Unit 1: Information Systems in Global Business Today

Introduction:

Computers and Information technology (IT) are changing every aspect of our lives from entertainment to
shopping, from the work we do and where we do it, to how we communicate with friends and relatives.
Many companies are remodeling their businesses and information systems with the Internet in mind. IT
is dramatically changing the business landscape and significantly affecting strategic options and creating
opportunities and issues that managers need to address in many aspects of their business.

Some of the key impacts of technology and the implications for management are:

• Business Strategy - collapsing time and distance, enabling electronic commerce.

• Organization Culture - encouraging the free flow of information.
• Organization Structures - making networking and virtual corporations a reality.
• Management Processes - providing support for complex decision-making processes.
• The workplace - allowing work from home and on the move.

The real world of information system

• Information systems have become as integrated into our daily business activities as accounting,
finance, operations management, marketing, human resource management, or any other major
business function.
• Information technologies, including Internet-based information systems, are playing vital and
expanding roles in business.
• Information technology can help all kinds of businesses improve the efficiency and effectiveness
of their business processes, managerial decision making, and workgroup collaboration, which
strengthens their competitive positions in rapidly changing marketplaces.
• Information technologies and systems are, quite simply, an essential ingredient for business
success in today’s dynamic global environment.

What Is an Information System?

• An information system (IS) can be any organized combination of people, hardware, software,
communications networks, data resources, and policies and procedures that stores, retrieves,
transforms, and disseminates information in an organization.

The Fundamental Roles of IS in Business

There are three vital roles that information systems can perform for a business enterprise:

• Support of business processes and operations.

• Support of decision making by employees and managers.
• Support of strategies for competitive advantage.

Opening Case: The New Yankee Stadium Looks to the Future

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 • The challenges facing the New York Yankees and other baseball teams show why information
systems are so essential today. Major league baseball is a business as well as a sport, and teams
such as the Yankees need to take in revenue from games in order to stay in business.
• To increase stadium attendance and revenue, the New York Yankees chose to modernize Yankee
Stadium and rely on information technology to provide new interactive services to fans inside and
outside the stadium.
• These services include high-density television monitors displaying live game coverage; up-to-date
sports scores, video, promotional messages, news, weather, and traffic information; touch
screens for ordering food and merchandise; interactive videoconferencing technology for
connecting to fans and the community; mobile social networking applications; and, eventually,
data and video broadcast to fans’ home television sets and mobile handhelds.
• The Yankees’ Web site provides a new channel for interacting with fans, selling tickets to games,
and selling other team-related products.
• It is also important to note that these technologies changed the way the Yankees run their
business. Yankee Stadium’s systems for delivering game coverage, information, and interactive
services changed the flow of work for ticketing, seating, crowd management, and ordering food
and other items from concessions.
• These changes had to be carefully planned to make sure they enhanced service, efficiency, and
profitability.

The Role of Information Systems in Business Today:

• Information systems are essential for conducting day-to-day business as well as achieving
strategic business objectives.
• Some firms, such as Amazon and ETrade, would be nonexistent without information systems.

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 • It is difficult to imagine some service industries, such as finance, insurance, and real estate
industries, could not operate without information systems.
• The ability of a firm to use IT is connected with the firm's ability to implement corporate strategy.
• As electronic business and electronic commerce grow in popularity and more firms digitize their
operations, having useful information is becoming even more important to the global business
community.
• Business firms invest heavily in information systems to achieve six strategic business objectives:
operational efficiency, new products, services & business models, customer and supplier
intimacy, better decision making, competitive advantage, and survival.

How Information Systems Are Transforming Business:

• Wireless communications, including computers and mobile hand-held computing devices, are
keeping managers, employees, customers, suppliers, and business partners connected in every
way possible.
• Email, online conferencing, the Web, and the Internet, are providing new and diverse lines of
communication for all businesses, large and small.
• Through increased communication channels and decreased costs of the communications,
customers are demanding more of businesses in terms of service and product, at lower costs.
• E-commerce is changing the way businesses must attract and respond to customers.

What’s New in Management Information Systems?

The use of technology now extends far beyond the simple desktop computer, especially in the business
world. There are three interrelated changes that are affecting companies worldwide:

• The emerging mobile digital platform: More and more business computing is moving from PCs
and desktop machines to mobile devices like iPhones, iPads, Smart Phones etc. Managers are
increasingly using these devices to coordinate work, communicate with employees, and provide
information for decision making.
• Growth of businesses use of Big Data: The use of Big Data — large pools of data that can be
brought together and analyzed to discern patterns and make better decisions — will become the
basis of competition and growth for individual firms, enhancing productivity and creating
significant value for the world economy by increasing the quality of products and services. All
companies need to take Big Data and its potential to create value seriously if they want to
compete. For example, some retailers embracing big data see the potential to increase their
operating margins.
• Growth of cloud computing: Cloud computing is a type of computing that relies on sharing
computing resources rather than having local servers or personal devices to handle applications.
Main objective is to provide different services — such as servers, storage and applications —to an
organization's computers and devices through the Internet. The cloud has changed the
fundamental nature of computing and how business gets done. According to the research done
by Global Industry Analysts Inc, cloud computing came as a boon for companies during tough
economic and financial climate, given that the technology can potentially reduce IT costs by over
35%.

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Globalization Challenges and Opportunities: A Flattened World

• Customers no longer need to rely on local businesses for products and services. They can shop at
any time and any day of a week for virtually anything and have it delivered to their door or
desktop.
• Companies can operate at any time from any geographic location around the world. Jobs can just
as easily move across the state or across the ocean.
• The emergence of the Internet into a full-blown international communications system has
drastically reduced the costs of operating and transacting business on a global scale.

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 • The move to a global economy has been facilitated by advanced telecommunications networks
and particularly by the Internet.
• At the same time globalization adds challenges to businesses. In a global market, cost of labor
varies widely among countries.
• In general, labor costs are higher in developed countries than in developing countries. Many labor-
intensive industries have moved their operations to countries with low labor costs.
• Also, developed countries usually pay high fringe benefits to employees, which make the cost of
doing business even higher.
• A growing percentage of the economy of the United States and other advanced industrial
countries in Europe and Asia depends on imports and exports.
• In 2010, more than 33 percent of the U.S. economy resulted from foreign trade, both imports and
exports. In Europe and Asia, the number exceeded 50 percent.
• More than half of Intel’s revenues in 2010 came from overseas sales of its microprocessors. Eighty
percent of the toys sold in the U.S. are manufactured in China, while about 90 percent of the PCs
manufactured in China use American-made Intel or Advanced Micro Design (AMD) chips.
• In the past decade, the United States lost several million manufacturing jobs to offshore, low-
wage producers.
• In a normal year, about 300,000 service jobs move offshore to lower wage countries, many of
them in less-skilled information system occupations, but also including “tradable service” jobs in
architecture, financial services, customer call centers, consulting, engineering, and even
radiology.
• Internet service firms, such as Google and eBay, are able to replicate their business models and
services in multiple countries without having to redesign their expensive fixed-cost information
systems infrastructure.
• Briefly, information systems enable globalization.

The Emerging Digital Firm:

• 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 key corporate assets are managed
through digital means.
• These digital networks are supported by enterprise class technology platforms that have been
leveraged within an organization to support critical business functions and services.
• Some examples of these technology platforms are Customer Relationship Management (CRM),
Supply Chain Management (SCM), Enterprise Resource Planning (ERP), Knowledge Management
(KMS), Enterprise Content Management (ECM), and Warehouse Management System (WMS).
• Making a firm digital is not about just adding a computer system to the mix. Throwing a computer
system at outdated business processes is exactly the wrong thing to do.
• A truly digital firm has several characteristics that distinguish it from most of the firms claiming to
be digitized:
o Significant business relationships with customers, suppliers, and employees are digitally
enabled and mediated.

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 o Core business processes are accomplished through digital networks spanning the entire
organization or linking multiple organizations.
o Key corporate assets – intellectual property, core competencies, and financial and human
assets – are managed through digital means.
o They sense and respond to their environments far more rapidly than traditional firms.
o They offer extraordinary opportunities for more flexible global organization and
management, practicing time-shifting (business being conducted 24x7) and space-shifting
(business being conducted globally or beyond traditional geographic boundaries).

Strategic Business Objectives of Information Systems:

• Strategic planning for an organization involves long-term policy decisions, like location of a new
plant, a new product, diversification etc.
• Information technology has played an important part in the U.S. and global economies.
• Companies rely on IT for fast communications, data processing and market intelligence.
• Specifically, business firms invest heavily in information to achieve six strategic business
objectives:
o Operational excellence
o New products, services, and business models
o Customer and supplier intimacy
o Improved decision making
o Competitive advantage
o Survival

Operational Excellence:

• This relates to achieving excellence in business in operations to achieve higher profitability. For
example, a consumer goods manufacturer may decide upon using a wide distribution network to
get maximum reach to the customers and exposure. A manufacturing company may pursue a
strategy of aggressive marketing and mass production.

New Products, Services, and Business Models:

• This is part of growth strategy of an organization.

• With the help of information technology, a company might even opt for an entirely new business
model, which will allow it to establish, consolidate and maintain a leadership in the existing
market as well as provide a competitive edge in the industry.
• As successful as Apple Inc., BestBuy, and Walmart were in their traditional business, they have all
introduced new products, services, and business models that have made them even more
competitive and profitable.

Customer and Supplier Intimacy:

• When a business really knows its customers, and serves them well, the way they want to be
served, customers generally respond by returning and purchasing more. The result is increased
revenues and profits.

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 • Likewise with suppliers: The more a business engages its suppliers, the better the suppliers can
provide vital inputs. The result is a lower cost of doing business.
• JC Penney is an excellent example of how the use of information systems and technologies are
extensively used to better serve suppliers and retail customers. Its information system digitally
links the supplier to each of its stores worldwide. Suppliers are able to ensure the continuous flow
of products to the stores in order to satisfy customer demands.

Improved Decision Making:

• A very important pre-requisite of strategic planning is to provide the right information at the right
time to the right person, for making an informed decision.
• Well planned Information Systems and technologies make it possible for the decision makers to
use real-time data from the marketplace when making decisions.
• Previously, managers did not have access to accurate and current data and as such relied on
forecasts, best guesses, and luck.
• The inability to make informed decisions resulted in increased costs and lost customers.

Competitive Advantage:

• Doing things better than your competitors, charging less for superior products, and responding to
customers and suppliers in real time all add up to higher sales and higher profits that your
competitors cannot match.
• Toyota and Walmart are prime examples of how companies use information systems and
technologies to separate themselves from their competition. Toyota worked its way to top of its
industry with the help of its legendary information system. Walmart is the most efficient retail
store in the industry based in large part on how well it uses its information resources.

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.
• For instance, after Citibank introduced the first automated teller machines (ATMs) in the New
York region in 1977 to attract customers through higher service levels, its competitors rushed to
provide ATMs to their customers to keep up with Citibank.
• Today, virtually all banks in the United States have regional ATMs and link to national and
international ATM networks.
• Providing ATM services to retail banking customers is simply a requirement of being in and
surviving in the retail banking business.
• Firms turn to information systems and technologies to provide the capability to respond to these
challenges.

Data vs Information:

• Data is a collection of raw facts that may or may not be meaningful for managers. Input to any
system may be treated as Data. It is very difficult to understand data and needs to be processed
to understand. Data may not be in the order.

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 • Information is the outcome derived after processing the data and is always meaningful. Output
after processing the system is Information. Processing is performed by performing arithmetic
logical calculations on data of simply by rearranging the data. It is very easy to understand
information. Information should be in the order.
• For example, researchers who conduct market research survey might ask a member of the public
to complete questionnaires about a product or a service. These completed questionnaires are
data; they are processed and analyze in order to prepare a report on the survey. This resulting
report is information.
Another Example:

Characteristics of Information:

• Availability/accessibility
• Accuracy
• Reliability
• Relevance/appropriateness
• Completeness
• Level of detail/conciseness
• Presentation
• Timing

Information Systems:

• In a simplest sense, a system that provides information to people in an organization is called

information system (IS).
• It can be defined as a collection of interrelated components working together to collect, process,
store, and disseminate information to support decision making, coordination, control, analysis,
and visualization in an organization.

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 • Information systems in organizations capture and manage data to produce useful information
that supports an organization and its employees, customers, suppliers and partners.
• So, many organizations consider information system to be the essential one. Information systems
produce information by using data about significant people, places, and things from within the
organization and/or from the external environment to make decisions, control operations,
analyze problems, and create new products or services.
• As already mentioned, Information is the data shaped into a meaningful form. Data, on the other
hand, are the collection of raw facts representing events occurring in organizations or the
environment before they have been organized and arranged into a form that people can
understand and use.
• The three basic activities to produce information in an information system are input, processing,
and output.
o Input captures or collects raw data from within the organization or from its external
environment for processing. Normally input is hardware component of information
systems.
o Processing converts raw data into the meaningful information. Normally processing is
done by software. Processing is done either by performing arithmetic or logical
calculations on the data or by simply rearranging the data.
o Output transfers information produced from processing data to the people who will use
it or to the activities for which it will be used.

• The two types of information systems are formal and informal.

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 • Formal information systems are based on accepted and fixed definitions of data and procedures
for collecting, storing, processing, disseminating, and using these data with predefined rules.
• Informal information systems, in contrast, relay on unstated rules.
• Formal information systems can be manual as well as computer based. Manual information
systems use paper-and-pencil technology. In contrast, computer-based information systems
(CBIS) relay on computer hardware and software for processing and disseminating information.

Dimensions of Information Systems:

• An information system represents a combination of Management, Organization, and Technology

elements.
• The management dimension of information systems involves leadership, strategy, and
management behavior.
• The technology dimensions consist of computer hardware, software, data management
technology, and networking/telecommunications technology (including the Internet).
• The organization dimension of information systems involves the organization ‘s hierarchy,
functional specialties, business processes, culture, and political interest groups.

Organization

• Organizations are formal social units developed to the attainment of specific goals. The key
elements of an organization are its people, structure, operating procedures, politics, culture, and
functional specialties.
o People: Organizations require many different kinds of skills and people like managers
(such as senior, middle, and operational) who make decisions and plans to solve
organizational problems, knowledge workers (such as engineers, architects, or scientists)
who design products or services and create new knowledge, data workers (such as
secretaries, bookkeepers, or clerks) who process the organizations paperwork, and

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 production or service workers (such as machinists, assemblers, or packers) who actually
produce the organizations products or services.
o Structure: Organizations coordinate work through a structured hierarchy. The hierarchy
arranges people in a pyramid structure of rising authority and responsibility. The upper
levels of hierarchy consist of managerial, professional, and technical employees, whereas
the lower levels consist of operational personnel.
o Standard Operating Procedures (SOPs): Standard operating procedures (SOPs) are formal
rules that have been developed over a long time for achieving organizational goals. Firm
‘s business processes are based on its SOPs.
o Organizational Politics: People in organization occupy different positions with different
specialties, concerns and perspectives. As a result, they naturally have divergent and
differing viewpoints about how Resources, Rewards, and Punishments should be
distributed. This will result in political struggle for resources, competition and conflict
within every organization.
o Organizational Culture: It is a set of fundamental assumptions about what products the
organization should produce, how it should produce them, where, and for whom.
Organizational culture is a powerful restraint on change, especially technology change.
Any technological change that threatens commonly held cultural assumptions usually
meets a great deal of resistance.
o Business Functions: The major business functions, or specialized tasks performed by
business organizations include sales and marketing (selling the organization ‘s products
and services), manufacturing and production (producing products and services), finance
(managing the organization ‘s financial assets like cash, stocks, etc.), accounting
(maintaining the organization ‘s financial assets and accounting the flow of funds), and
human resources (attracting, developing, and maintaining the organization‘s labor force;
maintaining employee records).

Management

• Management ‘s job is to make decisions and formulate action plans to solve organizational
problems.
• Managerial roles and decisions vary at different levels of the organization.
• Senior managers occupy the topmost hierarchy and are responsible for making long-range
decisions.
• Middle managers occupy in the middle of the organizational hierarchy who are responsible for
carrying out the plans and goals of senior management.
• Operational managers monitor the day-to-day activities of the organization.

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 • Managers play an important role in organizations. We can understand managerial functions by
examining classical and contemporary models of managerial behavior.
o Classical Models of Management: The classical descriptions of management focus on
four classical functions of managers like planning, organizing, leading, and controlling.
These terms actually describe formal managerial functions and are unsatisfactory as a
description of what managers actually do in their jobs. For example, these terms do not
address what managers actually do when they plan, decide things, and control the work
of others.

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 ✓ Above figure shows systems relationship among the management functions.
✓ Planning includes setting objectives and determining in advance exactly how the
objectives will be met.
✓ Organizing means delegating and coordinating tasks and allocating resources to achieve
objectives.
✓ Managers should also show leadership. He/she should influence employees to work
towards achieving objectives.
✓ Controlling means managers should establish and implement mechanisms to ensure that
objectives are achieved.

o Behavioral Models of Management: These models describe management based on what

managers actually do in their jobs. Managers ‘day-to-day behavior can be classified into
multiple managerial roles. Managerial roles are expectations of activities that managers
should perform in an organization. These roles fall into three categories: interpersonal,
informational, and decisional.

✓ Interpersonal Roles: Interpersonal management roles are grouped into three roles
involving working with other people. Managers act as figureheads, leaders, and liaisons
(cooperation/co-ordination).
✓ Informational Roles: Informational management roles are divided into three different
communication-based roles. Managers act as monitors, disseminators (distributors), and
spokespersons.
✓ Decisional Roles: Decisional management roles are sorted into four action-based roles for
making and implementing decisions. Managers act as entrepreneurs, disturbance
handlers, resource allocators, and negotiators.

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Information Technology

• Information technology is the tool used by managers to deal with change. The technology
dimension consists of computer hardware, software, data management technology, and
networking/telecommunications technology.
• Computer Hardware: It is the physical equipment used for input, processing, and output activities
in an information system. It consists of processing unit; various input, output, and storage devices;
and physical media to link these devices together.
• Computer Software: It consists of detailed preprogrammed instructions that control and
coordinate the work of computer hardware components in an information system.
• Data Management Technology: In order to keep track of all of the information stored, we need
data management software that is designed to organize the information so that we can readily
retrieve what we are looking for.
• Networking and Communications technology: It includes physical devices and software that link
various computer hardware components that transfer data from one physical location to another.
This technology helps to connect computers and communication equipment for sharing voice,
data, images, sound, or video in networks. A network links two or more computers to share data
and resources. The world’s largest and most widely used network is the Internet.

All the above technologies collectively form 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. So, each organization must carefully design and manage its IT infrastructure according to the
needs of the information system.

Interactive Session: Technology UPS competes Globally with information Technology

A Business Perspective on Information Systems:

• Managers and business firms invest in information technology and systems because they provide
real economic value to the business.
• The decision to build or maintain an information system assumes that the returns on this
investment will be superior to other investments in buildings, machines, or other assets.
• These superior returns will be expressed as increases in productivity, as increases in revenues
(which will increase the firm’s stock market value), or perhaps as superior long-term strategic
positioning of the firm in certain markets (which produce superior revenues in the future).
• 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.
• As already mentioned, information systems collect data from environment and produces
information.
• This information is useful for managers to perform managerial tasks such as planning,
coordinating, controlling and decision making.
• On the other hand, information produced by these systems will be helpful to different business
processes such as supply chain management, customer relationship management, and knowledge
management.

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 • Combination of these two perspectives ultimately helps in increasing firm ‘s profitability and
achieving strategic position.
• There are three ways an information system can add value to a business:
o Help managers make better decisions
o Help make business processes more efficient
o Increase profitability

Fig: The Business Information Value Chain

Complementary Assets: Organizational Capital and the Right Business Model

• Assets that are required to derive value from primary investment are called complementary assets.
For example, to get real value from water resources requires investments in hydropower ‘s,
transmission lines, legal regulatory structures etc. Thus, these investments are complementary for
getting real values from investments in water resources.
• In the same way investing just in IT may not give attractive returns to organizations.
• Studies show that there are considerable variations in returns from investments in information
technology. Some organizations invest great deal of amount and also able to achieve great deal of
values from this investment.
• On the other hand, some organizations invest great deal of amount and are only able to achieve little
value from this.
• Third variation is the organizations that invest little in information technology but able to get great
deal of returns.

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• The fourth types of organizations are those that invest little in IT and also get little and also get little
returns from it.
• This clearly indicates that investing in information technology does not guarantee good returns. The
reason behind this is the concept of complementary assets.
• Investments in information technology alone cannot make managers and organizations more
effective. Thus, to get proper returns from investment in IT, organizations need to invest in
complementary assets also.
• Some organizations do not invest in discovering new business model or seeks to preserve existing
business model even after investing in new technology.
• Due to this organization may be unable to take advantages of new technology and hence unable to
get returns from investment in new technology.
• Complementary assets for investment in information technology are investment in new business
models, new business process, management behavior, organizational culture, trainings etc.
Organizations that do not invest in theses complementary assets cannot get superior returns from
investments in IT.
• Main complementary assets for investment in information technology can be categorized into
following three classes:

Contemporary Approaches to Information Systems

• When an information system is being developed, much importance should be given to the
structure of the organization, culture of the organization, etc.
• But along with these, especial attention should also be given to the technical side of MIS.
• The various contemporary approaches to MIS development are: Technical Approach, Behavioral
Approach, and Socio Technical Approach.

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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.
• The disciplines that contribute to the technical approach are computer science, management
science, and 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

• An important part of the information systems field is concerned 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 cannot be explored usefully with the models used in the technical approach.
• For instance, sociologists study information systems with an eye toward how groups and
organizations shape the development of systems and also how systems affect individuals, groups,
and organizations.

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 • Psychologists study information systems with an interest in how human decision makers perceive
and use formal information.
• Economists study information systems with an interest in understanding the production of digital
goods, the dynamics of digital markets, and how new information systems change the control and
cost structures within the firm.
• The focus of behavioral approach is generally not on technical solutions. Instead, it concentrates
on changes in attitudes, management and organizational policy, and behavior.

Socio Technical Approach

• In the socio technical view of systems, optimal organizational performance is achieved by jointly
optimizing both the social and technical systems.
• Adopting a socio technical systems perspective helps to avoid a purely technological approach to
information systems.
• Technology must be changed and designed, sometimes even "deoptimized," to fit organizational
and individual needs.
• Organizations and individuals must also be changed through training, learning, and planned
organizational change to allow technology to operate and prosper.

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