Chapter 2:

Organization and Information System

2.1 Organization
2.2 Types of Information System
2.3 Organizational Impact of Information Systems
 2.1 Organization
 What is Organization?
 Features of Organization
 Levels of Management, Decision Types & Information Requirement
 Roles of Information System in Decision Making

- Information systems and organizations influence one another.

The organization must be aware of and open to the influences of information
systems & IT to benefit from new technologies.
- The interaction between information technology and organizations is complex
and is influenced by many mediating factors, including the
. organization’s structure,
. business processes,
. politics,
. culture,
. surrounding environment, and
. management decisions
  What is Organization?
 Definition of Organization:
An organization is a collection of people working together in a
coordinated and structured fashion to achieve one or more goals.

Organizations are formal legal entities with internal rules and

procedures that must abide by laws.

• Technical definition:
- Stable, formal social structure that takes resources from environment and
processes them to produce outputs.
- A formal legal entity with internal rules and procedures, as well as a social
structure.
• Behavioral definition:
- A collection of rights, privileges, obligations, and responsibilities that is
delicately balanced over a period of time through conflict and conflict
resolution
 …

Figure: THE BEHAVIORAL VIEW OF ORGANIZATIONS

 …

 A process:
• Work – designed and grouped
• Responsibility & Authority – defined & delegated
• Relationships – established
• Resources (Capital & labor) taken from environment  processed 
Output to Environment
• Legal entity: Internal rules & procedures; legal capacity (contracts,
obligations, incur & pay debt, sue & be sued….)
  Features of Organization
 Use of hierarchical structure, authority in decision making
 Hire and promote employees based on qualifications
 Adherence to principle of efficiency (maximize output)
 Other features :
- Routines ,
- business processes,
- organizational culture,
- organizational politics,
- surrounding environments,
- structure,
- goals, constituencies, and leadership styles.
All of these features affect the kinds of information systems used by
organizations.
 …
 Internal Features
 Management/Employees

 Routines: (sometimes called standard operating procedures ):

- Sequence of actions regularly followed (rules, procedures, practices)
to cope with virtually all expected situations. e.g. for producing
goods and services.

 Business processes: Collection of routines

Business firm: Collection of business processes
- Information System  routines and business processes
 …
 Organizational Culture:
 Shared assumptions, values & beliefs: what is appropriate and not
(behavior);
- Encompasses set of assumptions that define goal and product
. What products the organization should produce
. How and where it should be produced
. For whom the products should be produced

- a powerful unifying force - that restrains political conflict and

promotes common understanding, agreement on procedures, and
common practices.
- a powerful restraint on change, especially to technological change if
it threatens the basic assumptions
 …

 Organizational Politics –
- Viewpoints - about how resources, rewards and punishments should be
distributed  competition & conflict
. finding ways to gain advantage (access to resources, preferential
treatment, power, etc.)
- Resistance to change – IS investment, i.e., Politics may defeat plans for an IS
 Positive– popularity, clearly defined hierarchy and roles, intelligence
and quality of ideas, performance and track record,
 Negative– spreading rumors, Leaking confidential information for the
media, exchange of favors for mutual benefit, lobbying on behalf of or
against a particular decision alternative.
 …

 Structure:

All organizations have a structure or shape.

• lines of authority/reporting; workflow

• Any IS reflect the existing organizational structure – functional

area based IS

Mintzberg’s classification identifies five basic kinds of organizational structure (1979)

• Entrepreneurial: Small start-up business
• Machine bureaucracy: Midsize manufacturing firm
 Divisionalized bureaucracy: Fortune 500 firms, such as General Motors
• Professional bureaucracy: Law firms, school systems, hospitals
• Adhocracy: Consulting firms
 …
 External – Environment
- Organizations can influence their environments
- Environments generally change much faster than organizations.
 Economic - DD/SS, inflation, unemployment
 Technological - Methods /tools
 Socio-cultural - Customs, values, demographic characteristics
 Political-legal - Gov’t – business relationship, regulations
 International - Trade, FDI(foreign direct investment)  impact

 Role of IS: Information systems are key instruments for environmental

scanning, helping managers identify external changes that might require an
organizational response or reaction.
  Levels of Management, Decision Types &
Information Requirement
 Unstructured (Top level Management):
• Entrance or Exit from the market;
• approving capital budget;
• setting long term goal.
 Semi-structured (Middle level Management):
• designing marketing plan;
• developing departmental budget.
 Structured (Low level or Operative management):
• Determining overtime eligibility,
• restock inventory,
• offer credit to customer.
 …

Functions, Information Requirement

Decision Structure
& Information System
.
Policies, long term plans, objectives, budget framework

Unstructured • Info: Low volume, highly aggregated, Not current,

 Decision under uncertain approximate, futuristic, more external,

situation – undefined I, O, • IS: DSS, ESS, AI (Expert Systems)
Procedures
Short-medium term planning, budget control, sales management,
Semi-structured inventory control, resource allocation, scheduling, measurement
of performances
 Some I, O, Procedures not
• Info: Intermediate level of volume, aggregation, current,
well defined
accuracy and more of internal, etc.
• IS: MIS

Structured short-range planning, production schedules, day-to-day

decisions , use of resources, enforce polices, follow
 Well defined decision procedures
making procedure
• Info: High volume, low level of aggregation, high
currency, high accuracy, entirely internal, etc.
• IS: TPS
…
 Top Level Management
…
Top level management consists of board of directors, managing directors or
executive committee members.
• Objectives of Top Level Management include the following.
- Setting key objectives, policies and identifying factors essential for the
development of the organization.
- Making appointments to the top position of the organization such as
managers department heads etc.
- Reviewing the work of different personnel in various levels.
 Middle Level Management
Middle level management consists of managers of various departments such
as productions, sales, marketing, resource, finance etc.
• Objectives of Middle Level Management include the following.
- Follow the rules and policies formulated by the top level management.
- Motivating personnel for higher productivity.
- Collecting detail analysis reports from the various departments.
- Mutual understanding with other departments in the organization.
- Recommendations to the top level management.
 …

 Low Level Management.

Low level management consist of supervisors, daily workers etc. Follow the
rules and guidelines made out by the top level authentic of the organization.
• Some of the functions of Lower Level Management include the following.
- To issue orders and instructions to the workers and to supervise and
control their work
- To classify and assign jobs to the workers
- To direct and guide the workers about work procedure
- To arrange for the necessary tools, equipment, materials etc., for the worker
- To solve the problems of workers
- To inform the management about the problems of workers which are not
solved at this level?
- To maintain discipline among the workers and to develop in them the
right approach to work.
- To maintain good human relations.
- To build a high group morale among the workers.
  Decision Environments
.

Complete Information Incomplete information Very poor information

 …

• What do you mean by operational level?

• Low level people or operational level should not be able to see

what middle level management and middle level management
should not be able to see what top level management is having.

• On the other hand, top level management should be able to see

what middle level and low level management is having. (Top to
bottom) this is what we call it operational level hierarchy.
 Organizational system and MIS operational level
Classification of management

. Top level

BOD, CEO, MD
Top For Strategical decision

Middle level
Manager (Tactical Decision)
Middle

Operational Operational Decision

 …
Top level management there are less number of people and they are
composed of (BOD, CEO and MD) to decide the complex decision in the
company.
They affect directly the middle level management.
Middle level management the managers are near who are responsible
every day working of the company for tactical decision.
Senior Manager is found in the top level management, however, sells
manager and territory Sells Manager is a part of middle level manager.
Operational they take the operational decisions. Low level worker are
their delaying every day job like, reception and the people have creating
the product. Therefore labors are uses for operational decision.
  Roles of Information Systems
• An Information system supports the business Organizations in the
following ways.
 Support the Business Process: Treats inputs as a request from the customer
and outputs as services to customer. Supports current operations and use the
system to influence further way of working.
 Support Operation of a Business Organization: An IS supports operations of
a business organization by giving timely information, maintenance and
enhancement which provides flexibility in the operation of organizations.
 Support of Business Decision Making : An IS supports the decision making
by employee in their daily operations. It also supports managers in decision
making to meet the goals and objectives of the organization. Different
mathematical models and IT tools are used for the purpose evolving
strategies to meet competitive needs.
 Support of Strategies for Competitive Advantage : Today each business is
running in a competitive market. An IS supports the organization to evolve
appropriate strategies for the business to assent in a competitive
environment.
 2.2 Types of Information System

 Office Automation System(OAS)

 Transaction Processing System (TPS)
 Management Information System (MIS)
 Decision Support System (DSS)
 Executive Support System (ESS)
 Executive Information System (EIS)
 Integrated Systems (ERP, CRM, SCM)
 Artificial Intelligent(AI) System
 Expert System (ES)
□ Categories of Information Systems
• Several types of information systems can be classified conceptually in to
two categories of Information Systems:
- Operations Support Systems
- Management Support Systems
• Operation Support System: business operation(
 Office Automation System
 TPS
 Enterprise Recourse Planning (ERP), Supply Chain Management
(SCM), Customer Relationship Management (CRM)
- The role of a business firm’s operations support systems is to process business transactions,
control industrial processes, support enterprise communications and collaborations, and update
corporate databases efficiently.
 Management Support System: Support of managerial decision
making
 MIS
 DSS
 ESS/EIS
 Artificial Intelligence (AI) Systems
 …

FIGURE : Operations and management classifications of information systems.

Note how this conceptual overview emphasizes the main purposes of information
systems that support business operations and managerial decision making.
 Operations Support Systems
Operations Support Systems
• Transaction processing systems. Record and process data resulting from business
transactions, update operational databases, and produce business documents.
Examples: sales and inventory processing and accounting systems.
• Process control systems. Monitor and control industrial processes. Examples:
petroleum refining, power generation, and steel production systems.
• Enterprise collaboration systems. Support team, workgroup, and enterprise
communications and collaborations. Examples: knowledge workers in a project team
may use e-mail, chat, and videoconferencing groupware systems.

FIGURE: A summary of operations support systems with examples.

• TPSs process transactions in two basic ways:
- In batch processing , transactions data are accumulated over a period of
time and processed periodically.
- In real-time (or online ) processing, data are processed immediately after a
transaction occurs.
• Enterprise collaboration systems - include applications that are sometimes
called office automation systems(OAS).
 Management Support Systems
• When information system applications focus on providing information and
support for effective decision making by managers, they are called
management support systems .
• Providing information and support for decision making by all types of
managers and business professionals is a complex task.
• Conceptually, several major types of information systems support a variety
of decision-making responsibilities: MIS, DSS, EIS

Management Support Systems

• Management information systems. Provide information in the form of prespecified
reports and displays to support business decision making. Examples: sales analysis,
production performance, and cost trend reporting systems.
• Decision support systems. Provide interactive ad hoc support for the decision-
making processes of managers and other business professionals. Examples: product
pricing, profitability forecasting, and risk analysis systems.
• Executive information systems. Provide critical information from MIS, DSS, and
other sources tailored to the information needs of executives. Examples: systems for
easy access to analyses of business performance, actions of competitors, and
economic developments to support strategic planning.
FIGURE: A summary of management support systems with examples.
  Other Categories of Information Systems
• Several other categories of information systems can support either operations
or management applications: ES, KMS, SIS, FBS

Other Categories of Information Systems

• Expert systems. Knowledge-based systems that provide expert advice and act as
expert consultants to users. Examples: credit application advisor, process monitor, and
diagnostic maintenance systems. …. operational
• Knowledge management systems. Knowledge-based systems that support the
creation, organization, and dissemination of business knowledge within the enterprise.
Examples: intranet access to best business practices, sales proposal strategies, and
customer problem resolution systems. ….. Operational & Management
• Strategic information systems. Support operations or management processes that
provide a firm with strategic products, services, and capabilities for competitive advantage.
Examples: online stock trading, shipment tracking, and e-commerce Web systems.
• Functional business systems. Support a variety of operational and managerial
applications of the basic business functions of a company. Examples: information systems
that support applications in accounting, finance, marketing, operations management,
and human resource management.
 …

• Information systems that focus on operational and managerial

applications in support of basic business functions such as accounting or
marketing are known as functional business systems .

• It is also important to realize that business applications of information

systems in the real world are typically integrated combinations of the
several types of information systems just mentioned.
- That is because conceptual classifications of information systems are
designed to emphasize the many different roles of information systems.
- In practice, these roles are combined into integrated or cross-functional
informational systems that provide a variety of functions.
 …

 Office Automation System(OAS)

 Digitally create, collect, store, manipulate, transfer office information  basic tasks
 Support office tasks with information technology
 Electronic Publishing (Word processing, spreadsheet & desktop
publishing)
 Electronic communication(e-mail, voice mail, fax, videoconferencing)
 Electronic collaboration: Information, Update Schedules & Plans, work on
the same files simultaneously, cooperate on Projects (groupware)
 Image processing systems: electronic document management,
presentation of graphics and multimedia systems - manipulated, stored,
printed, sent
 File transfer technologies: Intranets/Local Area Network (LAN)
 Office Management Systems: electronic scheduling, task management
 organizing people, projects, data
 Business dates, appointments, notes, client contact information
(created, stored, retrieved)
 …

 Advantages:
 Enables to get many tasks accomplished faster
 Reduced work load
 Management of data becomes easy
 Exchanging data
 Less storage is required to store data
 Multiple people can update simultaneously in the event of changes
in schedule.
 …
 Transaction Processing System (TSP)
• Transaction: business event  generate/modify data in IS
• TPS = collects & stores data about routine/daily transaction (buying,
selling, offering services, paying bills, payroll)
 TYPE: Operational-level
 INPUT: Transactions, events (e.g. order entry, employee attendance)
 Internal: Functional areas (product, employee, budget)
 External: Customers (order), suppliers (delivery of materials),
…..
 PROCESS: Updating
 OUTPUTS: Detailed operational reports
 purchase orders, pay checks, sales receipts, invoices, bank
statements, etc.
 USERS: Employees of functional areas

 INTERFACES : with MIS, DSS, ESS

 …

.
 …

.
.

Figure : A Payroll TPS .

A TPS for payroll processing captures employee payment transaction data (such as a timecard).
System outputs include online and hard copy reports for management and employee paychecks.
 …
.

Figure 2.6: How Management Information Systems Obtain their data from the
Organization’s TPS In the system illustrated by this diagram, three TPS supply
summarized transaction data to the MIS reporting system at the end of the time period.
Managers gain access to the organizational data through the MIS, which provides them
with the appropriate reports.
 …

• Advantages of TPS
 Reduce manual data entry (reduce errors)
 Speed up transaction process; lesser cost
 Increase accuracy, Greater efficiency
 Eliminate redundant data entry: a single sells transaction:
 Customer database: Updating
 Inventory Database: Decrease
 Credit Card Database: Decrease
 Sales Database: Increase
 Informs managers:
 status of internal operations
 firm’s relations with the external environment
 Immediate response to customers
 …

 Management Information System (MIS)

 Computer programs  summary and routine reports as output
 TYPE: Middle/Tactical level
 INPUT: transaction data (TPS)
 PROCESS: consolidation, computing totals and averages,…
 OUTPUT: Summary reports
 USERS: Middle level managers
 INTERFACE: with DSS, ESS
Some examples of MIS
- Sales management systems
- Inventory control systems
- Budgeting systems
- Management Reporting Systems (MRS)
- Personnel (HRM) systems
• Types of Reports :

Scheduled report:
periodically  (e.g. daily
sales)

Key-indicator report:
critical activities (e.g. actual
total sales vs. forecasted)

Demand report: on
demand or when requested
Example are: daily
sales by sales person
. Exception report: Unusual situation
…
(automatic) or requires management action

 E.g. Inventory reorder; daily sales exception

report  order over Br. 200,000

 Drill-down report: detailed data about a given

situation
 Example:
 1st level DDR  earnings by quarter
 2nd level DDR  sales and expenses
 3rd level DDR  sales by division
 4th level DDR  sales by product category
 …

• Characteristics of MIS
 Integrated

 Blends information from several operational areas

 Centralized database

 Organized along functional lines: finance, HR, Mktg.

 Reports with fixed and standard formats: ease for managers

 …

 Decision Support System (DSS)

- An interactive software-based system intended to help managers in decision making by
accessing large volumes of information generated from various related information systems
involved in organizational business process.
• Problem solving system  choice b/n alternatives
 uncertainties about the possible outcomes of decisions
 unstructured or semi-structured
• Overcome the limitations of
 TPS: repetitive clerical processes
 MIS: inflexible report
• Components of DSS:
 Model Management (Model Base):
 Computational and analytical models – mathematical
expressions of relationship among variables
 Data Management: information
 Knowledge Management
 User Interface: to communicate with the DSS
 …

 TYPE: Middle level & Top level

 INPUT: TPS & external data
 PROCESS: simulations and analysis
 OUTPUT: possible alternatives & predicted outcomes of decision
 determine best/optimal decision

 reporting (graphical and tabular report)

DSS Examples:
GPS route planning

Crop planning etc.

 Factors DSS … MIS

Problem type unstructured problems structured problems

.
Support decision support techniques information on performance
Approach Direct support  interactive Indirect support  regular reports
reports on computer screens

System Real time (providing immediate Not immediate  scheduled reports

results)
Information format flexible, and adaptable format Pre-specified, fixed format

Information Analytical modeling Extraction and manipulation

Processing
Methodology
 …

 Executive Support System (ESS)

• An ESS is a software that allows users to transform enterprise data into
quickly accessible and executive level reports, such as those used by billing,
accounting and staffing departments.
• An ESS (also known as EIS) enhances decision making for executives.
• Tailored to executives (Top)  Strategic Decision
 Combines many features of MIS and DSS  specialized form of DSS
 Immediate and easy access to internal and external information
 Critical factors  strategic objectives
• Components of ESS
 INPUTS: aggregate data; internal and external
 MIS and DSS (Oriented more towards external events)
 PROCESS: analyzing, compare and highlight trends in critical variables 
statistical, financial & other quantitative analysis
 OUTPUTS: projections based on trend analysis and exception reports
 USERS: senior managers; strategic level; work on long term
 DECISION MAKING: highly unstructured
 EXAMPLE: 5 year operating plan; predicting future trends, analyzing merger
possibilities, new product lines and services
 …

• Characteristics of ESS
 Ability to filter and organize data
 Drill-down feature – more details when needed

 Built-in graphics, charts, etc

 Customization - Content and format

 Availability of analysis tools: e.g. What-if

 Easy to learn and to use: busyness

 …

 Comparison of EIS & DSS

 …

.
 …

 Enterprise resource planning (ERP)

• Firm wide IS  integrates key business processes & consolidates data
 Integrated system as opposed to individual software
 main business area (inventory management, accounting, payroll,
human resource, marketing, product planning)
 Collect, Store, manage and interpret data from various functional areas
 Data is available on real-time basis (up-to-the minute information)  faster
and informed decision.

• Centralized DB – all TPSs into single DBs

 Combines all databases across departments into a single database  Shared
 Single data entry  available for many processes
• Large enterprises – Integrated systems - huge investment (HW, SW, Skilled)
• Small business - Light weight ERP solutions – (selected paired modules)
 …

Finance & Accounting: Human resources processes,

 general ledger,  personnel administration,
 accounts payable,  time accounting,
 accounts receivable,  payroll,
 fixed assets,  personnel planning and development,
 cash management and forecasting,  benefits accounting,
 product-cost accounting,  applicant tracking,
 cost-center accounting,  time management, compensation,
 asset accounting,  workforce planning,
 tax accounting,  performance management
 credit management
 financial reporting
 …

Sales and marketing processes, Manufacturing and production processes,

 order processing,  procurement,
 quotations,  inventory management,
 contracts,  production planning,
 product configuration,  production scheduling,
 pricing,  material requirements planning,
 billing,  quality control,
 credit checking,  distribution,
 incentive and commission management,  transportation execution,
 sales planning  plant and equipment maintenance
 …

 Business Values of ERP

• Increase operational efficiency:
 Standardization, coordination
 Free flow of information across different functional areas (Production  sales data)
 Manual data entry and repetitive processes are eliminated
 Quick look-ups at key performance indicators across the organization  financial data,
inventory status, customers’ purchasing activities

• Promote Collaboration:
 Data integration & interlinked processes  collaboration among teams (geographically
dispersed)

• Accurate forecast
 Centralized database (data integrity) + business intelligence tools using machine learning and
predictive algorithms  hidden pattern extraction

• Lower Operational Cost:

 Multiple business units working closely together using real-time data  resolving sudden
problems faster with minimum operating cost
 …

• Rapid responses to customer requests

 Order, manufacturing and delivery data

• Comply with Regulations

 Built-in regulatory process standards and compliance

reporting to meet large numbers of business requirements

• Data Security Features

 …

 Supply Chain Management (SCM)

• Supply chain management (SCM) is the optimization of a product's
creation and flow from raw material sourcing to production, logistics and
delivery to the final customer.

• Manage the entire value chain  integrating:

 Production, sourcing, transportation, inventory & warehousing,
shipping
 supplier, distributor, retailor and customer logistics requirements
• Coordinating & integrating the flow of:
 Material: goods from point of origin to final destination
 Information: order, delivery
 Finance: credit terms, payment schedules, consignment and title
ownership arrangements
• Goal: reducing inventory (products are available when they are
needed)
 …
• Two major functions
 Supply Chain Planning Systems
 Modeling the existing supply chain, demand forecasts, manufacturing
plans, level of inventory (raw material, intermediate & finished
products), transportation modes
 Supply chain execution systems
 Manage flow of products  distribution centers & warehouses
 Tracking physical status, warehousing & transportation, financial information
 Features of SCM
 Inventory Management: tracking and managing the available materials,
quantity of stocked goods & spare parts
 Order Management: purchase order process (generating and tracking;
scheduling delivery, etc.)
 Logistics and Shipping status: coordinate transportation channels, warehouse
management (storage optimization, labeling, labor management, etc.)
 Forecasting: anticipating customer demand & planning procurement and
production processes (unnecessary raw material, excess finished goods)
 Return Management: inspection and handling of damaged or faulty goods
and processing of refunds or insurance claims
 …

 Business Value of SCM system

• Match supply to demand: accurate plan and forecast of demand
• Reduce inventory levels: supplier and customer collaboration and
communication
• Improve delivery service – coordinating activities across supply chain

 Reduced supply chain costs:

 Speed of analyzing data and collaboration on a real-time basis
 Identifying excess materials or processes  cost saving in logistics,
warehousing, and manufacturing
 up to 75% of the operating budget  increased profitability
 Increased sales – the right product at the right time
 Visibility: where the inventory is (along the global supply chain; from
manufacturer  storage  transport  store shelf
 Minimize risk by improving responsiveness to unforeseen events –
e.g. late shipment, logistical errors, machine failures, missing goods,
urgent customer orders, human errors
 …

 Customer Relation Management (CRM) System

• Customer relationship management (CRM) is a technology for managing
all your company's relationships and interactions with customers and
potential customers. The goal is simple: Improve business relationships to
grow your business.

• Captures, integrates and analyze customer data from all over the
organization & distribute results to various systems and customer touch
points across the enterprise
• Single enterprise view of customers
• Customer satisfaction by understanding them
 Ease of communication,
 Organized data
 Improved customer service  customers get what they want
 …

 Major Features of CRM

 Contact Management: contact info, support interaction,
demographics, transaction
 Email Tracking: gives visibility when your email campaigns are
clicked and opened. Integrated with popular e-mail services (Gmail,
Outlook, etc.)
 Campaign management: managing it from creation to delivery by
segmenting customers, targeting, and streamlining workflows,
tools to measure the success of campaigns with data driven
insights.
 Social media management: insight on how your clients interact
with your social media accounts  information from comments,
likes, dislikes  to improve marketing strategies and customer
experience.
 Report and Dashboards: accelerates how you generate reports in
real-time with accuracy  insight on market trends, patterns,
behaviors.
 …
 Benefits of CRM
 Improved informational organization:
 What they do and interact is recorded  more knowledge about
customers  positive experience
 Accurately quantifying and categorization of data
 Availability across departments
 Enhanced communication
 having access to the same customer data by whoever assisting the client
& understanding their unique preferences and issues
 Enhanced customer Service
 Retrieving all available activity concerning past purchases, preferences,
etc. to address their problems and providing high level service
 Reduced direct-marketing costs
 customer retention & returning
 Automation of Routines
 Hundreds of time-consuming smaller tasks in a sale – filling forms,
generating and sending reports, addressing legal issues, etc. can be taken
care by CRM  more time to focus on resolving customer problems
 …
 Increased Efficiency for multiple teams
 Automatically stored communication  ability for multiple
teams to access the same information (e-mails, calendars,
phone call details)
 Sales, marketing, customer service teams share valuable
information about the client, new product, excellent customer
service  teams can work together to improve the service

 Improved Analytical Data and Reporting

 Storing information in one place and  improved analysis of
the data as a whole and generate automatic reports  effective
decision  customer loyalty and long run profitability

• Challenges of implementing Integrated systems (ERP, SCM, CRM):

 Expensive: cost of software, on premise installation, ongoing
running and maintenance
 Software Integration: with existing systems (considerable
investment, time & training)
 …

 Artificial intelligent systems:

 make machines imitate human thinking and behavior  replace human
decision making
 computers that can simulate the ability to think as well as see, hear,
walk, talk, and feel

Cognitive science is
the study of how the mind works,
functions, and behaves.
 Cognitive Science Applications
.

Cognitive learning theory explains how internal and external factors

influence an individual's mental processes to supplement learning.
 Expert System
• Expert (Knowledge Based) System:
 Codify human expertise  applying reasoning capability by
computers
 Knowledge engineer  elicits the expertise and encodes it in the
expert system
 An ES can store facts and rules  advice to a user.
• Three components:
 Knowledge base
 Containing facts and rules that express the reasoning
procedures of an expert
 Inference engine
 Processes the knowledge and recommends a course of action
 User interface
 communications between the user and the computer
 …

.
 …

• Used for
 Diagnostic problems (what’s wrong?)
 Prescriptive problems (what to do?)

• Possible areas of applications:

 diagnose human illnesses,
 make financial forecasts,
 schedule routes for delivery vehicles,
 calculating loan/credit decisions in banks
 buy/sell; risk/no risk; rain/no rain

• An expert system can

 Reduce errors
 Improve customer service
 Reduce cost
 …

• Example: Construction Industry

– facts and rules governing costs associated with constructing

various types of building

– To estimated cost of a new building, they enter the requirements

and the expert system comes up with a cost.

– This is traditionally the job of a quantity surveyor, who would

take several days to perform the complex calculations
manually that the expert system can do in a matter of
seconds.)
 Neural Networks
• A neural network is a network or circuit of biological neurons, or, in a
modern sense, an artificial neural network, composed of artificial neurons or
nodes.
• A neural network is a series of algorithms that endeavors to recognize
underlying relationships in a set of data through a process that mimics the
way the human brain operates. In this sense, neural networks refer to systems
of neurons, either organic or artificial in nature.
• Computing systems modeled after the brain’s networks of
interconnected processing elements (neurons)
 Interconnected processors operate in parallel and interact with each
other
 Allows the network to learn from the data it processes
• capable of finding and differentiating patterns
• Neural Networks can:
 Learn and adjust to new circumstances on their own
 Take part in massive parallel processing
 Function without complete information
 Cope with huge volumes of information
 Analyze nonlinear relationships
 …

.
 Fuzzy Logic
• Fuzzy logic is a form of many-valued logic in which the truth value of
variables may be any real number between 0 and 1.
• It is employed to handle the concept of partial truth, where the truth
value may range between completely true and completely false
• a mathematical method of handling imprecise or subjective information
 approximate values, incomplete or ambiguous data
 “very high” instead of precise measures
• Example of Fuzzy Logic Rules and Query
 Genetic Algorithms
• mimics the evolutionary, survival-of-the-fittest process to generate
increasingly better solutions to a problem
 Take thousands or even millions of possible solutions and combine and
recombine them until it finds the optimal solution

- A genetic algorithm is a search heuristic that is inspired by Charles

Darwin's theory of natural evolution.

- This algorithm reflects the process of natural selection where the fittest
individuals are selected for reproduction in order to produce offspring of the
next generation
  Intelligent Agents
• An intelligent agent is a program that can make decisions or perform a service based
on its environment, user input and experiences.
• Acts on your behalf, in performing repetitive computer-related tasks
(software robots or bots)
 Built-in and learned knowledge base to make decisions and accomplish tasks

• Information agents
 search for information of some kind and bring it back
 Ex: Buyer agent or shopping bot –find products and services

• Monitoring-and-surveillance or predictive agents

 observe and report on some entity of interest, a network, or manufacturing
equipment,

• User or personal agents

 intelligent agent that takes action on your behalf
 Examples:
 Prioritize e-mail
 Act as gaming partner
 Assemble customized news reports
 2.3 Organizational Impact of Information System

 Operational Efficiency (excellence)

 New Products, Services, and Business Models
 Customer and Supplier Intimacy
 Improved Decision Making
 Competitive Advantage
 Survival
 …
 Operational Efficiency

 The capability of a firm to deliver products or services to its

customers in the most cost-effective manner while still ensuring
high quality.
 Wal-Mart’s Retail Link System–
• Digitally linked suppliers to each Wal-Mart’s stores for
replenishment
• Once an item is sold, the system automatically informs the
supplier and the supplier packs and ships the item to the
specific store

• Walmart – an American multinational retail corporation; 10,524

stores worldwide; serving over 270 million customers per week;
over 559.2 billion revenue; 2,300,000 employees; Total assets
252.5 billion; owned by Walton Family
 …
 New products, services, and business models

 New Products & Services

 E.g. Apple’s – iPhone, iPod, iMac, iPad, Apple Watch, Apple TV,

- iPhone – the latest iPhone 8 and iPhone 8 Plus - faster processor,

improved display technology, upgraded camera systems and
wireless charging.
 New Business Model
 Business Model: describes how company produces, delivers, and sells
product or service to create wealth.
– Example: Apple’s business model: 3 business models that ensured
sustainable competitive advantage
(1) Vertical integration model - hardware, operating systems,
application software, and services (integrated) – Premium pricing
(2) Building platforms for content and apps distribution on Apple devices
(3) Expanding the network of company-owned retail stores
 …

○ Most common types of business models

1. Subscription model
2. Bundling model
3. Freemium model
4. Razor blades model
5. Product to service model
6. Leasing model
7. Crowdsourcing model
8. One-for-one model
9. Franchise model
10. Distribution model
11. Manufacturer model
12. Retailer model
 …

 Customer and supplier intimacy:

 Customer intimacy
 higher customer loyalty, customer returning and purchasing
more – increase revenues and profits
 Better understanding of customers’ needs
 greater adaptation of products to customer needs,
 stronger relationships with customers

Example – Role of IS:

Hotel - tracking customer preferences (preferred room
temperature, check-in time, TV program etc. – customizing,
Supermarket - Collecting & analyzing customer data –
which areas of stores they visited, their product
preferences, what they wanted to buy but not available
 …

 Supplier intimacy
 Information System – establishing electronic data exchange
with suppliers
 access to production schedules of the firm – what materials
to supply, how and when
 fast flow of products from suppliers to store shelves
 lowering costs
 …

 Improved Decision Making

 IS improved decision – accurate & timely information
 real-time data on customer complaints, unmet demands of
customers
 analyze sales data, projecting revenues, and evaluating
scenarios
 allocating resources,
 comparing budget to actual results,
 …

 Competitive advantage
 The firm sustains profits that exceed the average for its industry.
 This can be attained through:
 Cost leadership strategy
 Differentiation Strategy
 Growth Strategy
 Alliance Strategy

□ Cost Leadership Strategy

 Becoming low cost producers using IT  lower prices
Example:
 Garment – Automated pattern drawers, fabric cutters &
delivering of cloth to sewing machine – cut 50% of labor cost
 Retail stores – Replenishing inventory with no cost (Wal-Mart)
 Online auction and auction-set pricing – eBay.com
 …
□ Differentiation Strategy
 Distinguishing products through developing New design features 
Stimulating Demand
 Ex. Dell Computer - IT enabled build-to-order business model that
other firms have not been able to imitate – customers select the
design & color option they want and order
 bundling more information with the physical product package
(characteristics and how it should be used and supported)
 Making the product difficult to imitate
□ Growth Strategy
 Expanding production capacity
 Changing the Competitive Scope Broader geographic scope to create more
competitive advantage entering new national, regional, global market
 distribute key business activities to where they are needed, where they
are best performed, or where they best support the competitive
advantage
 Coordinating the activities using Information System
 …

□ Alliance Strategy
 Develop inter-organizational information systems linked by the
Internet and extranets that support strategic business relationships
with customers, suppliers, competitors, consultants,
subcontractors, and others.
E.g. Financial institutions – banks, insurance corporations &
brokers
 …
Influencing the Five Competitive Forces (with strategic use of IS)

.
Huge IT investment 
IT enabled product/service • Interaction and collaboration
differentiation; electronic market Potential Threats of • Rich customer information
Outcome cost effectiveness; New Entrants Outcome  Barrier to Entry
increased market access

Industry Competitors
Bargaining Power of Bargaining Power of
Suppliers Buyers

E-procurement system Online Customer Services

Integrate backward linkages Outcome  increasing
Outcome  Reduce switching cost, buyer selection
operating costs of suppliers
Threats of Substitute
Products

Computer-aided design and manufacturing:

Outcome  quicker, easier, and cheaper
adaptation; Improved price/performance
 …
○ Potential Threats of New Entrants
 Strategic Use of IS: Huge investment on IT and increase its complexity
 Strong IT to support interaction and collaboration among product
designers, market specialists, production planners & managers
 Rich information repository about customers

○ Bargaining Power of Consumers

 Strategic uses of IS: Increasing switching costs by introducing
innovative IS:
 reluctance to pay more costs (time, money, effort, inconvenience)
by changing brand, product or supplier
 E.g. Online reservation system for airlines; efficient on-line cash
management (account information) to corporate customers
 …
○ Threat of Substitute
 Strategic Use of IS: Flexible Use of computer-aided design and
manufacturing system – quicker, easier, and cheaper to incorporate
enhanced features into the product

○ Threats of Suppliers
 Strategic Use of IS: Integrate backward linkages; Reduce operating costs of
suppliers – e-procurement system, computer controlled cutting machine
(sewers)

○ Industry Competitors
 Strategic Use of IS:
 Differentiate products or services

 build new markets such as e-market.

 …

 Survival
 Investing on Information Systems out of necessity
 Introduction of ATM (Banks) – in order to keep-up with competitors

 Financial management system – as a government requirement