Lecture 1

Foundations of Information Systems in Business

Essential Reading
Textbook: Laudon & Laudon (2010), Chapter 1 &2
Optional Reading

HOW INFORMATION SYSTEMS ARE TRANSFORMING BUSINESS

Businesses sought to sense and respond to rapidly changing customer demand, reduce
inventories to the lowest possible levels, and achieve higher levels of operational
efficiency. Supply chains have become more fast-paced, with companies of all sizes
depending on just-in-time inventory to reduce their overhead costs and get to market
faster.
More wireless cell phone accounts were opened in 2009 than telephone land lines
installed.
Cell phones, BlackBerrys, iPhones, e-mail, and online conferencing over the
Internet have all become essential tools of business.
89 million people in the USA access the Internet using mobile devices in 2010.
There are 285 million cell phone subscribers in the USA, and nearly 5 billion
worldwide.
By June 2010, more than 99 million businesses worldwide had dot-com Internet
sites registered.
Today, 162 million Americans shop online, and 133 million have purchased
online.
Every day about 41 million Americans go online to research a product or service.
More than 78 million people receive their news online.
About 39 million people watch a video online every day, 66 million read a blog,
and 16 million post to blogs, creating new forms of customer feedback that did
not exist five years ago.
Social networking site Facebook attracted 134 million monthly visitors in 2010 in
the USA, and over 500 million worldwide.
Businesses are starting to use social networking tools to connect their
employees, customers, and managers worldwide. Many Fortune 500 companies
now have Facebook pages.
Googles online ad revenues surpassed $25 billion in 2009, and Internet
advertising continues to grow at more than 10 percent a year, reaching more
than $25 billion in revenues in 2010.
Many businesses are required to keep e-mail messages for five years.
Read Textbook Chapter 1, pp. 6-7

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WHATS NEW IN MANAGEMENT INFORMATION SYSTEMS?

Lots! What makes management information systems the most exciting topic in business
is the
Continual change in technology, management use of the technology, and the
impact on business success.
New businesses and industries appear, old ones decline, and successful firms are
those who learn how to use the new technologies.
Table 1-1 summarizes (textbook, ch.1, p.8) the major new themes in business
uses of information systems.
Three interrelated changes: (1) the emerging mobile digital platform, (2) the
growth of online software, and (3) the growth in cloud computing
IPhones, iPads, BlackBerrys, and Web-surfing netbooks represent new emerging
computing platforms.
Managers are increasingly using these devices to coordinate work, communicate
with employees, and provide information for decision making. We call these
developments the emerging mobile digital platform.
Managers routinely use so-called Web 2.0 technologies like social networking,
collaboration tools, and wikis in order to make better, faster decisions.
As management behavior changes, how work gets organized, coordinated, and
measured also changes. By connecting employees working on teams and
projects, the social network is where works gets done, where plans are
executed, and where managers manage. Collaboration spaces are where
employees meet one anothereven when they are separated by continents and
time zones.
The strength of cloud computing and the growth of the mobile digital platform
allow organizations to rely more on telework, remote work, and distributed
decision making. This same platform means firms can outsource more work, and
rely on markets (rather than employees) to build value. It also means that firms
can collaborate with suppliers and customers to create new products, or make
existing products more efficiently.
You can see some of these trends at work in the Interactive Session on
Management. Millions of managers rely heavily on the mobile digital platform to
coordinate suppliers and shipments, satisfy customers, and manage their
employees.
A business day without these mobile devices or Internet access would be
unthinkable. As you read this case, note how the emerging mobile platform
greatly enhances the accuracy, speed, and richness of decision making.
Read Textbook Chapter 1, pp. 7-9

STRATEGIC BUSINESS OBJECTIVES OF INFORMATION SYSTEMS

There is a growing interdependence between a firms ability to use information
technology and its ability to implement corporate strategies and achieve corporate
goals (see Figure 1-2).
What a business would like to do in five years often depend on what its systems will be
able to do. Increasing market share, becoming the high-quality or low-cost producer,

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developing new products, and increasing employee productivity depend more and more
on the kinds and quality of information systems in the organization. The more you
understand about this relationship, the more valuable you will be as a manager.
Specifically, business firms invest heavily in information systems to achieve six
strategic business objectives: operational excellence; new products, services, and
business models; customer and supplier intimacy; improved decision making;
competitive advantage; and survival.

Operational Excellence

IS helps managers for achieving higher levels of efficiency and productivity in

business operations.
Walmart exemplifies the power of information systems to achieve world-class
operational efficiency.
Retail Link system digitally links its suppliers to every one of Walmarts stores.
As soon as a customer purchases an item, the supplier monitoring the item
knows to ship a replacement to the shelf.

FIGURE 1-2 THE INTERDEPENDENCE BETWEEN ORGANIZATIONS AND

INFORMATION SYSTEMS

New Products, Services, and Business Models

A business model describes how a company produces, delivers, and sells a

product or service to create wealth.
Todays music industry is vastly different from the industry a decade ago.
Apple Inc. transformed an old business model of music distribution based on
vinyl records, tapes, and CDs into an online, legal distribution model based on its
own iPod technology platform.
The iPod, the iTunes music service, the iPad, and the iPhone.

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Customer and Supplier Intimacy

How to really know your customers, or suppliers?

Example of customer intimacy: The Mandarin Oriental in Manhattan
They keep track of guests preferences, such as their preferred room
temperature, check-in time, frequently dialed telephone numbers, and television
programs., and store these data in a large data repository.
Individual rooms in the hotels are networked to a central network server
computer so that they can be remotely monitored or controlled.
When a customer arrives, the system automatically changes the room
conditions, such as dimming the lights, setting the room temperature, or
selecting appropriate music, based on the customers digital profile.
The hotels also analyze their customer data to identify their best customers and
to develop individualized marketing campaigns based on customers preferences
Example of supplier intimacy: JCPenny
Every time a dress shirt is bought at a JCPenney store in the USA, the record of
the sale appears immediately on computers in Hong Kong at the TAL Apparel
Ltd. Supplier.
TAL then decides how many replacement shirts to make, and in what styles,
colors, and sizes.
TAL then sends the shirts to each JCPenney store, bypassing completely the
retailers warehouses.
In other words, JCPenneys shirt inventory is near zero.

Improved Decision Making

Many managers operate in an information fog bank, never really having the right
information at the right time to make an informed decision.
Instead, managers rely on forecasts, best guesses, and luck. The result is
underproduction of goods and services, misallocation of resources, and poor
response times.
These poor outcomes raise costs and lose customers.
Information systems and technologies have made it possible for managers to use
real-time data from the marketplace when making decisions.
Verizon Corporation, Telecommunication Company, uses a Web-based digital
dashboard to provide managers with precise real-time information on customer
complaints; network performance for each locality served, and line outages or
storm-damaged lines.

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Competitive Advantage

When firms achieve one or more of these business objectives; achieve

competitive advantage.
Doing things better than your competitors,
Charging less for superior products, and
Responding to customers and suppliers in real time all add up to higher
sales and higher profits that your competitors cannot match.
Apple Inc., Walmart, and UPS, know how to use information systems for this
purpose

Survival

IS is necessities of doing business.

These necessities are driven by industry-level changes.
HSBC introduced first ATM in India in 1987. Other banks rushed to provide it to
their customers.
In USA, legal duty for companies and their employees to retain records, including
digital records.
Read Textbook Chapter 1, pp. 12-16

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WHAT IS AN INFORMATION SYSTEM?

A set of interrelated components that collect (or retrieve), process, store, and
distribute information to support decision making and control in an organization.
In addition to supporting decision making, coordination, and control, information
systems may also help managers and workers analyze problems, visualize
complex subjects, and create new products.

FIGURE 1-3 DATA AND INFORMATION

By information we mean data that have been shaped into a form that is
meaningful and useful to human beings.
Data are streams of raw facts.
Example: Supermarket checkout counters scan millions of pieces of data from
bar codes.
Three activities in an information system produce the information that
organizations need: input, processing, and output.
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.
Feedback is output that is returned to appropriate members of the organization
to help them evaluate or correct the input stage.
Read Textbook Chapter 1, pp. 17-19

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FIGURE 1-4 FUNCTIONS OF AN INFORMATION SYSTEM

TYPES OF INFORMATION SYSTEMS

No single system can provide all the information an organization needs.

A business firm has systems to support different groups or levels of
management.
These systems include:
Transaction processing systems,
Management information systems,
Decision-support systems, and
Systems for business intelligence

Transaction Processing Systems

It is a computerized system that performs and records the daily routine

transactions necessary to conduct business, such as sales order entry, hotel
reservations, payroll, employee record keeping, and shipping.
How many parts are in inventory? What happened to Mr. Smiths payment?
To answer these kinds of questions, managers rely on TPS.

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FIGURE 2-2 A PAYROLL TPS

Management Information Systems

MIS provide middle managers with reports on the organizations current

performance.
MIS summarize and report on the companys basic operations using data supplied by
transaction processing systems. The basic transaction data from TPS are compressed
and usually presented in reports that are produced on a regular schedule.
Today, many of these reports are delivered online.
Figure 2-3 shows how a typical MIS transforms transaction-level data from order
processing, production, and accounting into MIS files that are used to provide
managers with reports.
Figure 2-4 shows a sample report from this system.
MIS serve managers primarily interested in weekly, monthly, and yearly results.
These systems typically provide answers to routine questions that have been
specified in advance and have a predefined procedure for answering them.
These systems generally are not flexible and have little analytical capability. Most
MIS use simple routines, such as summaries and comparisons, as opposed to
sophisticated mathematical models or statistical techniques.

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FIGURE 2-3 HOW MANAGEMENT INFORMATION SYSTEMS OBTAIN THEIR DATA

FROM THE ORGANIZATIONS TPS

Decision Support System (DSS)

(DSS) support more non-routine decision making.

They focus on problems that are unique and rapidly changing,
For which the procedure for arriving at a solution may not be fully predefined in
advance.
What would be the impact on production schedules if we were to double sales in
the month of December? What would happen to our return on investment if a
factory schedule were delayed for six months?

FIGURE 2-4 SAMPLE MIS REPORT

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FIGURE 2-5 VOYAGE-ESTIMATING DECISION-SUPPORT SYSTEM

Executive Support System (ESS)

ESS helps senior management and address non-routine decisions requiring

judgment, evaluation, and insight because there is no agreed-on procedure for
arriving at a solution.
ESS presents graphs and data from many sources through an interface that is
easy for senior managers to use.
Often the information is delivered to senior executives through a portal, which
uses a Web interface to present integrated personalized business content.
ESS is designed to incorporate data about external events, such as new tax laws
or competitors, but they also draw summarized information from internal MIS
and DSS.
They filter, compress, and track critical data, displaying the data of greatest
importance to senior managers.
Read Textbook Chapter 2, pp. 45-53

Intranets and Extranets

Intranets are simply internal company Web sites that are accessible only by
employees. The term intranet refers to the fact that it is an internal network, in
contrast to the Internet, which is a public network linking organizations and
other external networks.
Intranets use the same technologies and techniques as the larger Internet, and
they often are simply a private access area in a larger company Web site.
Likewise with extranets.

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Extranets are company Web sites that are accessible to authorized vendors and
suppliers, and often used to coordinate the movement of supplies to the firms
production apparatus.
Students should have clear concept about email, instant messaging, cell phones,
smart phones, social networking, wikis, virtual worlds, e-business, e-commerce,
and e-government.
Read Textbook Chapter 2, pp. 61-65

Prepared by
Zaved Mannan
Adjunct Faculty
University of Liberal Arts Bangladesh (ULAB)

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