Chapter 1

An Introduction to Information
Systems
 What does the picture say ?

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 What is wrong with this picture?

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 MIS Management Information Systems.
 System:
 A set of principles or procedures according to
which something is done; an organized scheme or
method.
 methodology,
 technique,
 process,
 line of action,
 framework

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  A set of elements or components that interact to
accomplish goals
 Components of a system
 Input
 Processing
 Output
 Feedback

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 System Performance and Standards
 Efficiency: measure of what is produced divided
by what is consumed

 Effectiveness: extent to which system attains its

goals

 System performance standard: a specific

objective of the system

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 Information

(1) accurate and timely,

(2) specific and organized for a purpose,
(3) presented within a context that gives it meaning
and relevance, and
(4) can lead to an increase in understanding and
decrease in uncertainty.
Information is valuable because it can affect
behavior, a decision, or an outcome.

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 For example, if a manager is told his/her
company's net profit decreased in the past
month, he/she may use this information as a
reason to cut financial spending for the next
month.
A piece of information is considered valueless if,
after receiving it, things remain unchanged.

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 Information Vs Data
 Data can be described as unprocessed facts and figures.
 Plain collected data as raw facts cannot help in decision-
making.
 However, data is the raw material that is organized,
structured, and interpreted to create useful information
systems.
 Data is defined as 'groups of non-random symbols in the
form of text, images, voice representing quantities, action
and objects'.
 Information is interpreted data; created from organized,
structured, and processed data in a particular context.

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 Data, Information, and Knowledge
 Information is different from data
 Data: raw facts
 Information: collection of facts organized in
such a way that they have value beyond the
facts themselves
 Knowledge: awareness and understanding of a
set of information and ways that information
can be made useful to support a specific task or
reach a decision

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 Data items refer to an elementary description of things, events,
activities, and transactions that are recorded, classified, and stored but
are not organized to convey any specific meaning.
 Data items can be numbers, letters, figures, sounds, and images.
 Examples of data items are collections of numbers (e.g., 3.11, 2.96,
3.95, 1.99, 2.08) and characters (e.g., B, A, C, A, B, D, F, C).
 Information refers to data that have been organized so that they have
meaning and value to the recipient.
 For example, a grade point average (GPA) by itself is data, but a
student’s name coupled with his or her GPA is information.
 The recipient interprets the meaning and draws conclusions and
implications from the information.
 Knowledge consists of data and/or information that have been
organized and processed to convey understanding, experience,
accumulated learning, and expertise as they apply to a current
business problem.
 Data, Information, and Knowledge (continued)

Table 1.1: Types of Data

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 Data, Information, and Knowledge
(continued)

Figure 1.2: The Process of Transforming Data into Information

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 Information, Knowledge and Business
Intelligence
 Professor Ray R. Larson of the School of Information at the
University of California, Berkeley, provides an Information
Hierarchy, which is −
 Data − The raw material of information.
 Information − Data organized and presented by someone.
 Knowledge − Information read, heard, or seen, and understood.
 Scott Andrews' explains Information Continuum as follows −
 Data − A Fact or a piece of information, or a series thereof.
 Information − Knowledge discerned from data.
 Business Intelligence − Information Management pertaining to an
organization's policy or decision-making, particularly when tied to
strategic or operational objectives.
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 Information/Data Collection Techniques
 The most popular data collection techniques include −
 Surveys − A questionnaires is prepared to collect the data
from the field.
 Secondary data sources or archival data: Data is
collected through old records, magazines, company
website etc.
 Objective measures or tests − An experimental test is
conducted on the subject and the data is collected.
 Interviews − Data is collected by the system analyst by
following a rigid procedure and collecting the answers to
a set of pre-conceived questions through personal
interviews.
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 The Characteristics of Valuable Information

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 The Characteristics of Valuable Information

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 The Value of Information
 Value of information is directly linked to how it
helps decision makers achieve their
organization’s goals
 For example, value of information might be
measured in:
 Time required to make a decision
 Increased profits to company

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 Information system (IS)
 A set of interrelated components that collect,
manipulate, and disseminate data and
information, and provide feedback to meet an
objective
 Examples: ATMs,
 airline reservation systems,
 course reservation systems

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 What Is An Information System?

Figure 1.5: The Components of an Information System

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 Input, Processing, Output, Feedback
 Input: activity of gathering and capturing raw
data
 Processing: converting or transforming data into
useful outputs
 Output: production of useful information,
usually in the form of documents and reports
 Feedback: output that is used to make changes
to input or processing activities

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 Manual and Computerized Information Systems
 An information system can be:
 Manual
 Computerized

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 Manual Information System

 A manual information system does not use any

computerized devices.
 The recording, storing and retrieving of data is
done manually by the people, who are responsible
for the information system.

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 The following are the major components of a manual
information system
 People –people are the recipients of information system
 Business Procedures –these are measures put in place
that define the rules for processing data, storing it,
analyzing it and producing information
 Data –these are the recorded day to day transactions
 Filing system – this is an organized way of storing
information
 Reports –the reports are generated after manually
analyzing the data from the filing system and compiling
it.

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 The following diagram illustrates how a
typical manual information system works

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 Advantages:
 The following are the advantages of manual
information systems
 Cost effective – it is cheaper compared to a
computerized system because there is no need to
purchase expensive equipment such as servers,
workstations, printers, etc.
 Flexible –evolving business requirements can
easily be implemented into the business
procedures and implemented immediately

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 Disadvantages:
 The following are some of the disadvantages of a
manual information system.
 Time consuming –all data entries need to be verified
before filing, this is a time consuming task when done
by humans. Retrieving data from the filing system also
takes a considerable amount of time
 Prone to error – the accuracy of the data when verified
and validated by human beings is more prone to errors
compared to verification and validation done by
computerized systems.
 Lack of security – the security of manual systems is
implemented by restricting access to the file room.
Experience shows unauthorized people can easily gain
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access to the filing room
 Disadvantages
 Duplication of data –most departments in an
organization need to have access to the same data. In a
manual system, it is common to duplicate this data to
make it easy to accessible to all authorized users. The
challenge comes in when the same data needs to be
updated
 Data inconsistency – due to the duplication of data, it is
very common to update data in one file and not update
the other files. This leads to data inconsistency
 Lack of backups – if the file get lost or mishandled, the
chances of recovering the data are almost zero.

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 Computer-Based Information Systems
 Computerized systems were developed to address
the challenges of manual information systems.
 The major difference between a manual and
computerized information system is a
computerized system uses a combination of
software and hardware to record, store, analyze
and retrieve information.
 A single set of hardware, software, databases,
telecommunications, people, and procedures that
are configured to collect, manipulate, store, and
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process data into information
 Computer-Based Information Systems (continued)

The Components of a Computer-Based Information System

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 These components are integrated to form the wide variety of
information systems found within an organization.
 Starting at the bottom of the figure, the IT components of
hardware, software, networks (wireline and wireless), and
databases form the information technology platform.
 IT personnel use these components to develop information
systems, oversee security and risk, and manage data.
 These activities cumulatively are called information
technology services.
 The IT components plus IT services comprise the
organization’s information technology infrastructure.
 At the top of the pyramid are the various organizational
information systems.
Different types of information systems that function within a single
organization
 Computer-based information systems have many
capabilities

 Perform high-speed, high-volume numerical

computations.
• Provide fast, accurate communication and collaboration
within and among organizations.
• Store huge amounts of information in an easy-to-access,
yet small space.
• Allow quick and inexpensive access to vast amounts of
information worldwide.
• Interpret vast amounts of data quickly and efficiently.
• Automate both semiautomatic business processes and
manual tasks
 Advantages:
 The following are the advantages of computerized
information systems
 Fast data processing and information retrieval – this is
one of the biggest advantages of a computerized
information system. It processes data and retrieves
information at a faster rate. This leads to improved
client/customer service
 Improved data accuracy – easy to implement data
validation and verification checks in a computerized
system compared to a manual system.

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  Improved security – in addition to restricting access to the
database server, the computerized information system can
implement other security controls such as user’s authentication,
biometric authentication systems, access rights control, etc.
 Reduced data duplication – database systems are designed in
such a way that minimized duplication of data. This means
updating data in one department automatically makes it available
to the other departments
 Improved backup systems – with modern day technology,
backups can be stored in the cloud which makes it easy to recover
the data if something happened to the hardware and software used
to store the data
 Easy access to information – most business executives need to
travel and still be able to make a decision based on the
information. The web and Mobile technologies make accessing
data from anywhere possible.
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 Disadvantages:
 It is expensive to set up and configure – the
organization has to buy hardware and the required
software to run the information system. In addition to
that, business procedures will need to be revised, and the
staff will need to be trained on how to use the
computerized information system.
 Heavy reliance on technology – if something happens to
the hardware or software that makes it stop functioning,
then the information cannot be accessed until the required
hardware or software has been replaced.
 Risk of fraud – if proper controls and checks are not in
place, an intruder can post unauthorized transactions such
as an invoice for goods that were never delivered, etc.
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 Types of Computer-Based Information Systems
 Modern organizations employ many different types of information
systems.
 Figure shows the different types of information systems that
function among multiple organizations.
 Transaction processing systems (TPSs),
 Management information systems,
 Enterprise resource planning (ERP) systems
 Customer relationship management (CRM) systems
 Supply chain management (SCM)
 Types of Information Systems
 The type of information system that a user uses
depends on their level in an organization.
 The following diagram shows the three major
levels of users in an organization and the type of
information system that they use.

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Levels of Management & Decisions
 Strategic v/s Tactical
 A strategic plan is when you look at the long-term goals you want to
achieve.
 Use strategic planning when you want to reach a broad life or career
goal.
 A tactical plan is when you focus on the specific steps you need to
take in order to achieve a goal.
 This kind of planning process focuses on the day-to-day actions you
need to complete.
 With a tactical plan, you need to revisit your progress more
frequently.
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 Organization as a System

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Types of Information Systems

 Transaction Processing Systems (TPS)

 Enterprise Resource Planning (ERP)
 Management Information Systems (MIS)
 Decision Support Systems (DSS)
 Executive’s Information Systems (EIS)
 Transaction Processing Systems (TPS)
 A transaction processing system supports the
monitoring, collection, storage, and processing of
data from the organization’s basic business
transactions, each of which generates data
 Processes and stores day-to-day business
transactions
 Used at Operational Level
 Overall usage is well defined and repetitive in
nature
 Highly structured decisions
 Very detailed information on each aspect
 Transaction Processing Systems (TPS)
 For example,
 Point of sale
 Inventory Control
 Payroll
 Airline reservation
 Online shopping
 Transaction Processing Systems (TPS)

 Advantages:
 Precise information
 Needed to run the business
 Limitations:
 Can not provide an abstract view
 Can not maintain historical information
 Not suitable for decision making
 Information usually can not flow across
departments
 Enterprise Resource Planning (ERP)
 Main objective is to integrate all business
processes within the organization
 Typically has three tier architecture
 Data tier
 Application tier
 Web tier
 Many features similar to TPS
A Sample ERP User Interface
 Enterprise Resource Planning (ERP)

 Advantages:
 Integrates all business processes under single
roof
 Improves efficiency and productivity
 Reduces costs
 Streamlines the workflow and processes
 Can be extended to SCM & CRM
 Limitations:
 Data still at operational level
 Not suitable for decision making
 Management Information Systems (MIS)

 Data Analysis is the base for decision making

 Provides the base for analysis
 Used as Tactical & Strategic Management
levels
 Gathers information from TPS, ERP and
external sources
 Data warehouse plays an important role in
implementation of MIS
Management Information Systems (MIS)
Management Information Systems (MIS)
 Advantages:
 Supports multi-dimensional analysis
 Maintains history
 Supports OLAP operations
 Supports decision making
 Limitations:
 Can not provide alternate solutions
 Can not support what-if analysis
 Can not perform predictive analysis
 Decision Support System (DSS)
 The main objective of decision support systems
is to provide solutions to problems
 Used at tactical and strategic management level
 Takes input from Operational systems, external
sources, MIS
 Decision Support System (DSS)
 It has four fundamental components
 User interface
 Database
 DSS model
 Performs what-if analysis
 Provides alternate solutions
 Knowledge
 Specifies relationships between variables and/or
parameters
 Stores previous predictions
 Also notifies the users when the prediction
mismatches with actual output
 Decision Support System (DSS)
 Advantages:
 Allows what-if analysis
 Performs predictive analysis
 Limitations:
 Selection of appropriate DSS model needs
experience and expertise
 Doesn’t emphasis much on data visualization
 User needs to have technical background
 Programmed and Non-programmed Decisions
 There are two types of decisions –
 programmed and
 non-programmed decisions.
 Programmed decisions are basically automated
processes, general routine work, where −
 These decisions have been taken several times.
 These decisions follow some guidelines or rules.
 For example, selecting a reorder level for
inventories, is a programmed decision.

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 Non-programmed decisions
 Non-programmed decisions occur in unusual and non-
addressed situations, so −
 It would be a new decision.
 There will not be any rules to follow.
 These decisions are made based on the available
information.
 These decisions are based on the manger's discretion,
instinct, perception and judgment.
 For example, investing in a new technology is a non-
programmed decision.
 Decision support systems generally involve non-
programmed decisions. Therefore, there will be no exact
60 report, content, or format for these systems.
 Executive’s Information System (EIS)
 Also known as Executive’s Support System (ESS)
 Considered to be a specialized form of DSS
 Mainly focuses on graphical display and easy-to-
use interfaces
 Designed for senior executives for decision
making
 Strong reporting and drill-down capabilities
 Executive’s Information System (EIS)
 Can distinguish between vital and rarely-used data
 Can track critical activities
 Mainly used in manufacturing, marketing and
finance areas
 EIS components
 Hardware, Software, User Interface &
Communication Network
 EIS models and Graphics are the most important
 Executive’s Information System (EIS)
 Advantages:
 Easy to use for upper level executives
 No technical skill set required
 Strong drill down and cross dimensional
capabilities
 Limitations:
 Information overload
 High implementation cost
 Not effective for small organizations
 Types of Management Information Systems

 Management Reporting System

 Process Control System
 Sales & Marketing System
 Inventory Control System
 Accounting & Finance System
 Human Resource (Enterprise
Collaboration/Office Automation) System
 Management Reporting System
 Used by middle managers to generate regular
reports
 Compare current & past performance
 Determine growth & track performance
 For example, generating profit & loss statement
with respect to divisions, geographic regions,
customer segments, products, financial advisors,
etc.
 Also used to track nonfinancial variables like
employee head count, clients, investment
performance, client assets in custody, etc
 Process Control System
 Used to monitor industry process such as metal
fabrication, petroleum processing, automobile
assembly line etc.
 Continuously gathers data and generates reports
on system performance
 Managers can determine how often a particular
event occurs over a course of time
 Used to determine efficiency of the system and
workers
 Sales & Marketing System
 Used to track effectiveness of sales and
marketing functions of the organization
 Projected sales
 Handling distribution channels
 Compiling & tracking advertise schedules
 Pricing, discounts & promotions
 OLAP operations such as slice, dice, pivot are
extensively used
 Inventory Control System
 Used to track inventory of the organization
 Includes spoilage, theft, sales, at hand
 Managers can determine movement of products
from warehouse to store, number of products
sold, number of products returned, number of
products spoiled, etc
 Extremely useful for e-commerce based
companies like Flipkart, Amazon, etc
 Accounting & Finance System
 Tracks organization’s assets and investments
 Compiles data for financial reporting
 Payrolls
 Government taxes
 Pension funds
 All periodic financial statements are generated
 Human Resource System
 Used to manage human resources
 Streamlines communication between employees
 Tracks employees’ work attendance, leaves,
vacations, etc
 Automates recruitment process by resume
collection and analysis for potential hires
 Manages workflows
 Management Information Systems
 In a nutshell, MIS is a collection of systems,
hardware, procedures and people that all work
together to process, store, and produce
information that is useful to the organization.
 OR
 Management information system (MIS): an
organized collection of people, procedures,
software, databases, and devices that provides
routine information to managers and decision
makers.
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 Impact of IT on organizations
 IT Reduces the Number of Middle Managers
 IT makes managers more productive, and it increases the
number of employees who can report to a single manager.
 Thus, IT ultimately decreases the number of managers and
experts.
 IT Changes the Manager’s Job
 IT often provides managers with near-real-time
information, meaning that managers have less time to make
decisions, making their jobs even more stressful.
 Fortunately, IT also provides many tools—for example,
business analytics applications such as dashboards, search
engines, and intranets—to help managers handle the
volumes of information they must deal with on an ongoing
basis.
 Due to advances in IT, employees and teams who are
geographically dispersed, can work from anywhere at any
time, and teams can consist of employees who are literally
dispersed throughout the world.
 Remote supervision places greater emphasis on completed
work and less emphasis on personal contacts and office
politics.
 As computers continue to advance in terms of intelligence
and capabilities, the competitive advantage of replacing
people with machines is increasing rapidly.
 This process frequently leads to layoffs.
 At the same time, however, IT creates entirely new
categories of jobs, such as electronic medical record-
keeping and nanotechnology.
 IT Impacts Employees’ Health and Safety.
 An increase in an employee’s workload and/or
responsibilities can trigger job stress.
 Although computerization has benefited organizations by
increasing productivity, it also has created an ever-
expanding workload for some employees.
 These feelings of stress and anxiety can actually diminish
rather than improve workers’ productivity.
 IT Provides Opportunities for People with Disabilities.
 Computers can create new employment opportunities for
people with disabilities by integrating speech-recognition
and vision-recognition capabilities.
 Impact of IT on organizations
 Business Strategy: Services which used to be delivered
in person can now be delivered over networks.
 Organization Culture :Newer types of IT such as
electronic mail and groupware are creating significant
changes
 Organization Structures: Virtual Corporation,
Networked structure
 Management Processes: IT provides more effective
ways of accessing information from multiple sources.
 Work: Knowledge base, Hybrid managers
 The Workplace :The way in which IT diminishes the
effect of distance means that it creates a variety of
options for reorganizing the workplace.
 Impact of IT on organisation
1. Business Strategy
 IT creates new opportunities for innovation in
products and services.
 Services which used to be delivered in person can
now be delivered over networks.
 Among the key levers are:
 resequencing: including parallel processing of
data-bases
 simultaneity: making information instantly
available in several systems (e.g via OLE)
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 Business Strategy
 time extension: offering 24 hour a day; 365
days a year service
 portability: taking service and products closer
to the user

 reusability: using information captured for one

purpose (e.g. transactions), and using for others
(e.g. customer targeting)

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 2. Organization Culture
 Electronic mail and groupware are creating
significant changes in the way that information
flows around group ware, and between them and
their customers and suppliers.
 It can hasten the development of more open and
innovative cultures.
 However, many new systems fail to become
accepted by their users, because the systems
developers have not been culturally sensitive to
the department or group ware, in which the new
systems are to be used.
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 3. Organization Structures
 IT enables a greater variety of structures.
 In particular it enables more flexible and fluid
structures - networked structures, dispersed team and
teams that come and go as needs change (as in
the virtual corporation).
 The networked organization is one that is connected
together by informal networks and the demands of
the task, rather than a formal organizational
structure.
 The network organization prioritizes its “soft
structure” of relationships, networks, teams, groups
and communities rather than reporting lines.
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 Virtual corporation
 As information and communications technologies
overcome the constraints of time and distance, it
becomes possible to create virtual organisations. Virtual
is usually taken to be something that does not exist in
reality.
 "a temporary network of independent companies linked
by IT to share skills, costs, and access to one another's
markets“.
 "an organization distributed geographically and whose
work is coordinated through electronic
communications."

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 Management Processes
 IT is rapidly entering the era where it supports
unstructured management processes as well as highly
routinized business processes .
 It provides more effective ways of accessing
information from multiple sources, including use of
external information on databases and the Internet.
 However, group decision support systems that operate
in a meeting room environment can help enhance
decision making, but it does need someone who is an
expert facilitator to help the group master the technique
of structured discussion.

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 Work
 IT is dramatically changing the nature of professional
work.
 Becoming effective not only requires traditional skills of
organizing, thinking, writing etc., but knowing how best
to use the power of IT for researching sources, accessing
information, connecting to experts, communicating ideas
and results, and packaging the knowledge (asset) for
reuse.
 One aspect of this is the need for hybrid managers-
people who are competent at both their discipline and IT.

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 The Workplace
 The way in which IT diminishes the effect of
distance means that it creates a variety of options
for reorganizing the workplace.
 At a basic level, it can provide more flexibility in
the office, allowing desk sharing and a degree of
location independence within a building and
wireless PCs become more firmly established.
 At another level it permits the dispersion of work
teams, thus saving costs of relocation and travel.
 It has also created the mobile professional and
also allows people to work effectively from
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home.
 Importance of IS to society

84
 IT Affects Our Quality of Life
 IT has significant implications for our quality of life.
 The workplace can be expanded from the traditional 9-to-5 job at
a central location to 24 hours a day at any location.
 IT can provide employees with flexibility that can significantly
improve the quality of leisure time, even if it doesn’t increase the
total amount of leisure time.
 Importance of IS to society

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 Importance of IS to society

87
 Improvements in Healthcare
 Expert systems now help doctors diagnose diseases, and machine
vision is enhancing the work of radiologists.
 Surgeons use virtual reality to plan complex surgeries.
 They also employ surgical robots to perform long-distance surgery.
 Finally, doctors discuss complex medical cases via videoconferencing.
 New computer simulations recreate the sense of touch, allowing
doctors-in-training to perform virtual procedures without risking
harm to an actual patient.
 Information technology can be applied to improve the efficiency and
effectiveness of healthcare.
 Business Process
 A business process is an ongoing collection of related
activities that create a product or a service of value to the
organization, its business partners, and/or its customers.
 The process involves three fundamental elements:
 • Inputs: Materials, services, and information that flow
through and are transformed as a result of process
activities
 • Resources: People and equipment that perform process
activities
 • Outputs: The product or a service created by the process.
 If the process involves a customer, then that customer
can be either internal or external to the organization.
 A manager who is the recipient of an internal reporting
process is an example of an internal customer.
 In contrast, an individual or a business that purchases
the organization’s products is the external customer of
the fulfillment process.
 Information Systems in the Functional
Areas of Business

 Finance and accounting

 Sales and marketing
 Manufacturing
 Human resource management
 Legal information systems

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 Accounting Business Processes
Finance Business Processes
 • Managing accounts payable • Managing account collection
 • Managing accounts receivable • Managing bank loan applications
 • Reconciling bank accounts • Producing business forecasts
• Applying customer credit
 • Managing cash receipts
approval and credit terms
 Managing invoice billings • Producing property tax
 • Managing petty cash assessments
 • Producing month-end close • Managing stock transactions
• Generating financial cash flow
 • Producing virtual close reports
 Human Resources Business Processes
• Applying disability policies
• Managing employee hiring
• Handling employee orientation
• Managing files and records
• Applying healthcare benefits
• Managing pay and payroll
• Producing performance appraisals and salary adjustments
•Managing resignations and terminations
• Applying training/tuition reimbursement
• Managing travel and entertainment
• Managing workplace rules and guidelines
• Overseeing workplace safety
 Cross-Functional Processes
 Many business processes, such as procurement and fulfillment,
cut across multiple functional areas; that is, they are cross-
functional business processes, meaning that no single
functional area is responsible for their execution.
 Rather, multiple functional areas collaborate to perform the
process.
 For a cross-functional process to be successfully completed,
each functional area must execute its specific process steps in a
coordinated, collaborative way.
 The procurement process includes all of the tasks involved in
acquiring needed materials externally from a vendor.
 Procurement comprises five steps that are completed in three
different functional areas of the firm: warehouse, purchasing, and
accounting.
 The fulfillment process is concerned with processing customer
orders.
 Fulfillment is triggered by a customer purchase order that is
received by the sales department.
 The sales order communicates data related to the order to other
functional areas within the organization, and it tracks the progress
of the order.
 The warehouse prepares and sends the shipment to the customer.
 The customer then makes a payment.
 Information Systems and Business Processes
 An information system is a critical enabler of an organization’s
business processes.
 Information systems facilitate communication and coordination
among different functional areas, and allow easy exchange of, and
access to, data across processes.
 Specifically, ISs play a vital role in three areas:
• Executing the process
• Capturing and storing process data
• Monitoring process performance
 Executing the Process.
 An IS helps organizations execute processes efficiently and effectively.
 ISs are typically embedded into the processes, and they play a critical
role in executing the processes.
 In other words, an IS and the processes are usually intertwined. If the
IS does not work, the process cannot be executed.
 IS helps execute processes by informing people when it is time to
complete a task, by providing the necessary data to complete the task,
and, in some cases, by providing the means to complete the task.
 Capturing and Storing Process Data.
 Processes create data such as dates, times, product numbers,
quantities, prices, and addresses, as well as who did what,
when, and where.
 ISs capture and store these data, commonly referred to as
process data or transaction data.
 Some of these data are generated and automatically
captured by the IS.
 Other data are generated outside the IS and must be entered
into it.
 This data entry can occur in various ways, ranging from
manual entry to automated methods involving data in forms
such as bar codes and RFID tags that can be read by
machines
 Monitoring Process Performance.
 A third contribution of IS is to help monitor the state of the various
business processes.
 That is, the IS indicates how well a process is executing.
 The IS performs this role by evaluating information about a process.
 This information can be created either at the instance level (i.e., a
specifi c task or activity) or at the process level (i.e., the process as a
whole).
 BPR
 Business Process Re-engineering (BPR), is a strategy for
making an organization’s business processes more
productive and profitable.
 The key to BPR is for enterprises to examine their
business processes from a “clean sheet” perspective and
then determine how they can best reconstruct those
processes to improve their business functions.
 BPR’s popularity was propelled by the unique
capabilities of information technology, such as
automation and standardization of many process steps
and error reduction due to improved communication
among organizational information.
 A successful BPI project generally follows five basic phases:
define, measure, analyze, improve, and control (DMAIC).
 To sustain BPI efforts over time, organizations can adopt
business process management (BPM), a management system
that includes methods and tools to support the design,
analysis, implementation, management, and continuous
optimization of core business processes throughout the
organization.
 BPM integrates disparate BPI initiatives to ensure consistent
strategy execution
 Information Systems in Industry
 Airline industry
 Investment firms
 Banks
 Transportation industry
 Publishing companies
 Healthcare organizations
 Retail companies
 Power management and utility companies
 Professional services

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 Global Challenges in Information Systems
 Cultural challenges
 Language challenges
 Time and distance challenges
 Infrastructure challenges
 Currency challenges
 Product and service challenges
 Technology transfer issues
 State, regional, and national laws
 Trade agreements
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 Organisational Strategy
 A strategy is a business approach to a set of competitive
moves that are designed to generate a successful
outcome
 A strategy is management’s game plan for
 Strengthening the organization’s competitive position
 Satisfying customers
 Achieving performance targets
 Three big questions involved in a strategy
 Where are we now?
 Where do we want to go?
 How will we get there?

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 How do we know if we got there?
 Tasks Involved in Strategic Management
 Defining business and stating a mission
 Setting measurable objectives
 Crafting a strategy to achieve objectives
 Implementing a strategy
 Evaluating performance of the strategy,
reviewing new developments and taking
corrective action
 Developing a Mission & Objectives
 An organization’s Mission
 Reflects management’s vision of what the
organization seeks to do and become
 Provides a clear view of what the organization
is trying to accomplish for its customers
 Indicates intent to take a business position
 Developing a Mission & Objectives
 An organization’s Objectives
 Convert the mission into performance targets
 Track performance over time
 Must be achievable
 Two types
 Financial – outcomes that relate to improving
financial performance
 Strategic – outcomes that will result in greater
competitiveness & stronger long-term market
position
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 Examples of Types of Objectives
 Financial
 Increase earnings growth from 10 to 15% per year
 Boost return on equity investment from 15 to 20% in
2009
 Strategic
 Increase market share from 18 to 22% in 2009
 Become leader in new product introductions by 2010
 Achieve technological superiority by 2012
 What is a Strategic Plan
 A strategic plan maps
 Where the organization is headed
 Short and long range performance targets
 Actions of management to achieve desired
outcomes
 A strategic plan consists of
 Mission statement
 Strategic and financial performance objectives
 Comprehensive strategy for achieving the
objectives
 Organizational Strategy
A company’s organizational strategy is
everything it intends to do to achieve its goals and
objectives.
 The term refers more to long-term goals than
short-term ones.
 In other words, how a company needs to evolve to
get to where it wants to go.
 Organizational strategy also includes a detailed
assessment of what it needs to do. We refer to all
the actions the company plans to take as
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its strategic plan.
  Senior management creates the company’s larger
organizational strategy.
 Its middle managers, on the other hand, adopt plans and
goals to fulfill the strategy step by step.
 Organizational strategy is closely related
to organizational studies.
 The academic field of organizational studies analyzes
organizations.
 Specifically, it analyses them to determine what makes
them thrive or fail.

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  Cambridge Dictionary says that organizational
strategy refers to:
 “The plans of a large company or organization
about how to develop, deal with changing
markets, etc.”
 When a company makes the transition from its
current state to an intended future state, we call
it organizational change.

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 Doing Business in the Digital Economy
 The digital economy is an economy based on digital
technologies, including communication networks (the
Internet, intranets, and extranets), computers,
software, and other related technologies.
 Also called the Internet economy, the new economy, or the
Web economy .
 Digital infrastructures provide a global platform over
which people and organizations interact, communicate,
collaborate, and search for information.

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 The Global Platform of the New Economy
 A huge number of digitizable products; that is products that
can be converted to digital format.
 Most common are: books, movies, magazines, TV and radio
programming, electronic games, music CDs and computer
software.
 Consumers and firm conducting financial transaction digitally.
 Physical goods such as home appliances and automobiles that
contain embedded computer chips and connectivity
capabilities.

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 Electronic Business
 Businesses increasingly perform their basic functions:
 buying and selling goods and services,
 servicing customers, and collaborating with business
partners electronically.
 This process is known as electronic business (E-
business) or electronic commerce (E-commerce).

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 New Economy vs. Old Economy
Example Old New

Buying and selling text Visit the bookstore Visit web site for
book publishers and retailers
Registering for classes Walk around campus to Access campus web site
Departments, Registrar’s office,
etc.
Photography Buy film, use camera, take Use digital camera
picture, take it for processing
Paying for Gasoline Fill up your car, go inside, pay Use speed pass token wave
cash or credit card over the sensor and go

Paying the Transportation Pay cash, metal tokens Metro cards electronic
cards
Paying for goods Visit store, take the item, pay , Use self – service kiosks
go
Supplying commercial Use newspapers, paper, catalog Use hub-like supply chain
photos or on line with digitized picture
Copyright 2007 John
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 Business Pressures, Organizational
Responses, and IT Support
 Business Pressure - The business environment is
the combination of social, legal, economic, physical,
and political factors that affect business activities.
 Significant changes in any of these factor are likely to
create business pressure on the organization.
 The three types of business pressures faced are:
market, technology, and societal pressures.

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 IT Support for Organizational Responses to
Business Pressures

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 Three Types of Business Pressures
 Market Pressures:
 The Global Economy and Strong
Competition
 The Changing Nature of the Workforce
 Powerful Customers

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 Business Pressures (Continued)
 Technology Pressures:
 Technological Innovation and
Obsolescence
 Information Overload

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 Business Pressures (Continued)
 Societal Pressures:
 Social Responsibility
 Government Regulation and Deregulation
 Protection Against Terrorist Attacks.
 Ethical Issues

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 Organizational Responses
 Strategic Systems provide advantages that enable
organizations to increase market share and/or profits, to
better negotiate with suppliers, or prevent competitors
from entering their markets.
 Customer Focus is the difference between attracting and
keeping customers by providing superb customer service
to losing them to competitors.
 Make-to-Order is a strategy of producing customized
products and services.
 Mass Customization is producing a large quantity of
items, but customizing them to fit the desire of each
customer.
 E-business
Chapter 2
and E-commerce is the strategy of
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Wiley &
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business electronically.
 Competitive Advantage and Strategic Information Systems

 Competitive Advantage: An advantage over competitors in

some measure such as cost, quality, or speed, leads to control of
a market and to larger- than average profits.
 Strategic Information Systems (SIS) provide a competitive
advantage by helping an organization to implement its strategic
goals and to increase its performance and productivity.

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 Competitive Advantage
 Competitive advantages are conditions that allow a
company or country to produce a good or service of
equal value at a lower price or in a more desirable
fashion.
 These conditions allow the productive entity to generate
more sales or superior margins compared to its market
rivals.
 Competitive advantages are attributed to a variety of
factors including cost structure, branding, the quality of
product offerings, the distribution network, intellectual
property, and customer service.

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 How Competitive Advantage Works
 Competitive advantages generate greater value for a firm
and its shareholders because of certain strengths or
conditions.
 The more sustainable the competitive advantage, the
more difficult it is for competitors to neutralize the
advantage.
 The two main types of competitive advantages
are comparative advantage and
differential advantage.

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 Comparative Advantage
 A firm's ability to produce a good or service
more efficiently than its competitors, which
leads to greater profit margins, creates a
comparative advantage.
 Rational consumers will choose the cheaper of
any two perfect substitutes offered.
 For example, a car owner will buy gasoline from
a gas station that is 5 cents cheaper than other
stations in the area.

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 Example 1
 A country that produces a large amount of oil charges a local
chemical manufacturer less to purchase their product since it is
cheaper to sell the oil to them than export it overseas.
 Since the chemical manufacturer is paying less for the
materials they need to produce chemicals, they can sell their
finished products at a lower price than other countries.
 This makes them more competitive in the chemical production
industry.
 Therefore, this company has a comparative advantage over
other chemical production companies.
 Example 2
 A telecommunications company in the United States chooses to
hire customer service representatives from India because it is more
cost effective than opening a new call center in America.
 They use their savings to provide cheaper internet and phone
services than their competitors.
 Even though their service may not be the best available,
customers choose to sign up for their internet and phone plans to
save money.
 In this example, providing a less expensive service outweighs
providing a quality service.
 Therefore, this telecommunications company has a comparative
advantage over other telecommunications companies in the
 Comparative Advantage
 For imperfect substitutes, like Pepsi versus Coke,
higher margins for the lowest-cost producers can
eventually bring superior returns.
 Economies of scale, efficient internal systems, and
geographic location can also create a comparative
advantage.
 Comparative advantage does not imply a better product
or service, though.
 It only shows the firm can offer a product or service of
the same value at a lower price.

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 Differential Advantage
 A differential advantage is when a firm's products
or services differ from its competitors' offerings
and are seen as superior.
 Advanced technology, patent-protected products
or processes, superior personnel, and strong brand
identity are all drivers of differential advantage.
 These factors support wide margins and large
market shares.

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 Differential Advantage

 Apple is famous for creating innovative

products, such as the iPhone, and supporting its
market leadership with marketing campaigns to
build an elite brand.

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 Tiffany & Co
The jewelery company, is famous for its stunning hand-
crafted and timeless designs.
Founded in 1837, Tiffany & Co has managed to built a
strong brand name that allows them to target a very
particular niche target market.
 Emirates
 Based in Dubai, Emirates is the state-owned airline and flag carrier
of the United Arab Emirates.
 The company operates about 3,600 flights per week to more than
150 cities in 80 countries.
 Summary
 Competitive advantage is what makes an entity's
products or services more desirable to customers
than that of any other rival.
 Competitive advantages can be broken down into
comparative advantages and differential
advantages.
 Comparative advantage is a company's ability to
produce something more efficiently than a rival,
which leads to greater profit margins.
 A differential advantage is when a company's
products are seen as both unique and higher
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quality, relative to those of a competitor.
 Competitive Strategy
The Five Forces is a framework for understanding the competitive forces at work in an
industry, and which drive the way economic value is divided among industry actors.

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Michal Potter Classic Model
 It is especially useful when starting a new business or when entering a
new industry sector.
 According to this framework, competitiveness does not only come
from competitors.
 Rather, the state of competition in an industry depends on five basic
forces: threat of new entrants, bargaining power of suppliers,
bargaining power of buyers, threat of substitute products or services,
and existing industry rivalry.
 The collective strength of these forces determines the profit potential
of an industry and thus its attractiveness.
 If the five forces are intense (e.g. airline industry), almost no company
in the industry earns attractive returns on investments.
 If the forces are mild however (e.g. softdrink industry), there is room
for higher returns.
 Porter’s Competitive Forces Model

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 Potter’s Value Chain Model

 A company is in essence a collection of activities that are performed to

design, produce, market, deliver and support its product (or service).
 Its goal is to produce the products in such a way that they have a
greater value (to customers) than the original cost of creating these
products.
 The added value can be considered the profits and is often indicated as
‘margin’.
 A systematic way of examining all of these internal activities and how
they interact is necessary when analyzing the sources of competitive
advantage.
 A company gains competitive advantage by performing
strategically important activities more cheaply or better than its
competitors.
 Michael Porter’s value chain helps disaggregating a company
into its strategically relevant activities, thereby creating a clear
overview of the internal organization.
 Based on this overview managers are better able to assess where
true value is created and where improvements can be made.
Potter’s Value Chain Model
 Primary activities
 The first are primary activities which include the five main
activities.
 All five activities are directly involved in the production and
selling of the actual product.
 They cover the physical creation of the product, its sales,
transfer to the buyer as well as after sale assistance.
 The five primary activities are inbound
logistics, operations, outbound logistics, marketing & sales and service.
 Even though the importance of each category may vary from
industry to industry, all of these activities will be present to
some degree in each organization and play at least some role in
competitive advantage.
 Support Activities
 The second category is support activities.
 They go across the primary activities and aim to coordinate and
support their functions as best as possible with each other by
providing purchased inputs, technology, human resources and
various firm wide managing functions.
 The support activities can therefore be divided
into procurement, technology development (R&D), human resource
management and firm infrastructure.
 The dotted lines reflect the fact that procurement, technology
development and human resource management can be
associated with specific primary activities as well as support the
entire value chain.
 END

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