Information Systems in Business Why study information systems? Why do businesses need information technology?

What do you need to know about the use and management of information technologies in business?

Why study information systems and information technology? Thats the same as asking why anyone should study accounting, finance, operations management, marketing, human resource management, or any other major business function. Information systems and technologies are a vital component of successful businesses and organizations some would say they are business imperatives. They thus constitute an essential field of study in business administration and management. Since you probably intend to be a manager, entrepreneur, or business professional, it is just as

important to have a basic understanding of information systems as it is to understand any other functional area in business.

Information technologies, including Internet-based information systems, are playing a vital and expanding role in business. Information technology can help all kinds of businesses improve the efficiency and effectiveness of their business processes, managerial decision making, and workgroup collaboration, thus strengthening their competitive positions in a rapidly changing marketplace. This is true whether information technology is used to support product development teams, customer support processes, electronic commerce transactions, or any other business activity. Information technologies and systems are, quite simply, a necessary ingredient for business success in todays dynamic global environment. If we are to understand information systems and their functions, we first need to be clear on the concept of a system.

In its simplest form, a system is a set of interrelated components, with a clearly defined boundary, working together to achieve a common set of objectives. Using this definition, it becomes easy to see that virtually everything you can think of is a system, and one system can be made up of other systems or can be a part of a bigger system.

An information system (IS) can be any organized combination of people, hardware, software, communications networks, data resources, and policies and procedures that stores, retrieves, transforms, and disseminates information in an organization. People rely on modern information systems to communicate with each other using a variety of physical devices (hardware), information processing instructions and procedures (software), communications channels (networks), and stored data (data resources).

While todays information systems are typically thought of as having something to do with computers, we have been using information systems since the dawn of civilization. Even today we make regular use of information systems that have nothing to do with a computer. Consider some of the following examples of information systems: Smoke signals for communication were used as early as recorded history can account for the human discovery of fire. The pattern of smoke transmitted valuable information to others who were too far to see or hear the sender. Card catalogs in a library are designed to store data about the books in an organized manner that allows for a particular book to be located by its title, author name, subject, or a variety of other approaches.

Information and Information Systems When talking about information systems, first of all needs to be defined what is considered under information. So, information can be defined as data converted into something valuable and usable for certain user. Out of this definition following can be concluded, information are data sets that together offer new knowledge to data owner. For example, currency exchange rate is for ordinary person just data but for financial analyst it is information because together with other historical currency exchange rates might give certain predictability, new information,and about shortterm currency trend. From this example, financial expert can analyze gathered data compare it with other data like treasury and cash flow and to conclude level of profit or loses from effects of currency exchange rates. Such set of analyzed data, that off course need to be relevant to end user for acceptance of certain knowledge, is information.

Conditions that need to be fulfilled for information to become valuable information are following: Time precondition, must be available at time when needed. For example, information about delivery problem like no possibility to delivery of goods in less than two days may cause business failure for two days if requested information of delivery speed was not received on time, at least two days before warehouse was emptied. Information also needs to be defined for certain time period that is precisely determined for event (event happened yesterday, two days or 3 months ago) for responsible decision makers. In addition information needs to be available in adequate time frequencies. It has to be available as often as defined (currency exchange needs to be available daily for example, not monthly).

Content precondition, information must be accurate (reliable) and significant (has to be of value for decision makers), completed ( partial information may cause more harm then benefit), concrete (information should not cause information clutter) and must be possible to measure, must be quantified and of high quality). What is not measurable is hard to present.

Shaping precondition, information must be presented in simple form, must be detailed, logically constructed, presented simply for final user As presented many preconditions exist in conversion from data to information process. Task of data processing and modification is job of IT department. Nevertheless, data processing should never be considered as information system, same, data and information should not be also considered as same. Data Processing System is just one part of management information system. When talking about information system, among information definition should be defined term system. System can be defined as group of mutually related cooperating elements working on reaching common goal by taking inputs and producing outputs in organized transformation process. From this statement following can be concluded, any system consists of minimally 3 components: Input, on level of sales details, Processing, same material in production processes. Output, new product

Based upon this 3 components modern systems use two more components. Without them many modern systems could not work without: process of feedback, where from previous example can be process of quality for new product or for used materials in production process; control, that analyzes data from feedback and based upon results makes conclusions (is company moving toward goal or not). If in this case feedback data shows low new product quality and therefore lower revenue possibilities, controlling component must detect source of problem and must act on it. Control might, better to say must, act on input, processing and output within the system in order to secure reaching goal/goals. Action of control is based on feedback information. Following should be highlighted, except closed information system, interacts with environment and cooperates with other systems like for example production system - CRM, Customer Relationship System

Definition of Information System

Aim and purpose of each information system (definition of information system) is conversion of data into information. This process consists of four basic concepts: people, hardware, software and data are four basic resources of information system; human resources consist of end users and IT specialists; hardware consists from machines and media; Software resources consist from: programs and procedures; data resources consist form data, model and knowledge base; data are converted in information process into many information products for end users; information process consists of input, processing, output, storage and control processes.

All components of information system are mutually connected and cannot exist individually and to perform role of informing. Relationship between separated components is defined for best process efficiency.

Components of information system (basis for definition of information system) and their relations are presented on following figure

The fundamental Roles of IS in Business An Information system can be any organized combination of people,hardware, software, communications networks, and data resources that collects, transforms, and disseminates information in an organization.

CREATING AND MAINTAINING STRATEGIC INFORMATION SYSTEMS There might be many opportunities to accomplish a competitive edge with IT, especially in industries that are using older software, such as the insurance industry. Insurance companies were among the early adopters of IT and have not changed much of their software. This is why some observers say the entire industry is inefficient. Once an insurance company adopts nnovative software applications, it might gain competitive advantage. This might remind you of the airline industry. Most airlines still use antiquated hardware and software.when JetBlue was established, it adopted the latest technologies, and this was a major reason for its great competitive advantage. Companies can implement some of the strategic initiatives described in the previous section by using information systems. As we mentioned at the beginning of the chapter, a strategic information system (SIS) is any information system that can help an organization achieve a long-term competitive advantage. An SIS can be

created from scratch, developed by modifying an existing system, or discovered by realizing that a system already in place can be used to strategic advantage. While companies continue to explore new ways of devising SISs, some successful SISs are the result of less lofty endeavors: the intention to improve mundane operations using IT has occasionally yielded a system with strategic qualities. Strategic information systems combine two types of ideas: ideas for making potentially winning business decisions and ideas for harnessing information technology to implement the decisions. For an information system to be an SIS, two conditions must exist. First, the information system must serve an organizational goal rather than simply provide information; and second, the organizations IS unit must work with managers of other functional units (including marketing, finance, purchasing, human resources, and so on) to pursue the organizational goal.

Creating an SIS To develop an SIS, top management must be involved from initial consideration through development and implementation. In other words, the SIS must be part of the overall organizational strategic plan. There is always the danger that a new SIS might be considered the IS units exclusive property. However, to succeed, the project must be a corporate effort, involving all managers who use the system. Figure 2.4 presents questions that management should ask to determine whether to develop a new SIS. Executives meet to try to identify areas in which information can support a strategic goal. Only after completing the activities outlined in Figure 2.4 will management be able to conceptualize an SIS that seizes an opportunity

FIGURE 2.4 Questions to answer in a strategic information system idea-generating meeting 1. What would be the most effective way to gain an advantage? 2. Would more accessible or timely information to our employees, customers, or suppliers help establish a significant advantage? If so 3. Can an information system be developed that provides more accessible and timely information? 4. Will the development effort be economically justified? Can existing competitors afford to fund the development of a similar system? How long will it take the competitors to build their own, similar system? Can we make our system a moving target to the competition by constantly enhancing it, so that it always retains its superiority?

5. What is the risk of not developing such a system? 6. Are alternative means of achieving the same goals available, and if so, how do they compare with the advantages and disadvantages of a new SIS?

The growth of information system and technology during the last 2 decades has been phenomenal. During this growth, many branches evolved in the information science. One such branch is strategic IS. It is mainly concerned with providing and organization and its members an assistance to perform the routine tasks effectively. One of the major issue before any, organization is the challenge of meeting its goals and objectives. Strategic IS enabling such organization in realizing their goals. Strategic Information System (SIS) is a support to the existing system and helps in achieving a competitive advantage over the organization competitors in terms of is objectives.

Information system is regarded as a tool to provide various services to different management functions. The tools have been developing year by year and different management application of the tool has become more and more diverse. In management it is now a very power means to manage and control various activities and decision making process. The original idea of automating mechanical process got quickly succeeded by the rationalization and integration of systems. In both of these forms, IS was regarded primarily as an operational support tool, and secondarily as a service to management. Subsequent to the development, it was during the last few years that an additional potential was discovered.

It was found that, in some cases, information technology (IT) had been critical to the implementation of an organisations strategy. An organisations strategy supported by information system fulfilling its business objectives came to be known as strategic information system. The strategic information system consists of functions that involved gathering. Maintenance and

analysis of data is concerned with internal resources and intelligence about competitors, suppliers, customers government and other relevant organizations. Strategic Information System A Strategic Information System (SIS) is a system that helps companies change or otherwise alter their business strategy and/or structure. It is typically utilized to streamline and quicken the reaction time to environmental changes and aid it in achieving a competitive advantage. Key features of the Strategic Information Systems are the following: 1) Decision support systems that enable to develop a strategic approach to align Information Systems (IS) or Information Technologies (IT) with an organization's business strategies 2) Primarily Enterprise resource planning solutions that integrate/link the business processes to meet the enterprise objectives for the optimization of the enterprise resources 3) Database systems with the "data mining" capabilities to make the best use of available corporate information

for marketing, production, promotion and innovation. The SIS systems also facilitate identification of the data collection strategies to help optimize database marketing opportunities. 4) The real-time information Systems that intend to maintain a rapid-response and the quality indicators. STRATEGY AND STRATEGIC MOVES The word strategy originates from the Greek word strategos, meaning general. In war, a strategy is a plan to gain an advantage over the enemy. Other disciplines, especially businesshave borrowed the term. As you know from media coverage, corporate executives often discussactions in ways that make business competition sound like war. Businesspeople must devisedecisive courses of action to winjust as generals do. In business, a strategy is a plan designedto help an organization outperform its competitors. Unlike battle plans, however, businessstrategy often takes the form of creating new opportunities rather than beating rivals.

Although many information systems are built to solve problems, many others are built to seize opportunities. And, as anyone in business can tell you, identifying a problem is easier thancreating an opportunity. Why? Because a problem already exists; it is an obstacle to a desiredmode of operation and, as such, calls attention to itself. An opportunity, on the other hand, isless tangible. It takes a certain amount of imagination, creativity, and vision to identify anopportunity, or to create one and seize it. Information systems that help seize opportunities areoften called strategic information systems (SISs). They can be developed from scratch, orthey can evolve from an organizations existing ISs. In a free-market economy, it is difficult for a business to do well without some strategic planning. Although strategies vary, they tend to fall into some basic categories, such as developing a new product, identifying an unmet consumer need, changing a service to enticemore customers or retain existing clients, or taking any other action that increases theorganizations value through improved performance.Many strategies do not, and cannot, involve information systems. But increasingly, corporations.are able to implement certain strategies

such as maximizing sales and lowering costs..thanks to the innovative use of information systems.

In other words, better information gives corporations a competitive advantage in the marketplace. A company achieves strategic advantage by using strategy to maximize its strengths, resulting in a competitive advantage. When a business uses a strategy with the intent to create a market for new productsor services, it does not aim to compete with other organizations, because that market does notyet exist. Therefore, a strategic move is not always a competitive move. However, in afree-enterprise society, a market rarely remains the domain of one organization for long; thus,competition ensues almost immediately. So, we often use the terms competitive advantage andstrategic advantage interchangeably. You might have heard statements about using the Web strategically. Business competition is no longer limited to a particular country or even a region of the world. To increase the sale of goods and services, companies must regard the entire world as their market. Because thousandsof corporations and hundreds of millions of consumers have access to the Web,

augmenting business via the Web has become strategic: many companies that utilized the Web early on have enjoyed greater market shares, more experience with the Web as a business enabler, and larger revenues than late comers. Some companies developed information systems, or features of information systems, that are unique, such as Amazons one-click online purchasing and Pricelines name your own price auctioning. Practically any Web-based system that gives a company competitive advantage is a strategic information system. THE BLEEDING EDGE As you might often hear, huge rewards go to whomever first implements a new idea. Innovators might enjoy a strategic advantage until competitors discover the benefits of a new business idea or a new technology. However, taking such steps before competitors have tested a system involves great risk. In some cases, failure results from rushing implementation without adequately testing a market. But even with careful planning, pioneers sometimes get burned.

For example, several supermarket chains tried selfcheckout stations in the mid-1990s. Consumers were expected to ring up their own purchases. By and large, investment in such devices failed not because the technology was bad, but because many consumers either preferred the human touch, or because they did not want to learn how to correct mistakes when the devices did not pick up the price of an item or picked it up twice. Recently, machines that are more user friendly and less error prone have been installed by several chains, and consumers have been more willing to use them. While it is tempting to take the lead, the risk of business failure is quite high. Several organizations have experienced disasters with new business ideas, which are only magnified when implementing new technology. When failure occurs because an organization tries to be on the technological leading edge, observers call it the bleeding edge. The pioneering organization bleeds cash on a technology that increases costs instead of profits. Adopting a new technology . involves great risk: there is no experience from which to learn, no guarantees that the technology will work well, and no certainty that customers and employees will welcome it.Being on the

bleeding edge often means that implementation costs are significantly more than anticipated, that the new technology does not work as well as expected, or that the parties who were supposed to benefitemployees, customers, or suppliersdo not like using it. Thus, instead of leading, the organization ends up bleeding, that is, suffering from high cost and lost market share. For this reason, some organizations decide to let competitors test new technology before they adopt it. They risk losing the initial rewards they might reap, but if a competitor succeeds, they can quickly adopt the technology and even try to use it better than the pioneering organization. Microsoft generally takes this approach. It seizes an existing idea, improves it, and promotes the result with its great marketing power. For instance, the company did not invent word processing, but Word is the most popular word-processing application today. The company did not invent the electronic spreadsheet, but Excel is the most popular spreadsheet application. And Microsoft was not the first to introduce a PC database management application, but it sells the highly popular

Access. The company joined the Internet rush late, but it developed and gave away Internet Explorer, a Web browser that competed with the highly popular Netscape Navigator and now dominates the market (in part because it was given free to everyone, including forprofit businesses). You might call this approach competing by emulating and improving, rather than competing by being on the leading edge