CHAPTER 2

Information Technology and

Business
LH-3hrs
CONTENTS
• Business in the information age; Information systems; Organization structure and
IT support; Evolution and types of information systems; IT for business; IT for
individuals; Computers in past and present
Business in Information Age
• The current age referred as Information age, Digital age or New Media age has paved the
way for great revolution in various spheres of business and industry. We cannot imagine
our lives without information technology and computers.
• Information technology is defined as capabilities offered to organizations by computers,
software applications, and telecommunications to deliver data, information, and
knowledge individuals and processes. This is the era of Information Technology,
Everyone is dependent information technology. It is used everywhere- business, industry,
home, education entertainment and science.
• Before understanding relation of information technology with business, we should
understand that it is made of two words Information and Technology.
• Information is all about communicating and receiving of knowledge and data.
• Technology means the body of knowledge that is used to develop tools and machines for
solving various organizational problems.
• Information systems are established tools which are expert in finding the position of the
business and alert the companies of eventual crisis possibilities in the future. Information
technology includes usage of computers, networks, mobile and wireless devices, satellite
telecommunications, robotics, electronic mail, and automated office equipment.
• Information technology or the IT department is a crucial part of any company of
business as they monitor and manage almost everything that is to do with
information technology and communication systems.
• The IT department is at the epicenter of the building and maintenance of communications
networks for businesses small and large. Not many companies, big or small, could survive
without a good IT department making them imperative to a business’s day to day
existence.
• From sending an email, to changing a password, accessing databases and everything in
between IT are there to help every step of the way. IT in business is ultimately to help the
business be more efficient and productive.
• It has a number of different roles including but not limited to:
➢ Helping the company be more productive, time = money.
➢ Optimising business performance
➢ Safeguarding data and troubleshooting
➢ Saving the business money
➢Improving customer experience, satisfaction and communication
➢Streamlining communication systems
➢Enhancing managerial decision-making
➢Helping the business expand globally
➢Providing staff access to company information
Characteristics of Information
• Accuracy: This means information is free from errors and mistakes. It also means the
information is from bias. Incorrect information can lead to wrong decisions.
• Timeliness: It means the information should reach the receiver within a defined time. The
information should be latest. There should not be any delays.
• Relevance: This means particular information may be useful for one person while it may
not be useful to another person. Information should be useful enough so that managers
can draw decisions out of it.
• Complete: Information should be complete to be used for making right decisions
organizations, information systems are employed which enable transforming data into
information to generate knowledge which helps in decision making.
Importance of Information Technology
• Information technology has tremendously paved the way of business organizations
towards innovation and growth. Over the past years, there have been improvements in
productivity and efficiency with the adoption of information-based systems. In the
following sections, we will understand how information technology is important and its
application in various functions of business.
• Office Automation: This involves using computer and communication technology for
managing organizational information. It includes usage of computers, telephones, email
and machines. IT has helped different office to communicate easily and organize their
data which helps the business to increase the productivity. Office automation systems support
the wide range of business office activities for improved work flow and communication between
workers, regardless of whether or not those workers are located in the same office.
• Communication: Information technology has made it easier for the organizations to
communicate with the customers, suppliers and employees.
• Business Analysis: Business Analysis is aimed at providing solutions to various complex
business problems.
• Information Technology in different areas of business: Information technology has got role to
play in almost functional areas of the business. It can be said that it has to play an imperative part
now. Let us understand in detail how business enterprises use IT in different functions of business.
- Finance & Accounting: Information technology is used in finance and accounting functions of the
firms. All the financial information pertaining to daily entries of sales, purchases, salary
disbursements, etc. are easily handled in various financial software's. For example, firms are
primarily dependent on Tally for journal entries as well as preparation of financial statements.
Business enterprises also use software packages for various processes like payroll, billing,
budgeting, etc.
- Human Resource Management: The firms can easily rely on IT tools as far as the function of
Human resource management (HRM) is concerned. Beginning from the functions of recruitment to
employee exit, information technology is a great help to companies. Owing to availability of easy
communication on internet, HR managers can get the resumes of perspective employees on their E-
mails. Besides this, they can take aptitude tests and interviews of the candidates online. Other areas
whereby IT can be utilized for daily attendance, maintaining information of employees,
compensation management, performance appraisal, etc. This saves on unnecessary human effort as
well as costs on paper work.
- Marketing: Marketing function in current scenario has evolved a lot recently. This is to
be attributed to the information technology and development of communication facilities.
Marketing department is the face of the company. It deals with creating, communicating
and delivering value to the customers. IT has provided wings to marketing. The
companies can reach to its customers through using tools like digital marketing and
Customer relationship management (CRM). Digital marketing is promotion of products
and services using digital channels to reach consumers.
Information System
• In a simplest sense, a system that provides information to people in an organization is
called information system (IS).
• 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.
• 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 activities to produce
information in an information system are
input, processing, and output.
• Input captures or collects raw data from
within the organization or from its
external environment for processing.
• Processing converts these raw data into
the meaningful information.
• Output transfers this information to the
people who will use it or to the activities
for which it will be used.
• Information systems also require
feedback, which is used to monitor the
current information system output and
compare it to the system goal.
Components of an Information System
• A computerized IS consists of six interacting
components:
1. Hardware:
- Any physical device used in a computerized IS. Example
include CPU, sound card, video card, network card, hard
drive, display keyboard, motherhood, power supply,
modem, mouse, printer, etc.
2. Software:
- A set of machine-related instructions or code that makes
up a computer application that direct a computer’s
processor to perform specific operations. Computer
software is nontangible, contrasted with system
hardware, which is the physical component of an IS.
Examples include Internet browser, Operating system,
Office Package, Skype and so on.
3. People: Any person involved in using an IS. Examples include programmers, operators
help desk, and end-users.
4. Procedures: Documentation containing directions on how to use the other components
of an IS. Examples include operational manual and user manual.
5. Network: A combination of lines, wires, and physical devices connected to each other to
create a telecommunications network. In computer networks, networked computing devices
exchange data with each other using a data link. The connections between nodes are
established using either cable media or wireless media. Networks can be internal or
external. If they are available only internally within an organization, they are called
"intranets." If they are available externally, they are called "internets" The best-known
example of a computer network is the World Wide Web..
6. Data: Raw or unorganized facts and figures (such as invoices, orders, payments,
customer details, product numbers, product prices) that describe conditions, ideas, or
objects.
Users of Information Systems
• Some information systems are very specialized and are used by just one individual or department
in an organization; others are more general purpose and may be used by nearly all employees.
Systems that are used by an entire enterprise are referred to as enterprise systems.
1. Executive managers: include the highest management positions in un organization, such as the
president and chief executive officer (CEO); they use information systems to make relatively
unstructured, long-term strategic decisions.
2. Middle managers: include managers who fall between executive managers and operational
managers; they use information systems to make moderately structured, tactical decisions.
3. Operational managers: include supervisors, office managers, foremen, and other managers
who supervise nonmanagement workers; they use information systems to make highly
structured, operational decisions geared toward meeting short-term objectives.
4. Non-management workers: include office workers, accountants, engineers, and other workers;
they use information systems to make the on-the-job decisions necessary to perform their jobs.
5. External users: include individuals outside an organization, such as customers. suppliers, and
other types of strategic partners; they use the organization's information systems to obtain the
information needed in the context of their relationship with that organization.
Role of Information system in Business Today
Managers are intensively using
information systems and making large
investments in information technology.
You will certainly want to know how to
invest this money wisely. If you make
wise choices, your firm can outperform
competitors. If you make poor choices,
you will be wasting valuable capital.
In contemporary systems, there is a
growing interdependence between a
firm's information system and its
business capabilities. Changes in Figure: Interdependence between IS and business
strategy, rules and business processes
increasingly require changes in
hardware, software, databases and
telecommunications.
The role of IT in business can be summarized as:
Business firm invest heavily in information systems to achieve six strategic business
objectives: operational excellence; new products, services and business models; customer
and supplier intimacy; improved decision making; competitive advantage and survival.
Operational Excellence:
Businesses continuously seek to improve the efficiency of their operations in order to
achieve higher profitability. Information systems and technologies are some of the most
important tools available to managers for achieving higher levels of efficiency and
productivity in business operations, especially when coupled with changes in business
practices and management behavior.
New Products, Services, and Business Models
Information systems and technologies are a major enabling tool for firms to create new
products and services, as well as entirely new business models. A business model describes
how a company produces, delivers, and sells a product or service to create wealth.
Customer and supplier intimacy
When a business really knows its customers, and serves them well, the customers generally
respond by returning and purchasing more. This raises revenues and profits. Likewise with
suppliers: the more a business engages its suppliers, the better the suppliers can provide
vital inputs. This lowers costs.
Improved decision making
Without accurate and timely information, business managers must make decisions based on
forecasts, best guesses, and luck, a process that results in over and under-production of
goods. raising costs, and the loss of customers. Information systems and technologies have
made it possible for managers to use real-time data from the marketplace when making
decisions.
Competitive advantage
When firms achieve one or more of these business objectives-operational excellence; new
products, services, and business models; customer/supplier intimacy: and improved decision
making-chances are they have already achieved a 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.
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.
Organization Structure and IT support
• Organizational structure is a conceptual blueprint that defines the structure and operations
of an enterprise (a business, organization, government agency, or other entity). The goal
of Organizational structure is to provide a detailed picture of an organization, its
functions, and its systems, and the relationships among these items-it is essentially a map
of an organization's business functions and systems.
• With the complexity of today's systems, organizational architecture allows managers to
better organize and maximize the use of information technology (IT) resources, as well as
make informed decisions with fewer mistakes.
• Experts agree that developing an organizational structure is not easy and requires a great
deal of time and effort. The first step is usually to examine the existing systems and
functions to identify gaps, overlaps and other possible issues with the existing setup.
• Organizations have a structure that is composed of different levels and specialties. Their
structures reveal a clear-cut division of labor. Authority and responsibility in a business
firm are organized as a hierarchy, or a pyramid structure. The upper levels of the
hierarchy consist managerial, professional, and technical employees, whereas the lower
levels consist of operational personnel.
• Senior management makes long-range strategic decisions about products and services as
well as ensures financial performance of the firm. Middle management carries out the
programs and plans of senior management, and operational management is responsible for
monitoring the daily activities of the business.
• An organization coordinates work through its hierarchy and through its business processes
Most organizations' business processes include formal rules that have been developed
over a long time for accomplishing tasks. These rules guide employees in a variety of
procedures, from writing an invoice to responding to customer complaints.
• Size and number of locations are the major factors that determine the organization's
structure. Organizational structure is comprised of functions, relationships,
responsibilities, authorities and communications of individuals within each department.
Broadly we can describe organizational structures into following two types:
1. Hierarchical Organizational
2. Matrix Management
1. Hierarchical Organizational:
A hierarchical structure is typical for
larger businesses and organizations. It
relies on having different levels of
authority with a chain of command
connecting multiple management levels
within the organization.
The decision-making process is
typically formal and flows from the top
down. This creates a tall organizational
structure where each level of
management has clear lines of
responsibility and control. As the
organization grows, the number of
levels increases and the structure grows
taller.
2. Matrix Management:
A matrix organization is a work
structure where team members report
to multiple leaders. In a matrix
organization, team members (whether
remote or in-house) report to a project
manager as well as their department
head. Some companies employ matrix
management to create a more
streamlined way of working. While
this form of organization might not be
for everyone, it's important to
understand its benefits and usage to
determine if it's the right fit for the
company or not.
IT Flattens Organization:
• In a flat organization, there are little to no
management levels between "superiors" and staff.
It promotes an increased involvement in decision-
making with less supervision.
• A flat structure elevates each employee’s
responsibility inside the organization and
eliminates excess management layers to improve
coordination and communication. Fewer levels
between employees improve the decision-making
process among staff. The lack of need for middle
management boosts the organization's budget.
• Behavioral researchers have theorized that
information technology facilitates flattening of
hierarchies by broadening the distribution of
information to empower lower-level employees and
increase management efficiency.
• IT pushes decision-making rights lower in the organization because lower-level employees receive
the information they need to make decisions without supervision.
• Managers receive so much more accurate information on time that they become much faster at
making decisions, and so fewer managers are required.
• Levels in Business Firm:
Business organizations are hierarchies consisting of three principal levels: senior management, middle
management, and operational management. Information systems serve each of these levels. Scientists and
knowledge workers often work with middle management.
Senior management makes long-range strategic decisions and ensures
the firm's financial performance. Middle management carries out the
plans of senior management and operational management monitors
the firm's daily activities. Knowledge workers such as engineers and
scientists design products and create and distribute new knowledge for
the organization. Data workers such as secretaries process the
organization's paperwork. Production or service workers produce the
products or services.
Postindustrial Organizations:
• Postindustrial theories also support the notion that IT should flatten hierarchies.
• Professional workers tend to be self-managing and decision making should
become more decentralized as knowledge and information become more
widespread throughout the firm.
• Information Technology may encourage task force-networked organizations in
which groups of professionals come together-face to face or electronically-for
short periods of time to accomplish a specific task, once the task is accomplished,
the individuals join other task forces.
Evolution and Types of Information System
• Information system are used by organizations to collect, process and distribute the
information. These systems uses communication technology and information to
make use of it.
• Main components of information systems are technology, information, procedures,
management and users.
• Information systems are designed according to the need of the organizations.
These are categorized into many types, each having different functionality and
uses.
Types of Information System
• In practice there are several classes of
information systems in organizations. Each
class serves the needs of different types of
users. These are:
1. Transaction processing system (TPS)
2. Management information system (MIS)
3. Decision support system (DSS)
4. Executive information system (EIS)
5. Expert system
6. Communication and collaboration system
7. Office automation system.
Transaction Processing Systems(TPS)
• These are the computerized systems that perform and records the daily routine
transactions necessary to conduct business. These systems serve the operational level of
the organization. Some examples include sales order entry, hotel reservation systems,
payroll, employee record keeping, and shipping.
• Transaction processing systems are central to a business. TPS failure for a few hours can
cause a firm’s demise and perhaps other firms linked to it. Managers need TPS to
monitor the status of internal operations and the firm’s relations with external
environment. TPS are also major producers of information for the other types of systems.
• Online transaction processing systems (OLTPS) is an interactive data processing system
that involves a direct connection between TPS programs and users. As soon as a single
transaction is entered into a computer system, the program interacts immediately with the
user for that transaction. It is often known as the live system where there is no time lag
between data creation and its processing. A good example of this system is online ticket
reservation system.
• TPS is a type of IS that manages data
created in everyday operations. This
includes storing, formatting, processing,
retrieving, and creating some new
aggregate data.
• Examples: purchasing transactions, sales
orders, sales transactions, payroll,
employee data, inventory
• Records daily, routine activities
• Serves supervisory level of management
Management Information Systems (MISs)
• These are the information systems at the
management level of an organization and serve
management-level functions like planning,
controlling, and decision-making. These systems
provide reports that are usually generated on a
predetermined schedule and appear in
prearranged format.
• Typically, these systems use internal data
provided by the transaction processing systems.
These systems are used for structured decision-
making and in some cases for semi-structured
decision making as well.
• Salary analysis and sales reporting are the
examples in which MIS can be used.
• Management information system, or MIS,
broadly refers to a computer-based system that
provides managers with the tools to organize,
evaluate and efficiently manage departments
within an organization.
• MIS convert data from internal and
external sources into information
for managers.
• The source of data for an MIS
usually comes from numerous
databases. These databases are
usually the data storage for Data
Processing Systems.
• MIS summarise and report on the
organisation’s basic operations.
• MIS produce reports for managers
interested in historic trends on a
regular basis.
• MIS operate at the tactical level
• Example: Annual budgeting
Decision Support Systems (DSSs)
• These systems also serve at the management level
of the organization. These systems combine data
and sophisticated analytical models or data
analysis tools to support semi structured and
unstructured decision-making.
• These systems use internal information from TPS
and MIS, and often information from external
sources, such as current stock prices or product
prices of competitors.
• DSS have more analytical power than other
systems. Contract cost analysis is an example in
which DSS can be used.
• A decision support system (DSS) is an
information system application that provides its
users with decision-oriented information
whenever a decision-making situation arises.
When applied to executive managers, these
systems are sometimes called executive
information systems (EIS).
• A Decision Support System (DSS) is
an interactive computer-based system
or subsystem intended to help decision
makers use communications
technologies, data, documents,
knowledge and/or models to identify
and solve problems, complete decision
process tasks, and make decisions.
• Decision Support System is a general
term for any computer application that
enhances a person or group’s ability to
make decisions.
• Also, Decision Support Systems refers
to an academic field of research that
involves designing and studying
Decision Support Systems in their
context of Use
Executive Information Systems (EISs)
• These systems are also called executive support systems (ESSs) and serve the strategic
level of the organization. These systems are designed to address unstructured decision
making through advanced graphics and communication. It is used by top management.
• These systems incorporate data about external events such as new tax laws or
competitors, but they also draw summarized information from internal MIS and DSS.
• These systems are not designed to solve a specific problem but they provide generalized
computing and telecommunication capacity that can be applied to a changing array of
problems. 5-year operating plan is an example in which EIS can be used.
• Another special characteristic of an ESS is its drill down capability, which is the ability of
the system to provide information at any level of detail desired by the decision maker. For
example, the CEO of a company may want the monthly sales of Product X for the entire
company. Next, the CEO may want a breakdown of sales figures on a regional basis or on
a store wide basis. The drill down facility can provide both.
It is a user friendly, interactive system,
and almost intuitive to use; it has
excellent menus and graphic
capabilities designed to meet the
information needs of top management
engaged in long range planning, crisis
management, and other strategic
decisions.
Such systems assist in the making of
decisions that require an in depth
understanding of the firm and of the
industry in which the firm operates.
Expert Systems
• An expert system is an extension of DSS that
captures and reproduces the knowledge and
expertise of an expert problem solver or decision
maker and then simulates the “thinking” or
“actions” of that expert.
• These systems imitate the logic and reasoning of
the experts within their respective fields. Expert
systems are implemented with artificial
intelligence (AI) technology that captures, stores,
and provides access to the reasoning of the
experts.
• An expert system is a system that employs
human knowledge captured in a computer to
solve problems that ordinarily require human
expertise.(Turban)
• An expert system is a computer program that
tries to emulate human reasoning. It does this by
combining the knowledge of human experts and
then, following a set of rules, draws inferences.
• An expert system is made up
of three parts:
• A knowledge base stores all of
the facts, rules and information
needed to represent the
knowledge of the expert.
• An inference engine interprets
the rules and facts to find
solutions to user queries.
• A user interface allows new
knowledge to be entered and
the system queried.
Communication and Collaboration
Systems
• These systems enable more effective communications between workers, partners,
customers and suppliers to enhance their ability to collaborate. These systems use
network technology that allows companies to coordinate with other organizations
across great distances.
• These systems create new efficiencies and new relationships between an
organization, its customers and suppliers, and business partners redefining
organizational boundaries.
Office Automation Systems
• Office automation (OA) is more than word processing and spreadsheet applications.
• Office automation systems support the wide range of business office activities for
improved work flow and communication between workers, regardless of whether or not
those workers are located in the same office.
• Office automation functions include word processing, spreadsheet applications,
electronic mails, work group computing, fax processing, work flow management etc.
• Office automation systems can be designed to support both individuals and work groups.
• Personnel information systems are those designed to meet the needs of a single user.
They are designed to boost an individual’s productivity.
• Work group information systems, on the other hand, are designed to meet the needs of
a work group. They are designed to boost the group’s productivity.
IT for Individuals
Information technology has changed our lives drastically. You are only a single click away
from everything. The list of the benefits of information technology in our lives are
explained below:
• With the advancement in IT, one can access the system of the company from any place. It
is not necessary for the authority to be in the office only. They can submit their work from
home as well. Easy access to the system has surely increased one's productivity without
any physical presence of the person in the office.
• There is a huge demand for IT professionals in various fields. The demand opens an
immense opportunity for IT professionals to explore the field and show their talent The IT
field offers people to work for computer programming, system analysis, testing, software
and hardware development, web application design etc.
• With the advancement of information technology, the education field has transformed its
outlook and has adopted a modern way of teaching and learning. Teaching on the
blackboard is now an old thing. Teachers and institutions are using modern gadgets to
teach their students. A computer with an internet connection helps students to learn new
things and understand the topics easily and deeply.
• Information technology helps patients as well. They can now connect with physicians and take
advice online. Also, there are many virtual healthcare applications available to provide guidance.
Electronic health records and tele medicines are delivering efficient and quality health to patients.
• In the technology world, with information technology, the drawback of time and distance in
business activities has been removed. Now, buying and selling are too easy. Customers can buy
online from their locals and international vendors as well.
• With wireless communication mediums, news broadcasts have become so easier. Only a few
seconds are needed to know the news from any corner of the world.
• Use of the internet on mobile phones, tablets, laptops, iPods, and other gadgets has been offering
us unlimited access to entertainment mediums. People can watch movies or new songs on different
platforms.
• With the Information technology, communication between people has become cheaper, easier and
faster than ever before. Texting, video calling, sending e-mails are so easy nowadays. There are so
many apps available online to provide these services.
• With the Information technology, we have seen and understood the meaning of globalization.
Today, the world is on one platform and there are no physical barriers between nations. People are
now 'global' citizens.
IT for Business
• Information technology (IT) is the lifeblood of most businesses. It is used to fulfill administrative
and production requirements, and it crosses all industries. Generally, the larger the enterprise, the
greater the need for a sophisticated and professionally managed information technology
infrastructure.
• Computers are at the core of IT, but to say information technology is just computers is to ignore the
complexity and diversity of the technologies businesses need to stay afloat in the 21st century. A
more complete definition of IT is this: all of an organization's hardware and software for storing,
retrieving, transmitting, and managing electronic information. Information in this context is in its
broadest sense and includes images and digitized sound and video. Among the tools companies use
to manage their information are:
- personal computers, terminals, and workstations
- network servers (including Internet) and other networking hardware
- Mainframes
- scanners, printers, and other peripherals
- all forms of software, including proprietary systems and site licenses for off-the shelf packages
• These technologies serve many purposes in a business. Some are purely logistical
or convenient and thereby save time and resources. Others are essential to the
company's output or its competitive advantage. Examples of IT's benefits to
different areas of an enterprise include:
- timely and efficient delivery of products and services
- higher sales through better understanding of customer behaviors
- cost savings from fewer staff hours and reduced human or machine error
- better resource planning through detailed, accurate, and timely financial
information.
• Medium to large corporations oversee their often substantial investments in these
technologies through a specialized department that may be known simply as IT, or
as information systems (IS) or information systems (MIS). This area may be under
the direction of a chief information officer (CIO), but many IT departments report
ultimately to the company's chief financial officer (CFO).
Acquisitions and Upgrades
• Most large organizations must purchase and install new hardware and software on a
regular basis. In order to do so effectively, IT managers must be familiar simultaneously
with business needs and available technologies. Some purchases may be very routine, the
corporation may only need additional units of existing devices it has already
implemented, or, as is the case with software upgrades, there may only be one logical
course of action. However, many IT-acquisition decisions demand strategic vision for the
organization. IT decision-makers must be able to match present and future needs with
technological solutions, often in the face of rapidly technologies and severe financial
outcomes from choosing the wrong technology.
• The acquisition process can be especially troublesome when custom software is being
implemented. These projects are notorious for exceeding cost estimates and taking longer
than planned. Moreover, custom software clients must be wary, after added time and
expense, of whether the new system will serve all of the needs it was intended to satisfy-
and without loosing the essential strengths and capabilities of the system it is replacing
Service and Maintenance
• Another requisite to owning information technology is ensuring that it is
compatible with other technologies already in place and that it functions properly.
Compatibility issues extend from making software applications work together on a
single computer to allowing substantially different computer systems to share
information. A mix of new and old technology can present special challenges.
• Over time, most computer equipment requires some form of servicing, usually due
to component failures, user mistakes, or obsolescence. This aspect of IT isn't
trivial performing routine service and maintenance in a large IT environment may
require a substantial investment in technical staff hours (or outside services) and
replacement equipment.
Assignment
• Write about computers in past and present how it is being used in detail.