registered.
Today, 162million Americans shop online, and 133 million have
purchased online.
Everyday about 41 million Americans go online to research a product or
service.
More than 78 million people receive their news online.
About39millionpeoplewatchavideoonlineevery day, 66millionread ablog,
and 16millionpost toblogs,creatingnewformsof customerfeedbackthatdid
notexistfiveyears ago.

SocialnetworkingsiteFacebookattracted134millionmonthlyvisitorsin2010i
n theUSA,andover500millionworldwide.
Businessesare startingto use socialnetworkingtoolsto connect their
employees,customers,andmanagersworldwide.ManyFortune500compani
es nowhaveFacebookpages.
Googlesonlinead revenuessurpassed $25 billion in 2009, and Internet
advertisingcontinuestogrowatmorethan10percentayear,reachingmore
than$25billioninrevenuesin2010.
Manybusinessesarerequiredtokeepe-mailmessagesforfiveyears.

WHATS NEW IN MANAGEMENT INFORMATION SYSTEMS?

Lots!
Whatmakesmanagementinformationsystemsthemostexcitingtopicinbusiness
isthe
Continualchangeintechnology,managementuseof thetechnology,andthe
impactonbusinesssuccess.
Newbusinessesandindustriesappear,old
onesdecline,andsuccessfulfirmsare
thosewholearnhowtousethenewtechnologies
.
Table1-1summarizes(textbook,ch.1,p.8)themajornewthemesinbusiness
usesofinformationsystems.
Threeinterrelatedchanges:(1)theemergingmobiledigitalplatform,(2)the
growthofonlinesoftware,and(3)thegrowthincloudcomputing
IPhones,iPads,BlackBerrys,andWebsurfingnetbooksrepresentnewemerging
Computing
platforms.

Managersareincreasinglyusingthesedevicestocoordinatework,communic
ate with employees, andprovide information for decision making. We
callthese developmentstheemergingmobile digitalplatform.
ManagersroutinelyusesocalledWeb2.0technologieslikesocialnetworking,
collaborationtools,andwikisinordertomakebetter,fasterdecisions.
Asmanagementbehaviorchanges,
howworkgets
organized,coordinated,and measured also
changes. By connecting
employees working on teams and projects, the social network is
where works gets done, where plans
are executed, and where
managers
manage.
Collaboration
spaces
arewhere
employeesmeetoneanotherevenwhen
theyareseparatedby
continentsand timezones.
Thestrengthof cloudcomputingandthegrowthof themobiledigitalplatform
allow organizations to
rely more on telework, remote work,and
distributed
decisionmaking.Thissame
platformmeansfirmscanoutsourcemorework,and
relyonmarkets(ratherthanemployees)tobuildvalue.Italsomeans thatfirms
cancollaboratewith suppliersandcustomerstocreatenewproducts,ormake
existingproductsmoreefficiently.
Youcan seesome of these trends at work in the InteractiveSessionon
Management.Millionsof
managersrelyheavilyonthemobiledigitalplatformto coordinate suppliers
and shipments, satisfy customers, and manage their employees.

 A businessday withoutthese mobiledevicesor Internet access would be

unthinkable. As youread this case, note howthe emerging mobile
platform
greatlyenhancestheaccuracy,speed,andrichnessofdecisionmaking.

I.

STRATEGICBUSINESS OBJECTIVESOFINFORMATIONSYSTEMS

There is a growing interdependence between a firms ability to use

information technology and its ability to implement corporate strategies and
achieve corporate goals(seeFigure1-2).
Whatabusinesswouldliketodo infiveyears oftendepend onwhatitssystemswillbe
abletodo.Increasingmarketshare,becomingthehigh-qualityorlowcostproducer,developingnewproducts,andincreasingemployeeproductivitydep
endmoreandmore onthe
kinds andquality of information systemsinthe
organization.
Themore
youunderstandaboutthisrelationship,themorevaluableyouwillbeasamanager.
Specifically, business firms invest heavily in information systems to
achieve six strategic business objectives:
operational excellence; new
products, services,
and business models; customerandsupplier intimacy;
improved decision making; competitiveadvantage;andsurvival.
OperationalExcellence

IShelpsmanagersforachievinghigherlevelsof efficiencyand productivityin

businessoperations.
Walmartexemplifiesthe powerof informationsystemstoachieveworldclass operationalefficiency.
RetailLinksystemdigitallylinksitssupplierstoeveryoneofWalmartsstores.
As soonas acustomerpurchasesanitem,thesuppliermonitoringtheitem
knowstoshipareplacementtotheshelf.

FIGURE1-2
THEINTERDEPENDENCEBETWEENORGANIZATIONSAN
D INFORMATIONSYSTEMS

NewProducts,Services,andBusinessModels

A businessmodeldescribeshowa companyproduces, delivers,and sellsa

productorservicetocreatewealth.
Todaysmusicindustryisvastlydifferentfromtheindustryadecadeago.
Apple Inc.transformedanold businessmodelof musicdistributionbasedon
vinylrecords,tapes,andCDsintoanonline,legaldistributionmodelbasedonit
s owniPod technologyplatform.
TheiPod,theiTunesmusicservice,theiPad,andtheiPhone.
CustomerandSupplierIntimacy
How toreallyknowyourcustomers,orsuppliers?
Exampleofcustomerintimacy:TheMandarinOrientalinManhattan
They keep track of guestspreferences,such astheirpreferredroom
temperature,check-intime,frequentlydialedtelephonenumbers,and
television programs.,andstorethesedatainalargedatarepository.
Individualrooms in thehotelsare networkedto a centralnetwork server
computersothattheycanberemotelymonitoredorcontrolle
d.
When acustomer arrives,the system automaticallychanges the room
conditions,
such as dimming
the lights,
setting
the room
temperature,
or
selectingappropriatemusic,basedonthecustomersdigitalprofile.

Thehotelsalsoanalyzetheircustomerdatatoidentifytheirbestcustomersan
d
todevelopindividualizedmarketingcampaignsbasedoncustomersprefere
nces
Exampleofsupplierintimacy:JCPenny
Everytimeadressshirtisbought ataJCPenneystore inthe USA,therecordof
thesaleappearsimmediatelyoncomputersinHong Kongat the TALApparel
Ltd.Supplier.
TALthendecideshowmany replacementshirtsto make, and inwhat
styles,colors,andsizes.
TAL thensendstheshirtstoeach JCPenneystore, bypassingcompletelythe
retailerswarehouses.
Inotherwords,JCPenneysshirtinventoryisnearzero.

ImprovedDecisionMaking

Manymanagersoperateinaninformationfog
bank,neverreallyhavingtheright
informationattherighttimetomakeaninformeddecision.
Instead, managersrelyon forecasts,best guesses, and luck.The resultis
underproduction ofgoodsand services, misallocation of resources, and
poor responsetimes.
Thesepooroutcomesraisecostsandlosecustomers.

Informationsystemsandtechnologieshavemadeitpossibleformanagerstou
se real-timedatafromthemarketplacewhenmakingdecisions.
VerizonCorporation,TelecommunicationCompany,uses a Webbaseddigitaldashboardto providemanagerswithpreciserealtimeinformationoncustomer complaints; networkperformance foreach
localityserved,andlineoutagesor storm-damagedlines.

CompetitiveAdvantage

When firmsachieveone or moreof these businessobjectives;achieve

competitiveadvantage.
Doingthingsbetterthanyourcompetitors,
Charginglessforsuperiorproducts,and
Respondingtocustomersandsuppliersinrealtimealladd uptohigher
salesandhigherprofitsthatyourcompetitorscannotmatch.
AppleInc.,Walmart,andUPS,knowhowtouse informationsystems forthis
purpose

Survival

 ISisnecessitiesofdoingbusiness.
Thesenecessitiesaredrivenby industry-levelchanges.
HSBC introducedfirstATMinIndiain1987. Otherbanks rushedtoprovideitto
theircustomers.

InUSA,legaldutyforcompaniesandtheiremployeestoretainrecords,includi
ng digitalrecords.
II. WHATISANINFORMATIONSYSTEM?

Asetof interrelatedcomponentsthatcollect(orretrieve),process,store,and
distributeinformationtosupportdecisionmakingandcontrolinanorganizatio
n.

Inadditiontosupportingdecisionmaking,coordination,andcontrol,information
systems mayalsohelpmanagers and workers analyzeproblems,visualize
complexsubjects,andcreatenewproducts.

FIGURE1-3
DATAANDINFORMATION

By informationwemean data that have been shaped intoa form that is

meaningfulandusefultohumanbeings.
Dataarestreamsofrawfacts.
Example:Supermarketcheckoutcountersscanmillionsof piecesof datafrom
barcodes.
Threeactivitiesin an informationsystem produce theinformationthat
organizationsneed:input,processing,andoutput.
Input capturesorcollectsraw data from within the organizationor from its
externalenvironment.
Processingconvertsthisrawinputintoameaningfulform.
Outputtransferstheprocessedinformationtothepeoplewhowilluseitortothe
activitiesforwhichitwillbeused.
Feedbackisoutputthatisreturnedtoappropriatemembersof
theorganization tohelpthemevaluateorcorrecttheinputstage.

ReadTextbookChapter1,pp.1719

FIGURE1-4 FUNCTIONSOFANINFORMATIONSYSTEM

III.TYPESOFINFORMATIONSYSTEMS
Nosinglesystemcanprovidealltheinformationanorganizationneeds.
A businessfirm has systems to support differentgroups or levelsof
management.
Thesesystemsinclude:
Transactionprocessingsystems,
Managementinformationsystems,
Decision-supportsystems,and
Systemsfor businessintelligence
a. TransactionProcessingSystems
It isa computerizedsystem that performs and records the daily routine
transactions necessary to conductbusiness, suchas sales orderentry,
hotel reservations,payroll,employeerecordkeeping,andshipping.
How manyparts areininventory?WhathappenedtoMr.Smithspayment?
Toanswerthesekindsofquestions,managersrelyonTPS.

FIGURE2-2
APAYROLLTPS
b. ManagementInformationSystems

MIS
providemiddlemanagers
with
reports
on
the
organizationscurrent performance.
MIS
summarizeandreporton
thecompanysbasicoperationsusingdatasuppliedby
transactionprocessingsystems.ThebasictransactiondatafromTPS
arecompressed
andusuallypresentedinreportsthatareproducedon
aregularschedule.
Today,manyofthesereportsaredeliveredonline.
Figure2-3showshowatypicalMIS
transformstransaction-leveldata
fromorder processing, production, and accounting into MIS files that are
used to provide managerswithreports.
Figure2-4showsasamplereportfromthissystem.
MIS servemanagersprimarilyinterestedin
weekly,monthly,andyearlyresults.
Thesesystems typicallyprovideanswers to routinequestionsthat have
been
specifiedinadvanceandhaveapredefinedprocedureforansweringthem.
Thesesystemsgenerallyare
not
flexibleand
have
littleanalyticalcapability.Most MIS
use simpleroutines, such
as

summaries
and
comparisons,
as
sophisticatedmathematicalmodelsorstatistical techniques.

opposedto

FIGURE2-3 HOWMANAGEMENTINFORMATIONSYSTEMS
OBTAINTHEIRDATA FROMTHEORGANIZATIONSTPS
DecisionSupportSystem (DSS)
(DSS)supportmorenon-routinedecisionmaking.
Theyfocusonproblemsthatareuniqueandrapidlychanging,
Forwhichtheprocedureforarrivingatasolutionmaynotbefully predefinedin
advance.
Whatwouldbetheimpactonproductionschedulesifweweretodoublesalesin
themonthof December? Whatwouldhappentoourreturnoninvestmentifa
factoryscheduleweredelayedforsixmonths?

FIGURE2-4
SAMPLEMISREPORT

FIGURE2-5 VOYAGE-ESTIMATINGDECISIONSUPPORTSYSTEM
c. ExecutiveSupportSystem(ESS)

ESS
helpsseniormanagement
andaddress
nonroutinedecisionsrequiring
judgment,evaluation,andinsightbecause
thereisno agreed-onprocedurefor arrivingata solution.
ESS presents graphsanddatafrommanysourcesthroughaninterfacethatis
easyforseniormanagerstouse.
Oftentheinformationisdeliveredtoseniorexecutivesthroughaportal,
which
usesaWebinterfacetopresentintegratedpersonalizedbusinesscontent.
ESS isdesignedtoincorporatedataaboutexternalevents,suchasnewtaxlaws
orcompetitors,buttheyalsodrawsummarizedinformationfrominternalMIS
andDSS.
Theyfilter,compress, andtrackcritical data,displayingthedataof greatest
importancetoseniormanagers.

IntranetsandExtranets

Intranetsaresimplyinternalcompany Websitesthatareaccessibleonly by
employees.The termintranetreferstothefactthatitisaninternalnetwork,in
contrasttothe Internet, which is a public network linkingorganizations
and otherexternalnetworks.

IntranetsusethesametechnologiesandtechniquesasthelargerInternet,andthe
y often are simplyaprivateaccess area in a largercompany Web site.
Likewisewithextranets.

ExtranetsarecompanyWeb
sitesthatareaccessibletoauthorizedvendorsand
suppliers,andoftenusedtocoordinatethemovement of suppliestothefirms
productionapparatus.

Studentsshouldhaveclearconceptaboutemail,instantmessaging,cellphones,s
martphones,socialnetworking,wikis,virtualworlds,e-business,e-commerce,
ande-government.