Foundations of Information Systems in Business

Chapter1

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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• Understand the concept of a system and how it relates to information systems.

• Explain why knowledge of information systems is important for business professionals and identify five areas of information systems knowledge they need.

Learning Objectives

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Learning Objectives

• Give examples to illustrate how business applications of information systems can support a firm’s business processes, managerial decision making, and strategies for competitive advantage.

• Provide examples of several major types of information systems from your experiences with business organizations in the real world.

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• Identify several challenges that a business manager might face in managing the successful and ethical development and use of information technology in a business.

• Provide examples of the components of real world information systems

• Demonstrate familiarity with the myriad of career opportunities in information systems.

Learning Objectives

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Competitive Advantage

• “Developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces.”

Glossary, p. 637

• Attributed to a firm that is … “leading an industry in some identifiable way, such as sales, revenues or new products.” Ch. 2, p. 53

• “…when a firm sustains profits that exceed the average for an industry …”

Ch. 2, p. 53

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What is MIS?• Management Information Systems (MIS) is

the development and use of information systems to help businesses achieve their goals and objectives

• An information system (IS) is a group of components that interact which each other to produce information

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What is MIS?• Information systems exist to help people

achieve the goals and objectives of their business. – You should take an active role in specifying system

requirements and helping manage development projects since you are the one who’ll be using the system to do your job.

• You need to learn how to use an IS– You have responsibilities for protecting the security

of the system and its data– You have responsibilities for backing up data

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What is Information?• We know what an information system is – an

assembly of hardware, software, data, procedures, and people that interact to produce information. But what is information?

• Definitions vary. Information is:– Knowledge derived from data.– Data presented in a meaningful context.– Data processed by summing, ordering, averaging,

grouping, comparing, or other similar operations.• Any of these definitions will do; the important

point is to discriminate between data and information.

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What is Information?• Information is subjective• Information in one person’s context may be

just a data point in another person’s context, since what may be important to you may not hold the same level of importance to someone else.

• Context changes occur in information systems when the output (information produced) of one system feeds (is data to) a second system.

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What is Information?

Figure 1-4 One User’s Information is Another User’s Data

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What are the Characteristics of Good Information?

• Good information must be: – Accurate – entering incorrect sales data creates false

information; e.g., GIGO (garbage in, garbage out).– Timely – knowing that production doesn’t have enough raw

materials for next week’s schedule won’t be useful information three weeks from now.

– Relevant – if your boss needs to know how many shipments were late last month, you shouldn’t give him/her a list of all items that shipped.

– Worth its cost – is it cost worthy to map out the entire U.S. if you only need one state?

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What is the Difference Between Information Technology and Information Systems?

• Information technology and information systems are two closely related terms.– Information technology refers to the products,

methods, inventions, and standards that are used for the purpose of producing information.

– Information Systems (IS) refers to the assembly of hardware, software, data, procedures, and people that produces information.

• Information technology drives the development of new information systems.

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Types of Information Systems

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Information systems combine:

• Operations Support Systems (Figure 1.7)

– Transaction Processing systems– Process Control Systems– Enterprise Collaboration Systems

• Management Support Systems (Figure 1.9)

– Management Information Systems– Decision Support Systems– Executive Information Systems

• Other Systems (Figure 1.11)

– Expert Systems– Knowledge Management Systems– Strategic Information Systems

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Two Ways to Process Transactions

• Transaction Processing (batch)– Accumulate transactions over time – Process periodically– Example: a bank receives checks during the day

and processes in a batch at night

• Online Processing (real-time)– Process transactions immediately– Example: a bank processes an ATM withdrawal

immediately

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Types of Management Support Systems

• Management Information Systems (MIS)– Reports and displays – Example: daily sales analysis reports

• Decision Support Systems (DSS)– Interactive and ad hoc support– Example: a what-if analysis to determine where

to spend advertising dollars

• Executive Information Systems (EIS)– Critical information for executives and

managers– Example: easy access to actions of

competitors

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Other Information Systems

• Expert Systems– Example: credit application advisor

• Knowledge Management Systems– Support creation, organization, and dissemination

of business knowledge Example: intranet access to best business practices

• Strategic Information Systems– Help get a strategic advantage over customer– Examples: shipment tracking, e-commerce Web

systems

• Functional Business Systems– Focus on operational and managerial applications

Examples: accounting, finance, or marketing

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IT Challenges and Opportunities

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Responsibility and Accountability

• IT plays an integral role in every facet of a business

• Failure is often pinned on IT• Cultivate a culture that embraces change• Break projects into pieces• Set realistic expectations• There will always be problems

– “That’s life in IT”

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Challenges and Ethics of IT

• What are the ethical responsibilities?• What are the risks?• How can you protect yourself and your

company from computer crime?

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IT Careers

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The IS Function

• Major functional area of business

• Important contributor to – Efficiency, productivity, morale, customer service

and satisfaction

• Major source of information for decisions

• Vital ingredient in developing competitive products and services

• Dynamic and challenging career opportunity

• Key component of networked business

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What is a System?

• Interrelated components

• Defined boundary

• Working together

• Common objectives

• Accepting inputs and producing outputs

• Organized transformation process

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A Business as a System

Competing withInformation Technology

Chapter2

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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• Identify several basic competitive strategies and explain how they use information technologies to confront the competitive forces faced by a business

• Identify several strategic uses of Internet technologies and give examples of how they help a business to gain competitive advantages

• Give examples of how business process reengineering frequently involves the strategic use of IT

Learning Objectives

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• Identify the business value of using Internet technologies to become an agile competitor or form a virtual company

• Explain how knowledge management systems can help a business gain strategic advantages

Learning Objectives

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• Technology is no longer an afterthought in business strategy, but the cause and driver

• IT can change the way businesses compete

– Vital competitive networks

– Organizational renewal

– Necessary investment

• Integral to success

Strategic IT

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• A strategic information system uses IT to help an organization…– Gain a competitive advantage

– Reduce a competitive disadvantage

– Meet other strategic enterprise objectives

• What is Competitive Advantage?

– Capability for advantage over competitive forces

– Leading the industry in some identifiable way

– Sustains profits above the industry average

– Hard to maintain over a long period of time

Competitive Strategy Concepts

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• IT is a business asset, like buildings and land

• Quantify IT Value and Risks

– How much would normal operations cost without IT systems?

– How much would operations cost if the IT system goes down?

• IT is investment not cost

• Must align IT with company strategy

RWC 1: Quantify IT Risks and Value

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• Rivalry of Competitors– Positive, natural, healthy

• Threat of new entrants– Apple, TRS 80, Commodore, IBM, HP,

Compaq, Gateway, Dell, Acer

• Threat of substitutes– Salon shampoo vs Wal-Mart brand– VCR vs DVD vs BluRay

• Customer bargaining power– Buy from competitors or don’t buy

• Suppliers bargaining power– Your competitor pays in days not weeks

Porter’s Five Forces of Competition

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Competitive Forces and Strategies

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• Cost Leadership– Become low-cost producers

– Help suppliers or customers reduce costs

– Increase cost to competitors• Example: Priceline

• Differentiation Strategy– Set a firm’s products apart from competitors’

– Focus on a particular segment or niche market• Example: Dell

Five Competitive Strategies

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• Innovation Strategy– Unique products, services, or markets

– Radical changes to business processes• Example: Dell

• Growth Strategy– Expand company’s capacity to produce

– Expand into global markets

– Diversify into new products or services• Example: Wal-Mart

Competitive Strategies (continued)

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• Alliance Strategy

– Includes mergers, acquisitions, joint ventures, virtual companies

– Customers, suppliers, competitors, consultants, and other companies

• Example: Wal-Mart uses automatic inventory replenishment by supplier

Competitive Strategies (continued)

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• Not mutually exclusive– One alone won’t usually fix the problem– Generally need a combination

• Innovation not necessarily differentiated– Kindle v. iPad – MP3 players vs iPod– Gateway made in US, relaxed office

• Differentiation not necessarily innovative– Shipping more efficient but not different– Telecom companies compete

Using Competitive Strategies

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Using IT to Implement Basic Strategies

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Implementing Competitive Strategies

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Other IT strategies

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Other Competitive Strategies

• Lock in Customers and Suppliers– Deter them from switching to competitors

• Create Switching Costs– Time, money, effort or inconvenience needed

to switch to a competitor

• Raise Barriers to Entry– Discourage or delay other companies from

entering the market– Increase the technology or investment

needed to enter

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Other Competitive Strategies

• Build a strong IT department• Use IT to:

– Take advantage of strategic opportunities– Improve efficiency of business practices– Develop products and services that would not

be possible without a strong IT capability

• Use IT to do more than automate a system, be creative

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• Keep customers loyal– Anticipate their future needs– Respond to customer concerns– Provide top-quality customer service

• Focus on customer value– Quality, not price, has become the primary

determinant of value

Customer-Focused Business

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• Companies that consistently offer the best value from the customer’s perspective…– Track individual preferences

– Keep up with market trends

– Supply products, services, and information anytime, anywhere

– Tailor customer services to the individual

– Use Customer Relationship Management (CRM) systems to focus on the customer

Providing Customer Value

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Building Customer Value via the Internet

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• Activities that add value– Primary processes – direct– Support processes – indirect

Value Chain and Strategic IS

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• Gain a competitive differentiation

– Products

– Services

– Capabilities

• Somehow do things better

– Just-in-time

Strategic Uses of IT

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• Called BRP or simply Reengineering– Radical– Seeks improvements

• High potential• High risk• Important enabler of reengineering

– IT– Process teams– Case managers

Business Process Reengineering

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• Major role

– Increase process efficiencies

– Improves communication

– Facilitates collaboration

Role of Information Technology

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BPR Versus Business Improvement

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• A knowledge-creating company or learning organization…

– Consistently creates new business knowledge

– Disseminates it throughout the company

– Builds it into its products and services

Building a Knowledge-Creating Company

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• Explicit Knowledge– Data, documents, and things written down or

stored in computers• Employee handbook

• Tacit Knowledge– The “how-to” knowledge in workers’ minds– Most important information

• Successful knowledge management– Rewards sharing– Makes better use of knowledge

Knowledge Management

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Knowledge Management Techniques