Management Information Systems

Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Why Information Systems Matter

There are four reasons why IT makes a difference to the
success of a business:
• Capital management

• Foundation of doing business

• Productivity

• Strategic opportunity and advantage

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 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Capital Management:

• IT is the largest single component of capital

investment in the United States.

• About $1.8 trillion is spent each year by American

businesses.

• Managers and business students need to know how

to invest this capital wisely.

• The success of your business in the future may

well depend on how you make IT investment
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decisions.
 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Foundation of doing business:

• Most businesses today could not operate without
extensive use of information systems and
technologies.

• IT can increase market share.

• IT can help a business become a high-quality,

low-cost producer.

• IT is vital to the development of new products.

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 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

The Interdependence between Organizations and

Information Systems

1.4 Figure 1-2

 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Productivity:
• IT is one of the most important tools managers
have to use - increase productivity and efficiency
of businesses.

• According to the Federal Reserve Bank, IT has

reduced the rate of inflation by 0.5 to 1% in the
last decade. For firms this means IT is a major
factor in reducing costs.

• It is estimated that IT has increased productivity

in the economy by about 1% in the last decade.
For firms this means IT is a major source of labor
and capital efficiency.
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 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Strategic Opportunity and Advantage:

• Create competitive advantage: IT makes it

possible to develop competitive advantages.

• New Business Models: Dell Computer has built

its competitive advantage on an IT enabled build-
to-order business model that other firms have not
been able to imitate.

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 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Strategic Opportunity and Advantage:

• Create new services: eBay has developed the

largest auction trading platform for millions of
individuals and businesses. Competitors have
not been able to imitate its success.

• Differentiate yourself from your competitors:

Amazon has become the largest book retailer in
the United States on the strength of its huge
online inventory and recommender system. It has
no rivals in size and scope.

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 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Why IT Now? Digital Convergence and the Changing

Business Environment
Growing impact of IT in business firms can be
assessed from the following five factors:
• Internet growth and technology convergence
• Transformation of the business enterprise
• Growth of a globally connected economy
• Growth of knowledge and information-based
economies
• Emergence of the digital firm

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 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

The Internet and Technology Convergence:

• Growth in e-business, e-commerce, and e-

government

• Internet is bringing about rapid changes in

markets and market structure: financial services
and banking such as eTrade.com.

• The Internet is making many traditional

business models obsolete: the corner music
store and video store.
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 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Rise of the Information Economy:

• Knowledge and information-based economies

• Provide the foundation for new products and

services

• Automoboile industry- design & production rely

heavily on knowledge & IT

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 Management Information Systems
Managing the Digital Firm

WHY INFORMATION SYSTEMS?

Emergence of the Digital Firm:

• Digital firm-All of org’s significant business
relationships with customers, suppliers, and
employees are digitally enabled
• Core business processes accomplished using
digital networks
• Agile sensing and responding to environmental
changes
• Seamless flow of information within the firm, and
with strategic partners
• Cisco & Dell computers – Digital firms

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 Management Information Systems
Managing the Digital Firm
WHY INFORMATION SYSTEMS?

Business processes:
Refer to the set of logically related tasks & behaviors that
organizations develop over time to produce specific business
results & the unique manner in which these activities are
organized & coordinated.

• Eg: Developing a new product, generating & fulfilling order,

creating marketing plan, hiring an employee

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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

What Is an Information System?

Technology perspective: A set of interrelated

components that collect (or retrieve), process, store,
and distribute information to support decision
making and control in an organization

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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

What is an Information System? (Continued)

• Data: Streams of raw facts representing events

such as business transactions

• Information: data that have been shaped into a form

that is meaningful and useful to human beings in
the processes such as making decisions

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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

Functions of an Information System

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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

Functions of an Information System

• I/p captures raw data from within the org. or from its external
environment
• Processing – converts raw i/p into a meaningful form
• O/P – transfers the processed information to the users
• Feedback – used to evaluate or correct the i/p stage
(DaimlerChrysler)

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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

Computer-Based Information System (CBIS)

• Rely on computer hardware and software

• Processing and disseminating information

• Fixed definitions of data and procedures

• Collecting, storing, and using information

(UPS)
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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

A Business Perspective on Information Systems

Information systems are more than just technology.
Businesses invest in IS in order to create value and increase
profitability.

• Information systems are an organizational and management

solution to business challenges that arise from the business
environment.
• Make/Buy IS
• Firms invest in business: Stay in business –
Justified by favorable returns
• IS create value primarily by changing business processes
and management decision making or improves execution of
business
 
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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

The Business Information Value Chain

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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

Major Business Functions Rely on Information Systems

• Sales and marketing
• Manufacturing
• Finance
• Accounting
• Human resources
Dimensions of Information Systems
Three Important Dimensions of Information Systems
Organizations
Managers
Technology

You will need to understand and balance these

dimensions of information systems in order to create
business value.

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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

The Organizational Dimension of Information Systems

• People ,Structure, Business processes, Culture, Politics

The Management Dimension of Information Systems

• Managers are:
• Knowledge workers
• Data workers
• Production or service workers
Roles
• Senior managers - long term strategic decisions
• Middle managers - carry out the programs & plans of senior
managers
• Operational managers - monitor the firm’s daily activities

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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

The Technology Dimension of Information Systems

Information technology is one of the tools managers
use to cope with change:
• Hardware: Physical equipment
• Software: Detailed preprogrammed instructions
that control h/w components
• Storage: Physical media for storing data and the software
• Communications technology: Transfers data from one
physical location to another
• Networks: Links computers to share data or resources
• Internet, Intranet & Extranet
• WWW
All these technologies represent resources that can be shared
throughout the organization & constitutes the firm’s IT infrastructure
(platform for building specific IS)
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 Management Information Systems
Managing the Digital Firm

PERSPECTIVES ON INFORMATION SYSTEMS

Variation in Returns on Information Technology Investment

Source: Based on Erik Brynjolfsson and Lorin M.

Hitt, “Beyond Computation: Information
Technology, Organizational Transformation and
Business Performance.” Journal of Economic
Perspectives 14, no. 4 (Fall 2000). Used with
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permission of the American Economic Association.