LECTURE 1

Introduction to Information
System
 Lesson Objectives

• How are information systems transforming

business, and why are they so essential for running
and managing a business today?
• What is an information system? How does it work?
• What are its management, organization, and
technology components?
 Lessons Objectives

• Why are complementary assets essential for

ensuring that information systems provide
genuine value for organizations?
• What academic disciplines are used to study
information systems and how does each
contribute to an understanding of
information systems?
 The Role of Information Systems in Business Today

• How information systems are transforming

business
– Emerging mobile digital platform
– Growing business use of “big data”
– Growth in cloud computing
• Globalization opportunities
– Internet has drastically reduced costs of operating on
global scale
– Increases in foreign trade, outsourcing
– Presents both challenges and opportunities
 Information Technology Capital Investment

FIGURE 1-1 Information technology capital investment, defined as hardware, software, and communications
equipment, grew from 14 percent to 33 percent of all invested capital between 1999 and 2013.
 The Role of Information Systems in Business Today

• In the emerging, fully digital firm:

– Significant business relationships are digitally
enabled and mediated.
– Core business processes are accomplished through
digital networks.
– Key corporate assets are managed digitally.
• Digital firms offer greater flexibility in
organization and management.
– Time shifting, space shifting
 The Role of Information Systems in Business Today

• Growing interdependence
between:
– Ability to use information technology
and
– Ability to implement corporate
strategies and achieve corporate goals
 The Role of Information Systems in Business Today

• Firms invest heavily in information

systems to achieve six strategic business
objectives:
1. Operational excellence
2. New products, services, and business models
3. Customer and supplier intimacy
4. Improved decision making
5. Competitive advantage
6. Survival
 The Interdependence Between Organizations and Information Technology

Figure 1.2 In contemporary systems there is a growing interdependence between a firm’s information systems and its
business capabilities. Changes in strategy, rules, and business processes increasingly require changes in
hardware, software, databases, and telecommunications. Often, what the organization would like to do depends
on what its systems will permit it to do.
 The Role of Information Systems in Business Today

• Operational excellence:
– Improvement of efficiency to attain higher
profitability
– Information systems, technology an important
tool in achieving greater efficiency and
productivity
– Walmart’s Retail Link system links suppliers to
stores for superior replenishment system
 The Role of Information Systems in Business Today

• New products, services, and business

models:
– Business model: describes how company
produces, delivers, and sells product or service to
create wealth
– Information systems and technology a major
enabling tool for new products, services,
business models
• Examples: Apple’s iPad, Google’s Android OS,
and Netflix
 The Role of Information Systems in Business Today

• Customer and supplier intimacy:

– Serving customers well leads to customers returning,
which raises revenues and profits.
• Example: High-end hotels that use computers to track
customer preferences and used to monitor and
customize environment
– Intimacy with suppliers allows them to provide vital
inputs, which lowers costs.
• Example: JCPenney’s information system which links
sales records to contract manufacturer
 The Role of Information Systems in Business Today

• Improved decision making

– Without accurate information:
• Managers must use forecasts, best guesses, luck
• Results in:
– Overproduction, underproduction
– Misallocation of resources
– Poor response times
• Poor outcomes raise costs, lose customers
– Example: Verizon’s Web-based digital dashboard to
provide managers with real-time data on customer
complaints, network performance, line outages, and so on
 The Role of Information Systems in Business Today

• Competitive advantage
– Delivering better performance
– Charging less for superior products
– Responding to customers and suppliers in
real time
– Examples: Apple, Walmart, UPS
 The Role of Information Systems in Business Today

• Survival
– Information technologies as necessity of business
– Industry-level changes
• Example: Citibank’s introduction of ATMs
– Governmental regulations requiring record-
keeping
• Examples: Toxic Substances Control Act,
Sarbanes-Oxley Act
• Dodd-Frank Act
 What Is an Information System?

• Information system:
– Set of interrelated components
– Collect, process, store, and distribute information
– Support decision making, coordination, and
control
• Information vs. data
– Data are streams of raw facts.
– Information is data shaped into meaningful form.
 Data and Information

Figure 1.3 Raw data from a supermarket checkout counter can be processed and organized to produce meaningful
information, such as the total unit sales of dish detergent or the total sales revenue from dish detergent for a
specific store or sales territory.
 What Is an Information System?

• Three activities of information systems

produce information organizations need
– Input: Captures raw data from organization or
external environment
– Processing: Converts raw data into meaningful
form
– Output: Transfers processed information to people
or activities that use it
 What Is an Information System?

• Feedback:
– Output is returned to appropriate members of
organization to help evaluate or correct input stage.
• Computer/computer program vs. information
system
– Computers and software are technical foundation
and tools, similar to the material and tools used to
build a house.
 Functions of an Information System

An information system contains

information about an
organization and its surrounding
environment. Three basic
activities—input, processing,
and output—produce the
information organizations need.
Feedback is output returned to
appropriate people or activities
in the organization to evaluate
and refine the input.
Environmental actors, such as
customers, suppliers,
competitors, stockholders, and
regulatory agencies, interact
with the organization and its
information systems.

Figure 1.4
 Information Systems Are More Than Computers

Using information systems

effectively requires an
understanding of the
organization, management, and
information technology shaping
the systems. An information
system creates value for the
firm as an organizational and
management solution to
challenges posed by the
environment.

Figure 1.5
 What Is an Information System?

• Organizational dimension of information

systems
– Hierarchy of authority, responsibility
• Senior management
• Middle management
• Operational management
• Knowledge workers
• Data workers
• Production or service workers
 Levels in a 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.

Figure 1.6
 What Is an Information System?

• Organizational dimension of information

systems (cont.)
– Separation of business functions
• Sales and marketing
• Human resources
• Finance and accounting
• Manufacturing and production
– Unique business processes
– Unique business culture
– Organizational politics
 What Is an Information System?

• Management dimension of information

systems
– Managers set organizational strategy for
responding to business challenges
– In addition, managers must act creatively:
• Creation of new products and services
• Occasionally re-creating the organization
 What Is an Information System?

• Technology dimension of information

systems
– Computer hardware and software
– Data management technology
– Networking and telecommunications technology
• Networks, the Internet, intranets and extranets,
World Wide Web
– IT infrastructure: provides platform that system
is built on
 CLASS DISCUSSIONS

VIDEO CASE:
UPS COMPETES GLOBALLY WITH I.T.
 UPS COMPETES GLOBALLY WITH I.T.

• What are the inputs, processing, and outputs of UPS’s

package tracking system?
• What technologies are used by UPS? How are these
technologies related to UPS’s business strategy?
• What business objectives do UPS’s information
systems address?
• What would happen if these systems were not
available?
 What Is an Information System?

• Dimensions of UPS tracking system

– Organizational:
• Procedures for tracking packages and managing
inventory and provide information
– Management:
• Monitor service levels and costs
– Technology:
• Handheld computers, bar-code scanners, networks,
desktop computers, and so on
 What Is an Information System?

• Business perspective on information

systems:
– Information system is instrument for creating
value
– Investments in information technology will result
in superior returns:
• Productivity increases
• Revenue increases
• Superior long-term strategic positioning
 What Is an Information System?

• Business information value chain

– Raw data acquired and transformed through stages
that add value to that information
– Value of information system determined in part by
extent to which it leads to better decisions, greater
efficiency, and higher profits
• Business perspective:
– Calls attention to organizational and managerial
nature of information systems
 The Business Information Value Chain

Figure 1-7 From a business perspective, information systems are part of a series of value-adding activities for acquiring,
transforming, and distributing information that managers can use to improve decision making, enhance
organizational performance, and, ultimately, increase firm profitability.
 What Is an Information System?

• Investing in information technology does not

guarantee good returns.
• There is considerable variation in the returns
firms receive from systems investments.
• Factors:
– Adopting the right business model
– Investing in complementary assets (organizational
and management capital)
 Variation in Returns on Information Technology Investment

Although, on average,
investments in information
technology produce returns far
above those returned by other
investments, there is
considerable variation across
firms.

Figure 1.8
 What Is an Information System?

• Complementary assets:
– Assets required to derive value from a primary
investment
– Firms supporting technology investments with
investment in complementary assets receive
superior returns
– Example: Invest in technology and the people to
make it work properly
 What Is an Information System?

• Complementary assets include:

– Organizational assets, for example:
• Appropriate business model
• Efficient business processes
– Managerial assets, for example:
• Incentives for management innovation
• Teamwork and collaborative work environments
– Social assets, for example:
• The Internet and telecommunications infrastructure
• Technology standards
 Contemporary Approaches to Information Systems

The study of information

systems deals with issues and
insights contributed from
technical and behavioral
disciplines.

Figure 1.9
 Studying Information Systems

• Technical approach
– Emphasizes mathematically based models
– Computer science, management science, operations
research
• Behavioral approach
– Behavioral issues (strategic business integration,
implementation, etc.)
– Psychology, economics, sociology
 Studying Information Systems

• Management Information Systems

– Combines computer science, management science,
operations research, and practical orientation with
behavioral issues
• Four main actors
– Suppliers of hardware and software
– Business firms
– Managers and employees
– Firm’s environment (legal, social, cultural context)
 SUGGESTED VIDEO CASES

• VIDEO CASES
– Case 1: UPS Global Operations with the DIAD IV
– Case 2: Google Data Center Efficiency Best Practices
– Instructional Video 1: Green Energy Efficiency in a
Data Center Using Tivoli Architecture
– Instructional Video 2: Tour IBM’s Raleigh Data Center