Information Systems in Global

Business Today
Lecture 2
DIS 302: E-Business
Based on: Laudon & Laudon (2007)
Dr Njihia, UON-DMS
Information Systems in Global Business Today

THE ROLE OF INFORMATION

SYSTEMS IN BUSINESS TODAY
The Role of Information Systems in Business
Today
• Information technology and systems have
revolutionized firms and industries, becoming
the largest component of capital investment in
the U.S. and many industrialized societies.
Investment in information technology
accounts for approximately 50 percent of all
capital invested in the United States.
• Information systems are transforming business and
the visible results of this include the increased use
of cell phones and wireless telecommunications
devices, a massive shift toward online news and
information, booming e-commerce and Internet
advertising, and new federal security and
accounting laws that address issues raised by the
exponential growth of digital information.
• The Internet has also drastically reduced the costs
of businesses operating on a global scale.
• These changes have led to the emergence of
the digital firm, a firm in which:
– Most of the firm's significant business
relationships with customers, suppliers, and
employees are digitally enabled and mediated.
– Core business processes, or logically related
business tasks, are accomplished through digital
networks.
– Key corporate assets (intellectual property, core
competencies, and financial and human assets)
are managed through digital means
– Business responses to changes in their
environment are enhanced through digital
communications, allowing for time shifting
(business being conducted 24x7) and space
shifting (business being conducted globally or
beyond traditional geographic boundaries).
• Information systems are essential for conducting day-
to-day business in the U.S. and most other advanced
countries, as well as achieving strategic business
objectives. Some firms, such as Amazon and E*Trade,
would be nonexistent without information systems.
• Some service industries, such as finance, insurance,
and real estate industries, could not operate without
information systems. The ability of a firm to use IT is
becoming intertwined with the firm's ability to
implement corporate strategy.
 There is a growing interdependence between a firm’s
information systems and its business capabilities.
Changes in strategy, rules, and business processes
THE INTERDEPENDENCE
increasingly require changes in hardware, software,
BETWEEN databases, and telecommunications. Often, what the
ORGANIZATIONS AND organization would like to do depends on what its
INFORMATION SYSTEMS systems will permit it to do.
• Business firms invest heavily in information systems
to achieve six strategic business objectives:
– Operational excellence: Efficiency, productivity, and
improved changes in business practices and
management behavior
– New products, services, and business models: A
business model describes how a company produces,
delivers, and sells a product or service to create wealth.
Information systems and technologies create
opportunities for products, services, and new ways to
engage in business.
– Customer and supplier intimacy: Improved
communication with and service to customers
raises revenues, and improved communication
with suppliers 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.
– Competitive advantage: Implementing effective and
efficient information systems can allow a company to
charge less for superior products, adding up to higher
sales and profits than their competitors.
– Survival: Information systems can also be a necessity
of doing business. A necessity may be driven by
industry-level changes, as in the implementation of
ATMs in the retail banking industry. A necessity may
also be driven by governmental regulations, such as
federal or state statutes requiring a business to retain
data and report specific information.
Information Systems in Global Business Today

PERSPECTIVES ON INFORMATION
SYSTEMS
 Perspectives on Information Systems
• An information system is a set of interrelated
components that collect or retrieve, process,
store, and distribute information to support
decision making and control in an organization.
Information systems can also be used to analyze
problems, visualize complex subjects, and create
new products.
• Information is data, or raw facts, shaped into
useful form for humans.
DATA AND INFORMATION
 IS as a System
• Input, processing, and output are the three activities in an
information system that produce the information an
organization needs.
– Input captures or collects raw data from within the organization
or from its external environment.
– Processing converts this raw input into a meaningful form.
– Output transfers the processed 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 output that
is returned to appropriate members of the organization to help
them evaluate or correct the input stage.
FUNCTIONS OF AN INFORMATION SYSTEM
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.
 Information Systems and Computer
Technology
• It is important to distinguish information systems, which are
designed to produce information and solve organizational
problems, from the computer technology and software that is
typically used to create and manage information systems.
• Computer literacy focuses primarily on knowledge of
information technology. Information systems literacy, the
understanding of information systems, includes a behavioral
and technical approach to understanding the broader
organization, management, and information technology
dimension of systems and their power to provide solutions.
The field of management information systems (MIS) tries to
achieve this broader information systems literacy.
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.
 IS & organization
• The dimensions of information systems include
organizations, management, and information
technology.
• The key elements of an organization are its people,
structure, business processes, politics, and culture. An
organization coordinates work through a structured
hierarchy and formal standard operating procedures.
Managerial, professional, and technical employees
form the upper levels of the organization's hierarchy
while lower levels consist of operational personnel.
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.
 IS & Organizations
• 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.
 IS & Organizations
• Data workers such as secretaries process the
organization's paperwork. Production or
service workers produce the products or
services.
• Experts are employed for the major business
functions: the specialized tasks performed by
organizations, which consist of sales and
marketing, manufacturing and production,
finance and accounting, and human resources.
 IS & Organizations
• An organization coordinates work through its
hierarchy and business processes. These
processes may be documented and formal, or
informal, unwritten work processes, such as
how to handle a telephone call.
 IS & Organizations
• Each organization has a unique culture, or
fundamental set of assumptions, values, and ways
of doing things, that are accepted by most of its
members. Parts of an organization's culture can be
found in its information systems. For example, UPS's
organizational focus on customer service can be
found in the package tracking system available to
customers. Information systems may also reflect the
organizational politics or conflicts that result from
differing views and opinions in an organization.
 IS & Organizations
• Information systems are also a key component
in the ability of management to make sense of
the challenges facing a company and in
management's ability to create new products
and services, manage the company, and even
re-create the organization from time to time.
 Information Technology
• Information technology is one of the many tools
used by management to cope with change. A
firm's information technology (IT)
infrastructure is a technology platform or
foundation on which a firm can build its
information systems. IT infrastructure consists
of:
– Computer hardware: The physical equipment and
computing devices used for input, storage,
processing, output, and telecommunications
 Information Technology
– Computer software: The detailed, preprogrammed
instructions that control and coordinate the computer
hardware components
– Data management software: The software governing
the organization of data on physical storage media
– Networking and telecommunications technology:
Hardware and software used to link the various pieces
of hardware and transfer data from one physical location
to another; a computer network links two or more
computers together to share data, such as files, images,
sounds, video, or share resources, such as a printer.
 IT: Internet and the WWW
• The Internet is the world's largest and most widely
used network. The Internet is a global network that
uses universal technology standards to connect
many private and public networks. The universal
standards and technologies used in the Internet
are also used in systems and networks within the
firm. Intranets are internal corporate networks
based on Internet technology, and extranets are
corporate networks extended to authorized users
outside of the firm.
 IT: Internet and the WWW
• The World Wide Web is a service provided by the
Internet that uses universally accepted standards
for storing, retrieving, formatting, and displaying
information in a page format on the Internet.
Web pages contain text, graphics, animations,
sound, and video and are linked to other Web
pages. The Web can serve as the foundation for
new kinds of information systems such as UPS's
Web-based package tracking system
 Information Systems
• From a business perspective, an information
system is an important instrument for creating
value for the firm. Information systems enable
the firm to increase its revenue or decrease its
costs by providing information that helps
managers make better decisions or that
improves the execution of business processes.
 The Information Value Chain
• Every business has an information value chain in
which raw data is systematically acquired and then
transformed through various stages that add value
to that information.
• The value of an information system to a business,
as well as the decision to invest in any new
information system, is, in large part, determined by
the extent to which the system will lead to better
management decisions, more efficient business
processes, and higher firm profitability.
The Business Information Value Chain
THE BUSINESS INFORMATION VALUE CHAIN

• 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.
• The business perspective calls attention to the
organizational and managerial nature of
information systems. An information system
represents an organizational and management
solution based on information technology to a
challenge or problem posed by the
environment.
• Some firms achieve better results from their
information systems than others. Studies of
returns from information technology investments
show that there is considerable variation in the
returns firms receive. Reasons for lower return
on investment include failure to adopt the right
business model that suits the new technology or
seeking to preserve an old business model that is
doomed by new technology.
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.
 IT Investments and Returns
• Information technology investments cannot
make organizations and managers more effective
unless they are accompanied by complementary
assets: assets required to derive value from a
primary investment. For instance, to realize value
from automobiles requires complementary
investments in highways, roads, gasoline
stations, repair facilities, and a legal regulatory
structure to set standards and control drivers.
 IT Investments and Returns
• Complementary investments include:
Organizational assets: These include a
supportive business culture that values
efficiency and effectiveness, an appropriate
business model, efficient business processes,
decentralization of authority, highly
distributed decision rights, and a strong
information system (IS) development team.
 IT Investments and Returns
• Managerial assets: These include strong
senior management support for change,
incentive systems that monitor and reward
individual innovation, an emphasis on
teamwork and collaboration, training
programs, and a management culture that
values flexibility and knowledge.
 IT Investments and Returns
• Social assets: These are not made by the firm but by the
society at large, other firms, governments, and other key
market actors, such as the Internet, educational systems,
network and computing standards, regulations and laws,
and the presence of technology and service firms.
• Research indicates that firms that support their
technology investments with investments in
complementary assets, such as new business processes
or training, receive superior returns. These investments
in organization and management are also known as
organizational and management capital.
Information Systems in Global Business Today

CONTEMPORARY APPROACHES TO
INFORMATION SYSTEMS
 Contemporary Approaches to Information
Systems
• Information systems are sociotechnical systems.
Although they are composed of machines, devices,
and "hard" physical technology, they require
substantial social, organizational, and intellectual
investments to make them work properly.
• Since problems with information systems—and
their solutions—are rarely all technical or
behavioral, a multidisciplinary approach is needed.
 CONTEMPORARY APPROACHES TO
INFORMATION SYSTEMS

The study of
information
systems deals
with issues and
insights
contributed from
technical and
behavioral
disciplines.
• The technical approach emphasizes
mathematically based, normative models to study
information systems, as well as the physical
technology and formal capabilities of these
systems. The behavioral approach, a growing part
of the information systems field, does not ignore
technology, but tends to focus on non-technical
solutions concentrating instead on changes in
attitudes, management and organizational policy,
and behavior.
• MIS combines the work of computer science,
management science, and operations research
with a practical orientation toward developing
system solutions to real-world problems and
managing information technology resources. It is
also concerned with behavioral issues
surrounding the development, use, and impact of
information systems, which are typically
discussed in the fields of sociology, economics,
and psychology
• In the sociotechnical view of systems, optimal
organizational performance is achieved by jointly
optimizing both the social and technical systems used in
production. Adopting a sociotechnical systems perspective
helps to avoid a purely technological approach to
information systems.
• Technology must be changed and designed, sometimes
even "de-optimized," to fit organizational and individual
needs. Organizations and individuals must also be changed
through training, learning, and planned organizational
change to allow technology to operate and prosper.
A SOCIOTECHNICAL PERSPECTIVE ON INFORMATION SYSTEMS
In a sociotechnical perspective, the performance of a
system is optimized when both the technology and the
organization mutually adjust to one another until a
satisfactory fit is obtained.