Kumkum Sultana

Chapter One: INFORMATION SYSTEMS IN BUSINESS TODAY

Information System
• An information system (IS) is an organized system for the collection, organization,
storage and communication of information. More specifically, it is the study of
complementary networks that people and organizations use to collect, filter; process,
create and distribute data.
• A combination of hardware, software, infrastructure and trained personnel organized to
facilitate planning, control, coordination, and decision making in an organization.
Information vs. data
Data Point of Information
differences
Data is raw, unorganized facts about Definition When data is processed, organized, structured or
someone or something, which is presented in a given context so as to make it
bare and random, that need to be useful, it is called information.
processed.
Data can be useless until it is
organized.
Numbers, letters, or a set of In the form of Ideas and inferences
characters.
Measurements, experiments, etc. Collected via Linking data and making inferences
Records and Observations Based on Data analysis
Not analyzed Analysis Always analyzed
A structure, such as tabular data, Represented in Language, ideas, and thoughts based on the data
data tree, a data graph, etc.
Carries no specific meaning Meaning Carries meaning that has been assigned by
carried interpreting data
May or may not be useful. Useful Always.
Does not depend on information. Dependency Without data, information cannot be processed.
• Each student's test score is one Example • The average score of a class or of the entire
piece of data. school is information that can be derived from
• Supermarket checkout counters the given data.
ring up millions of pieces of • In supermarket pieces of data can be totaled
data, such as product and analyzed to provide meaningful information,
identification numbers or the cost such as the total number of bottles of dish
of each item sold. detergent sold at a particular store, or the
total amount spent on that brand of dish
detergent at that store or sales region
Role of Information System
Information systems are transforming business
• In many industries, survival and even existence of a firm is difficult without extensive
use of information technology.
• Information systems are transforming business and the visible results of this include:
 Booming e-commerce and Internet advertising
 Increase in wireless technology use, Web sites
 Increased business use of Web 2.0 technologies

1
Kumkum Sultana

 Cloud computing, mobile digital platform allow more distributed work, decision-
making, and collaboration.
Emergence of the digital firm:
• A digital firm is one in which
 Most of the firm's significant business relationships with customers, suppliers, and
employees are digitally enabled and negotiated.
 Core business processes are accomplished through digital networks and span the
entire organization or link multiple organizations.
 Key corporate assets (intellectual property, core competencies, and financial and
human assets) are managed through digital means.
 Internal and external environments are quickly recognized and dealt with.
• Digital firms offer greater flexibility in organization and management and allows for time
shifting (business being conducted 24x7) and space shifting (business being
conducted globally or beyond traditional e.g. eBay, General motors).
Globalization opportunities: Internet has drastically reduced costs of operating on global
scale.
Automation of Manual Tasks: Information systems architecture can assist an organization in
automating manual tasks (e.g. automated warehouses and distribution systems).
Automation can save time, money and resources and enhance organizational workflow.
Support of a Multi-Processing Environment: An information system can support a “real-time”
multi-processing environment through the concept of “time-sharing application.” In a multi-
processing environment, various departments, divisions or branches can have access to the
system at the same time intervals.
Information Storage: A quality information system groups important data by date and time,
making the process of finding it really convenient.
Data Control: IS has the ability to control data and provide the information needed for
various processes instantaneously.
Provides Data for Decision Support
Information system in an organization provides data to help executive management make
decisions. Data is maintained through transaction processing or query routines and built into
the information system to access item and detail records. By evaluating information from
each company’s source, information systems are able to come up with the best
conclusions regarding the general economy, and suggest which steps should take.
Analyzing and Planning: Good planning is impossible without information (and an
outstanding management information system).

Why the business are investing so much in Information System and technology?
Business firms invest heavily in information systems to achieve six strategic business
objectives:
Operational excellence
 In order to achieve higher profitability, firms need to improve the efficiency of their
operation.
 Information systems are important means available to managers for achieving higher
levels of efficiency and productivity in business operations.

2
Kumkum Sultana

 A good example is Wal-Mart that uses a Retail Link system, which digitally links its
suppliers to every one of Wal-Mart's stores. As soon as a customer purchase an
item, the supplier is monitoring the item, knows to ship a replacement to the shelf.
New products, services, and business models:
 Information system and technologies create new products and services, and also an
entirely new business models i.e. new ways to engage in business.
 A business model describe how a company produces, delivers, and sells a product or
service to create wealth.
 Example: Apple Inc. transformed an old business model based on its iPod technology
platform that included iPod, the iTunes music service, and the iPhone.
Customer and supplier intimacy
 When a business serves its customers well, the customers generally respond by
returning and purchasing more. This raises revenue and profits.
Example: High-end hotels use information systems and technology to achieve customer
intimacy. They use computers to keep track of guests' preferences, such as their
preferred room temperature, check-in time, television programs, and to monitor and
customize environment.
 The more a business engage and intimate with its suppliers, the better the suppliers
can provide vital inputs. This lower costs.
Example: J.C. Penney’s information system which links sales records to contract
manufacturer
Improved decision making
• Without accurate information, managers must use forecasts, best guesses, and luck
which leads to
 Overproduction, underproduction of goods and services
 Misallocation of resources
 Poor response times
 Poor outcomes raise costs, lose customers
• Information system made it possible for the managers to use real time data from the
marketplace when making decision.
• Example: Verizon Corporation uses a Web-based digital dashboard to provide managers
with precise real -time information on customer complaints, network performance, line
outages, etc.
Competitive advantage
When firms achieve one or more of above business objectives (operational excellence,
new products, services, and business models, customer/supplier intimacy, and improved
decision making), chances are they have already achieved a competitive advantage.
 Delivering better performance
 Charging less for superior products
 Responding to customers and suppliers in real time, all add up to
higher sales, and higher profits.
Example: Toyota Production System focuses on organizing work to eliminate waste, making
continues improvements based on what customers have actually ordered and enjoy a
considerable advantage over competitors.

3
Kumkum Sultana

Survival
• Business firms invest in information system and technology because they are necessities
of doing business.
• This necessities may be driven by
 Industry-level changes, e.g. Citibank introduced the first automatic teller machine to
attract customers through higher service levels.
 Governmental regulations requiring record-keeping. Examples: Toxic Substances
Control Act, Sarbanes- Oxley Act.
The Interdependence between Organizations and Information Technology
• In contemporary systems there is a growing interdependence between a firm’s
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.
Perspectives on Information Systems
Activities/ Functions of information systems
Three activities in an information system produce the information that organizations need to
make decisions, control operations, analyze problems, and create new products or services.
These activities are input,
processing, and output
• Input: Input captures or collects
raw data from within the
organization or from its external
environment.
• Processing: Processing converts
raw input into a meaningful form.
• Output: Output transfers the
processed information to the
people who will use it or to the
activities for which it will be
used.
Information systems also require
feedback.
• Feedback is output that is
returned to appropriate members of the organization to help them evaluate or correct
the input stage.
Environmental actors, such as customers, suppliers, competitors, stockholders, and
regulatory agencies, interact with the organization and its information systems.

4
Kumkum Sultana

Computer/Computer program vs. information system

• Computers and software are technical foundation and tools to store and process
information.
- Computers provide the equipment for storing and processing information.
- Computer programs, or software, are sets of operating instructions that direct
and control computer processing.
• Knowing how computers and computer programs work is important in designing solutions
to organizational problems, but computers are only part of an information system.
• Cannot produce required information to a particular organization.
On the other hand,
• Information Systems are more than Computers. An information system creates value for
the firm as an organizational and management solution to challenges posed by the
environment.

Business information value chain:

• An information value chain in which raw data is systematically acquired and then
transformed through various stages that add value to that information, is called business
information value chain.
• The value of an information system to a business, as well as the decision to invest in
any new information system, is, in large part, determined by the extent to which the
system will lead to better management decisions, more efficient business processes,
and higher firm profitability.

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.

5
Kumkum Sultana

Dimension of Information System

The dimensions of information systems organizations,
management, and information technology.
Organizations
The key elements of an organization are its people,
structure, business processes, politics, and culture.
Business organizations are hierarchies consisting of three
principal levels: senior management, middle management, and
lower or operational management.
- Senior management consist of managerial, professional,
and technical employees who makes long-range strategic
decisions about products and services as well as
ensures financial performance of the firm.
Experts are employed and trained for different
business functions.
- Middle management carries out the programs and
plans of senior management.
Knowledge workers, such as engineers, scientists, or
architects, design products or services and create
new knowledge for the firm.
- Operational management is responsible for monitoring
the daily activities of the business.
Data workers, such as secretaries or clerks, assist with scheduling and communications
at all levels of the firm.
Production or service workers actually produce the product and deliver the service.

The major business functions, or specialized tasks performed by business organizations,

consist of sales and marketing, manufacturing and production, finance and accounting, and
human resources.

An organization coordinates work through its hierarchy and through its business processes,
which are logically related tasks and behaviors for accomplishing work. Developing a new
product, fulfilling an order, and hiring a new employee are examples of business
processes.
2. Management
 Management’s job is to handle many situations faced by organizations, make
decisions, and formulate action plans to solve organizational problems.

6
Kumkum Sultana

 Managers perceive business challenges in the environment; they set the organizational
strategy for responding to those challenges; and they allocate the human and financial
resources to coordinate the work and achieve success.
 Throughout, they must exercise responsible leadership.
 They must create new products and services and even re-create the organization
from time to time.
3. Technology
• Computer hardware and software:
- Computer hardware is the physical equipment consists of the computer processing unit;
various input, output, and storage devices; and physical media to link these devices
together.
- Computer software consists of the detailed, preprogrammed instructions that control and
coordinate the computer hardware components in an information system.
• Data management technology includes both the physical media for storing data, such as
magnetic disk, optical disc, or tape, and the software governing the organization of
data on these physical media.
• Networking and telecommunications technology consisting of both physical devices and
software, links the various pieces of hardware and transfers data from one physical
location to another. Computers and
communications equipment can be connected in
networks for sharing voice, data, images,
sound, or even video.
- Networks, the Internet, intranets and extranets,
World Wide Web.
• IT infrastructure: provides platform that system
is built on.

Variation in Returns on Information Technology Investment

Investments in information technology will result in superior returns:
• Productivity increases
• Revenue increases
• Superior long-term strategic
positioning
Why some firms achieve better results from
their information systems than others?
Studies of returns from information technology
investments show that there is considerable
variation in the returns firms receive (see
Figure).
• Some firms invest a great deal and receive
a great deal (quadrant 2);
• Others invest an equal amount and receive few returns (quadrant 4).
• Still other firms invest little and receive much (quadrant 1), whereas
• Others invest little and receive little (quadrant 3).

7
 Kumkum Sultana

This suggests that investing in information technology does not by itself guarantee good
returns.
Investing in information technology does not guarantee good returns
Considerable variation in the returns firms receive from systems investments
Factors considered for this variation among firms are:
 Adopting the right business model
 Investing in complementary assets (organizational and management capital)
Complementary assets:
o Complementary assets are those assets required to derive value from a primary
investment
o Firms supporting technology investments with investment in complementary assets receive
superior returns
o E.g.: invest in technology and the people to make it work properly.
o Complementary assets include:
Organizational • Supportive business culture that values efficiency and effectiveness,
asset • Efficient business processes,
• Appropriate business model
• Decentralization of authority,
• Highly distributed decision making rights, and
• Strong information system (IS) development team.
Managerial • Strong senior management support for technology investment and change,
assets • Incentives and reward for management innovation,
• Teamwork and collaboration work environment
• Training programs to enhance management decision skills,
• Management culture that values flexibility and knowledge based decision
making.
Social assets (not made by • Internet and telecommunication infrastructure.
the firm but by the society • IT-enriched education programs raising labor force computer literacy.
at large, other firms, • Network and computing standards (both government and private sector)
governments, and other key • Laws and regulation creating fair, stable, market environment, and
market actors) • The presence of technology and service firms.
Contemporary Approaches of Information
System
The study of information systems deals with issues
and insights contributed from technical and
behavioral disciplines.
Technical Approach
• The technical approach to information systems
emphasizes mathematically based models to
study information systems, as well as the
physical technology and formal capabilities of these systems.
• Also emphasizes at identifying solutions that can be represented by formulas.
• The disciplines that contribute to the technical approach are
- Computer science
- Management science, and

8
Kumkum Sultana

- Operations research.
Computer science is concerned with establishing theories of computability, methods of
computation, and methods of efficient data storage and access.
Management science emphasizes the development of models for decision-making and
management practices.
Operations research focuses on mathematical techniques for optimizing selected
parameters of organizations, such as transportation, inventory control, and transaction
costs.
Behavioral Approach
• Behavioral approach of information system deals with behavioral issues that arise in the
development and long-term maintenance of information systems.
• Issues such as strategic business integration, design, implementation, utilization, and
management that cannot be solved using formulas.
• The disciplines that contribute to the behavioral approach are
Sociology: Sociologists study how groups and organizations shape the development of
information systems and also how information systems affect individuals, groups, and
organizations.
Psychology: Psychologist study how human decision makers perceive and use formal
information.
Economics: Economist study what impact information systems have on control and cost
structures within the firm and within markets.

The behavioral approach does not ignore technology. But the focus of this approach is
generally not on technical solutions. Instead, it concentrates on changes in attitudes,
management and organizational policy, and behavior.
Management Information Systems
– MIS Combines computer science, management science, operations research
and practical orientation with behavioral issues
Four main actors:
- Suppliers of hardware and software (the technologists);
- Business firms making investments and seeking to obtain value from the technology;
- Managers and employees seeking to achieve business value (and other goals); and
- The contemporary legal, social, and cultural context (the firm’s environment).
Another approach: Sociotechnical Systems
• Optimal organizational performance achieved by jointly optimizing both social and
technical systems used in
production.
• Helps avoid purely technological
approach
• 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.