MANAGEMENT INFORMATION SYSTEMS

What is an Information System?

An information system can be defined technically as a set of interrelated components that collect
(or retrieve), process, store, and distribute information to support decision making, coordination
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.

Information systems contain information about significant people, places, and things within the
organization or in the environment surrounding it. By information we mean data that have been
shaped into a form that is meaningful and useful to human beings.

Functions of an information system

An information system contains information about an organization and its surrounding

environment. Three basic activities—input, processing, and output—produce the information
organizations need. Feedback is output returned to appropriate people or activities in the
organization to evaluate and refine the input. Environmental factors such as customers, suppliers,
competitors, stockholders, and regulatory agencies interact with the organization and its
information systems.

Why Information Systems?

Today it is widely recognized that information systems knowledge is essential for managers
because most organizations need information systems to survive and prosper. Information
systems can help companies extend their reach to far away locations, offer new products and
services, reshape jobs and work flows, and perhaps profoundly change the way they conduct
business.

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The Competitive Business Environment and the Emerging Digital Firm

Four powerful worldwide changes have altered the business environment. The first change is the
emergence and strengthening of the global economy. The second change is the transformation of
industrial economies and societies into knowledge- and information-based service economies.
The third is the transformation of the business enterprise. The fourth is the emergence of the
digital firm. These changes in the business environment and climate, pose a number of new
challenges to business firms and their management.

The Changing Contemporary Business Environment

Globalization

 Management and control in a global marketplace

 Competition in world markets
 Global work groups
 Global delivery systems

Transformation of the Enterprise

 Flattening
 Decentralization
 Flexibility
 Location independence
 Low transaction and coordination costs
 Empowerment
 Collaborative work and teamwork

Transformation of Industrial Economies

 Knowledge- and information-based economies

 Productivity
 New products and services
 Knowledge: a central productive and strategic asset
 Time-based competition
 Shorter product life
 Turbulent environment
 Limited employee knowledge base

Emergence of the Digital Firm

 Digitally enabled relationships with customers, suppliers, and employees

 Core business processes accomplished via digital networks
 Digital management of key corporate assets
 Rapid sensing and responding to environmental changes

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A Business Perspective on Information Systems

From a business perspective, an information system is an organizational and management

solution, based on information technology, to a challenge posed by the environment. Examine
this definition closely because it emphasizes the organizational and managerial nature of
information systems: To fully understand information systems, a manager must understand the
broader organization, management, and information technology dimensions of systems and their
power to provide solutions to challenges and problems in the business environment. 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 information systems literacy. Information systems literacy includes a behavioral as
well as a technical approach to studying information systems. Computer literacy, in contrast,
focuses primarily on knowledge of information technology.

Using information systems effectively requires an understanding of the organization,

management, and information technology shaping the systems. All information systems can be
described as organizational and management solutions to challenges posed by the environment.

Organizations

Information systems are an integral part of organizations. Indeed, for some companies, such as
credit reporting firms, without the information system there would be no business. The key
elements of an organization are its people, structure, operating procedures, politics, and culture.
We introduce these components of organizations here and describe them in greater detail in
Chapter 3. Organizations are composed of different levels and specialties. Their structures reveal
a clear-cut division of labor. Experts are employed and trained for different functions. The major
business functions, or specialized tasks performed by business organizations, consist of sales and
marketing, manufacturing and production, finance, accounting, and human resources.

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Management

Managers perceive business challenges in the environment, they set the organizational strategy
for responding and allocate the human and financial resources to achieve the strategy and
coordinate the work. Throughout, they must exercise responsible leadership. Management's job
is to "make sense" out of the many situations faced by organizations and formulate action plans
to solve organizational problems. The business information systems described in this book
reflect the hopes, dreams, and realities of real-world managers.

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 redirecting and redesigning the organization.

It is important to note that managerial roles and decisions vary at different levels of the
organization. Senior managers make long-range strategic decisions about what products and
services to produce. Middle managers carry out the programs and plans of senior management.
Operational managers are responsible for monitoring the firm's daily activities. All levels of
management are expected to be creative, to develop novel solutions to a broad range of
problems. Each level of management has different information needs and information system
requirements.

Technology

Information technology is one of many tools managers use to cope with change. Computer
hardware is the physical equipment used for input, processing, and output activities in an
information system. It consists of the following: the computer processing unit; various input,
output, and storage devices; and physical media to link these devices together.

New Options for Organizational Design: The Digital Firm and the Collaborative
Enterprise

The explosive growth in computing power and networks, including the Internet, is turning
organizations into networked enterprises, allowing information to be instantly distributed within
and beyond the organization.

Companies can use this information to improve their internal business processes and to
coordinate these business processes with those of other organizations. These new technologies
for connectivity and collaboration can be used to redesign and reshape organizations,
transforming their structure, scope of operations, reporting and control mechanisms, work
practices, work flows, products, and services. The ultimate end product of these new ways of
conducting business electronically is the digital firm.

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Flattening Organizations and the Changing Management Process

Large, bureaucratic organizations, which primarily developed before the computer age, are often
inefficient, slow to change, and less competitive than newly created organizations. Some of these
large organizations have downsized, reducing the number of employees and the number of levels
in their organizational hierarchies. For example, when Eastman Chemical Co. split off from
Kodak in 1994 it had $3.3 billion in revenue and 24,000 full-time employees. By 2000 it
generated $5 billion in revenue with only 17,000 employees (Information Week, 2000).

Increasing Flexibility of Organizations

Companies can use communications technology to organize in more flexible ways, increasing
their ability to sense and respond to changes in the marketplace and to take advantage of new
opportunities. Information systems can give both large and small organizations additional
flexibility to overcome some of the limitations posed by their size.

Redefining Organizational Boundaries: New Avenues for Collaboration

A key feature of the emerging digital firm is the ability to conduct business across firm
boundaries almost as efficiently and effectively as it can conduct business within the firm.
Networked information systems allow companies to coordinate with other organizations across
great distances. Transactions such as payments and purchase orders can be exchanged
electronically among different companies, thereby reducing the cost of obtaining products and
services from outside the firm.

The Challenge of Information Systems: Key Management Issues

Although information technology is advancing at a blinding pace, there is nothing easy or

mechanical about building and using information systems. There are five key challenges
confronting managers:

1. The Strategic Business Challenge: Realizing the Digital Firm: How can businesses
use information technology to become competitive, effective, and digitally enabled?

Creating a digital firm and obtaining benefits is a long and difficult journey for most
organizations. Despite heavy information technology investments, many organizations
are not obtaining significant business benefits, nor are they becoming digitally enabled.
The power of computer hardware and software has grown much more rapidly than the
ability of organizations to apply and use this technology. To fully benefit from
information technology, realize genuine productivity, and take advantage of digital firm
capabilities, many organizations actually need to be redesigned. They will have to make
fundamental changes in organizational behavior, develop new business models, and
eliminate the inefficiencies of outmoded organizational structures. If organizations

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 merely automate what they are doing today, they are largely missing the potential of
information technology.

2. The Globalization Challenge: How can firms understand the business and system
requirements of a global economic environment?

The rapid growth in international trade and the emergence of a global economy call for
information systems that can support both producing and selling goods in many different
countries. In the past, each regional office of a multinational corporation focused on solving its
own unique information problems. Given language, cultural, and political differences among
countries, this focus frequently resulted in chaos and the failure of central management controls.
To develop integrated, multinational, information systems, businesses must develop global
hardware, software, and communications standards; create cross-cultural accounting and
reporting structures (Roche, 1992); and design transnational business processes.

3. The Information Architecture and Infrastructure Challenge: How can organizations

develop an information architecture and information technology infrastructure that
can support their goals when business conditions and technologies are changing so
rapidly?

Meeting the business and technology challenges of today's digital economy requires redesigning
the organization and building a new information architecture and information technology (IT)
infrastructure.

Business value of information systems? A major problem raised by the development of

powerful, inexpensive computers involves not technology but management and organizations.
It's one thing to use information technology to design, produce, deliver, and maintain new
products. It's another thing to make money doing it. How can organizations obtain a sizable
payoff from their investment in information systems?

Engineering massive organizational and system changes in the hope of positioning a firm
strategically is complicated and expensive. Senior management can be expected to ask these
questions: Are we receiving the kind of return on investment from our systems that we should
be? Do our competitors get more? Understanding.

4.The Responsibility and Control Challenge: How can organizations ensure that their
information systems are used in an ethically and socially responsible manner?

How can we design information systems that people can control and understand? Although
information systems have provided enormous benefits and efficiencies, they have also created
new problems and challenges of which managers should be aware.