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CHAPTER

Introduction
1 to
Information
Systems

Mass Customization…
Revisited

• Building Impenetrable Customer

Loyalty
• "A company that aspires to give customers exactly
what they want must look at the world through new
lenses. It must use technology to become two
things: a mass customizer that efficiently provides
individually customized goods and services, and a
one-to-one marketer that elicits information from its
customer about his or her specific needs and
preferences."
B. Joseph Pine, II, Strategic Horizons

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What is Data?

 Raw Material
 Numbers and strings of letters with
no precise context or meaning

What is Information?

 Data processed with knowledge

 “Data endowed with relevance and
purpose”
 “Data becomes information when its
creator adds meaning”
 “An organized, meaningful, and
useful interpretation of data”

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What is Knowledge?

 “A body of guidelines and rules used to

select, organize, and manipulate data to
make it suitable for a given task”
 “An awareness and understanding of a set
of information and how that information
can be put to its best use”
 “Internalized information + the ability to
utilize this information”

Data transformed into

Information

A collection of facts organized in

such a way that they have
additional value beyond the
Information value of facts themselves.

Guidelines and procedures used to

select, organize, and manipulate data
Knowledge
Process to make it suitable for a specific task.

Data Raw facts

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Data becomes Information

Establishing
relationships
between data
creates
information.

Information = Data + Relationships

DATA AND INFORMATION

 Information is data that have been

organized and processed to provide meaning
to a user.
 Usually, more information and better
information translate into better decisions.
 However, when you get more information
than you can effectively assimilate, you
suffer from information overload.
 When you have reached the overload point,
the quality of decisions declines while the
costs of producing the information increases
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Characteristics of Valuable
Information

WHAT MAKES INFORMATION USEFUL?

The necessary characteristics that make

information useful are as follows:
 Relevance: This is the capacity of information
to make a difference in a decision by helping
users to form predictions about the outcomes
of past, present, and future events or to
confirm or correct prior expectations.
 Reliability: Reliability is the quality of
information that assures the users of the
information that the information is reasonably
free from error and bias and faithfully
represents what it purports to represent.
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WHAT MAKES INFORMATION USEFUL?

The necessary characteristics that make

information useful are as follows:
 Completeness: The inclusion in reported
information of everything material that is
necessary for a faithful representation of the
relevant issues
 Timeliness: Information must be made
available to the decision maker before or just
at the time that he is about to make the
decision. It is only when information is
delivered on time to the decision maker that it
will possess the capacity to influence
decisions.
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WHAT MAKES INFORMATION USEFUL?

The necessary characteristics that make

information useful are as follows:

 Understandability: One can only perceive the

significance of information if he or she
understands it. Understandability is the quality
of information that enables users to perceive
its significance.
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WHAT MAKES INFORMATION USEFUL?

The necessary characteristics that make

information useful are as follows:
 Verifiability: The ability through consensus
among various stakeholders to ensure that
information represents what it purports to
represent or that the chosen method of
measurement has been used without error or
bias.
 Accessibility: Whenever information is available
when needed (Timely) and in a useful format
(Understandable) it is said to be accessible.
 Accurate: It should be free of errors and
mistakes, true and not deceptive. 13

WHAT MAKES INFORMATION USEFUL?

The necessary characteristics that make

information useful are as follows:
 Sufficient: It should be adequate in quantity
so that decisions can be made on its basis
 Unambiguous: It should be expressed in clear
terms. In other words, it should be
comprehensive.
 Unbiased: It should be impartial, and free
from any bias. In other words, it should have
integrity.
 Explicit: It should not need any further
explanation 14

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Data Vs. Information

Data: Raw unorganised facts

Information:
A collection of facts is organised to have
additional value beyond the value of the
facts themselves.
Defining and organizing relationships
among data creates information.

DATA VERSES INFORMATION

People often use the terms data and

information interchangeably. However, it is
better to view data as raw material
resources that are processed into finished
information products. Then we can define
information as data that has been converted
into a meaningful and useful context for
specific end users. 16

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DATA VERSES INFORMATION

 The definition of Data and Information is a bit

circular.
 Information is data presented in a form that
is useful in a decision making activity. The
information has value to the decision maker
because it reduces uncertainty and increases
knowledge about a particular area of concern
 Data are facts or figures in raw form. Data
represents the measurement of observations
of objects and events. To become useful to a
decision maker data must be transformed into
information. 17

CONFLICT AMONG THE INFORMATION QUALITIES

It is virtually impossible to simultaneously achieve

a maximum level for all the qualities of
information. In fact, for some of the qualities, an
increased level of one requires a reduced level of
another. In one instance, obtaining complete
information for a decision may require delaying
use of the information until all events related to
the decision have taken place. That delay may
sacrifice the timeliness of the information. 18

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CONFLICT AMONG THE INFORMATION QUALITIES

For example, to determine all the

shipments in a particular month, an
organization may have to wait until
several days into the month following
that particular month to make sure that
all shipments get posted.
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CONFLICT AMONG THE INFORMATION QUALITIES

To obtain accurate information, you may carefully

and methodically prepare the information, thus
sacrificing the timeliness of the information. For
example, to ensure the accuracy of a customer
invoice, billing clerks might check for accuracy several
times and then get their supervisor to initial the
invoice, indicating that he or she has checked the
invoice for accuracy. These procedures certainly delay
the mailing of the invoice.
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What is a System?
 Components that work together to
achieve a goal by accepting input,
processing it, and producing output
in an organized manner.
 e.g. a sound system

SYSTEM

 A system is a set of two or more interrelated

components that interact to achieve a goal.
 Systems are almost always composed of
smaller subsystems, each performing a
specific function supportive of the larger
system.

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System

INPUTS PROCESSING OUTPUTS

Gathering and Converting or Producing useful
capturing raw data transforming data information, usually in
into useful outputs the form of documents.

Output that is used to

make changes to input
or processing activities

Feedback

Open vs. Closed Systems

 Closed System
 Stands alone
 No connection to other systems

 Open System
 Interfaces and interacts with other
systems
 Gets information from and provides
information to other systems

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So, What is an Information

System?
Information: An System: Components that work
together to achieve a goal by
organized, meaningful,
accepting input, processing it,
and useful interpretation and producing output in an
of data organized manner

 Information System: Components that

work together to process data and
produce information (to help
companies solve problems and make
decisions).

An Introduction to Information Systems

Information System:
An information system is a set of
interrelated components that collect,
manipulate, store data disseminate
information and provide a feedback
mechanism to monitor performance.

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What is an Information System?

An organized combination of people,

hardware, software, communications
networks, and data resources that
collects data, transforms it and
disseminates information.

An Introduction to
Information Systems
Information System:

An information system is a set of

interrelated components that collect,
manipulate, store data and disseminate
information and provide a feedback
mechanism to monitor performance.

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What is an Information System?

An organized combination of people,

hardware, software, communications
networks, and data resources that collects
data, transforms it, and disseminates
information.

The functions of IS

 Collect and store data about events,

resources, and agents.
 Transform that data into information that
management can use to make decisions
about events, resources, and agents.
 Provide adequate controls to ensure that the
entity’s resources (including data) are:
 Available when needed

 Accurate and reliable

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Information Concepts

Process:
A set of logically related tasks performed
to achieve a defined outcome.
Knowledge:
An 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

The Value of Information

The value of Information is directly

linked to how it helps decision makers
achieve their organization’s goals.

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Achieving Competitive
Advantage with
Information Systems

Achieving Competitive Advantage with Information Systems

STUDENT LEARNING OBJECTIVES

• How do Porter's competitive forces model, the

value chain model, synergies, core
competencies, and network-based strategies
help companies use information systems for
competitive advantage?
• How do information systems help businesses
globally?

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Using Information Systems to Achieve

Competitive Advantage
Porter's Competitive Forces Model

Five competitive forces shape the fate of the firm

1. Traditional competitors
• Competitors in the market space continuously devise
new products, new efficiencies, and switching costs.
2. New market entrants
• Some industries have low barriers to entry:
• E.g,.., the food industry versus the microchip
industry
• Newer companies may have advantages:
• Newer equipment, younger workforce, and so on.

Using Information Systems to

Achieve Competitive Advantage
Porter's Competitive Forces Model
3. Substitute products and services
• Substitutes customers can purchase if your prices too high.
• E.g., Internet music service versus CDs.
4. Customers
• Can customers easily switch to competitor's products?
• Can customers force firm and competitors to compete on price
alone (transparent marketplace).
5. Suppliers
• The more suppliers a firm has, the greater control it can
exercise over suppliers.

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Using Information Systems to

Achieve Competitive Advantage
Porter's Competitive Forces Model

In Porter's
competitive forces
model, the strategic
position of the firm
and its strategies
are determined not
only by competition
with its traditional
direct competitors
but also by four
forces in the
industry's
environment: new
market entrants,
substitute products,
customers, and
suppliers.

Using Information Systems to Achieve

Competitive Advantage
Information System Strategies for Dealing with
Competitive Forces

 Basic strategy: Align IT with business objectives

 75% of businesses fail to align their IT with
their business objectives, leading to lower
profitability.
 To align IT:
• Identify business goals and strategies.
• Break strategic goals into concrete activities and
processes.
• Identify metrics for measuring progress.
• Determine how IT can help achieve business goals.
• Measure actual performance.

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Achieving Competitive Advantage

with Information Systems

Using Information Systems to

Achieve Competitive Advantage

Information System Strategies for Dealing with

Competitive Forces
 Low-cost leadership

 Use information systems to achieve the lowest operational costs

and the lowest prices.

 E.g. Walmart

• Inventory replenishment system sends orders to suppliers

when purchases are recorded at the cash register.

• Minimizes inventory at warehouses and operating costs.

• Efficient customer response system.

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Using Information Systems to Achieve

Competitive Advantage

Information System Strategies for Dealing with

Competitive Forces
 Product differentiation
 Use information systems to enable new products and
services, or greatly change the customer convenience
in using your existing products and services.
 E.g., Google's continuous innovations, Apple's iPhone.
 Use information systems to customize, personalize
products to fit specifications of individual consumers.
• E.g., Nike's iD program for customized sneakers

Using Information Systems to

Achieve Competitive Advantage

Interactive Session: Technology

Automakers Become Software Companies

 Read the Interactive Session and then discuss the

following questions:
 How is software adding value to automakers’ products?
 How are the automakers benefiting from software-
enhanced cars? How are customers benefiting?
 What value chain activities are involved in enhancing
cars with software?
 How much of a competitive advantage is software
providing for automakers?

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Using Information Systems to Achieve

Competitive Advantage

Information System Strategies for Dealing with

Competitive Forces
 Focus on market niche
 Use information systems to enable specific market
focus, and serve narrow target market better than
competitors.
• Analyzes customer buying habits, preferences
• Advertising pitches to smaller and smaller target markets
 E.g., Hilton Hotel's OnQ System
• Analyzes data collected on guests to determine
preferences and guest's profitability

Using Information Systems to

Achieve Competitive Advantage

Information System Strategies for Dealing with

Competitive Forces
 Strengthen customer and supplier intimacy.
 Strong linkages to customers and suppliers increase
switching costs and loyalty
 Toyota: uses IS to facilitate direct access from suppliers to
production schedules
• Permits suppliers to decide how and when to ship supplies to
plants, allowing more lead time in producing goods.
 Amazon: keeps track of user preferences for
purchases, and recommends titles purchased by
others

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Using Information Systems to Achieve

Competitive Advantage

Information System Strategies for Dealing with

Competitive Forces
 Some companies pursue several strategies at
the same time.
 Walmart, Apple, Amazon
 Successfully using IS to achieve competitive
advantage requires precise coordination of
technology, organizations, and people.

Using Information Systems to Achieve

Competitive Advantage

The Internet's Impact on Competitive Advantage

• Enables new products and services
• Encourages substitute products
• Lowers barrier to entry
• Changes balance of power of customers and
suppliers
• Transforms some industries
• Creates new opportunities for creating new markets,
building brands, and large customer bases

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Using Information Systems to Achieve

Competitive Advantage

The Business Value Chain Model

• Highlights specific activities in a business where

competitive strategies can best be applied and
where information systems are likely to have a
strategic impact.
• Primary activities
• Support activities
• Benchmarking
• Best practices

Using Information Systems to Achieve

Competitive Advantage

The Value Chain Model

This figure provides
examples of systems
for both primary and
support activities of a
firm and of its value
partners that would add
a margin of value to a
firm's products or
services.

Figure 3-2

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Using Information Systems to Achieve

Competitive Advantage

Extending the Value Chain: The Value Web

• A firm's value chain is linked to the value chains of
its suppliers, distributors, and customers.
• Value web
• Collection of independent firms that use
information technology to coordinate their value
chains to produce a product collectively.
• Value webs are flexible and adapt to changes in
supply and demand.

Using Information Systems to Achieve

Competitive Advantage

The Value Web

The value web is
a networked
system that can
synchronize the
value chains of
business partners
within an industry
to respond
rapidly to
changes in
supply and
demand.

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Using Information Systems to Achieve

Competitive Advantage

Synergies, Core Competencies, and

Network-Based Strategies
• Synergies:
• When output of some units can be used as
inputs to other units
• When two firms can pool markets and expertise
(e.g., recent bank mergers)
• Lower costs and generate profits
• Enabled by information systems that tie together
disparate units so they act as whole

The Components of a CBIS

1) Hardware
2) Software
 Operating systems
 Applications
3) Databases
4) Telecommunications/Networks
5) People
6) Procedures

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Business Information
Systems

Electronic and Mobile

Commerce
 E-Commerce: Any business transaction
executed electronically
 M-Commerce: Transactions conducted
anywhere, anytime
 Relies on wireless communications

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TPS and ERP

 Transaction
 business related exchange

 Evidence of a business event

 Transaction Processing System (TPS)

 A system which records completed
business transactions
 Enterprise Resource Planning (ERP)
 A set of integrated programs for managing
the entire business operations

Business Information
Systems
Management Information System:
A system used to provide routine information
to managers and decision makers

Decision Support System:

A system used to support problem-specific
decision making

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Specialized Business I.S.

Artificial Intelligence (AI):

A field in which the computer takes on the
characteristics of human intelligence

Expert System:
A system that gives a computer the ability
to make suggestions and act like an
expert in a particular field.
Knowledge Base:
The collection of data, rules, procedures,
and relationships that must be followed to
achieve value or the proper outcome.

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Virtual Reality:

The simulation of a real or

imagined environment that can be
experienced visually in three
dimensions

Information System Activities

1. Input of Data Resources

2. Process Data into Information
3. Output of Information
4. Storage of Information

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INPUT OF DATA RESOURCES

Input involves capturing and assembling

elements that enter the system to be processed.
Data about business transactions and other
events must be captured and prepared for
processing by the input activity
End users typically enter data directly into a
computer system or record data about
transactions on some type of physical medium
such as a paper form

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INPUT OF DATA RESOURCES

 Data about sales transactions may be

recorded on source documents such as
paper sales order forms. (A source
document is the original formal record of
a transaction).

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PROCESSING OF DATA INTO INFORMATION

 Processing involves transformation

processes that convert input into output.
Examples are a manufacturing process,
the human breathing process, or
mathematical calculations.

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PROCESSING OF DATA INTO INFORMATION

Data are typically subjected to processing

activities such as calculating, comparing,
sorting, classifying, and summarizing.
These activities organize, analyze, and
manipulate data, thus converting them
into information for end users. The
quality of any data stored in an
information system must also be
maintained by a continual process of
correcting and updating activities. 64

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OUTPUT OF INFORMATION PRODUCTS

Output involves transferring elements that

have been produced by a transformation
process to their ultimate destination. For
example, finished products, human services,
and management information must be
transmitted to their human users

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OUTPUT OF INFORMATION PRODUCTS

The goal of information systems is the production

of appropriate information products for end users.
Common information products include messages,
reports, forms, and graphic images, which may be
provided by video displays, audio responses,
paper products, and multimedia. We routinely
use the information provided by these products as
we work in organizations and live in society.
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OUTPUT OF INFORMATION PRODUCTS

Example:
 A sales manager may view a video
display to check on the performance of a
salesperson, accept a computer-
produced voice message by telephone,
and receive a printout of monthly sales
results.

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STORAGE OF DATA RESOURCES

 Storage is a basic system component

of information systems. Storage is the
information system activity in which
data and information are retained in an
organized manner for later use.

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FEEDBACK AND CONTROL

 The system concept becomes even more

useful by including two additional
components: feedback and control. A system
with feedback and control components is
sometimes called a cybernetic system, that

is, a self-monitoring, self-regulating system.

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FEEDBACK AND CONTROL

 Feedback is data about the performance of

system. For example, data about sales
performance is feedback to a sales manager.
 Control involves monitoring and evaluating
feedback to determine whether a system is
moving toward the achievement of its goal.
The control function then makes necessary
adjustments to a system’s input and
processing components to ensure that it
produces proper output.
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FEEDBACK AND CONTROL

For example, a sales manager exercises control when

reassigning salespersons to new sales territories after
evaluating feedback about their sales performance.
 A manager may discover that subtotals of sales
amounts in a sales report do not add up to total
sales. This might mean that data entry or
processing procedures need to be corrected. Then
changes would have to be made to ensure that all
sales transactions would be properly captured and
processed by a sales information system.

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