UNIT 2

Information Systems: Concepts and

Management
CHAPTER OUTLINE
2.1 Types of Information Systems
2.2 Competitive Advantage and Strategic
Information Systems
2.3 Why Are Information Systems Important
to Organizations and Society?
2.4 Managing Information Resources
2.1 Types of Information Systems
Computer-based information systems (CBIS)
use computer technology to perform some or
all of their tasks and are composed of:
 Hardware
 Software
 A Database
 A Network
 Procedures
 People
 Hardware is a device such as a processor, monitor,
keyboard or printer
 Software is a program or collection of programs that
enable hardware to process data.
 Database is a collection of related files or tables
containing data.
 Network is a connecting system (wireline or wireless)
that permits different computers to share resources.
 Procedures are the set of instructions about how to
combine the above components in order to process
information and generate the desired output.
 People are those individuals who use the hardware
and software, interface with it, or uses its output.
Information Systems Inside Your
Organization
Information Technology Outside Your
Organization
Application Programs

An application program is a computer

program designed to support a specific task,
a business process or another application
program.
Breadth of Support of Information
Systems
 Functional area information systems
 Enterprise resource planning systems
 Transaction processing systems
 Interorganizational information systems
Breadth of Support of Information
Systems
 Functional area information systems support
particular functional areas in an organization.
 Enterprise resource planning systems tightly
integrate the functional area information systems via
a common database.
 Transaction processing systems support the
monitoring, collection, storage, and processing of
data from the organization’s basic business
transactions.
 Interorganizational information systems connect
two or more organizations. Examples are supply
chain management systems and electronic
commerce systems.
Information Systems Support for
Organization Employees

 Office automation systems

 Functional area information systems
 Business intelligence systems
 Expert Systems
 Dashboards
Information Systems Support for
Organization Employees
 Office automation systems typically support the clerical staff,
lower and middle managers, and knowledge workers. These
people use OASs to development documents, schedule
resources, and communicate.
 Functional area information systems summarize data and
prepare reports, primarily for middle managers.
 Business intelligence systems provide computer-based
support for complex, non-routine systems, primarily for middle
managers and knowledge workers.
 Expert systems attempt to duplicate the work of human experts
by applying reasoning capabilities, knowledge, and expertise
within a specific domain.
 Dashboards support all managers by providing rapid access to
timely information and direct access to structured information in
the form of reports.
table_02_01
 2.2 Competitive Advantage and
Strategic Information Systems
 Competitive Advantage
An advantage over competitors in some
measure such as cost, quality, or speed, leads to
control of a market and to larger- than average
profits.
 Strategic Information Systems (SIS)
Provide a competitive advantage by helping an
organization to implement its strategic goals and to
increase its performance and productivity.
Porter’s Competitive Forces Model

The best-known framework for analyzing

competitiveness is Michael Porter’s
competitive forces model (Porter, 1985).
Porter’s Competitive Forces Model
Porter’s Competitive Forces Model
 Threat of entry of new competitors is high
when it is easy to enter a market and low
when significant barriers to entry exist.
 A barrier to entry is a product or service
feature that customers expect from
organizations in a certain industry.
 For most organizations, the Internet
increases the threat that new competitors will
enter a market.
Porter’s Competitive Forces Model
 The bargaining power of suppliers is high
when buyers have few choices and low when
buyers have many choices.
 Internet impact is mixed. Buyers can find
alternative suppliers and compare prices
more easily, reducing power of suppliers.
 On the other hand, as companies use the
Internet to integrate their supply chains,
suppliers can lock in customers.
Porter’s Competitive Forces Model
 The bargaining power of buyers is high
when buyers have many choices and low
when buyers have few choices.
 Internet increases buyers’ access to
information, increasing buyer power.
 Internet reduces switching costs, which are
the costs, in money and time, to buy
elsewhere. This also increases buyer power.
Porter’s Competitive Forces Model
 The threat of substitute products or
services is high when there are many
substitutes for an organization’s products or
services and low where there are few
substitutes.
 Information-based industries are in the
greatest danger from this threat (e.g., music,
books, software). The Internet can convey
digital information quickly and efficiently.
Porter’s Competitive Forces Model
 The rivalry among firms in an industry is
high when there is fierce competition and low
when there is not.
Porter’s Value Chain Model

This model identifies specific activities where

organizations can use competitive strategies
for greatest impact.
 Primary activities
 Support activities
Porter’s Value Chain Model
Strategies for Competitive Advantage
 Cost Leadership

 Differentiation

 Innovation

 Operational Effectiveness

 Customer-orientation
2.3 Why are Information Systems
Important to Organizations & Society

 IT will reduce the number of middle

managers.
 IT will change the manager’s job.
 IT impacts employees at work.
 IT provides quality-of-life improvements.
Managing Information Resources

 Which IT Resources are Managed and By

Whom?
 The Role of the IS Department
Traditional Major IS Functions
 Managing systems development and systems project
management
 Managing computer operations
 Staffing, training, developing IS skills
 Providing technical services
 Infrastructure planning, development, control
New (Consultative) IS Functions
 Initiating and designing strategic information systems
 Incorporating the Internet and e-commerce into the business
 Managing system integration
 Educating non-IS managers about IT
 Educating IS staff about the business
 Supporting end-user computing
 Partnering with executives
 Managing outsourcing
 Innovate
 Ally with vendors and IS departments in other organizations
 Supporting End Users

One form of end-user support is the help desk, where

IS staffers help users troubleshoot problems with
their systems.
Organizational Information Systems
CHAPTER OUTLINE
8.1 Transaction Processing Systems
8.2 Functional Area Information Systems
8.3 Enterprise Resource Planning Systems
8.4 Customer Relationship Management
Systems
8.5 Supply Chain Management Systems
8.6 Electronic Data Interchange and
Extranets
LEARNING OBJECTIVES
 Describe transaction processing systems.
 Describe functional area information systems
and the support they provide for each
functional area of the organization.
 Describe enterprise resource planning
systems.
LEARNING OBJECTIVES (continued)
 Describe customer relationship management
systems.
 Describe supply chain management systems.
 Discuss electronic data interchange and
extranets.
 Chapter Opening Case

Toyota
Production
System
Toyota Production System (continued)

Electronic dashboard showing

status of assembly line
Toyota Production System (continued)
Toyota Production System (continued)

How light curtains work

8.1 Transaction Processing Systems
(TPS)
Rudy Giuliani checking out of
a Wal-Mart using a bar code
scanner that produces data
captured by a transaction
processing system

Note: the barcode

scanner is an example of
source data automation

Batch Processing
Online Transaction Processing (OLTP)
 Transaction processing system (TPS) monitors,
collects, stores and processes data generated from all
business transactions.
 Batch Processing is when the firm collects data from
transactions as they occur, placing them in groups or
batches, then prepares and processes the batches
periodically (say, every night).
 Online Transaction Processing (OLTP) is when
business transactions are processed online as soon as
they occur.
 Source data automation involves collecting data from
sensors (e.g., barcode scanners) and entering the data
directly into a computer without human intervention.
How Transaction Processing Systems
Manage Data
8.2 Functional Area Information Systems

 Functional area information Systems are

designed to support a functional area by
increasing its internal effectiveness and
efficiency in the following areas:
 Accounting
 Finance
 Marketing
 Operations (POM)
 Human Resources Management
Examples of Information Systems
Supporting the Functional Areas
Functional Area Information Systems Reports

 Routine reports
 Ad hoc (on demand) reports
 Drill-down reports
 Key-indicator reports
 Comparative reports
 Exception reports
 Summary Report

A summary
report is one
type of routine
report
 Detailed Report

A detailed
report is
another type of
routine report
 Drill-Down Report

Drill-down
report is a
type of ad-
hoc report
 Key-Indicator Report

Key-indicator
report is a
type of ad-hoc
report
 Comparative Report

Comparative
report is one
type of ad-hoc
report.
Exception Report
8.3 Enterprise Resource Planning
Systems (ERP)
The major objective of ERP systems is to tightly
integrate the functional areas of the organization and
to enable seamless information flows across the
functional areas.
 8.3 Enterprise Resource Planning
Systems (ERP)
 Enterprise Resource Planning (ERP) systems
integrate the planning, management and use of all
resources of the organization. That is, ERP systems
are designed to break down the information silos of
an organization.

 Many information systems were developed for

specific functional areas and did not communicate
with systems in other functional areas. Therefore,
these systems are referred to as information silos.
Problems with information silos
ERP Systems (continued)
SAP Modules
SAP Modules

SAP is moving away from describing their system as a set of modules, and
now is using the term “solutions.” On their Website, SAP has structured their
Solutions tab as follows:
Financials
Human Resources
Customer Relationship Management
Supplier Relationship Management
Product Lifecycle Management
Supply Chain Management
Business Intelligence
 SAP Modules
SAP modules:
FI Financial Accounting – essentially your regulatory ‘books of record’
General ledger
Book close
Tax
Accounts receivable
Accounts payable
Consolidation
Special ledgers
CO Controlling – basically your internal cost/management accounting
Cost elements
Cost centers
Profit centers
Internal orders
Activity based costing
Product costing
AM Asset Management – track, value and depreciate your assets
Purchase, Sale ,Depreciation ,Tracking ,
PS Project Systems – manage your projects, large and small
SAP Modules
 Make to order
 Plant shut downs (as a project)
 Third party billing (on the back of a project)
 HR Human Resources – people
 Employment history
 Payroll
 Training
 Career management
 Succession planning
 PM Plant Maintenance – maintain your equipment
 Labor
 Material
 Down time and outages
 MM Materials Management – underpins the supply chain
 Requisitions
 Purchase orders
 Goods receipts
 Accounts payable
 Inventory management
 Bills of Material
 Master raw materials, finished goods etc
 QM Quality Management – improve the quality of your goods
 Planning
 Execution
 Inspections
 Certificates
 PP Production Planning – manages your production process
 Capacity planning
 Master production scheduling
 Material requirements planning
 Shop floor

SD Sales and Distribution – from order to delivery
 RFQ
 Sales orders
 Pricing
 Picking (and other warehouse processes)
 Packing
 Shipping
ERP Systems (continued)
A business process is a set of related steps or
procedures designed to produce a specific outcome.
8.4 Customer Relationship
Management
 Includes a one-to-one
relationship between a
customer and a seller.
 One simple idea “Treat
different customers
differently.”
 Helps keep profitable
customers and maximizes
lifetime revenue from them.
 The Need for CRM
 It costs six times more to sell to a new
customer than to sell to an existing one.
 A typical dissatisfied customer will tell 8-10
people.
 By increasing the customer retention rate by
5%, profits could increase by 85%.
 Odds of selling to new customers = 15%,
compared to the odds of selling to existing
customers (50%)
 70% of complaining customers will remain
loyal if problem is solved
The Customer Life Cycle
Customer Value
 The value of a customer to a company
depends on three dimensions: the duration
of the relationship, the number of
relationships (e.g., the number of products
from a company that a customer purchases),
and the profitability of the relationship.
 Customer Touch Points

E-mail

Telephone Web site

Store
Conventional mail Help desk
 CRM Applications
CRM systems provide applications in 3 major areas:
Sales - sales force automation (SFA).
Marketing – support marketing campaigns & provide
opportunities for cross-selling, up-selling and bundling.
Customer Service – can take many Web-based forms.
 Sales force automation (SFA) functions provide such data as
sales prospect and contact information, product information,
product configurations and sales quotes.
 Cross-selling is the marketing of complementary products to
customers.
 Up-selling is the marketing of higher-value products or services
to customers.
 Bundling is a type of cross-selling in which a vendor sells a
combination of products together at a lower price than the
combined costs of the individual products.
 Customer Service
 Customer service can take many forms and
includes:
 Technical and other information and services
 Customized products and services
 Tracking account or order status
 Personalized Web pages
 FAQs
 E-mail and automated response
 Call centers
Software as a Service for CRM
(IT’s About Business 8.2)
8.5 Supply Chain Management
Systems (SCM)
Supply chain
Supply chain management (SCM)
Interorganizational information system (IOS)
Global information system
 Supply chain refers to the flow of materials, information,
money, and services from raw material suppliers, through
factories and warehouses, to the end customers.
 Supply chain management (SCM) is the function of
planning, organizing and optimizing the supply chain’s
activities.
 Interorganizational information system (IOS) involves
information flows among two or more organizations.
 Global information systems are interorganizational
information systems that connect companies located in
two or more countries
Supply Chain (recall Figure 2.2)
The Structure & Components of
Supply Chains
A supply chain involves three segments:
Upstream
Internal
Downstream
Tiers of suppliers
 Upstream, where sourcing or procurement from
external suppliers occurs.
 Internal, where packaging, assembly or
manufacturing takes place.
 Downstream, where distribution takes place,
frequently by external distributors.
 Tiers of suppliers, a supplier may have one
or more subsuppliers, and the subsupplier
may have its own subsupplier(s) and so on.
Generic Supply Chain
The Flows of the Supply Chain
 Material flows
 Information flows
 Financial flows
 Material flows are the physical products, raw materials,
supplies and so forth that flow along the chain.
 Information flows are all data related to demand, shipments,
orders, returns and schedules as well as changes in any of
these data.
 Financial flows are all transfers of money, payments and
credit-related data.
 A supply chain involves a product life cycle approach, from
“dirt to dust”.
Problems Along the Supply Chain
 Poor customer service
 Poor quality product
 High inventory costs
 Loss of revenues
 New technologies
Problems Along the Supply Chain
(continued)

 Problems stem mainly from two sources:

 Uncertainties due to demand forecast, delivery
times, quality problems in materials and parts
that can create production delays;
 The need to coordinate several activities,
internal units and business partners.
 Bullwhip effect refers to erratic shifts in
orders up and down the supply chain.
The Bullwhip Effect
Issues of Global IOS Design
 Cultural differences
 Localization
 Economic and Political Differences
 Legal issues
 Cross-border data transfer which refers to the
flow of corporate data across nations’
borders.
 Putting it all together

The relationships
among SCM, ERP,
and CRM
8.6 Electronic Data Interchange (EDI)
and Extranets

Electronic data interchange (EDI)

Extranets
 Electronic data interchange (EDI) is a
communication standard that enables business
partners to exchange routine documents, such as
purchase orders, electronically.
 Extranets link business partners to one another over
the Internet by providing access to certain areas of
each other’s corporate intranets.
 EDI Benefits
 Minimize data entry errors
 Length of messages are shorter
 Messages are secured
 Reduces cycle time
 Increases productivity
 Enhances customer service
 Minimizes paper usage and storage
 EDI Limitations
 Significant initial investment to implement
 Ongoing operating costs are high due to the
use of expensive, private VANs
 Traditional EDI system is inflexible
 Long startup period
 Multiple EDI standards exist
Comparing Purchase Order Fulfillment
Without EDI
Comparing Purchase Order Fulfillment
With EDI
 Extranets
 The main goal of extranets is to foster
collaboration between business partners.
 An extranet is open to selected B2B
suppliers, customers and other business
partners.
The Structure of an Extranet
Managerial Support Systems
CHAPTER OUTLINE
9.1 Managers and Decision Making
9.2 Business Intelligence, Multidimensional
Data Analysis, Data Mining, and Decision
Support Systems
9.3 Digital Dashboards
9.4 Data Visualization Technologies
9.5 Intelligent Systems
LEARNING OBJECTIVES
 Describe the concepts of management,
decision making and computerized support
for decision making.
 Describe multidimensional data analysis and
data mining
 Describe dashboards
LEARNING OBJECTIVES (continued)
 Describe data visualization, and explain
geographical information systems and virtual
reality.
 Describe artificial intelligence (AI).
 Define an expert system and identify its
components.
 Describe natural language processing and
natural language generation, and neural
networks.
Chapter Opening Case
9.1 Managers and Decision Making

Management is a process by which

organizational goals are achieved
through the use of resources (people,
money, energy, materials, space,
time).
The Manager’s Job and Decision Making

Managers have three basic roles (Mintzberg

1973)
 Interpersonal roles: figurehead, leader,
liaison
 Informational roles: monitor,
disseminator, spokesperson
 Decisional roles: entrepreneur,
disturbance handler, resource allocator,
negotiator.
The Manager’s Job & Decision Making
(continued)

 Decision refers to a choice that individuals

and group make among two or more
alternatives.
 Decision making is a systematic process
composed of three major phases:
intelligence, design and choice (Simon 1977)
 Implementation phase was added later.
Decision Making Process
Why Managers Need IT Support
 The number of alternatives to be considered
constantly increases.
 Decisions must be made under time
pressure.
 Decisions are more complex
 Decision makers can be in different locations
and so is the information.
A Framework for Computerized
Decision Analysis
A Framework for Computerized
Decision Analysis

Lower-level managers usually perform the structured and

operational-control oriented
tasks in cells 1, 2, and 4. (Blue color above).
Middle managers and staff usually perform the tasks in cells 3,
5, and 7. (Orange color above).
Senior executives usually perform the tasks in cells 6, 8, and 9.
(Yellow color above.)
 Problem Structure
The first dimension deals with the problem structure, where
does the decision making processes fall along the continuum
ranging from highly structured to highly unstructured decisions.
Structured
Unstructured
Semi structured
 Structured problems are routine and repetitive problems for
which standard solutions exist.
 Unstructured problems are fuzzy, complex problems for which
there are no cut-and-dried solutions.
 Semi structured problems are problems in which only some of
the decision process phases are structured.
 The Nature of Decisions
The second dimension of decision support deals with the nature
of decisions
Operational control
Management control
Strategic planning
 Operational control involves executing specific tasks efficiently
and effectively.
 Management control involves decisions concerning acquiring
and using resources efficiently in accomplishing organizational
goals.
 Strategic planning involves decisions concerning the long
range goals and policies for growth and resource allocation.
 9.2 BI, Multidimensional Data
Analysis, Data Mining, and DSSs
Business Intelligence (BI)
 Business Intelligence (BI) refers to applications and technologies
for consolidating, analyzing, and providing access to vast amounts of
data to help users make better business and strategic decisions.

Two types of BI Systems:

 Those that provide data analysis tools
 Multidimensional data analysis (or online analytical
processing)
 Data mining

 Decision support systems

 Those that provide information in structured format

 Dashboards
How Business Intelligence Works
(Figure 9.3)
Multidimensional Data Analysis
 Provides users with a look at what is
happening or what has happened.
 Allows users to analyze data in such a way
that they can quickly answer business
questions.
Data Mining
 Searching for valuable business information
in a large database or data warehouse.
 Data mining performs two basic operations:
 Predicting trends and behaviors
 Identifying previously unknown patterns and
relationships
9.2 Decision Support Systems (DSS)
 Decision support systems
 DSS capabilities
 Sensitivity analysis
 What-if analysis
 Goal-seeking analysis
9.2 Decision Support Systems (DSS)
 Decision support systems (DSSs) are computer-based
information systems that combine models and data in an
attempt to solve semi structured and some unstructured
problems with extensive user involvement.
 Sensitivity analysis is the study of the impact that changes in
one (or more) parts of a model have on other parts.
 What-if analysis is the study of the impact of a change in the
assumptions (input data) on the proposed solution.
 Goal-seeking analysis is the study that attempts to find the
value of the inputs necessary to achieve a desired level of
output.
Group Decision Support Systems
(GDSS)
 Group decision support system (GDSS) is
an interactive computer-based system that
supports the process of finding solutions by a
group of decision makers.
 Decision Room is a face-to-face setting for a
group DSS, in which terminals are available
to the participants.
Organizational Decision Support
System (ODSS)
 Organizational Decision Support System
(ODSS) is a DSS that focuses on an
organizational task or activity involving a
sequence of operations and decision makers.
 It affects several organizational units or corporate
problems;
 It cuts across organizational functions or
hierarchical layers;
 It involves computer-based and (usually)
communications technologies.
9.3 Digital Dashboards
 Dashboards:
 Provide rapid access to timely information.
 Provide direct access to management reports.
 Are very user friendly and supported by
graphics.
Sample Performance Dashboard
(Figure 9.4)
Another Example of Dashboard
Executive Dashboard Demo

http://www.informationbuilders.com/rfr/qtdem
o/AdvVis_ExecDash/AdvVis_ExecDash.html
A Bloomberg Terminal (Figure 9.5)
Management Cockpit (Figure 9.6)
Management Cockpit
 A strategic management room that enables top-level
decision makers to pilot their businesses better.
 The environment encourages more efficient
management meetings and boosts team performance
via effective communication.
 Key performance indicators and information relating
to critical success factors are displayed graphically
on the walls of the meeting room.
 External information can be easily imported to the
room to allow competitive analysis.
9.4 Data Visualization Systems
 Data visualization is the process of
presenting data to users in visual formats,
thereby making IT applications more
attractive and understandable to users.
 The Power of Visualization
 Even though a picture is “worth a thousand
words,” we have to be very careful about just
what we are seeing.
 Remember, on the Internet, it is “user
beware!”
New York City Police Department
Command Center

Data visualization in action

Types of data visualization systems

Geographical Information Systems

Virtual Reality
 Geographical Information Systems: a computer-
based system for capturing, integrating,manipulating,
and displaying data using digitized maps.
 Virtual Reality: interactive, computer-generated,
three-dimensional graphics delivered to the user via a
head-mounted display.
Geographic Information System
GIS for
existing
land use
9.5 Intelligent Systems
Intelligent systems
Artificial intelligence (AI)
9.5 Intelligent Systems
Intelligent systems
Artificial intelligence (AI)
 Intelligent systems is a term that describes the
various commercial applications of AI.
 Artificial intelligence (AI) is a subfield of computer
science concerned with:
 * studying the thought processes of humans
 * recreating those processes via machines, such
as computer and robots.
Expert Systems
Expertise
Expert systems (ESs)
 Expert Systems
Expertise
Expert systems (ESs)

 Expertise refers to the extensive, task-specific knowledge

acquired from training, reading and experience.
 Expert systems (ESs) attempt to mimic human experts
by applying expertise in a specific domain. Can support
decision makers or completely replace them.
Expert Systems (continued)
The transfer of expertise from an expert to a computer
and then to a user involves four activities:

 Knowledge acquisition: Knowledge is from experts or from

documented sources.
 Knowledge representation: Acquired knowledge is organized as
rules or frames (objective-oriented) and stored electronically in a
knowledge base.
 Knowledge inferencing: Given the necessary expertise stored in the
knowledge base, the computer is programmed so that it can make
inferences. The reasoning function is performed in a component called
the inference engine, which is the brain of ES.
 Knowledge transfer: The inferenced expertise is transferred to the
user in the form of a recommendation.
The Components of Expert Systems

 Knowledge base
 Inference engine
 User interface
 Blackboard
 Explanation subsystem
The Components of Expert Systems
 Knowledge base contains knowledge necessary for
understanding, formulating and solving problems.
 Inference engine is a computer program that
provides a methodology for reasoning and
formulating conclusions.
 User interface enables users to communicate with
the computer
 Blackboard is an area of working memory set aside
for the description of a current problem.
 Explanation subsystem explains its
recommendations.
Structure and Process of an Expert
System
Natural Language Processing & Voice
Technologies
 Natural language processing (NLP)
 Natural language understanding / speech (voice) recognition
 Natural language generation/voice synthesis

Natural language processing (NLP): Communicating with a

computer in English or whatever language you may speak.
Natural language understanding/speech (voice) recognition:
The ability of a computer to comprehend instructions given in
ordinary language, via the keyboard or by voice.
Natural language generation/voice synthesis: Technology that
enables computers to produce ordinary language, by “voice” or on
the screen, so that people can understand
Neural Networks
 Neural network is a system of programs and
data structures that approximates the
operation of the human brain.
 Neural networks are particularly good at
recognizing subtle, hidden and newly
emerging patterns within complex data as
well as interpreting incomplete inputs.