FIN3228/ HRM3200 : Management Information System

Lesson 01
Information Systems in Business Today

Expected Learning Outcomes

At the end of the session students will be able to;
 Explain why information systems are so essential for today’s business.
 Analyze the effect of information systems on business and their relationship to globalization.
 Describe the salient features of a digital firm.
 Explain strategic business objectives of information systems.
 Define an information system and describe its management, organization, and technology components.

The Role of Information Systems in Business Today

Over the past decades ‘Technology’ has become an inseparable part of business activities. Irrespective of the
industry each and every business entity uses information systems in their business activities. IT involves in
every activity – product/service creation, marketing, sales, accounting, human resources management, short
and long term decision making etc. Just as offices, telephones, tall buildings with elevators were once the
foundation for business in the twentieth century, information technology is the foundation for business in
twenty first century.

Thus business organizations all over the world invest massively on information technology consisting of
hardware, software, and telecommunications equipment. Millions of businesses rely heavily on the information
systems and technology to perform their functions. A business day without these technological devices or
internet access would be unthinkable.

How information systems are transforming business?

 Information systems have transformed the economy to knowledge and information based economy.
 Help organizations to enhance the service, efficiency and ultimately profitability.
 Increase the usage of wireless technology in business activities.
 Shifts in media and advertising.
 Enable organizations to respond quickly to rapidly changing customer demand
 Business computing has moved from personal computers and desktop machines to mobile devices.
 Traditional system of working in a physically located office has changed in to working on collaboration
spaces.

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Globalization and Information Systems

 Growing percentage of any economy in the world depends on foreign trade; imports and exports.
 Internet has drastically reduced the costs of operating and transacting on a global scale.
 Globalization which was created mainly due to the developments of information technology has created
many opportunities as well as challenges.

The Emerging Digital Firm

The modern era of dynamic and discontinuous change requires continual reassessment of organizational
routines to ensure that decision-making processes, keep pace with the dynamically changing business
environment. The adoption of advanced technology to maintain a digitally enhanced firm, is becoming
necessary for business entities. With the onset of globalization, the wide presence of digitally equipped firms
has intensified international competition.
 A digital firm is one in which nearly all of the organization’s significant business relationships with
customers, suppliers, and employees are digitally enabled and mediated.
 Core business processes are accomplished through digital networks across the entire organization or
linking multiple organizations.

Strategic Business Objectives of Information Systems

There is a growing interdependence between a firm’s usage of information technology and its ability to achieve
corporate goals. In many businesses, survival and the ability to achieve strategic business goals is difficult
without extensive use of information technology. Changes in business strategy, rules and business processes
increasingly require changes in information system; hardware, software, databases, and telecommunications.

Business firms invest heavily in information systems to achieve six strategic business objectives:

 Operational excellence
Businesses continuously seek to improve the efficiency of their operations to achieve higher profitability.
Information systems and technology are important tools in achieving higher levels of efficiency and
productivity.

 New products, services, and business models

Information systems and technologies are major enabling tools for firms to create new products, services
and new business models.

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 Customer and supplier intimacy

Serving customers well leads to customers returning and purchasing more, which raises revenues and
profits. Intimacy with suppliers allows them to obtain vital inputs in a timely manner, which lowers costs.

• Improved decision making

Right information at the right time is important for a business organization to make optimum decisions.
Decisions taken without accurate information may lead to;
 Overproduction or underproduction of goods and services
 Misallocation of resources
 Poor response times
These Poor outcomes may raise costs and lose customers.

 Competitive advantage
The way organizations use their Information systems can be a source of competitive strength.
 Delivering better performance than the competitors
 Charging less for superior products
 Responding to customers and suppliers in real time

 Survival
Business firms also invest in information systems and technologies because they are necessities of doing
business. Sometimes these “necessities” are driven by industry-level changes.

Perspectives on Information Systems

What is an Information System?

An information system can be defined technically as a set of interrelated components that collect, process,
store, and distribute information to support decision making and control in an organization. In addition to
supporting decision making, coordination, and control, information systems may also help managers and
workers analyze problems, visualize complex subjects, and create new products.
The three dimensions of information systems are organizations, management, and information technology.

We refer to this broader understanding of information systems, which encompasses an understanding of the
management and organizational dimensions of systems as well as the technical dimensions of systems, as

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information systems literacy. Computer literacy, in contrast, focuses primarily on knowledge of information
technology.

 Information Technology
Information technology is at the heart of information systems. While organization and management are
important too, it is the technology that enables the systems and the organizations and managers who use the
technology.

Information vs. Data

By information we mean data that have been shaped into a form that is meaningful and useful to human
beings. Data, in contrast, are streams of raw facts representing events occurring in organizations before they
have been organized and arranged into a form that people can understand and use. Three activities in an
information system produce the information that organizations need to make decisions and control operations.
These activities are input, processing, and output.

 Input - captures or collects raw data within the organization or from its external environment.
 Processing - converts the raw input into a meaningful form.
 Output - transfers the processed information to the people who/ activities for which it will be used.

Information systems also require feedback, which is output that is returned to appropriate members of the
organization to help them evaluate or correct the input stage.

Information technology (IT) consists of all the hardware and software that a firm needs to use in order to
achieve its business objectives. This includes hardware such as computer machines, storage devices, and
handheld mobile devices, as well as software, such as the windows operating systems, the Microsoft Office
suite, and thousands of other computer programs. In addition to hardware and software, information
technology also encompasses data management technologies, telecommunication technologies and networks.

– Computer hardware and software

Computer hardware is the physical equipment used for input, processing, and output activities in an
information system. It consists of computers of various sizes and shapes (including mobile handheld devices);
various input, output, and storage devices; and telecommunications devices that link computers together.
Computer software consists of the detailed, preprogrammed instructions that control and coordinate the
computer hardware components in an information system.

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– Data management technology

This consists of the software governing the organization of data on physical storage media.

– Networking and telecommunications technology

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, and video.

Networks, the Internet, intranets and extranets, World Wide Web

A network links two or more computers to share data or resources, such as a printer. The world’s largest and
most widely used network is the Internet. The Internet is a global “network of networks” that uses universal
standards to connect millions of different networks with more than 4 billion users in over 180 countries around
the world.

Internal corporate networks based on Internet technology are called intranets. Private intranets extended to
authorized users outside the organization are called extranets, and firms use such networks to coordinate their
activities with other firms for making purchases, collaborating on design, and other inter-organizational work.
For most business firms today, using Internet technology is both a business necessity and a competitive
advantage.

The World Wide Web (WWW) is a service provided by the Internet that uses universally accepted standards for
storing, retrieving, formatting, and displaying information in a page format on the Internet.

All of these technologies, along with the people required to run and manage them, represent resources that
can be shared throughout the organization and constitute the firm’s information technology (IT)
infrastructure. The IT infrastructure provides the foundation, or platform, on which the firm can build its
specific information systems. Each organization must carefully design and manage its IT infrastructure so that it
has the set of technology services it needs for the work it wants to accomplish with information systems.

 Organizations
Information systems are an integral part of organizations. Indeed, for most of the companies in today’s world,
there would be no business without an information system. The key elements of an organization are its people,
structure, business processes, politics, and culture.

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Organizations have a structure that is composed of different level. Their structures reveal a clear-cut division of
labor. Authority and responsibility in a business firm are organized as a hierarchy, or a pyramid structure. The
upper levels of the hierarchy consist of managerial, professional, and technical employees, whereas the lower
levels consist of operational personnel.
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.
Each organization has a unique culture, or fundamental set of assumptions, values, and ways of doing things,
that has been accepted by most of its members. Parts of an organization’s culture can always be found
embedded in its information systems.
Different levels and specialties in an organization create different interests and points of view. These views
often conflict over how the company should be run and how resources and rewards should be distributed.
Conflict is the basis for organizational politics.

 Management
Management’s role is to make decisions, and formulate action plans to solve organizational problems.
Managers set the organizational strategies and they allocate the human and financial resources to coordinate
the work and achieve success.

But managers must do more than manage what already exists. They must also create new products and
services and even re-create the organization from time to time. A substantial part of management
responsibility is creative work driven by new knowledge and information. Information technology can play a
powerful role in helping managers design and deliver new products and services and redirecting and
redesigning their organizations.