Management Information System March 10, 2025

CHAPTER TWO
Foundational concepts in MIS
2.1 Introduction
In order to operate, businesses must deal with many different pieces of
information about suppliers, customers, employees, invoices and payments,
and of course their products and services. They must organize work activities
that use this information to operate efficiently and enhance the overall
performance of the firm. Information systems make it possible for firms to
manage all their information, make better decisions, and improve the
execution of their business processes.
2.2 Business and management functions

Management’s job is to make sense out of the many situations faced by

organizations, make decisions, and formulate action plans to solve
organizational problems. Managers perceive business challenges in the
environment; they set the organizational strategy for responding to those
challenges; and they allocate the human and financial resources to
coordinate the work and achieve success. Throughout, they must exercise
responsible leadership. The business information systems described in this
book reflect the hopes, dreams, and realities of real-world managers. But
managers must do more than manage what already exists. They must also
create new products and services and even re-create the organization from
time to time. A substantial part of management responsibility is creative
work driven by new knowledge and information. Information technology can
play a powerful role in helping managers design and deliver new products
and services and redirecting and redesigning their organizations.
Business processes refer to the manner in which work is organized,
coordinated, and focused to produce a valuable product or service. Business
processes are the collection of activities required to produce a product or
service. These activities are supported by flows of material, information, and
knowledge among the participants in business processes. Business

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processes also refer to the unique ways in which organizations coordinate

work, information, and knowledge, and the ways in which management
chooses to coordinate work. To a large extent, the performance of a business
firm depends on how well its business processes are designed and
coordinated. A company’s business processes can be a source of competitive
strength if they enable the company to innovate or to execute better than its
rivals. Business processes can also be liabilities if they are based on
outdated ways of working that impede organizational responsiveness and
efficiency. Every business can be seen as a collection of business processes,
some of which are part of larger encompassing processes. For instance,
designing a new sailboat model, manufacturing components, assembling the
finished boat, and revising the design and construction are all part of the
overall production process. Many business processes are tied to a specific
functional area. For example, the sales and marketing function is responsible
for identifying customers, and the human resources function is responsible
for hiring employees, Attracting, developing, and maintaining the
organization’s labor force; maintaining employee records, Finance and
accounting Managing the organization’s financial assets and maintaining the
organization’s financial records, and Manufacturing and production Producing
and delivering products and services. Other business processes cross many
different functional areas and require coordination across departments. For
instance, consider the seemingly simple business process of fulfilling a
customer order. Initially, the sales department receives a sales order. The
order passes first to accounting to ensure the customer can pay for the order
either by credit verification or request for immediate payment prior to
shipping. Once the customer credit is established, the production
department pulls the product from inventory or produces the product. Then
the product is shipped. A bill or invoice is generated by the accounting
department, and a notice is sent to the customer indicating that the product
has shipped. The sales department is notified of the shipment and prepares
to support the customer by answering calls or fulfilling warranty claims. What

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at first appears to be a simple process, fulfilling an order, turns out to be a

very complicated series of business processes that require the close
coordination of major functional groups in a firm. Moreover, to efficiently
perform all these steps in the order fulfillment process requires a great deal
of information. The required information must flow rapidly both within the
firm from one decision maker to another; with business partners, such as
delivery firms; and with the customer. Computer-based information systems
make this possible.
 How information technology improves business processes?
Information systems automate many steps in business processes that were
formerly performed manually, such as checking a client’s credit, or
generating an invoice and shipping order. But today, information technology
can do much more. New technology can actually change the flow of
information, making it possible for many more people to access and share
information, replacing sequential steps with tasks that can be performed
simultaneously, and eliminating delays in decision making. New information
technology frequently changes the way a business works and supports
entirely new business models. Downloading a Kindle e-book from Amazon,
buying a computer online at Best Buy, and downloading a music track from
iTunes are entirely new business processes based on new business models
that would be inconceivable without today’s information technology. That’s
why it’s so important to pay close attention to business processes, both in
your information systems course and in your future career. By analyzing
business processes, you can achieve a very clear understanding of how a
business actually works. Moreover, by conducting a business process
analysis, you will also begin to understand how to change the business by
improving its processes to make it more efficient or effective.

2.2 Data, information, knowledge and wisdom

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There is an important distinction between data, information, knowledge, and

wisdom.
 Data is a flow of events or transactions captured by an organization’s
systems that, by itself, is useful for transacting but little else. And it is
a stream of raw facts representing events occurring in organizations or
the physical environment before they have been organized and
arranged into a form that people can understand and use.
 By information we mean data that have been shaped into a form that
is meaningful and useful to human beings. To turn data into useful
information, a firm must expend resources to organize data into
categories of understanding, such as monthly, daily, regional, or store-
based reports of total sales.
 To transform information into knowledge, a firm must expend
additional resources to discover patterns, rules, and contexts where
the knowledge works. Knowledge is both an individual attribute and a
collective attribute of the firm. Knowledge is a cognitive, even a
physiological, event that takes place inside peoples’ heads. It is also
stored in libraries and records, shared in lectures, and stored by firms
in the form of business processes and employee know-how. Knowledge
residing in the minds of employees that has not been documented is
called tacit knowledge, whereas knowledge that has been
documented is called explicit knowledge. Knowledge can reside in e-
mail, voice mail, graphics, and unstructured documents as well as
structured
 Finally, wisdom is thought to be the collective and individual
experience of applying knowledge to the solution of problems. Wisdom
involves where, when, and how to apply knowledge.

2.3 The information needs and source of managers

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Information is needed for decision making at all levels of management.

Managers at different organizational levels make different types of decisions,
control different types of processes, and have different information needs.
Three classical levels of management include:
1. Strategic 2. Tactical (middle) 3. Operational.
Titles have different values in different organizations. Strategic managers
operate in a highly unstructured environment and use EISs, and DSSs.
Historically, the most common (organizational structure) was a generic
pyramid shaped hierarchy with a few leaders at the top and an increasing
number of workers at each subsequent lower managerial and operational
level. The pyramid is getting flatter. Some small, knowledge-intensive
companies have adopted a matrix pattern as their organizational structure,
with no one leader and leadership distributed among many more people,
varying by project, product, or discipline. Matrix management includes
having multiple bosses. Technology aside, the politics of information within
an organization can undermine optimal business decision making if it is not
taken into account when developing systems, and deciding how people will
support these systems. Sub-optimization -- the optimization of an individual
or a department at the expense of the larger organization. In many
organizations, clerical and shop floor workers make up the largest group of
workers. Operational managers are responsible for daily operations. They
make decisions concerning a narrow time span about the deployment of
small groups of clerical and/or shop floor workers. Middle, or tactical,
managers receive strategic decisions from above as general directives. Using
those directives as guidelines, they develop tactics to meet those strategic
directives. That is, they make decisions concerning how and when specific
resources will be utilized. Usually, a middle manager will be responsible for
several operational managers and are Responsible for finding the best
operational measures to accomplish their superiors' strategic decisions.
While a tactical decision concentrates on how to do something, a strategic
decision focuses on what to do. Strategic managers, and directors, that

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make decisions that affect the entire organization, or large parts of it, and
leave an impact in the long run. People in different management levels have
different information needs. Most of the information that managers require is
used to make decisions. The decision making process of middle managers
and above is less structured than that of operational managers; In general,
strategic decisions have no proven methods for selecting a course of action
that guarantees a predicted outcome. Data Characteristics determine
where and how the data will be used. Data range refers to the amount of
data from which information is extracted& Time span refers to how long a
period of time the data covers. Level of detail is the degree to which the
information generated is specific. Information can be internally or
externally sourced. Structured data are numbers and facts that can be
conveniently stored and retrieved in an orderly manner. Unstructured data
are drawn from meeting discussions, private conversations, textual
documents, graphics, graphical representations, and other non uniform
sources. Therefore the higher the manager, the less structured the decisions
that a manager faces. Managers’ plan and control. Planning’s main
ingredients include:
scheduling
budgeting
Resource allocation.

Budget is the most important part of business planning. The plan is the
basis for operations. Control is the activities that ensure operations
according to the plan. Both planning and control involve decision making. A
decision is a commitment to act. Most of a manager's day is devoted to
meetings that produce decisions. Managers control actual activities by
comparing actual results to expected results. When discrepancies between
the planned and actual performance are found, managers determine the
reason for the variance. Management by exception is where a manager only
reviews those areas that have deviated from the expected.

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2.4 A framework of information system/work-centered analysis (WCA)

 The WCA framework summarizes the elements any business
professional should look at when analyzing an existing or potential
system in an organization.
 The framework says that the system is much more than just
technology.
 Instead, the system is actually a work system consisting of a business
process performed by human participants using information and
technology. Unless the purpose of the analysis is to improve the way
the system operates internally without changing anything about what
it produces or why it exists, the analysis of the system needs to include
the product it produces and the customers it serves. The following
diagram summarizes the framework:

 The customer is whoever receives and uses the product of the work
system. This may be an external customer, a customer for the

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organization's product, or it may be an internal customer inside the

organization.
 The product is the combination of physical things, information, and
service that the work system produces for the customer. The work
system exists to produce the product for the customer.
 The business process is the set of work steps that are performed within
the work system. These steps may be precisely defined in some
situations or relatively unstructured in others.
 The participants are people who perform the work steps in the
business process. The same business process might be performed with
different degrees of success depending on the skills, training, and
interests of the participants.
 The information is the information used by the participants to perform
their work. Some of the information may be computerized, but other
important information may never be captured on a computer.
 The technology is the hardware, software, and other tools and
resources used by the participants in doing their work.

Part of the value of the WCA framework is that it can be viewed from five
different perspectives.

 Architecture is how a current or proposed system operates and how its

components work together.
 Performance is how well a system and each of its major components
operates.
 Infrastructure is the external human and technical resources a system
depends upon and shares with other systems.
 Context is the organizational, competitive, and technical realm within
which the system operates, including external stakeholders, the
organization's policies, practices, and culture, and competitive and
regulatory issues that affect the system.

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 Risks are foreseeable events whose occurrence could cause system

degradation or failure.

2.5 Business systems /e-business

The systems and technologies we have just described are transforming firms’
relationships with customers, employees, suppliers, and logistic partners into
digital relationships using networks and the Internet.
So much business is now enabled by or based upon digital networks
that we use the terms “electronic business” and “electronic
commerce” frequently.
Electronic business, or e-business, refers to the use of digital
technology and the Internet to execute the major business processes
in the enterprise. E-business includes activities for the internal
management of the firm and for coordination with suppliers and other
business partners.
It also includes electronic commerce, or e-commerce. E-commerce
is the part of e-business that deals with the buying and selling of goods
and services over the Internet. It also encompasses activities
supporting those market transactions, such as advertising, marketing,
customer support, security, delivery, and payment.
The technologies associated with e-business have also brought about
similar changes in the public sector. Governments on all levels are
using Internet technology to deliver information and services to
citizens, employees, and businesses with which they work.
E-government refers to the application of the Internet and networking
technologies to digitally enable government and public sector
agencies’ relationships with citizens, businesses, and other arms of
government. In addition to improving delivery of government services,
e-government makes government operations more efficient and also
empowers citizens by giving them easier access to information and the
ability to network electronically with other citizens. For example,

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citizens in some states can renew their driver’s licenses or apply for
unemployment benefits online, and the Internet has become a
powerful tool for instantly mobilizing interest groups for political action
and fund-raising.

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