Chapter2

Fundamental Concepts of Information Systems

2.1 Information and Its Role in Business [Figure 2.1]

Figure 2.1 can be used in order to explain that the role of information systems
is to transform data, the raw facts, into information, that adds to our
knowledge. Distinction Between Data and Information [Figure 2.2][Slide2-4]

Information is an increment in knowledge: it contributes to the general

framework of concepts and facts that we know. Information relies on the
context and the recipient's general knowledge for its significance.

Data are only the raw facts, the material for obtaining information.
Information systems use data stored in computer databases to provide
needed information. A database is an organized collection of interrelated data
reflecting a major aspect of a firm's activities.

1. Information systems capture data from the organization (internal data) and
its environment (external data).

2. They store the database items over an extensive period of time.

3. When specific information is needed, the appropriate data items are

manipulated as necessary, and the user receives the resulting information.

4. Depending on the type of information system, the information output may

take the form a query response, decision outcome, expert-system advice,
transaction document, or a report.

Formal information systems rely on procedures (established and accepted by

organizational practice) for collecting, storing, manipulating, and accessing
data in order to obtain information. Formal systems do not have to be
computerized, but today they usually are. Informal information systems also
exist within an organization (interpersonal networking, water cooler gossip,
etc.).

Attributes of Quality Information [Table 2.1]

Quality information needs to possess several attributes. Notably, it has to be:

1. Timely Available when needed and not outdated when made available

2. Complete Includes all the user needs to know about the situation where
the information will be used

3. Concise Does not include elements unneeded by the user

4. Relevant Has direct bearing on the situation

5. Precise Offers quantitative information with a degree of exactness

appropriate to the underlying data

6. Form The level of detail, tabular versus graphic display, and quantitative
versus qualitative form are selected in accordance with the situation Internal
and External Information

Most of the data captured by information systems relates to the operations of

the organization itself, serving to produce internal information. But in an
increasingly competitive marketplace, a firm needs to access more and more
external information. Therefore, it is important to note that decision makers
need both the internal information about their organization and the external
information about its environment.

A firm can succeed only by adapting itself to the demands of its external
environment. The environment is represented by a number of groups that
affect the company's ability to achieve its objectives or that is affected by it.
Such groups are called the stakeholders of a firm, which includes both
internal and external stakeholders.

2.2 Systems [Figure 2.3 & Figure 2.4][Slide2-5 & 6]

An information system is a specific type of system in general. A system is a

set of components (subsystems) that operate together to achieve certain
objectives. The objectives of a system are realized in its outputs. In particular,
the objective of an information system is to provide the appropriate outputs
to the members of the organization.

Effectiveness and Efficiency

An organization is an example of an artificial system: it is a formal social unit

devoted to the attainment of specific goals. It does not emerge naturally - it
has to be organized.

The quality of the system may be evaluated in terms of its effectiveness and
efficiency. Effectiveness measures the extent to which the system meets its
objectives. Efficiency is a measure of resources consumed to produce given
outputs. The fewer resources a system consumes in producing given outputs,
the more efficient it is.

Information Systems in the Feedback Loop of an Organization [Figure 2.5]

All organizations exist as part of a larger system. Information systems are

used to assist management by providing feedback on the firm's performance.
Feedback refers to the outputs of a system that are transformed back into
inputs in order to control the system's operation. Information systems are
used to compare the data on the actual performance with the standards
developed earlier. Based on the information about the discrepancies,
managers can formulate corrective actions, which are then fed back into the
firm's operations.

2.3 Components of Information Systems

Information systems consist of the following general components:

1. Hardware

2. Software

3. Databases

4. Human resources

5. Procedures

Hardware

Multiple computer systems: microcomputers, minicomputers, mainframes,

together with their peripherals. Computer system components are: a central
processor(s), memory hierarchy, input and output devices.

Computer processor: The central processor carries out the instructions of a

program, translated into a simple form.

Memories: Included in a computer system form a hierarchy. They range from

the fast electronic units, such as the main memory, to the slower secondary
storage devices such as magnetic disks.

Moore's Law The increases in the number of transistors on chips correspond

to the increase in the microprocessor speed and memory capacity, and thus
the growth of the processing power.

Downsizing In information systems, transferring some or all of the

organization;s computing from centralized processing on mainframes or
minicomputers to systems built around networked microcomputers (often in a
client/server configuration).

Software

Computer software falls into two classes: systems software and applications
software.

Systems Software: Manage the resources of the computer system and

simplifies programming. An operating system is the principal system software.
It manages all the resources of a computer system and provides an interface
through which the system's user can deploy these resources.

Application Software: Are programs that directly assist end users in doing
their work. They are purchased as ready-to-use packages. Applications
software directly assists end users in doing their work.

Databases

Databases are organized collections of interrelated data used by applications

software. Databases are managed by systems software known as database
management systems (DBMS) and shared by multiple applications.

Telecommunications [Figure 2.7] [Slide2-7]

Telecommunications are the means of electronic transmission of information

over distances. Today, computer systems are usually interconnected into
telecommunications networks. Various network configurations are possible,
depending upon an organization's need. These include:

1. Local area networks (LAN) 2. Metropolitan area networks (MAN) 3. Wide

area networks (WAN)

A Network Information System: Three-Tier Architecture: Figure 2.7:

1. Mainframe computer as the top-level machine

2. Several minicomputers or powerful microcomputers in the middle level.

3. End -users in the third tier.

A Downsized Networked Information System: Client/Server Architecture:

[Figure 2.8][Slide2-8]

1. Users' microcomputers (clients) share the more powerful machines

(servers)

2. Each server is dedicated to a particular task i.e., it is providing a certain

service

3. The client machines provide the user interface that makes it easy to use
the facilities of the network.

4. When needed, the software running on the client calls remotely upon the
software running on the server to perform its task, to access the specified
data from a database.

Systems Architecture for Remote Access from Virtual Offices: [Figure 2.9]
Human Resources

Professional information systems personnel include development and

maintenance managers, systems analysts, programmers, and operators, often
with highly specialized skills.

End users are the people who use information systems or their information
outputs, that is, the majority of people in today's organizations. The hallmark
of the present stage in organizational computing is the involvement of end
users in the development of information systems. End-user computing, or
control of their information systems by end users and the development of
systems by end users, has become an important contributor to information
systems in organizations.

Procedures

Procedures are the policies and methods to be followed in using, operating,

and maintaining an information system. Specifications for the use, operation,
and maintenance of information systems, collected in help facilities, user
manuals, operator manuals, and similar documents, frequently delivered in an
electronic form.

2.4 Types of Information Systems

Organizations employ several types of information systems. These include:

1. Transaction Processing Systems (TPS)

2. Management Reporting Systems (MRS)

3. Decision Support Systems (DSS)

4. Executive Information Systems (ESS)

5. Office Information Systems (OIS)

6. Professional Support Systems

Transaction Processing Systems

Transaction processing systems today generally work in on-line mode by

immediately processing a firm's business transactions. A Transaction is an
elementary activity conducted during business operations.

TPS may work either in batch mode, processing accumulated transactions at a

single time later on, or in on-line mode, processing incoming transactions
immediately. Today, most TPS work in the on-line mode.
Management Reporting Systems

The objective of management reporting systems is to provide routine

information to managers. Managers receive performance reports within their
specific areas of responsibility. Generally, these reports provide internal
information rather than spanning corporate boundaries. They report on the
past and the present, rather than projecting the future.

In order to prevent information overloads, managers may resort to using

demand or exception reports. Demand reports are requested when needed.
Exception reports are produced only when preestablished out-of-bounds
conditions occur and contain only the information regarding these conditions.

Decision Support Systems [Figure 2.11][Slide2-9]

Figure 2.11 explains the structure of a decision support system. Decision

support systems directly support a decision-making session. These systems
facilitate a dialog between the user, who is considering alternative problem
solutions, and the system that provides built-in models and access to
databases. The DSS databases are often extracts from the general databases
of the enterprise or from external databases.

Executive Information Systems

Executive information systems support top managers with conveniently

displayed summarized information, customized for them. They make a variety
of internal and external information readily available in a highly summarized
and convenient form. EIS are used to:

1. Monitor the performance of the organization

2. Assess the business environment

3. Develop strategic directions for the company's future

Office Information Systems

The main objective of OIS is to facilitate communication between the

members of an organization and between the organization and its
environment. OIS are used to:

1. Help manage documents represented in an electronic format

2. Handle messages, such as electronic mail, facsimile, and voice mail

3. Facilitate teleconferencing and electronic meetings

4. Facilitate the use of the Internet for communication and access to
information

5. Facilitate the use of task-oriented teams through the use of groupware

Professional Support Systems

Professional support systems help in tasks specific to various professions. As

both organizational and individual experience with information systems grow,
more and more specialized categories of professional support systems
emerge.

Expert Systems in Information Systems [Figure 2.12][Slide2-10]

Expert systems are system that employs knowledge about its application
domain and uses an inferencing (reason) procedure to solve problems that
would otherwise require human competence or expertise. The essential
component of the knowledge base is heuristics - informal, judgemental
elements of knowledge within the expert system's domain, such as oil
exploration or stock valuation. The knowledge base is developed by working
with domain specialists. It is further enhanced as the system is used.

2.5 Supporting Managers with Information Systems:

A variety of information systems support managers as they play their

interpersonal, informational, and decisional roles. The three management-
oriented types of systems (management reporting systems, decision support
systems, and executive information systems) provide different kinds of
support to the three levels of management:

1. Strategic

2. Tactical

3. Operational

What Managers Do and How Information Systems Can Help

The fundamental functions of management include:

1. Planning establishing goals and selecting the actions needed to achieve

them over a specific period of time.

2. Controlling measuring performance against the planned objectives and

initiating corrective action, if needed.

3. Leadership including the people in the organization to contribute to its

goals.
4. Organizing establishing and staffing an organizational structure for
performing business activities.

Mintzberg classified all managerial activities into ten roles falling into three
categories:

1. Interpersonal Role

2. Informational Role

3. Decisional Role

Information Systems for Management Support:

The objectives of the three levels of corporate management are:

1. Operations Management: performed by supervisors of smaller work units

concerned with planning and control of short-term (typically, a week or six
months) budgets and schedules.

2. Tactical Management: performed by middle managers responsible for

acquisition and allocation of resources for projects according to tactical plans,
set out for one or two years.

3. Strategic Management: Carried out by top corporate executives and

corporate boards responsible for setting and monitoring long-term directions
for the firm for three or more years into the future.
Chapter 1: What Is an Information System?

Dave Bourgeois and David T. Bourgeois

Learning Objectives

Upon successful completion of this chapter, you will be able to:

 define what an information system is by identifying its major

components;
 describe the basic history of information systems; and
 describe the basic argument behind the article “Does IT Matter?” by
Nicholas Carr.

Please note, there is an updated edition of this book available

at https://opentextbook.site. If you are not required to use this edition for a
course, you may want to check it out.

Introduction

If you are reading this, you are most likely taking a course in information
systems, but do you even know what the course is going to cover? When you
tell your friends or your family that you are taking a course in information
systems, can you explain what it is about? For the past several years, I have
taught an Introduction to Information Systems course. The first day of class I
ask my students to tell me what they think an information system is. I
generally get answers such as “computers,” “databases,” or “Excel.” These
are good answers, but definitely incomplete ones. The study of information
systems goes far beyond understanding some technologies. Let’s begin our
study by defining information systems.

Defining Information Systems

Almost all programs in business require students to take a course in

something called information systems. But what exactly does that term
mean? Let’s take a look at some of the more popular definitions, first from
Wikipedia and then from a couple of textbooks:

 “Information systems (IS) is the study of complementary networks of

hardware and software that people and organizations use to collect,
filter, process, create, and distribute data.”[1]
 “Information systems are combinations of hardware, software, and
telecommunications networks that people build and use to collect,
create, and distribute useful data, typically in organizational
settings.”[2]
 “Information systems are interrelated components working together to
collect, process, store, and disseminate information to support decision
 making, coordination, control, analysis, and viualization in an
organization.”[3]

As you can see, these definitions focus on two different ways of describing
information systems: the components that make up an information system
and the role that those components play in an organization. Let’s take a look
at each of these.

The Components of Information Systems

As I stated earlier, I spend the first day of my information systems class

discussing exactly what the term means. Many students understand that an
information system has something to do with databases or spreadsheets.
Others mention computers and e-commerce. And they are all right, at least in
part: information systems are made up of different components that work
together to provide value to an organization.

The first way I describe information systems to students is to tell them that
they are made up of five components: hardware, software, data, people, and
process. The first three, fitting under the technology category, are generally
what most students think of when asked to define information systems. But
the last two, people and process, are really what separate the idea of
information systems from more technical fields, such as computer science. In
order to fully understand information systems, students must understand how
all of these components work together to bring value to an organization.

Technology

Technology can be thought of as the application of scientific knowledge for

practical purposes. From the invention of the wheel to the harnessing of
electricity for artificial lighting, technology is a part of our lives in so many
ways that we tend to take it for granted. As discussed before, the first three
components of information systems – hardware, software, and data – all fall
under the category of technology. Each of these will get its own chapter and
a much lengthier discussion, but we will take a moment here to introduce
them so we can get a full understanding of what an information system is.

Hardware

Information systems hardware is the part of an information system you can

touch – the physical components of the technology. Computers, keyboards,
disk drives, iPads, and flash drives are all examples of information systems
hardware. We will spend some time going over these components and how
they all work together in chapter 2.

Software
 Software is a set of instructions that tells the hardware
what to do. Software is not tangible – it cannot be touched. When
programmers create software programs, what they are really doing is simply
typing out lists of instructions that tell the hardware what to do. There are
several categories of software, with the two main categories being operating-
system software, which makes the hardware usable, and application software,
which does something useful. Examples of operating systems include
Microsoft Windows on a personal computer and Google’s Android on a mobile
phone. Examples of application software are Microsoft Excel and Angry Birds.
Software will be explored more thoroughly in chapter 3.

Data

The third component is data. You can think of data as a collection of facts.
For example, your street address, the city you live in, and your phone number
are all pieces of data. Like software, data is also intangible. By themselves,
pieces of data are not really very useful. But aggregated, indexed, and
organized together into a database, data can become a powerful tool for
businesses. In fact, all of the definitions presented at the beginning of this
chapter focused on how information systems manage data. Organizations
collect all kinds of data and use it to make decisions. These decisions can
then be analyzed as to their effectiveness and the organization can be
improved. Chapter 4 will focus on data and databases, and their uses in
organizations.

Networking Communication: A Fourth Technology Piece?

Besides the components of hardware, software, and data, which have long
been considered the core technology of information systems, it has been
suggested that one other component should be added: communication. An
information system can exist without the ability to communicate – the first
personal computers were stand-alone machines that did not access the
Internet. However, in today’s hyper-connected world, it is an extremely rare
computer that does not connect to another device or to a
network. Technically, the networking communication component is made up
of hardware and software, but it is such a core feature of today’s information
systems that it has become its own category. We will be covering networking
in chapter 5.

People
 When thinking about information
systems, it is easy to get focused on the technology components and forget
that we must look beyond these tools to fully understand how they integrate
into an organization. A focus on the people involved in information systems is
the next step. From the front-line help-desk workers, to systems analysts, to
programmers, all the way up to the chief information officer (CIO), the people
involved with information systems are an essential element that must not be
overlooked. The people component will be covered in chapter 9.

Process

The last component of information systems is process. A process is a series of

steps undertaken to achieve a desired outcome or goal. Information systems
are becoming more and more integrated with organizational processes,
bringing more productivity and better control to those processes. But simply
automating activities using technology is not enough – businesses looking
to effectively utilize information systems do more. Using technology to
manage and improve processes, both within a company and externally with
suppliers and customers, is the ultimate goal. Technology buzzwords such as
“business process reengineering,” “business process management,” and
“enterprise resource planning” all have to do with the continued improvement
of these business procedures and the integration of technology with them.
Businesses hoping to gain an advantage over their competitors are highly
focused on this component of information systems. We will discuss processes
in chapter 8.

The Role of Information Systems

Now that we have explored the different components of information systems,

we need to turn our attention to the role that information systems play in an
organization. So far we have looked at what the components of an
information system are, but what do these components actually do for an
organization? From our definitions above, we see that these components
collect, store, organize, and distribute data throughout the organization. In
fact, we might say that one of the roles of information systems is to take data
and turn it into information, and then transform that into organizational
knowledge. As technology has developed, this role has evolved into the
backbone of the organization. To get a full appreciation of the role
information systems play, we will review how they have changed over the
years. 

IBM 704 Mainframe (Copyright:

Lawrence Livermore National Laboratory)

The Mainframe Era

From the late 1950s through the 1960s, computers were seen as a way to
more efficiently do calculations. These first business computers were room-
sized monsters, with several refrigerator-sized machines linked together. The
primary work of these devices was to organize and store large volumes of
information that were tedious to manage by hand. Only large businesses,
universities, and government agencies could afford them, and they took a
crew of specialized personnel and specialized facilities to maintain. These
devices served dozens to hundreds of users at a time through a process
called time-sharing. Typical functions included scientific calculations and
accounting, under the broader umbrella of “data processing.”

Registered trademark of International Business

Machines

In the late 1960s, the Manufacturing Resources Planning (MRP) systems were
introduced. This software, running on a mainframe computer, gave
companies the ability to manage the manufacturing process, making it more
efficient. From tracking inventory to creating bills of materials to scheduling
production, the MRP systems (and later the MRP II systems) gave more
businesses a reason to want to integrate computing into their processes. IBM
became the dominant mainframe company. Nicknamed “Big Blue,” the
company became synonymous with business computing. Continued
improvement in software and the availability of cheaper hardware eventually
brought mainframe computers (and their little sibling, the minicomputer) into
most large businesses.

The PC Revolution
In 1975, the first microcomputer was announced on the cover of Popular
Mechanics: the Altair 8800. Its immediate popularity sparked the imagination
of entrepreneurs everywhere, and there were quickly dozens of companies
making these “personal computers.” Though at first just a niche product for
computer hobbyists, improvements in usability and the availability of practical
software led to growing sales. The most prominent of these early personal
computer makers was a little company known as Apple Computer, headed by
Steve Jobs and Steve Wozniak, with the hugely successful “Apple II.” Not
wanting to be left out of the revolution, in 1981 IBM (teaming with a little
company called Microsoft for their operating-system software) hurriedly
released their own version of the personal computer, simply called the “PC.”
Businesses, who had used IBM mainframes for years to run their businesses,
finally had the permission they needed to bring personal computers into their
companies, and the IBM PC took off. The IBM PC was
named Time magazine’s “Man of the Year” for 1982.

Because of the IBM PC’s open architecture, it was easy for other companies
to copy, or “clone” it. During the 1980s, many new computer companies
sprang up, offering less expensive versions of the PC. This drove prices down
and spurred innovation. Microsoft developed its Windows operating system
and made the PC even easier to use. Common uses for the PC during this
period included word processing, spreadsheets, and databases. These early
PCs were not connected to any sort of network; for the most part they stood
alone as islands of innovation within the larger organization.

Client-Server

In the mid-1980s, businesses began to see the need to connect their

computers together as a way to collaborate and share resources. This
networking architecture was referred to as “client-server” because users
would log in to the local area network (LAN) from their PC (the “client”) by
connecting to a powerful computer called a “server,” which would then grant
them rights to different resources on the network (such as shared file areas
and a printer). Software companies began developing applications that
allowed multiple users to access the same data at the same time. This
evolved into software applications for communicating, with the first real
popular use of electronic mail appearing at this time.

Registered trademark of SAP

This networking and data sharing all stayed within the confines of each
business, for the most part. While there was sharing of electronic data
between companies, this was a very specialized function. Computers were
now seen as tools to collaborate internally, within an organization. In fact,
these networks of computers were becoming so powerful that they were
replacing many of the functions previously performed by the larger mainframe
computers at a fraction of the cost. It was during this era that the first
Enterprise Resource Planning (ERP) systems were developed and run on the
client-server architecture. An ERP system is a software application with a
centralized database that can be used to run a company’s entire business.
With separate modules for accounting, finance, inventory, human resources,
and many, many more, ERP systems, with Germany’s SAP leading the
way, represented the state of the art in information systems integration. We
will discuss ERP systems as part of the chapter on process (chapter 9).

The World Wide Web and E-Commerce

First invented in 1969, the Internet was confined to use by universities,

government agencies, and researchers for many years. Its rather arcane
commands and user applications made it unsuitable for mainstream use in
business. One exception to this was the ability to expand electronic mail
outside the confines of a single organization. While the first e-mail messages
on the Internet were sent in the early 1970s, companies who wanted to
expand their LAN-based e-mail started hooking up to the Internet in the
1980s. Companies began connecting their internal networks to the Internet in
order to allow communication between their employees and employees at
other companies. It was with these early Internet connections that the
computer truly began to evolve from a computational device to a
communications device.

In 1989, Tim Berners-Lee developed a simpler way for researchers to share

information over the network at CERN laboratories, a concept he called the
World Wide Web.[4] This invention became the launching point of the growth
of the Internet as a way for businesses to share information about
themselves. As web browsers and Internet connections became the norm,
companies rushed to grab domain names and create websites.

Registered trademark of Amazon Technologies,

Inc.

In 1991, the National Science Foundation, which governed how the Internet
was used, lifted restrictions on its commercial use. The year 1994 saw the
establishment of both eBay and Amazon.com, two true pioneers in the use of
the new digital marketplace. A mad rush of investment in Internet-based
businesses led to the dot-com boom through the late 1990s, and then the
dot-com bust in 2000. While much can be learned from the speculation and
crazy economic theories espoused during that bubble, one important outcome
for businesses was that thousands of miles of Internet connections were laid
around the world during that time. The world became truly “wired” heading
into the new millenium, ushering in the era of globalization, which we will
discuss in chapter 11.

As it became more expected for companies to be connected to the Internet,

the digital world also became a more dangerous place. Computer viruses and
worms, once slowly propagated through the sharing of computer disks,
could now grow with tremendous speed via the Internet. Software written for
a disconnected world found it very difficult to defend against these sorts of
threats. A whole new industry of computer and Internet security arose. We
will study information security in chapter 6.

Web 2.0

As the world recovered from the dot-com bust, the use of technology in
business continued to evolve at a frantic pace. Websites became interactive;
instead of just visiting a site to find out about a business and purchase its
products, customers wanted to be able to customize their experience and
interact with the business. This new type of interactive website, where you
did not have to know how to create a web page or do any programming in
order to put information online, became known as web 2.0. Web 2.0 is
exemplified by blogging, social networking, and interactive comments being
available on many websites. This new web-2.0 world, in which online
interaction became expected, had a big impact on many businesses and even
whole industries. Some industries, such as bookstores, found themselves
relegated to a niche status. Others, such as video rental chains and travel
agencies, simply began going out of business as they were replaced by online
technologies. This process of technology replacing a middleman in a
transaction is called disintermediation.

As the world became more connected, new questions arose. Should access to
the Internet be considered a right? Can I copy a song that I downloaded from
the Internet? How can I keep information that I have put on a website
private? What information is acceptable to collect from children? Technology
moved so fast that policymakers did not have enough time to enact
appropriate laws, making for a Wild West–type atmosphere. Ethical issues
surrounding information systems will be covered in chapter 12.

The Post-PC World

After thirty years as the primary computing device used in most businesses,
sales of the PC are now beginning to decline as sales of tablets and
smartphones are taking off. Just as the mainframe before it, the PC will
continue to play a key role in business, but will no longer be the primary way
that people interact and do business. The limited storage and processing
power of these devices is being offset by a move to “cloud” computing, which
allows for storage, sharing, and backup of information on a massive scale.
This will require new rounds of thinking and innovation on the part of
businesses as technology continues to advance.
The
Eras of Business Computing

Operating
Era Hardware Applications
System

Time-
Terminals connect Custom-
Mainframe sharing
ed to mainframe written
(1970s) (TSO) on
computer. MRP software
MVS

IBM PC or
compatible.
PC Sometimes
WordPerfect,
(mid- connected to MS-DOS
Lotus 1-2-3
1980s) mainframe
computer via
expansion card.

Client- Microsoft
Windows fo
Server IBM PC “clone” on Word,
r
(late 80s to a Novell Network. Microsoft
Workgroups
early 90s) Excel
World
Microsoft
Wide Web IBM PC “clone”
Windows X Office,
(mid-90s to connected to
P Internet
early company intranet.
Explorer
2000s)

Web 2.0
Laptop connected Microsoft
(mid-2000s Windows 7
to company Wi-Fi. Office, Firefox
to present)

Mobile-
Post-PC
friendly
(today and Apple iPad iOS
websites,
beyond)
mobile apps

Can Information Systems Bring Competitive Advantage?

It has always been the assumption that the implementation of information

systems will, in and of itself, bring a business competitive advantage. After
all, if installing one computer to manage inventory can make a company more
efficient, won’t installing several computers to handle even more of the
business continue to improve it?

In 2003, Nicholas Carr wrote an article in the Harvard Business Review that

questioned this assumption. The article, entitled “IT Doesn’t Matter,” raised
the idea that information technology has become just a commodity. Instead
of viewing technology as an investment that will make a company stand out,
it should be seen as something like electricity: It should be managed to
reduce costs, ensure that it is always running, and be as risk-free as possible.
As you might imagine, this article was both hailed and scorned. Can IT bring
a competitive advantage? It sure did for Walmart (see sidebar). We will
discuss this topic further in chapter 7.

Sidebar: Walmart Uses Information Systems to Become the World’s

Leading Retailer

Registered trademark of Wal-Mart

Stores, Inc.

Walmart is the world’s largest retailer, earning $15.2 billion on sales of $443.9
billion in the fiscal year that ended on January 31, 2012. Walmart currently
serves over 200 million customers every week, worldwide.[5] Walmart’s rise
to prominence is due in no small part to their use of information systems.

One of the keys to this success was the implementation of Retail Link, a
supply-chain management system. This system, unique when initially
implemented in the mid-1980s, allowed Walmart’s suppliers to directly access
the inventory levels and sales information of their products at any of
Walmart’s more than ten thousand stores. Using Retail Link, suppliers can
analyze how well their products are selling at one or more Walmart stores,
with a range of reporting options. Further, Walmart requires the suppliers to
use Retail Link to manage their own inventory levels. If a supplier feels that
their products are selling out too quickly, they can use Retail Link to petition
Walmart to raise the levels of inventory for their products. This has essentially
allowed Walmart to “hire” thousands of product managers, all of whom have
a vested interest in the products they are managing. This revolutionary
approach to managing inventory has allowed Walmart to continue to drive
prices down and respond to market forces quickly.

Today, Walmart continues to innovate with information technology. Using its

tremendous market presence, any technology that Walmart requires its
suppliers to implement immediately becomes a business standard.

Summary

In this chapter, you have been introduced to the concept of information

systems. We have reviewed several definitions, with a focus on the
components of information systems: technology, people, and process. We
have reviewed how the business use of information systems has evolved over
the years, from the use of large mainframe computers for number crunching,
through the introduction of the PC and networks, all the way to the era of
mobile computing. During each of these phases, new innovations in software
and technology allowed businesses to integrate technology more deeply.

We are now to a point where every company is using information systems

and asking the question: Does it bring a competitive advantage? In the end,
that is really what this book is about. Every businessperson should
understand what an information system is and how it can be used to bring a
competitive advantage. And that is the task we have before us.

Study Questions

1. What are the five components that make up an information system?

2. What are three examples of information system hardware?
3. Microsoft Windows is an example of which component of information
systems?
4. What is application software?
5. What roles do people play in information systems?
6. What is the definition of a process?
7. What was invented first, the personal computer or the Internet
(ARPANET)?
8. In what year were restrictions on commercial use of the Internet first
lifted? When were eBay and Amazon founded?
9. What does it mean to say we are in a “post-PC world”?
10.What is Carr’s main argument about information technology?

Exercises

1. Suppose that you had to explain to a member of your family or one of

your closest friends the concept of an information system. How would
you define it? Write a one-paragraph description in your own
words that you feel would best describe an information system to your
friends or family.
2. Of the five primary components of an information system (hardware,
software, data, people, process), which do you think is the most
important to the success of a business organization? Write a one-
paragraph answer to this question that includes an example from your
personal experience to support your answer.
3. We all interact with various information systems every day: at the
grocery store, at work, at school, even in our cars (at least some of
us). Make a list of the different information systems you interact with
every day. See if you can identify the technologies, people, and
processes involved in making these systems work.
 4. Do you agree that we are in a post-PC stage in the evolution of
information systems? Some people argue that we will always need the
personal computer, but that it will not be the primary device used for
manipulating information. Others think that a whole new era of mobile
and biological computing is coming. Do some original research and
make your prediction about what business computing will look like in
the next generation.
5. The Walmart case study introduced you to how that company used
information systems to become the world’s leading retailer. Walmart
has continued to innovate and is still looked to as a leader in the use of
technology. Do some original research and write a one-page report
detailing a new technology that Walmart has recently implemented or
is pioneering.

1. Wikipedia entry on "Information Systems," as displayed on August 19,

2012. Wikipedia: The Free Encyclopedia. San Francisco: Wikimedia
Foundation. http://en.wikipedia.org/wiki/Information_systems_(discipli
ne). ↵
2. Excerpted from Information Systems Today - Managing in the Digital
World, fourth edition. Prentice-Hall, 2010. ↵
3. Excerpted from Management Information Systems, twelfth edition,
Prentice-Hall, 2012. ↵
4. CERN's "The Birth of the
Web." http://public.web.cern.ch/public/en/about/web-en.html ↵
5. Walmart 2012 Annual Report. ↵

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Information Systems for Business and Beyond by Dave Bourgeois and David

T. Bourgeois is licensed under a Creative Commons Attribution 4.0
International License, except where otherwise noted.